-----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, Ew+X53pDa31ikJwqn5mMTr7XDJfPrjMeKlUfMy7G+SV4knheyu/BgUyMlF39kaVg rakEwTkNsTL6FEzZJb6Ypg== 0001068800-04-000165.txt : 20040227 0001068800-04-000165.hdr.sgml : 20040227 20040227154021 ACCESSION NUMBER: 0001068800-04-000165 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040227 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12551 FILM NUMBER: 04635039 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-K 1 mw10k.txt ============================================================================== - ------------------------------------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 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 80112 ENGLEWOOD, CO (Address of principal executive offices) (Zip Code) 303-790-8023 (Registrant's telephone number, including area code) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - --------------------------------------- ----------------------------------------- Common Stock, $0.01 par value per share The New York Stock Exchange
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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes /X/ No / / The aggregate market value of the voting stock held by non-affiliates of the Registrant as of February 24, 2004 was $101,753,845. As of February 24, 2003 the Registrant had 48,384,123 shares of Common Stock, $0.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain information required by Part III of this form (Items 11, 12, 13 and 14, and part of Item 10) is incorporated by reference from the Registrant's Proxy Statement to be filed pursuant to Regulation 14A with respect to the Registrant's Annual Meeting of Stockholders to be held on or about April 29, 2004. - ------------------------------------------------------------------------------ ============================================================================== TABLE OF CONTENTS PART I PAGE ---- Item 1. Business.................................................... 1 The Company................................................. 1 Commercial.................................................. 1 Resale...................................................... 1 The Printing and Envelope Industries........................ 1 Our Products................................................ 1 Our Services................................................ 2 Marketing, Distribution and Customers....................... 3 Printing and Manufacturing.................................. 4 Materials and Supply Arrangements........................... 4 Patents, Trademarks and Brand Names......................... 5 Competition................................................. 5 Backlog..................................................... 5 Employees................................................... 5 Environmental............................................... 6 Available Information....................................... 6 Item 2. Properties.................................................. 6 Item 3. Legal Proceedings........................................... 6 Item 4. Submission of Matters to a Vote of Security Holders......... 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 7 Item 6. Selected Financial Data..................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 7 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 26 Item 8. Financial Statements and Supplementary Data................. 27 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................................. 70 Item 9A. Controls and Procedures..................................... 70 PART III Item 10. Directors and Executive Officers of Registrant.............. 71 Item 11. Executive Compensation...................................... 74 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters................ 74 Item 13. Certain Relationships and Related Transactions.............. 75 Item 14. Principal Accountant Fees and Services...................... 75 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................. 76 This page intentionally left blank PART I ITEM 1. BUSINESS THE COMPANY We are one of North America's leading providers of printing and printing related products and value added services. We produce general commercial printing, high impact premium printing, custom and stock envelopes, printed business forms and labels. We believe we are the world's largest manufacturer of envelopes, the leading printer of envelopes in the United States and Canada, and the premier printer of high impact color printing in the United States and the largest US manufacture of business forms and labels sold through distributors. We operate 86 printing and manufacturing facilities and five distribution and fulfillment centers. COMMERCIAL Our commercial business had sales of $1.3 billion in 2003. This business segment operates 66 manufacturing facilities and specializes in the printing of annual reports, car brochures, brand marketing collateral, financial communications, general commercial printing and the manufacture and printing of customized envelopes for billing and remittance and direct mail advertising. In addition, we operate five distribution and fulfillment centers and provide our customers with other value added services such as ecommerce. RESALE Our resale business had sales of $399 million in 2003. This business segment operates 20 manufacturing facilities and produces business forms and labels, custom and stock envelopes and specialty packaging and mailers generally sold to third-party dealers such as print distributors, forms suppliers and office-products retail chains. Refer to Note 17 of our consolidated financial statements included elsewhere in this report for additional information concerning the operating and geographic segments. OUR INDUSTRIES The printing industry is one of the largest and most fragmented industries in the United States with total estimated sales of $155.5 billion in 2002 generated by more than 45,000 companies, according to the Printing Industries of America, Inc. The printing industry includes general commercial printing, financial and legal printing, greeting cards, labels and wrappers, magazines, newspapers, books, other specialty and quick printing and related services such as prepress and finishing. We estimate that the market in which we primarily compete has total annual sales of approximately $52.2 billion serviced by over 20,000 printing businesses. Envelope printing and manufacturing combined constitutes a $4.1 billion market in North America according to the Envelope Manufacturer's Association. Products in the envelope industry include customized envelopes for direct mail, transactional envelopes, non-custom envelopes for resale, and specialty envelopes and filing products. Printed office products constitutes an estimated $15 billion market, with the short-run indirect segment of the market in which we compete estimated at $3.4 billion. OUR PRODUCTS Commercial Printing. We serve two primary commercial printing markets and the growing market for visual communications products and services other than print. Our general commercial printing markets are: (1) high end color printed materials, such as annual reports and car brochures, which are longer run premium products for major national and regional companies and (2) general commercial printing products such as advertising and promotional materials for local markets. Our printing products also include advertising literature, corporate identity materials, calendars, greeting 1 cards, brand marketing materials, catalogs, maps, CD packaging and direct mail. We also offer our customers services such as design, fulfillment, ecommerce, inventory management and other enterprise solutions for companies seeking strategic partners for their branding and other communications priorities. Envelope. We serve two primary markets: (1) customized envelopes and packaging products, including Tyvek(R) mailers used by the US Postal Service, sold directly to end users or to independent distributors who sell to end users; and (2) envelopes and other products sold to wholesalers, paper merchants, printers, contract stationers, independent retailers and superstores. In the customized envelope market, we offer printed customized conventional envelopes for billing and remittance, direct mail marketers, catalog orders and other end-users, such as banks, brokerage firms and credit card companies. In the wholesale envelope market, we manufacture and print a broad line of stock and custom envelopes that are featured in national catalogs for the office products market or offered through office products retailers, including contract stationers. Printed Office Products. We print a diverse line of custom products for small and mid-size businesses including both traditional and specialty forms for use with desktop PCs and laser printers and pressure sensitive labels. Our printed office products include business documents, specialty documents produced through VersaSeal(R), Hi-Reply(TM) and Pro-card(TM) brands and short-run secondary labels, which are made of paper or film affixed with pressure sensitive adhesive and are used for mailing, messaging, bar coding and other applications. These products are generally sold through independent value-added resellers of office products. OUR SERVICES We offer our customers a wide variety of related services to enhance the value of our printed products and assist them in using digital technologies to improve the effectiveness of their visual communications. Among our services are: Delivery systems. We offer a flexible "just-in-time" delivery program which allows customers to receive their products just prior to when they are needed. Digital archiving. We offer customers the option to store digitally rendered artwork on our file servers. The artwork can then be accessed and retrieved at any time for use by any authorized design or production group via high speed transmission links. Direct-to-Plate and Direct Imaging Technology. We have both direct-to-plate and direct imaging technologies, which eliminate several manual functions and material costs in the prepress stage. Both technologies support a completely digital workflow, providing a better printed product, faster turnaround and in the case of direct imaging, reduced inventory, capability to print-on-demand and lower distribution costs. E-commerce. We have the capability to provide to our customers a full range of e-commerce services to obtain estimates, do remote proofing, and order printing or other products through their web page. Included, at customer request, are a variety of reporting, marketing and service functions designed to increase on-line sales. Electronic Prepress. We offer a fully automated electronic prepress that allows the customer to submit artwork and other data in hardcopy or digitally either on disk, CD or via high speed transmission line. Hardcopy artwork is digitally scanned and mastered to create a file for use either in direct-to-plate or direct-to-press applications. We also provide traditional prepress services to customers who require graphics and artwork to be photographed, composed and incorporated into files for plate or direct-to-press applications. Fulfillment. Strategically located throughout the United States we have full-service fulfillment centers with online order assembly and bar coding. Many of these centers have digital presses to reduce the costs of inventory and obsolescence. 2 Inventory management systems. Large national organizations with centralized purchasing and supply departments serving multiple locations use our inventory management services. Included in these services are reports on usage by inventory unit (SKU) and/or available warehouse supply and summary billing. E-Solutions. We offer a full range of robust and dynamic Internet-based print procurement, print management and print distribution solutions. We also work with leading service providers to improve the effectiveness and speed of internet-based processes for our customers. Warehousing Services. For customers who prefer to contract out the management of their printed product storage and distribution we have the expertise and space to store finished product and drop ship in bulk or ship on an "as needed" basis. Enterprise solutions. Large national organizations looking for integrated, managed supply chain solutions can avail themselves of flexible solutions that connect them to their internal departments and external customers and suppliers. We have the supply chain management processes, techniques, systems and resources to manage, produce and deliver their products from our facilities strategically located across the US. MARKETING, DISTRIBUTION AND CUSTOMERS Because of the highly fragmented nature of the general commercial printing and envelope businesses, and the diversity in customer needs and preferences, we market most of our general commercial printing and envelopes locally and regionally. Given the project-oriented nature of these markets, sales to particular customers may vary significantly from year to year depending upon the number and size of their communications plans. Our customer supply agreements are typically on an order-by-order basis or for a specified period of time. The sales force is supported by a technical service team that provides customers with highly customized printing solutions. Most of our facilities have customer service representatives that work with the sales team and the customers to manage orders efficiently and effectively. In some cases, the customer service representatives have direct responsibility for accounts. Our marketing efforts for commercial printing differ between two broad product areas: high impact color products, such as auto brochures, annual reports and high-end catalogs, and general commercial work. We market high impact printing primarily on a regional basis, through sales representatives working out of sales offices across the United States. We utilize a team approach to customer service relationships that we believe is unique in the printing industry. We believe our commercial segment has one of the largest sales forces in the industry, with approximately 600 sales representatives as of December 31, 2003. Most of our commercial printing and envelope products are sold through sales representatives who work closely with customers from the initial concept through prepress, proofing and production. Because our sales representatives are our primary contacts with our customers, our goal is to attract, train and retain an experienced, qualified sales force in each of our businesses. Sales representatives typically are compensated by commission, which generally depends on order size and type, prepress work, reruns or rework and overall profitability of the job. For our growing list of enterprise customers we have account teams, some members of which are situated on the customer's premises. We market the majority of our envelopes and packaging products through sales representatives, who generally work with customers from the initial product design stage through product delivery to ensure that finished products meet the customers' applications and marketing needs. Products not marketed by our own sales representatives are sold through distributors to better serve selected wholesale markets, geographic regions without direct sales representation and certain specialty markets. Our reorganization into two business segments supports our "Total Customer Solutions" initiative, through which we offer our customers a full spectrum of products and services from design through fulfillment including e-services, direct mail and digital printing capabilities. Our Total Customer 3 Solutions sales and service teams are organized to focus on vertical markets including travel and leisure, health services, financial services and technology and to offer customers in these markets customized solutions to their visual communications needs. In our resale segment, our products are marketed primarily under the "PrintXcel" brand through distributors who act as intermediaries between us and the end-users of its products. We also market our office products under the "Quality Park" brand to office products retailers. The resale segment sells most of its products through five major channels; independent solution providers, outsource for "direct" solution providers, commercial printers, ad specialty dealers and quick printers. Our resale segment sells its products primarily through catalogs, telemarketing and the Internet to over 20,000 value-added resellers who distribute our products to end-users. We coordinate sales efforts among geographic regions within our operating segments, and among the operating businesses themselves, in order to compete for national account business, enhance the internal dissemination of successful new product ideas, efficiently allocate our production equipment, share technical expertise and increase company-wide selling of specialty products manufactured at selected facilities. Our customer base totals approximately 40,000. The customers of our commercial segment include Fortune 500 companies, graphic designers and advertising agencies, regional and local businesses, insurance and finance companies, government agencies and not-for-profit organizations. The customers of our resale segment total over 20,000 office products distributors and office products retail businesses as well as the U.S. Postal Service. None of our customers accounted for more than 4% of revenue in 2003. PRINTING AND MANUFACTURING Our commercial segment operates 66 manufacturing facilities throughout the US and Canada. Our 36 commercial printing plants combine advanced prepress technology with high-quality web and sheet-fed lithographic presses, digital presses and extensive binding and finishing operations. Our 30 envelope plants produce envelopes from either flat sheets or rolls of paper. The paper is folded into an envelope, which is glued at the seams and on the flap, and then printed as required. Web machines are typically used for larger runs with multiple colors and numerous features. Die cut machines, which require a preliminary step to provide die cut envelope blanks from paper sheets, are used primarily for smaller orders typically including customized value-added features. The manufacturing process used is dependent upon the size of a particular order, custom features required, machine availability and delivery requirements. Many of our commercial facilities operate seven days a week, 24 hours a day to meet customer requirements. In our resale segement, we operate twenty facilities in the United States. We design and print business forms and labels and envelopes for a wide range of businesses. A majority of these products orders are delivered to us "camera ready," and we perform prepress and plate making functions and print on web presses. Ten of our resale facilities manufacture stock envelopes that are sold to office products retail chains. MATERIALS AND SUPPLY ARRANGEMENTS The primary materials used in each of our businesses are paper, ink, film, offset plates, chemicals and cartons, with paper accounting for the majority of total material costs. We purchase these materials from a number of suppliers and have not experienced any significant difficulties in obtaining the raw materials necessary for our operations. We have implemented an inventory management system in which a limited number of paper suppliers supply all of our paper needs. These suppliers are responsible for delivering paper on a "just-in-time" basis directly to our facilities. We believe that this system has allowed us to enhance the flexibility and speed with which we can serve customers, improve pricing on paper purchases, eliminate a significant amount of paper inventory and reduce costs by reducing warehousing capacity. We believe that we purchase our materials and supplies at very competitive prices due to our volume leverage. 4 PATENTS, TRADEMARKS AND BRAND NAMES We market products under a number of trademarks and brand names. We also hold or have rights to use various patents relating to our envelope business, which expire at various times through 2012. Our sales do not materially depend upon any single or group of related patents. COMPETITION Commercial printing is highly competitive and fragmented. We compete against a diminishing number of large, diversified and financially strong printing companies, as well as regional and local commercial printers, many of which are capable of competing with us in both volume and production quality. Although there are a significant number of buyers who are price sensitive, we also believe that customer service and high quality products are important competitive factors, especially to companies seeking enterprise solutions and high impact color products. We believe we provide premium quality and customer service while maintaining competitive prices through stringent cost control efforts. The main competitive factors in our markets are customer service, product quality, reliability, flexibility, technical capabilities and price. We believe we compete effectively in each of these areas. In selling our envelope products, we compete with a few multi-plant and many single-plant companies that primarily service regional and local markets. We also face competition from alternative sources of communication and information transfer such as facsimile machines, electronic mail, the Internet, interactive videodisks, interactive television and electronic retailing. Although these sources of communication and advertising may eliminate some domestic envelope sales in the future, we believe that we will experience continued demand for envelope products due to (i) the ability of our customers to obtain a relatively low-cost information delivery vehicle that may be customized with text, color, graphics and action devices to achieve the desired presentation effect, (ii) the ability of our direct mail customers to penetrate desired markets as a result of the widespread delivery of mail to residences and businesses through the US Postal Service and the Canada Post Corporation and (iii) the ability of our direct mail customers to include return materials in their mail-outs. Principal competitive factors in the envelope business are quality, service and price. Although all three are equally important, various customers may emphasize one or more over the others. We believe we compete effectively in each of these areas. In selling our printed business forms and labels products,we compete with other document printers with nationwide manufacturing locations and regional/local printers, which typically sell within a 100 to 300-mile radius of their plants. To a limited extent we compete with much larger direct selling forms manufacturers. We compete mainly on the breadth of our product offerings and close customer relationships. BACKLOG At December 31, 2003 and 2002, the backlog of customer orders to be produced or shipped in the next 120 days was approximately $113.0 million and $98.8 million, respectively. EMPLOYEES We employed approximately 10,000 people as of December 31, 2003, and approximately 1,800 of our employees at the various facilities are represented by unions affiliated with the AFL-CIO or Affiliated National Federation of Independent Unions. Collective bargaining agreements, each of which cover the workers at a particular facility, expire from time to time and are negotiated separately. Accordingly, we believe that no single collective bargaining agreement is material to our operations as a whole. We are committed to employee development and increased organizational effectiveness. We operate Mail-Well University, our an in-house training program, which provides courses in process improvement, quality control, supervisory and management skills and increasing employee 5 empowerment. Complementing our in-house initiatives, Mail-Well contracts leading industry experts to provide skill-building courses to our sales representatives and managers. ENVIRONMENTAL Our operations are subject to federal, state and local environmental laws and regulations including those relating to air emissions, waste generation, handling, management and disposal, and remediation of contaminated sites. We have implemented environmental programs designed to ensure that we operate in compliance with the applicable laws and regulations governing environmental protection. Our policy is that management at all levels be aware of the environmental impact of operations and direct such operations in compliance with applicable standards. We believe that we are in substantial compliance with applicable laws and regulations relating to environmental protection. We do not anticipate that material capital expenditures will be required to achieve or maintain compliance with environmental laws and regulations. However, there can be no assurance that newly discovered conditions or new or stricter interpretations of existing laws and regulations will not result in material expenses. AVAILABLE INFORMATION Our Internet address is: www.mail-well.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13 (a) or 15 (d) of the Exchange Act as soon as reasonably practicable after such documents are filed electronically with the Securities and Exchange Commission. In addition, our earnings conference calls are web cast live via our website and presentations to securities analysts are included on our website. ITEM 2. PROPERTIES We occupy 86 printing and manufacturing facilities in the United States and Canada and five print fulfillment and distribution centers, of which 38 are owned and 53 are leased. In addition to on-site storage at these facilities, we store products in 19 warehouses, of which four are owned, and we lease 21 sales offices. We also lease 47,153 square feet of office space in Englewood, Colorado for our corporate headquarters. We believe that we have adequate facilities for the conduct of our current and future operations. ITEM 3. 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 the Company. In the case of administrative proceedings related to environmental matters involving governmental authorities, management does not believe that any imposition of monetary damages or fines would be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "MWL." At February 19, 2004, there were approximately 451 shareholders of record and, as of that date, we estimate that there were more than 9,702 beneficial owners holding stock in nominee or "street" name. The following table sets forth, for the periods indicated, the range of the high and low sales prices for our common stock as reported by the NYSE.
HIGH LOW ----- ----- 2003 First Quarter........................................... $2.55 $1.85 Second Quarter.......................................... $3.13 $2.05 Third Quarter........................................... $3.60 $2.76 Fourth Quarter.......................................... $4.61 $3.58 HIGH LOW ----- --- 2002 First Quarter........................................... $6.28 $4.42 Second Quarter.......................................... $6.80 $5.02 Third Quarter........................................... $5.14 $0.99 Fourth Quarter.......................................... $2.64 $1.03
We have not paid a dividend on common stock since our incorporation and do not anticipate paying dividends in the foreseeable future because our senior secured credit facility, senior notes and senior subordinated notes limit our ability to pay common stock dividends. ITEM 6. SELECTED FINANCIAL DATA The summary of historical financial data presented below is derived from the historical audited financial statements of the Company. The financial data presented reflect the restatement of all historical data for discontinued operations and Statement of Financial Accounting Standards No. 145. The results of acquisitions accounted for under the purchase method have been included in the income statement data of the Company from their respective acquisition dates. The data presented below should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the related notes included elsewhere herein.
YEAR ENDED DECEMBER 31 ----------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales........................ $1,671,664 $1,728,705 $1,868,768 $2,044,350 $1,699,222 Income (loss) from continuing operations..................... 3,924 (73,488) (45,213) 36,193 61,997 Income (loss) per diluted share from continuing operations..... 0.08 (1.54) (0.95) 0.73 1.16 Total assets..................... 1,107,393 1,107,367 1,476,867 1,683,592 1,310,260 Total long-term debt, including current maturities............. 748,961 763,899 855,221 922,351 666,397
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CORPORATE OVERVIEW We are one of North America's leading providers of printing, printing-related products and value added services to meet the visual communications needs of customers. Our mission is to produce 7 products and provide services that help our customers deliver their messages more effectively. In October 2003, we reorganized Mail-Well into two business segments: commercial and resale. This reorganization aligns our structure with our principal strategic goals: to operate as one company; to provide our customers with one point of entry into Mail-Well; and to go to market with all of our products and services. The commercial segment combines our commercial printing plants and the custom portion of our envelope business into a single business that generally sells directly to national and local customers. The commercial segment consists of 66 manufacturing facilities and five distribution and fulfillment centers and specializes in the printing of annual reports, car brochures, brand marketing collateral, financial communications, general commercial printing and customized envelopes for billing and remittance and direct mail advertising. The resale segment combines all of our operations that sell to third-party dealers such as print distributors, forms suppliers and office-products retail chains. This business consists of 20 plants that produce a variety of products including business forms, business labels, custom and stock envelopes, specialty packaging and mailers. BUSINESS IMPROVEMENT INITIATIVES. Our reorganization was a continuation of the evolution of Mail-Well that began in June 2001 when we announced plans to divest certain businesses we had identified as non-strategic. In addition to these divestitures, we initiated a restructuring program to consolidate many of our manufacturing facilities to reduce excess capacity and improve our competitive position. We also initiated other programs to significantly improve operations, reduce costs and increase marketing effectiveness. In February 2002, we sold Curtis 1000, the distribution business included in our printed office products business. In May 2002, we sold Mail-Well Label, our prime label business. In August 2002, we sold our filing products division, and in March 2003, we sold certain of our digital graphics operations. Our divesture program is complete. We have substantially completed our other restructuring programs, which included the following: * The consolidation of our best envelope equipment, expertise and operational capabilities into 39 facilities, down from 50 in 2000. * The consolidation of our printing operations in the Philadelphia market into one facility, the closure of our printing operation in New York City, and the consolidation of our web printing plant in Indianapolis, Indiana into our web printing plants in St. Louis, Missouri and Baltimore, Maryland. * The consolidation of the Denver, Colorado and Clearwater, Florida business forms manufacturing facilities into our plants in Girard, Kansas, Fairhope, Alabama and Marshall, Texas. * The restructuring of our debt. RAW MATERIALS. Paper is our most significant raw material. We purchase approximately 470,000 tons of paper annually to meet our production requirements. Historical changes in paper pricing generally have not affected the margins of our commercial printing products because we have been able to pass on paper price increases to our customers. Paper pricing has, however, impacted the margins of our envelope products. 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. Prices of coated papers, which are used principally in commercial printing, increased approximately 3% in 2000, decreased approximately 8% in 2001 and remained flat in 2002 and 2003. Prices of uncoated papers, which are the principal grades of paper used to manufacture envelopes, increased 10% in the fourth quarter of 2002. The cost of uncoated papers had declined approximately 10% during 2001 after a year of stable prices in 2000. Margins of our envelope products were negatively impacted by higher uncoated paper prices in the first half of 2003; however, the market for 8 uncoated papers softened in the third quarter of 2003. As a result, the price of uncoated papers no longer negatively impacted operating margins of our envelope operations in the second half of 2003. In early 2004, we received notifications from several paper companies announcing a 10% increase in the price of uncoated paper. We believe the current market conditions do not support this price increase. However, if this price increase takes effect in 2004, the margins of our envelope products will be negatively impacted in 2004 to the extent we are unable to increase the prices of our envelope products. OUTLOOK. The economic slowdown that began in 2001 continued to adversely affect the sales and margins of our businesses in 2002 and 2003. Demand for many of our products, especially printed advertising and direct mail promotions, remained depressed at the end of 2003. The market for traditional business forms, which has been declining for several years, continues to decline. These market conditions have led to overcapacity in our industry and significant competitive pricing pressures. We do not expect internal growth or increases in margins until the markets we serve, particularly advertising and direct mail, recover. Our restructuring and other cost reduction initiatives have mitigated the impact of the downturn in our markets and we believe these actions have positioned us to benefit from improvements in our markets when they occur. In the meantime, we have continued to manage our costs and balance production with the needs of our customers. In October 2003, Congress instituted a federal "Do Not Call" program, which our industry believes will increase demand for printed advertising and direct mail as our customers shift promotional spending from telemarketing to direct mail to reach their prospective customers. The Federal Trade Commission continues to operate the registry despite litigation brought to challenge its legality on regulatory and constitutional grounds. If the challenge to the Do Not Call program is successful, our sales could be adversely affected. Our reorganization into two business segments supports our "Total Customer Solutions" initiative, through which we offer our customers a full spectrum of products and services from design through fulfillment including e-services, direct mail and digital printing capabilities. By offering the full breadth of our products and services as one company organized around the types of customers we serve, we believe we will be an easier company with which to do business. We believe this new structure will greatly improve our ability to deliver our quality products and services with the speed, reliability and efficiency that our customers demand. We also expect our customers to benefit as a result of a decrease in their total cost of procuring our products and services. Our Total Customer Solutions sales and service teams are organized to focus on vertical markets including travel and leisure, health services, financial services and technology and to offer customers in these markets customized solutions to their visual communications needs. In early 2003, we launched a major initiative we refer to as "Mobilization". Mobilization is a comprehensive program to actively involve all of our employees in improving service, quality, efficiency and innovation. We believe this initiative has improved teamwork, communication and accountability throughout our business and has resulted in many ideas which have improved operations, safety, customer service and reduced costs. We believe the national Do Not Call program and our Total Customer Solutions and Mobilization initiatives have had a positive impact on our business during 2003 and will continue to do so in the future. CONSOLIDATED RESULTS OF OPERATIONS The financial statements for all periods presented have been restated as required by generally accepted accounting principles to report the results of our prime label and Curtis 1000 businesses as discontinued operations. In analyzing our year-over-year financial results, it is important to recognize 9 the following items that have had a significant impact on the comparability of our results over the last several years. * In August 2002, we acquired the in-house printing and fulfillment operations of American Express Company. This acquisition has been accounted for as a purchase transaction and the results of this operation are included in our consolidated results from the date acquired. * Consolidated results also include the results of the filing products division sold in August 2002 and the digital graphics operations sold in March 2003 until the dates those operations were sold. * Consolidated results include significant restructuring and other expenses related to the execution of our strategic plans and other initiatives as well as other operating charges. * The results of our Canadian operations were positively impacted by the strength of the Canadian dollar during 2003. The impacts of these items are specifically noted when significant in the following discussions of our consolidated results and the results of our business segments. NET SALES
YEAR ENDED DECEMBER 31 -------------------------------------------- 2003 2002 2001 ---------- ---------- ---------- (IN THOUSANDS) Commercial.............................. $1,272,525 $1,268,367 $1,357,430 Resale.................................. 399,139 460,338 511,338 ---------- ---------- ---------- Total net sales..................... $1,671,664 $1,728,705 $1,868,768 ========== ========== ==========
Consolidated net sales decreased $57.0 million, or 3.3%, in 2003 compared to sales in 2002. Included in this sales decline was an $11.2 million decrease in sales from the digital graphics operations that we sold in March 2003. In addition, the filing products division that we sold in August 2002 had sales of $42.3 million in 2002 prior to its divestiture. * Sales of our commercial segment increased $4.2 million despite the sale of the digital graphics operations which resulted in a sales decline of $11.2 million. Sales of the in-house printing and fulfillment operations acquired in August 2002 were $38.8 million higher for the full year 2003 than in 2002. Sales of our Canadian operations increased approximately $16.7 million in 2003 due to the impact of foreign currency exchange rates. Sales of the commercial segment in 2003 were lower on a comparable basis than in 2002 due to lower sales volume and lower selling prices. * Sales of our resale segment declined $61.2 million in 2003 compared to 2002 due to the sale of the filing products division and a decline of $18.9 million primarily driven by lower sales volume of business forms to distributors of office products, lower sales volume to office-products retail chains and lower average selling prices. Consolidated net sales decreased $140.1 million, or 7.5%, in 2002 compared to sales in 2001. The explanation of this sales decline by segment is as follows: * Sales of our commercial segment declined $89.1 million, or 6.6%, in 2002. Approximately 50% of our commercial printing sales and 40% of our envelope sales are related to advertising and direct mail promotions. In response to the economic slowdown in 2002, many of our customers significantly reduced promotional spending which had a significant impact on the sales of our commercial segment. * Sales of our resale segment declined $51.0 million in 2002. Sales of the filing products division were $32.0 million lower in 2002 than in 2001 due to our divestiture of this division in August 10 2002. In addition, sales of business forms to office products distributors and sales to office products retail chains declined approximately $19.0 million. RESTRUCTURING, IMPAIRMENTS 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 several years by many of our operations, we have taken actions to consolidate facilities, optimize capacity and otherwise reduce costs. These actions have resulted in significant restructuring, impairment and other related charges. This process is ongoing due to continuing changes in our industry and markets, and we expect to take the actions we believe necessary to react to these changes. We anticipate additional restructuring charges in 2004. 2003 ACTIVITY In 2003, we substantially completed the restructuring programs described above under "Business Improvement Initiatives." We incurred expenses related to these programs in 2003 that could not be accrued and were the result of our continuing initiatives to optimize capacity. Restructuring expenses recorded during 2003 were $1.5 million. The following table and discussion present the details of these charges (in thousands):
COMMERCIAL RESALE TOTAL ---------- ------ ------- Employee separation and related expenses............ $ 815 $ 660 $ 1,475 Equipment moves..................................... 1,002 -- 1,002 Other costs......................................... 94 (10) 84 Reversal of unused accruals......................... (713) (318) (1,031) ------ ----- ------- Total restructuring charges..................... $1,198 $ 332 $ 1,530 ====== ===== =======
Continued efforts in 2003 to adjust the operations of both segments to reflect lower sales volumes, resulted in additional employee separation expenses of $1.5 million in 2003. COMMERCIAL. In the fourth quarter of 2002, we announced the closure of our web printing operation in Indianapolis and the redeployment of its two web presses and related equipment to St. Louis and Baltimore. A substantial portion of the cost to dismantle, move and reinstall this equipment was incurred during 2003. We were able to sub-lease a facility that was idled as a result of the consolidation of our envelope plant in the Northeast sooner than estimated when the liability under the lease contract was established. Accordingly, $0.5 million of the reserve recorded for this lease was reversed. In addition, we reversed the remaining expenses that had been accrued to cover the costs of maintaining a building that was sold in 2003. RESALE SEGMENT. In the fourth quarter of 2002, we closed our business forms plant in Clearwater, Florida and consolidated its production in plants located in Fairhope, Alabama and Marshall, Texas. The employee separation expenses and other costs incurred as a result of this consolidation were less than originally estimated. 11 2002 ACTIVITY Restructuring, impairment and other related charges recorded in 2002 were $74.6 million. The following table and discussion present the details of these charges (in thousands):
COMMERCIAL RESALE CORPORATE TOTAL ---------- ------ --------- ------- Employee separation and related expenses............ $ 4,090 $1,404 $ -- $ 5,494 Employee training expenses.......................... 6,647 396 -- 7,043 Project management expenses......................... 8,101 1,145 -- 9,246 Asset impairment charges, net....................... 12,178 1,650 -- 13,828 Other costs......................................... 7,685 1,883 -- 9,568 Reversal of unused accruals......................... (500) -- -- (500) ------- ------ ------- ------- Total restructuring costs....................... 38,201 6,478 -- 44,679 Other charges....................................... 6,693 161 23,018 29,872 ------- ------ ------- ------- Total restructuring and other charges........... $44,894 $6,639 $23,018 $74,551 ======= ====== ======= =======
COMMERCIAL. We completed the consolidation of our envelope manufacturing facilities in 2002. We began this consolidation in 2001 in order to reduce excess internal capacity and improve utilization of the equipment and resources at our other envelope plants in the United States and Canada. The costs incurred during 2002 related to this consolidation were as follows: * Employee training expenses of $6.6 million were incurred to train the employees hired at the plants that absorbed the production of the plants that were closed. The training programs for these employees were between three and nine months in duration. * We incurred project management expenses of $8.1 million which were 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. * Impairment charges of $8.9 million were 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. * Other costs of $3.0 million include the expenses incurred to dismantle, move and reinstall equipment, and the costs incurred to restore buildings to the condition required by lease agreements or to maintain them while they are held for sale. * In 2001, we accrued employee separation expenses to cover the 766 employees we expected would be affected over the course of the project to consolidate our envelope manufacturing facilities. At the completion of the project, 722 employees had been separated and we reduced the accrual by $0.5 million. We closed our commercial printing operation in New York City in September 2002. We recorded employee separation expenses of $1.0 million covering 80 employees, asset impairment charges of $1.0 million and lease commitment and other expenses of $2.2 million in connection with this plant closure. We moved a web press from our plant in Portland, Oregon to our plant in St. Louis and began the consolidation of our web printing operation in Indianapolis with our web plants in St. Louis and Baltimore. We recorded employee separation expenses of $0.3 million to cover the cost of 52 employees affected by these actions, impairment charges of $1.0 million on equipment taken out of service and $1.8 million to cover the expenses associated with terminating lease commitments and the costs incurred in 2002 to dismantle, move and reinstall equipment. Additionally, the commercial segment reduced the size of many of its operations during 2002 in response to the significant decline in sales. The costs associated with these actions included $2.8 million to cover the cost of the elimination of 331 jobs, impairment charges of $1.3 million for equipment 12 taken out of service and $0.7 million for expenses associated with lease commitments and the cost incurred to dismantle, move and reinstall equipment. RESALE. During 2002, the documents division of our resale segment closed its business forms plant in Clearwater, Florida and its plant in Denver, Colorado which had been curtailed in 2001. The employee separation expenses covering 64 employees were $0.7 million. Impairment charges related to equipment taken out of service as a result of these closures totaled $0.6 million. Other expenses of $0.7 million primarily related to expenses incurred to maintain the two buildings held for sale. The resale segment completed the closure of its envelope operations in Hattiesburg, Mississippi. The costs in 2002 were $2.4 million, which were primarily additional impairment charges, consulting fees, the costs incurred to dismantle, move and reinstall equipment and expenses incurred to clean up the building. Additionally, the resale segment incurred $2.1 million in expenses to reduce the size of several of its other operations. Employee separation expenses incurred to cover the elimination of 193 jobs were $0.7 million, asset impairments were $0.5 million and training, project management and other costs were $0.9 million. 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 our commercial segment and the alignment of equipment and services to better serve our customers and markets. We used outside assistance in the implementation of these programs which cost $4.4 million in 2002. * 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 value of the equipment subject to the lease was reduced from $34.9 million to $19.1 million, and we were required to pay the difference of $15.8 million. In addition, we wrote off deferred costs of $6.1 million associated with the lease prior to this refinancing. * We recorded an impairment charge of $1.8 million related to the write-down of idle equipment in our commercial business to net realizable value. * We incurred severance payments unrelated to the restructure plans of $1.1 million. * We incurred consulting fees of $0.7 million related to tax matters that arose as a result of our divestitures. 2001 ACTIVITY The restructuring, impairment and other related charges totaled $43.1 million in 2001. The following table and discussion present the details of these charges (in thousands):
COMMERCIAL RESALE CORPORATE TOTAL ---------- ------ --------- ------- Employee separation and related expenses............ $ 7,276 $2,769 $ -- $10,045 Employee training expenses.......................... 2,414 214 -- 2,628 Project management expenses......................... 4,985 419 -- 5,404 Asset impairment charges, net....................... 4,897 2,582 -- 7,479 Other costs......................................... 7,524 1,655 -- 9,179 Strategic assessment costs.......................... -- -- 2,677 2,677 ------- ------ ------ ------- Total restructuring costs....................... 27,096 7,639 2,677 37,412 Other charges....................................... 2,842 -- 1,600 4,442 ------- ------ ------ ------- Total restructuring and other charges........... $29,938 $7,639 $4,277 $41,854 ======= ====== ====== =======
13 COMMERCIAL. Our commercial segment announced the consolidation of eight envelope plants in 2001 and recorded employee separation expenses of $6.9 million covering 766 employees that were expected to be affected over the course of the consolidation project. In 2001, we incurred training costs of $2.4 million and project management fees of $5.0 million, and recorded impairment charges of $4.3 million on the equipment that was taken out of service and $5.5 million to cover lease termination costs, the costs of equipment moves and building clean-up expenses. We closed a printing plant in Philadelphia, Pennsylvania and consolidated two other printing operations in the Philadelphia area. We took these actions to improve our cost effectiveness and our competitive position in the Philadelphia market. The costs associated with the consolidation included employee separation expenses of $0.4 million covering the elimination of 25 jobs, impairment charges of $0.6 million on equipment taken out of service and other costs of $2.0 million to cover the lease termination costs and costs to dismantle, move and reinstall equipment. RESALE. Our resale segment began the closure of its envelope manufacturing facility in Mississippi. The cost recorded in 2001 was $6.5 million and included employee separation expenses of $1.6 million covering 142 employees, impairments on equipment taken out of service of $3.9 million and $1.0 million of training, project management and other costs. The documents division of our resale segment substantially curtailed its business forms plant in Denver, Colorado in 2001. The employee separation expenses of $0.6 million related to the elimination of 62 jobs. Other costs of $0.7 million were incurred to dismantle, move and reinstall equipment. Additionally, we reversed an impairment charge of $1.3 million taken in 2000 to write down a building to its estimated fair market value. This building was sold for more than its original carrying value. Our resale segment closed a warehouse and distribution center in Santa Fe Springs, California. The cost associated with this closure was $0.9 million which was primarily employee separation expenses covering 17 employees and lease termination costs. CORPORATE. In developing our strategic plan, we engaged outside advisors to research and evaluate our markets, survey our customers and assess existing strategies. In addition, we engaged financial advisors to evaluate options for improving our capital structure. The cost of these advisors was $2.7 million in 2001. OTHER CHARGES. Other charges include the following items: * The outside assistance used in the implementation of initiatives in our commercial segment to establish best practices, standardize our costing and pricing systems, and align equipment and services to better serve our customers and markets totaled $2.1 million in 2001. * We wrote off costs of $0.7 million incurred by our commercial segment for a human resource information system that was not implemented. * We wrote off a $1.6 million investment in a company that was developing a service, which would enable online collaborative design and management of a printing job. OTHER SIGNIFICANT OPERATING EXPENSES The table below summarizes other significant charges we have recorded over the last three years related to the restructuring of our debt and the divestitures announced in June 2001.
YEAR ENDED DECEMBER 31 -------------------------------------- 2003 2002 2001 -------- -------- -------- (IN THOUSANDS) Loss from the early extinguishment of debt............... $ -- $ 16,463 $ -- Impairment loss (gain) on assets held for sale........... $ (117) $ 6,436 $ -- Impairment on operations formerly held for sale.......... $ -- $ 12,842 $ 36,523 Settlement of litigation................................. $ 5,330 $ -- $ 1,231
14 LOSS FROM THE EARLY EXTINGUISHMENT OF DEBT. In 2002, we wrote off the deferred financing fees of $16.5 million related to our bank credit facility that was refinanced in June 2002. IMPAIRMENT LOSS (GAIN) ON ASSETS HELD FOR SALE. In August 2002, we completed the sale of the filing products division of our resale segment, which had been held for sale since June 2001. The impairment loss on assets held for sale recorded in 2002 included a $6.1 million impairment in connection with this divestiture. The impairment loss on assets held for sale also includes a $0.3 million impairment charge related to the digital graphics assets of our commercial segment held for sale at December 31, 2002 and sold in March 2003. No additional impairment on these assets was required as a result of the sale. IMPAIRMENT ON OPERATIONS FORMERLY HELD FOR SALE. PrintXcel, part of our former printed office products segment, was held for sale at the end of 2001 and during the first half of 2002. In 2001, we reduced the carrying amount of the net assets of PrintXcel by $33.6 million to reflect its expected net realizable value. PrintXcel's net realizable value was based on estimated sales proceeds, net of expenses and a tax benefit of $11.5 million that would have resulted from the sale. This charge was reported as an impairment on operations formerly held for sale in 2001. Due to our decision in June 2002 not to sell PrintXcel, we reversed the tax benefit because it 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 $10.4 million was reported as an impairment on operations formerly held for sale in 2002. PrintXcel is now an important part of our resale segment. In October 2002, we discontinued our efforts to sell one of our digital graphics operations. The impairment on operations formerly held for sale in 2001 and 2002 includes $2.9 million and $2.5 million, respectively, related to the digital graphics operation no longer held for sale. SETTLEMENT OF LITIGATION. In 2003, we accrued $5.3 million to cover the cost of settling a lawsuit after an unfavorable award was granted by a jury in Los Angeles County, California on February 20, 2004 to an ex-employee who had contested his termination. OPERATING INCOME (LOSS)
YEAR ENDED DECEMBER 31 -------------------------------------- 2003 2002 2001 -------- -------- -------- (IN THOUSANDS) Commercial.................................. $ 60,816 $ 3,076 $ 42,305 Resale...................................... 45,711 44,317 44,588 Corporate................................... (26,312) (80,312) (72,069) -------- -------- -------- Total operating income (loss)........... $ 80,215 $(32,919) $ 14,824 ======== ======== ========
Consolidated operating income increased $113.1 million in 2003 compared to the loss recorded in 2002. This improvement in operating income was due to the following: * The operating income of the commercial segment improved $57.7 million in 2003. This improvement was due primarily to lower restructuring expenses of $43.7 million and a reduction in fixed costs of $11.4 million. * The operating income of the resale segment increased $1.4 million in 2003. This improvement was due primarily to lower restructuring expenses of $6.3 million and $3.0 million in reductions in fixed costs partially offset by the impact of lower sales volume and lower selling prices and the loss of the operating income of the filing products division that was sold in August 2002. * Corporate expenses were $54.0 million lower in 2003 due primarily to restructuring and other significant operating charges which were $53.5 million lower in 2003 than in 2002. 15 Consolidated operating income decreased $47.7 million in 2002. This decrease in operating income was due to the following: * The operating income of the commercial segment declined $39.2 million in 2002. Restructuring expenses were $15.0 million higher and the impact on operating income of the sales decline was approximately $48.0 million. Reduced benefit expenses, lower fixed manufacturing and administrative expenses realized from our restructuring and other cost reductions programs totaled $22.5 million. * The operating income of the resale segment decreased $0.3 million in 2002. Operating income in 2002 included $2.8 million of operating income from the filing products division which was $5.3 million lower than the full year of 2001. In addition, restructuring expenses were $2.2 million lower in 2002, and fixed manufacturing costs and administrative expenses were reduced $7.1 million in 2002 as a result of our restructuring and other cost reduction initiatives. These reductions more than offset the impact on operating income of lower sales. * Corporate expenses were $8.2 million higher in 2002. Corporate expenses increased due to higher restructuring and other charges of $18.7 million, the $16.5 million loss on the early extinguishment of debt and the impairment charge of $6.4 million on assets held for sale. Also in 2002, we recorded a $4.4 million charge to cover the cost of workers' compensation claims estimated by our insurance actuary. The impairment charge of $12.8 million on operations formerly held for sale was $23.7 million lower than the charge recorded in 2001. Amortization expense was $14.8 million lower in 2002 than in 2001 due to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, on January 1, 2002, which eliminated the amortization of goodwill. INTEREST EXPENSE
YEAR ENDED DECEMBER 31 ------------------------------------ 2003 2002 2001 ------- ------- -------- (IN THOUSANDS) Total interest expense............................ $71,891 $76,031 $ 78,891 Less: Allocated to discontinued operations........ -- (5,570) (15,577) ------- ------- -------- Reported interest expense......................... $71,891 $70,461 $ 63,314 ======= ======= ========
Total interest expense declined 5.4% in 2003 compared to 2002. In 2003, total interest expense reflects average outstanding debt of $792.7 million and a weighted average interest rate of 8.4% compared to the average outstanding debt of $890.6 million and a weighted average interest rate of 7.9% for 2002. The average outstanding debt decreased in 2003 primarily due to the application of the proceeds from our divestitures to the repayment of debt in 2002. Our weighted average interest rate increased in 2003 as a result of the issuance of $350 million of 9 5/8% senior notes in March 2002, the proceeds of which were used primarily to repay bank debt that accrued interest at a lower variable rate. In November 2002, we redeemed our 5% convertible subordinated notes. In addition, total interest expense in 2002 was higher as a result of the write-off of the deferred financing fees associated with the bank credit facility that was refinanced in June of that year. Total interest expense declined 3.6% in 2002 compared to 2001. In 2002, total interest expense reflects average outstanding debt of $890.6 million in 2002 compared to $978.8 million in 2001. The reduction in the outstanding debt in 2002 was due to the use of proceeds from our divestitures to repay debt. Our weighted average interest rate was 7.9% in 2002 compared to 7.3% in 2001. The increase in the weighted average interest rate was primarily due to the issuance of $350 million of 9 5/8% senior notes in March 2002, the proceeds of which were used to repay bank debt, which accrued interest at a lower variable rate, and redeem our 5% convertible notes. 16 Reported interest expense excludes the allocation of interest expense to discontinued operations which was based on the net assets of those operations relative to the net assets of the Company. Reported interest expense in 2003 and 2002 was substantially higher than in 2001 because the net asset amounts used to allocate interest expense exceeded the actual net proceeds received from the dispositions of the discontinued operations. INCOME TAXES
YEAR ENDED DECEMBER 31 ----------------------------------- 2003 2002 2001 ------ -------- ------- (DOLLARS IN THOUSANDS) Provision (benefit) for income taxes......... $2,581 $(31,646) $(5,200) Effective tax rate........................... 39.7% 30.1% 10.3%
The effective tax rate in 2003 was 39.7%. The effective tax rates for 2002 and 2001 were lower than 2003 primarily due to the pre-tax losses in 2002 and 2001 that increased the impact of nondeductible permanent differences on the overall effective rate. LOSS FROM DISCONTINUED OPERATIONS The $1.5 million gain on disposal of discontinued operations for 2003 was primarily an adjustment made to the tax impact of the disposition of our prime label business, which was sold in May 2002. Further adjustments to the overall losses incurred on the disposals of Curtis 1000 and our prime label business are possible if expenses accrued in connection with the sales of these operations are different than those estimated or if there are further revisions to the tax impacts of these dispositions. The loss from discontinued operations for 2002 was $16.9 million, or $0.35 per share. The loss on discontinued operations reflects the proceeds received from our divestitures of Curtis 1000 and our prime label business, net of related selling expenses and tax benefits. The loss from discontinued operations for 2001 was $91.0 million, or $1.91 per share and included the following: * A write-down of our prime label business and Curtis 1000 to net realizable value in the amount of $88.0 million, net of a tax benefit of $35.4 million, based on estimated sales proceeds. * The actual and forecasted results of our prime label business and Curtis 1000 from the date of the announcement through the expected date of disposal, including an allocation of interest expense and income taxes. CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE We adopted Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 ("FIN 46"), effective January 1, 2003. The implementation of FIN 46 required us to consolidate a trust that is leasing equipment to us under an operating lease. The effect of this consolidation was to increase net property, plant and equipment by $18.1 million and total debt by $18.5 million on January 1, 2003. The cumulative effect of this change in accounting principle recorded January 1, 2003 was an after-tax charge of $0.3 million at the time of adoption. We adopted SFAS No. 142 on January 1, 2002. SFAS No. 142 required an impairment test of the goodwill recorded for each of our operating segments as of that date. Our testing indicated an impairment of the goodwill recorded by the commercial printing operations in our commercial segment. This impairment was due to the significant decline in the performance of our commercial printing operations in 2001 and the impact of that decline on expected future cash flows. We estimated the fair value of our commercial printing operations by discounting the expected future cash flows and 17 the use of market multiples. Using the estimated fair value of the business and the application of the other provisions of SFAS No. 142, we determined that $111.7 million of the goodwill associated with our commercial printing operations was impaired. This transitional impairment loss was reported as a cumulative effect of a change in accounting principle in 2002. Our annual impairment tests of goodwill as of December 1, 2003 and 2002 did not indicate any additional impairment. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE--DILUTED
YEAR ENDED DECEMBER 31 -------------------------------------- 2003 2002 2001 ------ --------- --------- (DOLLARS IN THOUSANDS) Net income (loss)........................... $5,150 $(202,104) $(136,217) Net income (loss) per share--diluted........ $ 0.11 $ (4.24) $ (2.86)
The net income and net income per share in 2003 reflect the substantial improvement in operating results, the gain on disposal of discontinued operations and no impairment of our goodwill in 2003. The net loss and net loss per share in 2002 reflect the substantial loss from operations, the loss on the disposal of discontinued operations and the goodwill impairment charge recorded as a cumulative effect of a change in accounting principle as a result of the adoption of SFAS No. 142. BUSINESS SEGMENTS COMMERCIAL
YEAR ENDED DECEMBER 31 -------------------------------------------- 2003 2002 2001 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Sales............................. $1,272,525 $1,268,367 $1,357,430 Operating income.................. 60,816 3,076 42,305 Operating income margins.......... 4.8% 0.2% 3.1%
Sales of our commercial segment increased $4.2 million, or 0.3%, in 2003 compared to sales in 2002. The following factors influenced sales in 2003: * The increase in the sales due to the in-house printing and fulfillment operations acquired from American Express Company in August 2002 was $38.8 million in 2003. * The sales of our Canadian operations were $16.7 million higher in 2003 primarily due to the strength of the Canadian dollar. Sales of our Canadian operations in local currency were lower in 2003 than in 2002. * Sales of envelope products were approximately $27.4 million lower in 2003 than in 2002. A significant portion of this sales decline was due to lower average selling prices in 2003. * Sales to our local printing customers were $12.4 million higher which we believe reflects an improvement in demand in our local markets. Sales of our high impact printing were $13.1 million lower primarily due to work performed in 2002 that did not repeat in 2003. * Sales of our digital graphics operations that were sold in March 2003 were $11.2 million lower in 2003. * In September 2002, we closed our printing facility in New York City. Sales of this operation were $12.0 million in 2002. 18 Sales declined $89.1 million, or 6.6%, in 2002 compared to sales in 2001. The following factors influenced sales in 2002: * Approximately 50% of our commercial printing sales and 40% of our custom envelope sales are related to advertising and direct mail promotions. Many of our customers significantly reduced promotional spending in 2002 in response to the economic slowdown. The impact on the sales of our printing operations serving local markets was approximately $21.1 million. Additionally, sales of envelopes decreased approximately $10.9 million as a result of less spending by our customers on direct mail promotions. * Sales of commercial printing in the Philadelphia market were approximately $24.0 million lower in 2002 than in 2001. This decline was due in part to the closure of one of our plants 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 area. In October 2001, we consolidated our other two plants serving this market, and many of our customers did not move their printing to the new facility. * The average selling price of our custom envelope products fell approximately 2% in 2002 due to competitive pressures on the prices of many of our products and lower sales of higher value added products. * The sales of the in-house printing and fulfillment operations acquired in August 2002 were $11.9 million. * Sales at our printing plant in Indianapolis declined $9.4 million during 2002. In our efforts to improve the profitability of this plant, we lost some of our low margin business. We have since closed the web printing operation at the plant. * In February 2002, we exited the domestic photo envelope market. Sales of these envelopes were $5.4 million in 2001. * Sales at our plant in New York City declined $4.7 million in 2002. We ceased production at this plant in September 2002. The operating income of the commercial segment increased $57.7 million in 2003. Operating income in 2003 was impacted by the following: * Restructuring expenses and other charges incurred in 2003 were $1.2 million, $43.7 million lower than incurred in 2002. * The operating income of the printing and fulfillment operations we acquired in August 2002 and the impact of the strong Canadian dollar offset much of the impact of lower sales volume and lower selling prices in 2003. * Fixed manufacturing costs and administrative expenses were reduced $11.4 million primarily due to the closure of our web printing operation in Indianapolis and other cost control initiatives during 2003. * Results in 2002 included a $3.2 million loss incurred by our printing operation in New York City, which was closed in September 2002. Operating income of the commercial segment declined $39.2 million in 2002. Operating income in 2002 was impacted by the following: * Restructuring expenses and other charges incurred in 2002 were $44.9 million, $15.0 million higher than incurred in 2001. * The impact on operating income of the sales decline was approximately $48.0 million, of which approximately $18.6 million was related to lower average selling prices. 19 * Fixed manufacturing costs and administrative expenses were reduced $22.5 million, primarily due to the consolidation of eight envelope facilities during 2001 and 2002, the closure and consolidation of our printing operations in Philadelphia and lower employee benefit expenses. RESALE
YEAR ENDED DECEMBER 31 -------------------------------------- 2003 2002 2001 -------- -------- -------- (DOLLARS IN THOUSANDS) Sales........................... $399,139 $460,338 $511,338 Operating income................ 45,711 44,317 44,588 Operating income margin......... 11.5% 9.6% 8.7%
Sales of our resale segment declined $61.2 million, or 13.3%, in 2003 compared to sales in 2002. This decline in sales was due to the following: * Sales in 2002 included sales of $42.3 million from the filing products division that was sold in August 2002. * Approximately $6.4 million of the sales decline in 2003 was due to lower selling prices driven by competitive pricing pressures in the market. * Sales to our merchant and office products customers were $5.2 million lower in 2003 due to losses of certain customers and weak demand in the office products retail market. * Sales of our high strength mailing envelopes were $4.0 million lower due in part to planned reductions of certain low margin business. * Sales to our office products distribution customers were $3.2 million lower due primarily to lower sales of traditional business forms. Over the last few years demand for traditional business forms has declined as businesses have acquired laser printing capabilities. Sales of labels and envelopes to our distribution customers in 2003 were approximately the same as in 2002. Sales declined $51.0 million, or 10.0%, in 2002 compared to sales in 2001. This decline in sales was due to the following: * Sales of the filing products division were $32.0 million lower in 2002 than for the full year of 2001. * Sales to office products distribution customers declined $12.8 million due to lower sales of traditional business forms, lower sales of our label products to quick printers and lower sales of envelopes. * Sales to our merchant and office products customers declined approximately $6.3 million due to inventory reductions by many of our customers and planned reductions of certain low margin business. The operating income of the resale segment increased 3.1% to $45.7 million in 2003 from operating income of $44.3 million in 2002. Operating income in 2003 was impacted by the following factors: * Restructuring expenses and other charges in 2003 were $0.3 million, $6.3 million lower than in 2002. * The impact of lower sales volume and lower selling prices on operating income was approximately $5.2 million. 20 * Fixed manufacturing and administrative expenses were reduced $3.0 million primarily due to the closure of our Clearwater, Florida business forms plant in 2002 and other cost control initiatives in 2003. * Operating income in 2002 included operating income of $2.8 million from the filing products division. Operating income declined slightly in 2002 to $44.3 million from operating income of $44.6 million in 2001. Operating income in 2002 was impacted by the following: * Restructuring expenses and other charges in 2002 were $2.2 million lower than in 2001. * The impact of lower sales volume and lower selling prices on operating income was approximately $4.3 million. * Fixed manufacturing and administrative expenses were reduced $7.1 million in 2002 primarily as a result of the curtailment of the business forms plant in Denver, the closure of the envelope operation in Hattiesburg, Mississippi and the closure of the warehouse and distribution center in Santa Fe Springs, California. * Operating income of the filing products division was $5.3 million lower in 2002 than the full year of 2001. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2003, our outstanding debt was $749.0 million, $14.9 million lower than at December 31, 2002. At December 31, 2003, our revolving loan balance was $28.6 million lower than at December 31, 2002. Our outstanding debt at December 31, 2003 included $17.0 million of debt held by a variable interest entity that was consolidated on January 1, 2003 in accordance with FIN 46. CASH PROVIDED BY OPERATIONS. Our operations generated cash flow of $59.5 million in 2003 compared with $23.0 million in 2002 and $170.9 million in 2001. The increase in operating cash flow in 2003 from the amount generated in 2002 was primarily due to earnings from continuing operations compared to the loss in 2002. INVESTING ACTIVITIES. Acquisition spending was $2.8 million in 2003, $2.6 million in 2002 and $3.8 million in 2001. In 2002, we purchased the in-house printing and fulfillment operations of American Express Company. The acquisition spending in 2003 also relates to this investment. In 2001, we purchased a small printing and fulfillment operation in Denver, Colorado. Capital expenditures were $31.6 million in 2003, $30.9 million in 2002 and $32.7 million in 2001. We anticipate capital expenditures in 2004 to be approximately $20.0 to $30.0 million. In March 2003, we received net proceeds of $3.9 million from the sale of the digital graphics operations. In 2002, we received net proceeds of $31.5 million from the sale of the filing products division, $67.0 million from the sale of the prime label business and $20.5 million from the sale of Curtis 1000. FINANCING ACTIVITIES. During 2002, we completed a significant restructuring of our outstanding debt. In March 2002, we sold $350 million of 9 5/8% senior notes due 2012. We used the net proceeds from this offering to repay $197.0 million of our bank term debt, $134.0 million of our revolving credit facility, and $9.2 million of other debt. The remaining $2.0 million of net proceeds from the offering were used for other working capital needs. In June 2002, we entered into a three-year $300 million senior secured credit facility with a syndicate of banks. The purpose of the 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 our assets. 21 On November 1, 2002, we redeemed the $139.1 million convertible subordinated notes due on that date. At December 31, 2003, we had outstanding letters of credit of approximately $25.1 million related to performance and payment guarantees. In addition, we have issued letters of credit of $1.9 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. Our current credit ratings are as follows:
SENIOR SENIOR SECURED SENIOR SUBORDINATED REVIEW AGENCY CREDIT FACILITY NOTES DEBT LAST UPDATE - ------------- --------------- ------ ------------ ------------ Standard & Poors..... BB- BB- B May 2003 Moody's.............. Ba3 B1 B3 January 2004
The terms of our existing debt do not have any rating triggers, and we do not believe that our current ratings will impact our ability to raise additional capital. On February 4, 2004, we sold $320 million of 7 7/8% senior subordinated notes due 2013. The proceeds of these notes will be used to purchase the $300 million of 8 3/4% senior subordinated notes due 2008. On February 3, 2004, we accepted tenders of $166.4 million of the 8 3/4% notes at a price of $1,045 for each $1,000 of principal amount together with accrued interest. The remaining outstanding notes were called for redemption at a price of $1,043.75 for each $1,000 of principal amount plus accrued interest to the redemption date. In the first quarter of 2004 we will record a loss of approximately $17.8 million on the early extinguishment of our 8 3/4% senior subordinated notes. CONTRACTUAL OBLIGATIONS. The following table aggregates material expected contractual obligations and commitments as of December 31, 2003, as adjusted for the new 7 7/8% senior subordinated notes sold on February 4, 2004 (in thousands):
OTHER LONG-TERM OPERATING LONG-TERM PURCHASE TOTAL CASH DEBT LEASES LIABILITIES COMMITMENTS OBLIGATIONS --------- --------- ----------- ----------- ----------- 2004............... $ 2,575 $ 31,057 $ -- $ 720 $ 34,352 2005............... 75,834 26,308 3,521 420 106,083 2006............... 2,327 21,786 3,259 -- 27,372 2007............... 13,532 16,301 2,220 -- 32,053 2008............... 300,964 14,777 2,042 -- 317,783 Thereafter......... 373,729 11,412 14,617 -- 399,758 -------- -------- ------- ------ -------- Total.............. $768,961 $121,641 $25,659 $1,140 $917,401 ======== ======== ======= ====== ========
EMPLOYMENT CONTRACTS. We have an employment contract with Paul Reilly, our CEO, providing for severance payments under certain circumstances. We have also entered into change of control agreements with certain other executives providing for severance payments in the event of a change of control. OFF-BALANCE SHEET ARRANGEMENTS. We do not have any off-balance sheet arrangements with unconsolidated entities or other persons. We expect to be able to fund our operations, capital expenditures, debt and other contractual commitments within the next year from internally generated cash flow and funds available under our senior secured credit facility. The borrowing base certificate filed January 16, 2004, reflecting assets included in the December 31, 2003 consolidated balance sheet, reported $111.6 million of unused credit available under our senior secured credit facility. 22 SEASONALITY AND ENVIRONMENT Our commercial segment experiences seasonal variations. Revenues from annual reports are generally concentrated from February through April. Revenues associated with holiday catalogs and automobile brochures tend to be concentrated from July through October. As a result of these seasonal variations, some of our commercial printing operations are at or near capacity at certain times during these periods. In addition, several envelope market segments and certain segments of the direct mail market, experience seasonality, with a higher percentage of the volume of products sold to these markets occurring during the fourth quarter of the year. This seasonality is due to the increase in sales to the direct mail market due to holiday purchases. The mailer operations of our resale segment are at or near capacity at times during the fourth quarter. Seasonality is offset by the diversity of our other products and markets, which are not materially affected by seasonal conditions. Environmental matters have not had a material financial impact on our historical operations and are not expected to have a material impact in the future. CRITICAL ACCOUNTING POLICIES AND JUDGMENTS Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles. In preparing these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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 periods. We evaluate these estimates and assumptions on an ongoing basis, including those related to bad debts, property, plant and equipment, intangible assets, income taxes, and contingencies. We base our estimates on historical experience and various other assumptions that are considered reasonable in view of relevant facts and circumstances. Because of the uncertainty inherent in such estimates, actual results may differ from our estimates. Critical accounting policies are defined as those policies that relate to estimates that require assumptions about matters that are highly uncertain at the time the estimate is made and could have a material impact on our results due to changes in the estimate or the use of different estimates that reasonably could have been used. ALLOWANCES FOR LOSSES ON ACCOUNTS RECEIVABLE. We maintain a valuation allowance based upon the expected collectibility of accounts receivable. The allowance includes specific amounts for customer collection issues we have identified and an estimate of accounts that may become uncollectible based on the age of the receivables. Our accounts receivable allowance at December 31, 2003 was $4.0 million. In 2003, we wrote-off uncollectible accounts of $4.0 million to the reserve net of recoveries. In 2002, we wrote-off uncollectible accounts of $4.7 million net of recoveries. While credit losses have historically been within our expectations, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. These estimates may prove to be inaccurate, in which case we may have overstated or understated the reserve required for uncollectible accounts receivable. GOODWILL. We evaluate the carrying value of our goodwill as of December 1 of each year, or if there are indications of impairment. Our evaluation is based on discounting the future cash flows of each of our business segments and comparisons to market multiples of other similar companies. In preparing projected future cash flows, we use our judgment in projecting the profitability of our segments, their growth in future years, the capital spending required, the working capital requirements and the selection of a discount rate. In our comparisons to market multiples of other similar companies, we use our judgment in the selection of the companies used in the analysis. While we believe there is no further impairment of our goodwill, if our estimates of future cash flows prove to be inaccurate, an impairment charge could be necessary in future years. 23 IMPAIRMENT OF LONG-LIVED ASSETS. We periodically evaluate long-lived assets, including property, plant and equipment and other intangible assets whenever events or changes in conditions indicate that the carrying value may not be recoverable. The evaluation requires us to estimate future undiscounted cash flows associated with an asset or group of assets. If the cost of the asset or group of assets cannot be recovered by these undiscounted cash flows, then an impairment may exist. Estimating future cash flows requires judgments regarding future economic conditions, product demand and pricing. Although we believe our estimates are appropriate, significant differences in the actual performance of the asset or group of assets may materially affect our asset values and require an impairment charge to future results. SELF-INSURANCE. We are self-insured for the majority of our workers' compensation costs and group health insurance costs, subject to specific retention levels. We rely on claims experience and the advice of consulting actuaries and administrators in determining an adequate liability for self-insurance claims. Our self-insured workers' compensation liability is estimated based on reserves for claims that are established by a third-party administrator. The estimate of these reserves is increased to reflect the estimated future development of the claims. Our liability for workers' compensation claims is the estimated total cost of the claims on a fully-developed basis. Our liability for workers' compensation claims at December 31, 2003 was $8.1 million. The actuarial estimate of the cost of claims incurred in 2003 was $3.6 million and $5.1 million in 2002. In addition, in 2002, we recorded a charge of $4.4 million to adjust our workers' compensation liability to a fully developed basis. In 2003, we recorded additional charges of $1.8 million due to negative development of old claims. Our self-insured healthcare liability is estimated based on our actual claims experience and multiplied by a lag factor. Our healthcare liability represents our estimate of claims that have been incurred but have not been reported. The liability at December 31, 2003 was $6.8 million. The lag factor used to estimate this liability was approximately 75 days. While we believe that our assumptions are appropriate, significant differences in our experience or a significant change in any of our assumptions could materially affect our workers' compensation costs and group health insurance costs. ACCOUNTING FOR INCOME TAXES. As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure, together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. The tax effects of these temporary differences are recorded as deferred tax assets or deferred tax liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have already recorded the tax benefit in the statement of operations. Deferred tax liabilities generally represent tax items that have been deducted for tax purposes, but have not yet been recorded in the statement of operations. We must then assess the likelihood that our deferred tax assets support the use of the future deduction or credit. To the extent we believe that the use of the future tax asset is not likely, we must establish a valuation allowance. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate, tax planning strategies and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates, we are unable to implement certain tax planning strategies or we adjust these estimates in future periods, we may need to establish an additional valuation allowance that could have a material negative impact on our statement of operations and our balance sheet. Significant judgment is required in determining our effective tax rate and in evaluating our tax positions. We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may not succeed. We adjust these reserves in light of changing facts and circumstances, such as the progress of a tax audit. Our effective tax rate includes the impact of reserve provisions and changes to reserves that we consider appropriate, as well as related interest. 24 A company of our size is often under audit by various tax agencies in the jurisdictions in which we operate. A number of years may elapse before a particular matter, for which we have established a reserve, is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. We currently have no open audits for the years prior to 1997. While it is difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the probable outcome of known tax contingencies. NEW ACCOUNTING STANDARDS In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. This statement amends SFAS No. 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. The adoption of SFAS No. 149, which is effective for contracts entered into or modified after June 30, 2003, did not have an impact on our financial condition or results of operations. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how to classify and measure certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an impact on our financial condition or results of operations. In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits, that improves financial statement disclosures for defined benefit plans. The change replaces existing SFAS No. 132 disclosure requirements for pensions and other postretirement benefits and revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, Employers' Accounting for Pensions, SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. SFAS No. 132 retains the disclosure requirements contained in the original SFAS No. 132, but requires additional disclosures about the plan assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS No. 132 is effective for annual and interim periods with fiscal years ending after December 15, 2003. We have adopted the revised disclosure provisions as of December 31, 2003. On December 17, 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, which supersedes SAB No. 101, Revenue Recognition in Financial Statements. SAB No. 104's primary purpose is to rescind accounting guidance contained in SAB No. 101 related to multiple element revenue arrangements. SAB No. 104 will not have an impact on our recognition of revenue. FORWARD-LOOKING STATEMENTS Certain statements in this report, and in particular, statements found in Management's Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the words, "believe," "expect," "intend," "appear," "estimate," "anticipate," "project," "will" and other similar expressions. All such statements which address operating performance, events or developments that we expect or anticipate will occur in the future and are not historical in nature. All forward-looking statements reflect our current views of Mail-Well with respect to future events and are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied in these statements. As and when made, we believe that these forward-looking statements are reasonable; however, these statements involve known and unknown risks, including, but not limited to: * General economic, business and labor conditions 25 * The ability of the Company to implement its strategic initiatives * The ability to sustain profitability after substantial losses in 2002 and 2001 * The ability to successfully identify, manage or integrate possible future acquisitions * Sales are not subject to long-term contracts * The industry is extremely competitive * The impact of the Internet and other electronic media on the demand for envelopes and printed material * Postage rates and other changes in the direct mail industry * Environmental laws may affect our business * The ability to retain key management personnel * Compliance with recently enacted and proposed changes in laws and regulations affecting public companies could be burdensome and expensive * Dependence on suppliers and the costs of paper and other raw materials * The ability of the company to meet customer demand for additional value-added products and services * Changes in interest rates and currency exchange rates of the Canadian dollar * The ability to manage operating expenses * The risk that a decline in business volume or profitability could result in a further impairment of goodwill * The ability to timely or adequately respond to technological changes in our industry * The ability to extend our current credit facility beyond 2005 In view of such uncertainties, investors should not place undue reliance on any forward-looking statements since such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 7A. 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 the London Interbank Offered Rate ("LIBOR") plus a margin. At December 31, 2003 and 2002, we had variable rate debt outstanding of $91.8 million and $103.8 million, respectively. A 1% increase in LIBOR on the maximum amount of debt subject to variable interest rates, which was $318.5 million in 2003 and $301.8 million in 2002, would increase our interest expense by $3.2 million in 2003 and $3.0 million in 2002 and reduce our net income by approximately $1.9 million in 2003 and 2002. We have operations in Canada, and thus are exposed to market risk for changes in foreign currency exchange rates of the Canadian dollar. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS The Shareholders and Board of Directors Mail-Well, Inc. We have audited the accompanying consolidated balance sheets of Mail-Well, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedules for each of the three years in the period ended December 31, 2003 listed in the Index at Item 15(a)(2). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mail-Well, Inc. and subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. ERNST & YOUNG LLP Denver, Colorado February 4, 2004, except for Note 19, as to which the date is February 23, 2004 27 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)
DECEMBER 31 --------------------------- 2003 2002 ---------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents............................... $ 307 $ 2,650 Accounts receivable, net................................ 223,541 219,924 Inventories, net........................................ 91,402 103,533 Net assets held for sale................................ -- 4,492 Other current assets.................................... 48,135 45,762 ---------- ---------- TOTAL CURRENT ASSETS................................ 363,385 376,361 Property, plant and equipment, net.......................... 388,240 379,624 Goodwill.................................................... 299,392 290,361 Other intangible assets, net................................ 19,687 18,586 Other assets, net........................................... 36,689 42,435 ---------- ---------- TOTAL ASSETS............................................ $1,107,393 $1,107,367 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................................ $ 140,468 $ 151,930 Accrued compensation and related liabilities............ 53,209 53,292 Other current liabilities............................... 64,360 63,386 Current maturities of long-term debt.................... 2,575 2,961 ---------- ---------- TOTAL CURRENT LIABILITIES........................... 260,612 271,569 Long-term debt.............................................. 746,386 760,938 Deferred income taxes....................................... 6,717 10,336 Other liabilities........................................... 25,659 21,756 ---------- ---------- TOTAL LIABILITIES....................................... 1,039,374 1,064,599 Commitments and contingencies SHAREHOLDERS' EQUITY: Preferred stock, $0.01 par value; 25,000 shares authorized, none issued............................... -- -- Common stock, $0.01 par value; 100,000,000 shares authorized, 48,380,457 and 48,337,031 shares issued and outstanding as of December 31, 2003 and 2002, respectively.......................................... 484 483 Paid-in capital......................................... 213,850 213,826 Retained deficit........................................ (150,331) (155,481) Deferred compensation................................... (1,714) (2,471) Accumulated other comprehensive income (loss)........... 5,730 (13,589) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY.......................... 68,019 42,768 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $1,107,393 $1,107,367 ========== ========== See notes to consolidated financial statements.
28 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share amounts)
YEAR ENDED DECEMBER 31 -------------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Net sales.......................................... $1,671,664 $1,728,705 $1,868,768 Cost of sales...................................... 1,337,118 1,385,361 1,481,135 ---------- ---------- ---------- Gross profit....................................... 334,546 343,344 387,633 Operating expenses: Selling, general and administrative............ 245,689 263,734 277,004 Amortization of intangibles.................... 1,899 2,237 16,197 Loss from the early extinguishment of debt..... -- 16,463 -- Impairment loss (gain) on assets held for sale......................................... (117) 6,436 -- Impairment on operations formerly held for sale......................................... -- 12,842 36,523 Settlement of litigation....................... 5,330 -- 1,231 Restructuring, impairments and other charges... 1,530 74,551 41,854 ---------- ---------- ---------- Operating income (loss)............................ 80,215 (32,919) 14,824 Other expense: Interest expense............................... 71,891 70,461 63,314 Other.......................................... 1,819 1,754 1,923 ---------- ---------- ---------- Income (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle............................. 6,505 (105,134) (50,413) Provision (benefit) for income taxes............... 2,581 (31,646) (5,200) ---------- ---------- ---------- Income (loss) from continuing operations before cumulative effect of a change in accounting principle........................................ 3,924 (73,488) (45,213) Loss from discontinued operations.................. -- -- (2,982) Gain (loss) on disposal of discontinued operations....................................... 1,548 (16,868) (88,022) Cumulative effect of a change in accounting principle........................................ (322) (111,748) -- ---------- ---------- ---------- Net income (loss).................................. $ 5,150 $ (202,104) $ (136,217) ========== ========== ========== Earnings (loss) per share--basic and diluted: Continuing operations.......................... $ 0.08 $ (1.54) $ (0.95) Discontinued operations........................ 0.04 (0.35) (1.91) Cumulative effect of a change in accounting principle.................................... (0.01) (2.35) -- ---------- ---------- ---------- Earnings (loss) per share--basic and diluted... $ 0.11 $ (4.24) $ (2.86) ========== ========== ========== Weighted average shares--basic................. 47,687 47,665 47,562 Weighted average shares--diluted............... 48,315 47,665 47,562 See notes to consolidated financial statements.
29 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YEAR ENDED DECEMBER 31 --------------------------------------------- 2003 2002 2001 ----------- ----------- --------- Cash flows from operating activities: Income (loss) from continuing operations.................. $ 3,924 $ (73,488) $ (45,213) Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities: Depreciation......................................... 46,069 47,818 47,199 Amortization......................................... 5,883 7,635 22,203 Loss from the early extinguishment of debt........... -- 16,463 -- Noncash portion of restructuring, impairment and other charges..................................... -- 42,282 47,596 Loss on assets held for sale......................... -- 6,436 -- Deferred income tax expense (benefit)................ (10,854) (27,726) 5,063 Loss on disposal of assets........................... 1,221 346 1,241 Other noncash expenses, net.......................... 435 91 958 Changes in operating assets and liabilities, excluding the effects of acquired businesses: Accounts receivable.................................. 3,414 12,756 57,135 Inventories.......................................... 14,647 8,906 20,160 Accounts payable and accrued compensation............ (15,417) (11,036) 24,942 Income taxes payable................................. 12,212 4,193 (5,824) Other working capital changes........................ (1,952) (7,130) (3,359) Other, net........................................... (123) (4,575) (1,166) ----------- ----------- --------- Net cash provided by operating activities........... 59,459 22,971 170,935 Cash flows from investing activities: Acquisitions, net of cash acquired.................... (2,800) (2,610) (3,838) Capital expenditures.................................. (31,602) (30,896) (32,742) Proceeds from divestitures, net....................... 3,864 122,330 -- Proceeds from sales of property, plant and equipment........................................... 682 11,995 3,782 Purchase of investment................................ -- -- (100) ----------- ----------- --------- Net cash provided by (used in) investing activities........................................ (29,856) 100,819 (32,898) Cash flows from financing activities: Decrease in accounts receivable financing facility.... -- -- (75,000) Proceeds from exercise of stock options............... 75 18 413 Proceeds from issuance of long-term debt.............. 1,915,452 1,635,102 634,404 Repayments of long-term debt.......................... (1,948,299) (1,726,718) (699,522) Capitalized loan fees................................. (484) (18,624) (4,439) ----------- ----------- --------- Net cash used in financing activities............... (33,256) (110,222) (144,144) Effect of exchange rate changes on cash and cash equivalents................................................ 1,310 (985) (73) Cash flows provided by (used in) discontinued operations.... -- (10,827) 6,612 ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents....................................... (2,343) 1,756 432 Cash and cash equivalents at beginning of year.............. 2,650 894 462 ----------- ----------- --------- Cash and cash equivalents at end of year.................... $ 307 $ 2,650 $ 894 =========== =========== ========= See notes to consolidated financial statements.
30 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands)
ACCUMULATED RETAINED OTHER TOTAL COMMON PAID-IN EARNINGS DEFERRED COMPREHENSIVE SHAREHOLDERS' STOCK CAPITAL (DEFICIT) COMPENSATION INCOME (LOSS) EQUITY ------ -------- --------- ------------ ------------- ------------- BALANCE AT DECEMBER 31, 2000.................. $474 $210,067 $ 182,840 $ -- $ (7,528) $ 385,853 Comprehensive income (loss): Net loss.................................... (136,217) (136,217) Other comprehensive income (loss): Pension liability adjustment, net of tax benefit of $581.......................... (928) (928) Currency translation adjustment........... (8,467) (8,467) Unrealized loss on investments, net of tax of $119.................................. 915 915 --------- Other comprehensive loss................ (8,480) --------- Total comprehensive loss.............. (144,697) Exercise of stock options..................... 2 411 413 Issuance of restricted shares................. 7 3,679 (3,686) -- Amortization of deferred compensation......... 327 327 Other......................................... (19) (19) ---- -------- --------- ------- -------- --------- BALANCE AT DECEMBER 31, 2001.................. 483 214,138 46,623 (3,359) (16,008) 241,877 Comprehensive income (loss): Net loss...................................... (202,104) (202,104) Other comprehensive income (loss): Pension liability adjustment, net of tax benefit of $744............................ (1,190) (1,190) Currency translation adjustment............. 3,609 3,609 --------- Other comprehensive income................ 2,419 --------- Total comprehensive loss................ (199,685) Cancellation of restricted shares............. (1) (451) 452 -- Issuance of restricted shares................. 1 121 (122) -- Exercise of stock options..................... 18 18 Amortization of deferred compensation......... 558 558 ---- -------- --------- ------- -------- --------- BALANCE AT DECEMBER 31, 2002.................. 483 213,826 (155,481) (2,471) (13,589) 42,768 Comprehensive income (loss): Net income.................................... 5,150 5,150 Other comprehensive income (loss): Pension liability adjustment, net of tax benefit of $1,996.......................... (3,188) (3,188) Currency translation adjustment............. 22,507 22,507 --------- Other comprehensive income................ 19,319 --------- Total comprehensive loss................ 24,469 Cancellation of restricted shares............. (1) (199) 102 (98) Issuance of restricted shares................. 1 149 (150) -- Exercise of stock options..................... 1 74 75 Amortization of deferred compensation......... 805 805 ---- -------- --------- ------- -------- --------- BALANCE AT DECEMBER 31, 2003.................. $484 $213,850 $(150,331) $(1,714) $ 5,730 $ 68,019 ==== ======== ========= ======= ======== ========= See notes to consolidated financial statements.
31 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION. Mail-Well, Inc. and subsidiaries (collectively, the "Company") are engaged in commercial printing, the printing and manufacturing of envelopes and the printing and manufacturing of business forms and labels. The Company, headquartered in Englewood, Colorado, is organized under Colorado law, and its common stock is traded on the New York Stock Exchange under the symbol "MWL". The consolidated financial statements include the accounts of Mail-Well, Inc. and its wholly-owned subsidiaries. In October 2003, the Company reorganized into two business segments: commercial and resale. Prior to this reorganization, the Company was organized into three business segments based on product lines: commercial printing, envelope and printed office products. Refer to Note 17 for disclosures related to the Company's operating segments. All significant intercompany accounts and transactions have been eliminated and all amounts and disclosures reflect the Company's continuing operations and the Company's new segment reporting. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates are used for, but not limited to, establishing the allowance for doubtful accounts, inventory valuation reserves, depreciation and amortization, tax assets and liabilities, self-insurance accruals and other contingencies. Actual results could differ from those estimates. REVENUE RECOGNITION. Revenue is recognized at the time product is shipped or title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed, and collectibility of the related receivable is reasonably assured. FREIGHT COSTS. The costs of delivering finished goods to the Company's customers are recorded as freight costs and included in cost of sales. Any freight costs billed to and paid by a customer are included in net sales. ADVERTISING COSTS. All advertising costs are expensed as incurred. Advertising costs were $5.7 million, $6.0 million and $6.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash on deposit and investments with original maturities of three months or less. Cash and cash equivalents are stated at cost, which approximates fair value. ACCOUNTS RECEIVABLE. Trade accounts receivable are recorded at the invoiced amount. The Company maintains a valuation allowance based upon the expected collectibility of accounts receivable. Account balances are charged to the allowance after all means of collection have been exhausted and the potential for recovery is remote. Allowances for losses on accounts receivable of $4.0 million and $4.7 million have been applied as reductions of accounts receivable at December 31, 2003 and 2002, respectively. INVENTORIES. Inventories are carried at the lower of cost or market, with cost determined on a first-in, first-out basis. Cost includes materials, labor and overhead. The Company estimates reserves for unsaleable inventory based on management's judgment of future realization. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost. When assets are retired or otherwise disposed of, the related costs and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. Expenditures for repairs and maintenance are charged to expense as incurred, and expenditures that increase the capacity, efficiency 32 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) or useful lives of existing assets are capitalized. The recoverability of property, plant and equipment is periodically reviewed by management based on current and anticipated conditions. Depreciation is calculated using the straight-line method based on the estimated useful lives of 15 to 45 years for buildings and improvements, 10 to 15 years for machinery and equipment and three to 10 years for furniture and fixtures. COMPUTER SOFTWARE. The Company develops and purchases software for internal use. Software development costs incurred during the application development stage are capitalized. Once the software has been installed and tested and is ready for use, additional costs incurred in connection with the software are expensed as incurred. Capitalized computer software costs are amortized over the estimated useful life of the software, usually between three and five years. Net computer software costs included in property, plant and equipment were $8.7 million and $7.5 million at December 31, 2003 and 2002, respectively. DEBT ISSUANCE COSTS. Direct expenses such as legal, accounting and underwriting fees incurred to issue debt, are reported in the consolidated balance sheets as other assets. These deferred financing fees, which were $15.6 million and $18.9 million at December 31, 2003 and 2002, respectively, net of accumulated amortization, are amortized over the term of the related debt as interest expense. Interest expense includes $4.0 million, $5.4 million and $6.0 million of amortized deferred financing fees for the years ended December 31, 2003, 2002 and 2001, respectively. GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill represents the excess of acquisition costs over the fair value of net assets of businesses acquired. Goodwill was amortized on a straight-line basis over 40 years prior to 2002. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is no longer amortized to earnings, but instead is reviewed annually to determine if there is an impairment, or more frequently, if an indication of possible impairment exits. The Company performed its impairment assessments in the fourth quarters of 2003 and 2002 and concluded that there was no impairment of goodwill other than the transitional impairment recognized upon the adoption of SFAS No. 142. Refer to Note 2 for disclosures related to the adoption of SFAS No. 142. 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. LONG-LIVED ASSETS. Long-lived assets are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable, as measured by comparing their net book value to the estimated future undiscounted cash flows generated by their use. Impaired assets are written down to their estimated fair market value. Assets to be disposed of are reported at the lower of the carrying value or the fair market value less costs to sell. SELF-INSURANCE. The Company is self-insured for the majority of its workers' compensation costs and group health insurance costs, subject to specific retention levels. The Company records its liability for workers' compensation claims on a developed basis. The Company's liability for health insurance claims includes an estimate for claims incurred but not reported. FOREIGN CURRENCY TRANSLATION. Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than the U.S. dollar are translated at year-end exchange rates. The effects of translation are included as a component of other comprehensive income. Income and expense items are translated at the average monthly rate. Foreign currency transaction gains and losses are recorded in income when realized. 33 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION. Stock options and other stock-based compensation awards are accounted for using the intrinsic value method prescribed by Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees. This method requires compensation expense to be recognized for the excess of the quoted market price of the stock at the grant date or the measurement date over the amount an employee must pay to acquire the stock. If the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, the Company's reported and pro forma net income (loss) and earnings (loss) per share would have been as follows (in thousands, except per share data):
DECEMBER 31 -------------------------------------- 2003 2002 2001 ------ --------- --------- Net income (loss): As reported..................................... $5,150 $(202,104) $(136,217) Pro forma....................................... $1,950 $(205,747) $(140,587) Earnings (loss) per share--basic and diluted: As reported..................................... $ 0.11 $ (4.24) $ (2.86) Pro forma....................................... $ 0.04 $ (4.32) $ (2.96)
The effect on reported net income (loss), earnings (loss) per share of expensing the estimated fair value of stock options is not necessarily representative of the effect on reported earnings for future years due to the vesting period of the stock options and the potential for issuance of additional stock options in future years. Refer to Note 13 for the assumptions used to compute the pro forma amounts. RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform with the current year presentation. NEW ACCOUNTING PRONOUNCEMENTS. The Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, on January 1, 2003. The provisions of SFAS No. 145 required the reclassification of the loss from the early extinguishment of debt that was recorded as an extraordinary item in 2002 into income from continuing operations and the restatement of the consolidated statement of operations for the year ended December 31, 2002. The table below is a reconciliation of loss per share for the year ended December 31, 2002 as originally reported and the loss per share as restated.
DECEMBER 31, 2002 AS ORIGINALLY IMPACT OF DECEMBER 31, 2002 REPORTED SFAS 145 RESTATED ----------------- --------- ----------------- Loss per share--basic and diluted: Continuing operations.......................... $(1.33) $(0.21) $(1.54) Discontinued operations........................ (0.35) -- (0.35) Extraordinary items............................ (0.21) 0.21 -- Cumulative effect of a change in accounting principle.................................... (2.35) -- (2.35) ------ ------ ------ Loss per share................................. $(4.24) $ -- $(4.24) ====== ====== ======
In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends SFAS No. 133 to provide clarification on the financial accounting and reporting of derivative 34 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. The adoption of SFAS No. 149, which is effective for contracts entered into or modified after June 30, 2003, did not have an impact on the Company's financial condition or results of operations. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how to classify and measure certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an impact on the Company's financial condition or results of operations. In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits, that improves financial statement disclosures for defined benefit plans. The change replaces existing SFAS No. 132 disclosure requirements for pensions and other postretirement benefits and revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, Employers' Accounting for Pensions, SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. SFAS No. 132 retains the disclosure requirements contained in the original SFAS No. 132, but requires additional disclosures about the plan assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS No. 132 is effective for annual and interim periods with fiscal years ending after December 15, 2003. The Company adopted the revised disclosure provisions as of December 31, 2003. On December 17, 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, which supersedes SAB No. 101, Revenue Recognition in Financial Statements. SAB No. 104's primary purpose is to rescind accounting guidance contained in SAB No. 101 related to multiple element revenue arrangements. The adoption of SAB No. 104 did not have an impact on the Company's recognition of revenue. 2. CHANGES IN ACCOUNTING PRINCIPLES FASB Interpretation No. 46 Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, ("FIN 46") issued in January 2003 introduced a new consolidation model, the variable interest model, which determines control and whether an entity is to be consolidated based on potential variability in gains and losses of the entity. Variable interests are contractual, ownership or other interests in an entity that expose its holders to the risks and rewards of the variable interest entity ("VIE"). Variable interests include equity investments, loans, leases, derivatives, guarantees and other instruments whose values change with changes in the VIE's assets. The Company leases printing equipment from a bankruptcy-remote trust (the "Trust") under an operating lease. At the end of the lease, the Company has the option to purchase the equipment for the aggregate outstanding loan balance of the Trust or to direct the sale of the equipment to a third party. If the Company were to direct the sale of the equipment, it has guaranteed the Trust that the proceeds from the sale will be at least 60.9% of the original fair value of the leased assets which could be as much as $11.6 million. If the sales proceeds exceed the guaranteed value of the leased assets, the Company retains the excess. The Company is the primary beneficiary of this Trust, a VIE, and is therefore required by FIN 46 to consolidate the Trust in its financial statements. The Company adopted FIN 46 effective January 1, 2003 and consolidated equipment valued at $18.1 million, net of accumulated depreciation, and debt of 35 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. CHANGES IN ACCOUNTING PRINCIPLES (CONTINUED) $18.5 million and recorded a charge of $0.3 million, net of tax, as a cumulative effect of a change in accounting principle in the consolidated statement of operations for the year ended December 31, 2003. The Company adopted SFAS No. 142 on January 1, 2002. Under SFAS No. 142, goodwill and intangible assets that have indefinite useful lives are no longer required to be amortized. Goodwill and intangible assets that have indefinite useful lives, however, must be tested annually for impairment. In the year of its adoption, SFAS No. 142 required a transitional goodwill impairment evaluation, which was a two-step process. The first step was to determine whether there was an indication that goodwill was impaired on January 1, 2002. SFAS No. 142 required a separate impairment evaluation of each of the Company's reporting units, which the Company determined to be the same as its operating segments. To perform the first step, the fair value of each reporting unit was estimated by discounting the expected future cash flows and using market multiples of comparable companies. The fair value of each reporting unit was compared to its carrying value, including goodwill. This first step evaluation indicated an impairment of the goodwill recorded by the Company's commercial printing operations. Since the first step indicated an impairment of the goodwill of the commercial printing operations, SFAS No. 142 required a second step to determine the amount of the impairment. The amount of the impairment was determined by comparing the implied fair value of this goodwill to its carrying value. The implied fair value of the goodwill was determined by allocating the fair value of the combined assets and liabilities of the commercial printing operations as if these operations had been acquired and the fair value was the purchase price. The excess "purchase price" over the amounts assigned to the assets and liabilities was the implied value of goodwill. The carrying amount of the goodwill exceeded the implied value by $111.7 million, which was recorded as a cumulative effect of a change in accounting principle in the consolidated statement of operations for the year ended December 31, 2002. The impairment loss on the goodwill recorded by the commercial printing operations (formerly the commercial printing segment) was due to the significant decline in the performance of these operations in 2001 and the impact of that decline on expected future cash flows. The following table summarizes the Company's income (loss) from continuing operations before cumulative effect of a change in accounting principle and earnings (loss) per share had the provisions of SFAS No. 142 been in effect on January 1, 2001 (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31 ------------------------------------ 2003 2002 2001 ------ -------- -------- Reported income (loss) from continuing operations before cumulative effect of a change in accounting principle... $3,924 $(73,488) $(45,213) Goodwill amortization, net of tax of $1.9 million in 2001.................................................... -- -- 12,923 ------ -------- -------- Adjusted income (loss) from continuing operations before cumulative effect of a change in accounting principle........................................... $3,924 $(73,488) $(32,290) ====== ======== ======== Diluted earnings (loss) per share--as reported............ $ 0.08 $ (1.54) $ (0.95) Diluted earnings (loss) per share--as adjusted............ $ 0.08 $ (1.54) $ (0.68)
36 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. CHANGES IN ACCOUNTING PRINCIPLES (CONTINUED) The following table summarizes the Company's net income (loss) and earnings (loss) per share had the provisions of SFAS No. 142 been in effect on January 1, 2001 (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31 -------------------------------------- 2003 2002 2001 ------ --------- --------- Reported net income (loss).............................. $5,150 $(202,104) $(136,217) Goodwill amortization, net of tax of $1.9 million in 2001.................................................. -- -- 12,923 ------ --------- --------- Adjusted net income (loss).......................... $5,150 $(202,104) $(123,294) ====== ========= ========= Diluted earnings (loss) per share--as reported.......... $ 0.11 $ (4.24) $ (2.86) Diluted earnings (loss) per share--as adjusted.......... $ 0.11 $ (4.24) $ (2.59)
3. ACQUISITIONS In August 2002, the Company acquired the in-house printing and fulfillment operations of American Express Company, located in Minneapolis, Minnesota, for $1.3 million with additional consideration of up to $17.0 million payable if annual revenues during each year of the five-year period commencing on January 1, 2003 total a specified amount. The Company paid additional consideration of $2.8 million in 2003. All additional consideration paid will be recorded as an identified intangible. This acquisition has been accounted for as a purchase; accordingly, its assets and liabilities have been recorded at estimated fair value with the excess of the purchase price over the estimated fair value recorded as goodwill. The consolidated financial statements reflect the operations of the acquired business since August 2002. The total amount of goodwill related to this acquisition at December 31, 2003 was $0.8 million. Sales included in the years ended December 31, 2003 and 2002 were $64.5 million and $11.9 million, respectively. In January 2001, the Company acquired Communigraphics, Inc., a commercial printing and fulfillment operation in Denver, Colorado for $3.8 million. This acquisition was also recorded as a purchase. 4. 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 and PrintXcel. In June 2002, the Company decided that it would not sell PrintXcel. The prime label segment and Curtis 1000 have been segregated from continuing operations and reported as discontinued operations for all periods presented. On February 22, 2002, the Company sold the stock of Curtis 1000 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. The loss on disposal of discontinued operations for the year ended December 31, 2001 of $88.0 million included adjustments to record the prime label segment and Curtis 1000 at net realizable value. These adjustments were based on estimated sales proceeds, estimates of the expenses associated with the sales of the two businesses and the estimated losses of each business through the expected date of disposition. Management based its estimates of the sales proceeds on data provided by its financial advisors and indications of value received from prospective buyers. The additional loss of $16.9 million on disposal of discontinued operations recorded for the year ended December 31, 2002 was based on actual proceeds which were less than expected, actual expenses which were greater than originally estimated and the tax benefit of the losses which was less than originally estimated. In addition, the cumulative translation adjustment which related to the 37 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. DISCONTINUED OPERATIONS (CONTINUED) investment in the foreign operations of the prime label segment in the amount of $2.8 million was charged to the loss on disposal of discontinued operations as a result of the sale of these foreign subsidiaries. The gain on disposal of discontinued operations recorded for the year ended December 31, 2003 reflects a change in the tax impact of the disposition of the Company's prime label business, which was sold in May 2002. This gain was partially offset by the accrual of additional expenses related to the sale. Interest expense was allocated to the operating results and included in the calculation of the loss on disposal of discontinued operations based upon the relative net assets of the prime label business and Curtis 1000. This allocation of interest expense totaled $5.6 million and $15.6 million for the years ended December 31, 2002 and 2001, respectively. Tax benefits allocated to discontinued operations based on the losses of these operations were $1.6 million and $1.7 million for the years ended December 31, 2002 and 2001, respectively. Operating results of the discontinued operations are summarized as follows (in thousands):
YEAR ENDED DECEMBER 31 --------------------------------------- 2003 2002 2001 -------- -------- --------- Net sales: Prime label....................................... $ -- $ 84,758 $ 219,182 Curtis 1000....................................... -- 22,788 171,148 -------- -------- --------- $ -- $107,546 $ 390,330 ======== ======== ========= Loss from operations: Prime label........................................ $ -- $ -- $ (1,028) Curtis 1000........................................ -- -- (3,588) -------- -------- --------- -- -- (4,616) Income tax benefit................................. -- -- 1,634 -------- -------- --------- $ -- $ -- $ (2,982) ======== ======== ========= Gain (loss) on disposal of discontinued operations: Prime label........................................ $ (830) $(16,299) $ (87,062) Curtis 1000........................................ 139 (1,028) (36,395) -------- -------- --------- (691) (17,327) (123,457) Income tax benefit................................. 2,239 459 35,435 -------- -------- --------- $ 1,548 $(16,868) $ (88,022) ======== ======== =========
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 $33.6 million to the expected net realizable value based on estimated proceeds, net of expenses associated with its sale and a tax benefit of $11.5 million that would have resulted from the sale. As a result of the Company's decision in June 2002 not to sell PrintXcel, it reversed the tax benefit because it would not be realized and $1.1 million of expenses related to the sale that had been accrued but not incurred. The $33.6 million charge in 2001 and the $10.4 million charge in 2002 have been included in "Impairment on operations formerly held for sale" in the consolidated statements of operations. 38 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. ASSETS HELD FOR SALE The Company sold the filing products division of the resale segment in August 2002 and certain digital graphics operations of the commercial segment in March 2003. The following table presents the sales and operating income of these operations (in thousands):
YEAR ENDED DECEMBER 31 ---------------------------------- 2003 2002 2001 ------ ------- ------- Sales................................................. $2,872 $56,445 $89,950 Operating income...................................... $ 167 $ 3,304 $ 8,238
The assets of operations held for sale at December 31, 2002 totaled $5.9 million and are reported net of $1.4 million of related liabilities as "Net assets held for sale" in the consolidated balance sheet. In 2001, the digital graphics operations were written down $2.9 million to estimated fair market value based on sales proceeds anticipated at the time. In 2002, the Company recorded another impairment charge of $2.8 million based on a change in the estimated sales proceeds. Subsequent to this write-down, management discontinued its efforts to sell one of the digital graphics operations originally held for sale. The $2.9 million impairment charge recorded in 2001 has been included in impairment on operations formerly held for sale in the consolidated statement of operations for the year ended December 31, 2001. The impairment on operations formerly held for sale in the consolidated statement of operations for the year ended December 31, 2002 includes $2.5 million of the $2.8 million impairment charge recorded in 2002. The remaining $0.3 million of the write-down was recorded as an impairment of the operations held for sale. A $6.1 million impairment charge was recorded in 2002 as a result of the sale of the filing products division. 6. INVENTORIES The Company's inventories by major category are as follows (in thousands):
DECEMBER 31 ---------------------- 2003 2002 ------- -------- Raw materials...................... $28,344 $ 32,515 Work in process.................... 21,483 25,832 Finished goods..................... 46,570 50,854 ------- -------- 96,397 109,201 Reserves........................... (4,995) (5,668) ------- -------- $91,402 $103,533 ======= ========
39 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. PROPERTY, PLANT AND EQUIPMENT The Company's investment in property, plant and equipment consists of the following (in thousands):
DECEMBER 31 ------------------------- 2003 2002 --------- --------- Land and land improvements.............................. $ 20,043 $ 19,529 Buildings and improvements.............................. 109,563 105,646 Machinery and equipment................................. 511,820 463,896 Furniture and fixtures.................................. 15,986 15,178 Construction in progress................................ 9,696 5,510 --------- --------- 667,108 609,759 Accumulated depreciation................................ (278,868) (230,135) --------- --------- $ 388,240 $ 379,624 ========= =========
8. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying amount of goodwill for the years ended December 31, 2003 and 2002 were as follows (in thousands):
COMMERCIAL RESALE TOTAL ---------- -------- --------- Balance as of January 1, 2002......................... $ 299,233 $100,668 $ 399,901 Goodwill acquired during the year................... 1,750 -- 1,750 Impairment losses................................... (111,748) -- (111,748) Impairment on assets formerly held for sale......... (2,435) -- (2,435) Other - primarily translation adjustments........... 3,110 (217) 2,893 --------- -------- --------- Balance as of December 31, 2002....................... $ 189,910 $100,451 $ 290,361 Purchase price adjustment........................... -- (302) (302) Foreign currency translation........................ 9,333 -- 9,333 --------- -------- --------- Balance as of December 31, 2003....................... $ 199,243 $100,149 $ 299,392 ========= ======== =========
The following is a summary of other intangible assets (in thousands):
DECEMBER 31, 2003 --------------------------------------------- ACCUMULATED LIFE (YEARS) GROSS AMOUNT AMORTIZATION NET ------------ ------------ ------------ ------- Trademarks and tradenames......... 40-43 $14,238 $1,377 $12,861 Non-compete agreements............ 5-7 7,562 6,581 981 Customer relationship............. 4 2,800 -- 2,800 Patents........................... 7-14 2,438 669 1,769 Other............................. 5-40 1,970 694 1,276 ------- ------ ------- Total.......................... $29,008 $9,321 $19,687 ======= ====== =======
40 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
DECEMBER 31, 2002 --------------------------------------------- ACCUMULATED LIFE (YEARS) GROSS AMOUNT AMORTIZATION NET ------------ ------------ ------------ ------- Trademarks and tradenames......... 40-43 $14,238 $ 987 $13,251 Non-compete agreements............ 5-7 7,562 5,533 2,029 Patents........................... 7-14 2,408 479 1,929 Other............................. 5-40 1,841 464 1,377 ------- ------ ------- Total.......................... $26,049 $7,463 $18,586 ======= ====== =======
The estimated amortization expense for each of the succeeding five years is as follows: $5.6 million, $0.7 million, $0.5 million, $0.5 million and $0.5 million. 9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) consisted of the following (in thousands):
DECEMBER 31 ---------------------- 2003 2002 ------- -------- Currency translation adjustment........................ $11,182 $(11,325) Pension liability adjustment........................... (5,452) (2,264) ------- -------- $ 5,730 $(13,589) ======= ========
10. LONG-TERM DEBT At December 31, 2003 and 2002, long-term debt consisted of the following (in thousands):
DECEMBER 31 ------------------------- 2003 2002 -------- -------- Senior Secured Credit Facility, due 2005............... $ 73,310 $101,932 Senior Notes, due 2012................................. 350,000 350,000 Senior Subordinated Notes, due 2008.................... 300,000 300,000 Other.................................................. 25,651 11,967 -------- -------- 748,961 763,899 Less current maturities................................. (2,575) (2,961) -------- -------- Long-term debt.......................................... $746,386 $760,938 ======== ========
Current maturities consist of scheduled payments on other long-term debt. On February 4, 2004, the Company sold $320,000,000 of 7 7/8% senior subordinated notes due 2013 ("New Senior Subordinated Notes"). The proceeds of the New Senior Subordinated Notes will be used to purchase the $300,000,000 of 8 3/4% Senior Subordinated Notes due 2008 which were issued in December 1998. The Company purchased $166.4 million of the 8 3/4 Senior Subordinated Notes pursuant to a tender offer to purchase the bonds at $1,045 for each $1,000 of principal amount together plus accrued interest. The remaining outstanding notes were called at a redemption price of $1,043.75 for each $1,000 of principal amount plus accrued interest. The Company will record a loss of approximately $17.8 million on the early extinguishment of the 8 3/4% Senior Subordinated Notes in the first quarter of 2004. 41 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. LONG-TERM DEBT (CONTINUED) In June 2002, the Company entered into a three year $300,000,000 Senior Secured Credit Facility due in 2005 with a consortium of banks (the "Credit Facility"). The Credit Facility was used to refinance the Company's $800,000,000 Senior Secured Credit Facility. Under the Credit 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. At December 31, 2003, the Company had outstanding loans and letters of credit of $98.4 million and had $111.6 million of availability based on the borrowing base certificate filed for the December 31, 2003 balance sheet. Loans made under the Credit Facility bear interest at a base rate or LIBOR, plus a margin. The interest rate at December 31, 2003 was 4.35%. The Credit Facility is secured by substantially all of the assets of the Company. In March 2002, the Company issued $350,000,000 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, the Company may 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 equity offerings prior to March 2005. Deferred financing costs of $16.5 million incurred in connection with the Senior Secured Credit Facility were written off as a result of the refinancing in June 2002. The write-off is reported as a loss from the early extinguishment of debt in the consolidated statement of operations for the year ended December 31, 2002. Other long-term debt at December 31, 2003 includes debt of $17.0 million of a variable interest entity that was consolidated on January 1, 2003 as a result of the adoption of FIN 46. Refer to Note 2 for additional disclosures related to the adoption of FIN 46. The interest on this debt was 4.89% at December 31, 2003. The remaining balance in other long-term debt is primarily term debt with banks with interest rates which range from 1.6% to 10.5% and capital lease obligations. The aggregate annual maturities for long-term debt, including the issuance of the New Senior Subordinated Notes, are as follows (in thousands): 2004................................. $ 2,575 2005................................. 75,834 2006................................. 2,327 2007................................. 13,532 2008................................. 300,964 Thereafter........................... 373,729 -------- $768,961 ========
Cash paid for interest (including interest allocated to discontinued operations) on long-term debt was $68.1 million, $63.0 million and $71.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. The estimated fair value of the Company's Credit Facility, Senior Notes, Senior Subordinated Notes and other long-term debt based on current rates available to the Company for debt of the same remaining maturity was $784.5 million and $610.0 million at December 31, 2003 and 2002, respectively. The Credit Facility, Senior Notes and Senior Subordinated Notes contain certain restrictive covenants that, among other things and with certain exceptions, limit the ability of the Company to incur additional indebtedness or issue capital stock, prepay subordinated debt, transfer assets outside 42 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. LONG-TERM DEBT (CONTINUED) of the Company, pay dividends or repurchase shares of common stock. In addition to these restrictions, the Company is required to maintain certain levels of net worth and fixed charge coverage. As of December 31, 2003, the Company was in compliance with all of these covenants. The Senior Notes and the Senior Subordinated Notes are guaranteed by Mail-Well, Inc. and its subsidiaries (the "Guarantor Subsidiaries") all of which are wholly owned. 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 the issuing subsidiary in the form of cash dividends, loans or advances, other than ordinary legal restrictions under corporate law, fraudulent transfer and bankruptcy laws. 11. INCOME TAXES Income (loss) from continuing operations (in thousands):
YEAR ENDED DECEMBER 31 --------------------------------------- 2003 2002 2001 -------- --------- -------- Domestic............................................ $(29,532) $(136,409) $(78,472) Foreign............................................. 36,037 31,275 28,059 -------- --------- -------- Income (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle.............................. $ 6,505 $(105,134) $(50,413) ======== ========= ========
The provision for income taxes on income from continuing operations consisted of the following (in thousands):
YEAR ENDED DECEMBER 31 -------------------------------------- 2003 2002 2001 -------- -------- -------- Current tax provision (benefit): Federal.......................................... $ 1,482 $(12,747) $(18,052) Foreign.......................................... 11,805 10,050 9,594 State............................................ 148 (1,273) (1,805) -------- -------- -------- 13,435 (3,970) (10,263) Deferred provision (benefit): Federal.......................................... (9,564) (26,168) 4,245 Foreign.......................................... (334) 475 393 State............................................ (956) (1,983) 425 -------- -------- -------- (10,854) (27,676) 5,063 -------- -------- -------- Provision (benefit) for income taxes................. $ 2,581 $(31,646) $ (5,200) ======== ======== ========
43 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. INCOME TAXES (CONTINUED) A reconciliation of the federal statutory tax rate to the Company's effective income tax rate is summarized below:
2003 2002 2001 ---- ---- ---- Federal statutory tax rate.............................. 35.0% 35.0% 35.0% State tax, net of federal benefit....................... 4.5 4.5 3.5 Nontaxable investment benefit........................... (13.6) -- 4.3 Impairment on divestitures.............................. -- (10.5) (32.8) Valuation allowance..................................... 34.1 (1.1) -- Utilization of foreign tax credits...................... (17.8) -- -- Other................................................... (2.5) 2.2 0.3 ----- ----- ----- Effective income tax rate............................... 39.7% 30.1% 10.3% ===== ===== =====
Deferred taxes are recorded to give recognition to temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements. The tax effects of these temporary differences are recorded as deferred tax assets or deferred tax liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future years. Deferred tax liabilities generally represent items that have been deducted for tax purposes, but have not yet been recorded in the consolidated statements of operations. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company has tax planning strategies available which will enable them to realize all net tax assets. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):
DECEMBER 31 ------------------------- 2003 2002 --------- --------- Deferred tax assets: Alternative minimum tax credit carryforwards........ $ 4,650 $ 4,608 Net operating loss carryforwards.................... 74,834 69,736 Capital loss carryforwards.......................... 23,180 15,977 Foreign tax credit carryforwards.................... 4,090 -- Compensation and benefit related accruals........... 21,394 17,870 Restructuring accruals.............................. 804 179 Accounts receivable................................. 1,416 1,704 Other............................................... 6,641 3,648 Valuation allowance................................. (6,932) (570) --------- --------- Total deferred tax assets............................... 130,077 113,152 Deferred tax liabilities: Property, plant and equipment....................... (90,744) (84,516) Goodwill and other intangibles...................... (19,488) (20,491) Other............................................... (7,910) (7,536) --------- --------- Total deferred tax liabilities.......................... (118,142) (112,543) --------- --------- Net deferred tax asset.................................. $ 11,935 $ 609 ========= =========
44 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. INCOME TAXES (CONTINUED) The net deferred income tax asset (liability) includes the following components (in thousands):
DECEMBER 31 ----------------------- 2003 2002 -------- -------- Current deferred tax asset.................... $ 18,652 $ 10,945 Non-current deferred tax liability............ (6,717) (10,336) -------- -------- Total..................................... $ 11,935 $ 609 ======== ========
Net operating losses of $175.2 million are being carried forward and are available to reduce future taxable income. These net operating losses will expire in 2021 through 2023. The Company also has foreign tax credit carryforwards of $4.1 million that will expire in 2007 and alternative minimum tax credit carryforwards of $4.7 million at December 31, 2003. In 2002, the Company generated capital loss carryforwards in the amount of $53.4 million. These capital losses will expire in 2007. The Company has recorded a valuation allowance in the amount of $6.5 million at December 31, 2003 for the estimated future impairment of certain loss carryforwards. Net cash payments for income taxes were $2.5 million, $6.0 million and $2.4 million in 2003, 2002 and 2001, respectively. 12. RESTRUCTURING, IMPAIRMENTS 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 and other related charges. 2003 ACTIVITY The Company completed most of the restructuring programs initiated in June 2001 and continued during 2002 and 2003. Restructuring expenses related to these programs that could not be accrued and were the result of continuing initiatives to optimize capacity were $1.5 million in 2003. The following table and discussion present the details of these charges (in thousands):
COMMERCIAL RESALE TOTAL ---------- ------ ------- Employee separation and related expenses....... $ 815 $ 660 $ 1,475 Equipment moves................................ 1,002 -- 1,002 Other costs.................................... 94 (10) 84 Reversal of unused accruals.................... (713) (318) (1,031) ------ ----- ------- Total restructuring charges................ $1,198 $ 332 $ 1,530 ====== ===== =======
Continued efforts in 2003 to adjust the operations of both segments to reflect lower sales volumes, resulted in employee separation expenses of $1.5 million in 2003. COMMERCIAL. In the fourth quarter of 2002, the commercial segment announced the closure of the web printing operation in Indianapolis, Indiana and the redeployment of its two web presses and related equipment to St. Louis, Missouri and Baltimore, Maryland. A substantial portion of the cost to dismantle, move and reinstall this equipment was incurred during 2003. The Company was able to sub-lease a facility which was idled as a result of the consolidation of the envelope plant in the Northeast sooner than estimated when the liability under the lease contract 45 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. RESTRUCTURING, IMPAIRMENTS AND OTHER CHARGES (CONTINUED) was established. Accordingly, $0.5 million of the reserve recorded for this lease was reversed. In addition, the remaining expenses that had been accrued to cover the cost of maintaining a building that has been sold were reversed. RESALE SEGMENT. In the fourth quarter of 2002, the resale segment closed its business forms plant in Clearwater, Florida and consolidated its production in plants located in Fairhope, Alabama and Marshall, Texas. The employee separation expenses and other costs incurred as a result of this consolidation were less than originally estimated. A summary of the activity charged to the 2002 restructuring liability during the year ended December 31, 2003 is as follows (in thousands):
COMMERCIAL RESALE TOTAL ---------- ------ ------- Balance, December 31, 2002............................ $ 3,990 $ 653 $ 4,643 Payments for severance............................ (189) (39) (228) Payments for lease termination and property exit costs........................................... (2,230) (47) (2,277) Payments for other exit costs..................... (238) (220) (458) Reversal of unused accrual........................ (54) (317) (371) ------- ----- ------- Balance, December 31, 2003............................ $ 1,279 $ 30 $ 1,309 ======= ===== =======
A summary of the activity charged to the 2001 restructuring liability during the year ended December 31, 2003 is as follows (in thousands):
COMMERCIAL ---------- Balance, December 31, 2002.............................. $ 2,967 Payments for severance.............................. (452) Payments for lease termination and property exit costs............................................. (1,167) Reversal of unused accrual.......................... (660) ------- Balance, December 31, 2003.............................. $ 688 =======
2002 ACTIVITY Restructuring and other related charges recorded during the year ended December 31, 2002 were $74.6 million. The following table and discussion present the details of these charges (in thousands):
COMMERCIAL RESALE CORPORATE TOTAL ---------- ------ --------- ------- Employee separation and related expenses...... $ 4,090 $1,404 $ -- $ 5,494 Employee training expenses.................... 6,647 396 -- 7,043 Project management expenses................... 8,101 1,145 -- 9,246 Asset impairment charges, net................. 12,178 1,650 -- 13,828 Other exit costs.............................. 7,685 1,883 -- 9,568 Reversal of unused accrual.................... (500) -- -- (500) ------- ------ ------- ------- Total restructuring costs................. 38,201 6,478 -- 44,679 Other charges................................. 6,693 161 23,018 29,872 ------- ------ ------- ------- Total restructuring, impairments and other charges................................. $44,894 $6,639 $23,018 $74,551 ======= ====== ======= =======
46 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. RESTRUCTURING, IMPAIRMENTS AND OTHER CHARGES (CONTINUED) COMMERCIAL. The consolidation of envelope manufacturing facilities of the commercial segment which began in 2001, was completed in 2002. The objective of this consolidation was to reduce excess internal capacity and improve utilization of the equipment and resources at the other envelope plants in the United States and Canada. The costs incurred during 2002 related to this consolidation were as follows: * Employee training expenses of $6.6 million were incurred to train new employees hired at the plants that absorbed the production of the plants that were closed. The training programs for these employees were between three and nine months in duration. * Project management expenses of $8.1 million that were primarily consulting fees and related expenses were 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. * Impairment charges of $8.9 million were 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. * Other costs of $3.0 million include the expenses incurred to dismantle, move and reinstall equipment, and the costs incurred to restore buildings to the condition required by lease agreements or to maintain them while they are held for sale. * In 2001, employee separation expenses were accrued to cover the 766 employees expected to be affected over the course of this project. At the completion of the project, 722 employees had been separated and the accrual was reduced by $0.5 million. The Company's commercial printing operation in New York City was closed in September 2002. Employee separation expenses of $1.0 million were recorded covering 80 employees. Asset impairment charges of $1.0 million and lease commitment and other expenses of $2.2 million were also recorded in connection with this plant closure. A web press has moved from Portland, Oregon to the web printing plant in St. Louis and the consolidation of the web printing operation in Indianapolis with the web plants in St. Louis and Baltimore was announced. Employee separation expenses of $0.3 million were recorded to cover the cost of 52 employees affected by these actions. Other restructuring expenses included impairment charges of $1.0 million on equipment taken out of service and $1.8 million to cover the expenses associated with terminating lease commitments and the costs incurred in 2002 to dismantle, move and reinstall equipment. Additionally, the commercial segment reduced the size of many of its operations during 2002 in response to the significant decline in sales. The costs associated with these actions included $2.8 million to cover the cost of the elimination of 331 jobs, impairment charges of $1.3 million for equipment taken out of service and $0.7 million for expenses associated with lease commitments and the cost incurred to dismantle, move and reinstall equipment. RESALE. During 2002, the documents division of the resale segment closed its business forms plant in Clearwater, Florida and its plant in Denver, Colorado which had been curtailed in 2001. The employee separation expenses covering 64 employees were $0.6 million. Impairment charges related to equipment taken out of service as a result of these closures totaled $0.6 million. Other expenses of $0.7 million primarily related to expenses incurred to maintain the two buildings held for sale. The resale segment completed the closure of its envelope operations in Hattiesburg, Mississippi. The costs in 2002 were $2.4 million which were primarily additional impairment charges, consulting 47 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. RESTRUCTURING, IMPAIRMENTS AND OTHER CHARGES (CONTINUED) fees, the costs incurred to dismantle, move and reinstall equipment and expenses incurred to clean-up the building. Additionally, the resale segment incurred $2.2 million in expenses to reduce the size of several of its other operations. Employee separation expenses incurred to cover the elimination of 193 jobs were $0.8 million, asset impairments were $0.5 million and training, project management and other costs were $0.9 million. 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 commercial segment and the alignment of equipment and services to better serve customers and markets. Outside assistance was used in the implementation of these programs the cost of which was $4.4 million in 2002. * In connection with the refinancing of the bank credit facility in June 2002, an operating lease stemming from a sale/leaseback arrangement executed in 1997 and amended in 2000 had to be refinanced. The value of the equipment subject to the lease was reduced from $34.9 million to $19.1 million, requiring a payment of the difference of $15.8 million. In addition, deferred costs of $6.1 million associated with the lease prior to this refinancing were written off. * An impairment charge of $1.8 million was recorded to write-down idle equipment in the commercial segment to net realizable value. * Severance payments of $1.1 million unrelated to the restructure plans were incurred. * Consulting fees of $0.7 million related to tax matters that arose as a result of the divestitures were incurred. A summary of the activity charged to the 2002 restructuring liability during the year ended December 31, 2002 is as follows (in thousands):
COMMERCIAL RESALE TOTAL ---------- ------ ------- Initial accrual...................................... $ 4,106 $1,019 $ 5,125 Additions to the accrual......................... 2,466 -- 2,466 Payments for severance........................... (2,581) (353) (2,934) Payments for lease termination and property exit costs.......................................... -- (3) (3) Payments for other exit costs.................... (1) (10) (11) ------- ------ ------- Balance, December 31, 2002........................... $ 3,990 $ 653 $ 4,643 ======= ====== =======
48 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. RESTRUCTURING, IMPAIRMENTS AND OTHER CHARGES (CONTINUED) 2001 ACTIVITY The restructuring and other related charges totaled $43.1 million in 2001. The following table and discussion present the details of these charges (in thousands):
COMMERCIAL RESALE CORPORATE TOTAL ---------- ------ --------- ------- Employee separation and related expenses...... $ 7,276 $2,769 $ -- $10,045 Employee training expenses.................... 2,414 214 -- 2,628 Project management expenses................... 4,985 419 -- 5,404 Asset impairment charges, net................. 4,897 2,582 -- 7,479 Other exit costs.............................. 7,524 1,655 -- 9,179 Strategic assessment costs.................... -- -- 2,677 2,677 ------- ------ ------ ------- Total restructuring costs................. 27,096 7,639 2,677 37,412 Other charges................................. 2,842 -- 1,600 4,442 ------- ------ ------ ------- Total restructuring, impairments and other charges................................. $29,938 $7,639 $4,277 $41,854 ======= ====== ====== =======
COMMERCIAL. The commercial segment announced the consolidation of eight envelope plants in 2001 and recorded employee separation expenses of $6.9 million covering 766 employees that were expected to be affected over the course of the consolidation project. Restructuring expenses incurred in 2001 included training costs of $2.4 million, project management fees of $5.0 million, impairment charges of $4.3 million on the equipment that was taken out of service, and $5.5 million to cover lease termination costs, the costs of equipment moves and building clean-up expenses. A printing plant in Philadelphia, Pennsylvania has closed and two other printing operations in the Philadelphia area were consolidated. These actions were taken to improve the Company's cost effectiveness and competitive position in the Philadelphia market. The costs associated with the consolidation included employee separation expenses of $0.4 million covering the elimination of 25 jobs, impairment charges of $0.6 million on equipment taken out of service and other costs of $2.0 million to cover lease termination costs and costs to dismantle, move and reinstall equipment. RESALE. The resale segment began the closure of its envelope manufacturing facility in Mississippi. The cost recorded in 2001 was $6.5 million and included employee separation expenses of $1.6 million covering 142 employees, impairments on equipment taken out of service of $3.9 million and $1.0 million of training, project management and other costs. Resale's documents division substantially curtailed its business forms plant in Denver, Colorado in 2001. The employee separation expenses of $0.6 million related to the elimination of 62 jobs. Other costs were the expenses incurred to dismantle, move and reinstall equipment. Additionally, an impairment charge of $1.3 million taken in 2000 to write down a building to its estimated fair market value was reversed. This building was sold for more than its original carrying value. A warehouse and distribution center in Santa Fe Springs, California was closed. The cost associated with this closure was $0.9 million which was primarily employee separation expenses covering 17 employees and lease termination costs. CORPORATE. Outside advisors were used in developing the Company's strategic plan to research and evaluate markets, survey customers and assess existing strategies. In addition, financial advisors evaluated options for improving the Company's capital structure. The cost of these advisors was $2.7 million in 2001. 49 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. RESTRUCTURING, IMPAIRMENTS AND OTHER CHARGES (CONTINUED) OTHER CHARGES. Other charges include the following items: * The outside assistance used in the implementation of initiatives in the commercial segment to implement best practices, standardize costing and pricing systems, and align equipment and services to better serve customers and markets totaled $2.1 million in 2001. * Cost of $0.7 million incurred by the commercial segment for a human resource information system that was not implemented was written-off. * A $1.6 million investment in a company that was developing a service, which would enable online collaborative design and management of a printing job, was written off. A summary of the activity charged to the 2001 restructuring liability during the year ended December 31, 2002 is as follows (in thousands):
COMMERCIAL RESALE TOTAL ---------- ------ ------- Balance, December 31, 2001............................. $10,730 $ 70 $10,800 Additions to the accrual............................... 169 -- 169 Payments for severance................................. (5,026) -- (5,026) Payments for lease termination and property exit costs................................................ (2,406) (70) (2,476) Reversal of unused portion............................. (500) -- (500) ------- ---- ------- Balance, December 31, 2002............................. $ 2,967 $ -- $ 2,967 ======= ==== =======
13. STOCK OPTION PLANS In May 2001, the Company adopted a Long-Term Equity Incentive Plan (the "Incentive Plan"), which replaced all prior stock option plans (the "Option Plans"). Stock options which were available for grant under the Option Plans were transferred to the Incentive Plan and the Option Plans have been frozen. The Incentive Plan allows the compensation committee of the Board of Directors to grant stock options, stock appreciation rights, restricted common stock, performance awards and any other stock-based awards to officers, directors and employees of the Company. The Company has 1,397,769 stock options available for issuance. Stock options generally vest over four to six years and expire 10 years from the date granted. Restricted stock vests fifty percent in five years from the date of grant and fifty percent in six years from the date of grant. Restricted stock issued to directors vests six months from the date of grant. Options are granted at a price equal to the fair market value of the Company's common stock on the date of grant. The Incentive Plan provides for an acceleration of the vesting of both the stock options and the restricted stock if the Company's stock price closes at certain levels for 20 consecutive trading days. Upon the issuance of restricted stock, the Company records deferred compensation as a charge to shareholders' equity for the market value of the restricted stock on the date of grant. This deferred compensation is being recognized as compensation expense ratably over the vesting period. The Company has awarded 684,398 shares of restricted stock of which 40,398 shares have vested. The Company recorded compensation expense in the amount of $0.8 million, $0.6 million and $0.3 million for the years ended December 31, 2003, 2002 and 2001, respectively. 50 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCK OPTION PLANS (CONTINUED) The following table summarizes the activity and terms of outstanding options at December 31, 2003, 2002 and 2001:
2003 2002 2001 ----------------------- ----------------------- ----------------------- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE --------- -------- --------- -------- --------- -------- Options outstanding at beginning of year........................ 5,442,002 $6.96 6,128,637 $7.08 3,670,867 $8.75 Granted.......................... 1,021,044 2.26 255,250 4.63 3,265,036 5.45 Exercised........................ (30,831) 2.33 (11,230) 1.63 (201,922) 2.05 Expired/cancelled................ (693,646) 7.59 (930,655) 6.85 (605,344) 9.83 --------- ----- --------- ----- --------- ----- Options outstanding at end of year........................... 5,738,569 $6.16 5,442,002 $6.96 6,128,637 $7.08 ========= ===== ========= ===== ========= ===== Options exercisable at end of year........................... 3,629,843 $6.49 2,458,607 $8.01 1,679,137 $8.60 ========= ===== ========= ===== ========= =====
Summary information about the Company's stock options outstanding at December 31, 2003 is as follows:
WEIGHTED WEIGHTED WEIGHTED OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE DECEMBER 31, REMAINING LIFE EXERCISE DECEMBER 31, EXERCISE RANGE OF EXERCISE PRICES 2003 (IN YEARS) PRICE 2003 PRICE - ---------------------------- -------------- -------------- -------- -------------- -------- $ 1.32-$2.19................ 772,056 3.9 $ 2.10 709,863 $ 2.09 $ 2.19-$4.37................ 442,005 5.0 $ 3.62 254,405 $ 3.64 $ 4.37-$6.56................ 2,881,050 2.9 $ 5.46 1,222,917 $ 5.45 $ 6.56-$8.74................ 786,040 4.6 $ 7.62 659,000 $ 7.46 $ 8.74-$10.93............... 237,200 5.9 $ 9.71 197,600 $ 9.78 $10.93-$13.11............... 427,800 4.9 $12.33 408,240 $12.29 $13.11-$15.30............... 174,418 4.3 $13.81 159,818 $13.79 $21.86...................... 18,000 4.3 $21.86 18,000 $21.86 --------- --- ------ --------- ------ $ 1.32-$21.86............... 5,738,569 3.7 $ 6.16 3,629,843 $ 6.49 ========= === ====== ========= ======
As permitted by SFAS No. 123, the Company accounts for its stock-based compensation under APB No. 25; however, the Company has computed for pro forma disclosure purposes the value of all options granted during 2003, 2002 and 2001 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 and using the following average assumptions:
2003 2002 2001 --------- --------- --------- Risk-free interest rate....................... 2.6% 3.0% 3.5% Expected dividend yield....................... 0% 0% 0% Expected option lives......................... 5 years 5 years 4-6 years Expected volatility........................... 73% 71% 65%
The weighted average fair value of options granted in 2003, 2002 and 2001 was $1.39, $1.16 and $3.22, respectively, per option. Refer to Note 1 for the pro forma effect of expensing the estimated fair value of stock options on net income and earnings per share for 2003, 2002 and 2001. 51 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. RETIREMENT PLANS SAVINGS PLAN. The Company sponsors a defined contribution plan to provide substantially all U.S. salaried and certain hourly employees an opportunity to accumulate personal funds for their retirement. As determined by the provisions of the plan, the Company matches a certain percentage of each employee's voluntary contribution. The plan also provides for a discretionary contribution by the Company to the plan for all eligible employees. All contributions made by the Company are made in cash and allocated to the funds selected by the employee. Company contributions to the plan were approximately $6.0 million, $6.5 million and $10.5 million for the years ending in December 31, 2003, 2002 and 2001, respectively. No discretionary contributions were made in 2003 or 2002. The plan held 2,776,000 shares of the Company's common stock at December 31, 2003. Shares held in a frozen employee stock ownership plan were 2,524,000 at December 31, 2003. PENSION PLANS. The Company maintains pension plans for certain of its employees in the U.S. and Canada under collective bargaining agreements with unions representing these employees. The Company expects to continue to fund these plans based on governmental requirements, amounts deductible for income tax purposes and as needed to ensure that plan assets are sufficient to satisfy plan liabilities. SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS. As a result of the acquisition of American Business Products ("ABP") in 2000, the Company assumed responsibility for the ABP supplemental executive retirement plans ("SERP") which provide benefits to certain former directors and executives of ABP. For accounting purposes, these plans are unfunded; however, ABP had purchased annuities, which are included in other assets in the consolidated balance sheets, to cover the benefits for certain participants. 52 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. RETIREMENT PLANS (CONTINUED) The following table sets forth the financial status of the pension plans and the SERP and the amounts recognized in the Company's consolidated balance sheets at December 31, 2003 and 2002 (in thousands):
PENSION PLANS SERP -------------------- -------------------- 2003 2002 2003 2002 ------- ------- ------- ------- Change in benefit obligation: Benefit obligation at beginning of year.......... $34,810 $31,549 $ 9,051 $ 9,042 Service cost..................................... 1,908 1,541 -- -- Interest cost.................................... 2,664 2,250 670 998 Actuarial gains and loss......................... 3,997 1,307 -- -- Foreign currency translation..................... 5,057 316 -- -- Benefits paid.................................... (2,572) (2,153) (985) (989) ------- ------- ------- ------- Benefit obligation at end of year.............. 45,864 34,810 8,736 9,051 ------- ------- ------- ------- Change in plan assets: Fair value of plan assets at beginning of year... 31,188 32,715 -- -- Actual return on plan assets..................... 3,455 (1,420) -- -- Employer contributions........................... 1,056 1,793 -- -- Foreign currency translation..................... 4,859 475 -- -- Benefits paid.................................... (2,881) (2,375) -- -- ------- ------- ------- ------- Fair value of plan assets at end of year....... 37,677 31,188 -- -- ------- ------- ------- ------- Funded status...................................... (8,187) (3,623) (8,736) (9,051) Unrecognized actuarial gain........................ 18,540 13,526 -- -- Unrecognized prior service cost.................... 239 230 -- -- Unrecognized transition asset...................... (3,885) (4,293) -- -- ------- ------- ------- ------- Net amount recognized.............................. $ 6,707 $ 5,840 $(8,736) $(9,051) ======= ======= ======= ======= Amounts recognized in the consolidated balance sheets: Prepaid benefit cost........................... $ 5,100 $ 4,471 $ -- $ -- Accrued benefit liability...................... (7,507) (2,378) (8,736) (9,051) Intangible asset............................... 250 67 -- -- Deferred tax asset............................. 3,412 1,416 -- -- Accumulated other comprehensive loss........... 5,452 2,264 -- -- ------- ------- ------- ------- Net amount recognized.............................. $ 6,707 $ 5,840 $(8,736) $(9,051) ======= ======= ======= =======
The components of the net periodic pension cost for the pension plans and the SERP were as follows (in thousands):
2003 2002 2001 ------- ------- ------- Service cost........................................... $ 1,447 $ 1,185 $ 1,075 Interest cost on projected benefit obligation.......... 3,334 3,248 2,991 Expected return on plan assets......................... (3,622) (3,148) (3,017) Net amortization and deferral.......................... (482) (399) (396) Recognized actuarial loss.............................. 295 179 36 Other.................................................. 330 1 129 ------- ------- ------- Net periodic pension expense............................ $ 1,302 $ 1,066 $ 818 ======= ======= =======
53 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. RETIREMENT PLANS (CONTINUED) The assumptions used in computing the net pension cost and the funded status were as follows:
2003 2002 2001 --------- ----- ------- Weighted average discount rate....................... 6.00% 6.75% 7.25% Expected long-term rate of return on assets.......... 8.00% 8.75% 8.75-9% Rate of compensation increase........................ 3.5-4% 3-4% 2-4%
The Company's overall expected long-term rate of return on assets is 8.0%. The expected return on assets assumption is based on the long-term expected return on the U.S. and Canadian investment portfolios as estimated by the Company's investment advisors. The portfolio return for the U.S. pension plans is calculated based on capital market projections of returns, risks and correlations of these asset classes projected five-years out. The portfolio return for the Canadian portfolio is calculated based upon the long-term rate for Canadian bonds and projected long-term equity returns plus an additional 0.75% for active management of the investment portfolio. The allocations of the assets of the pension plans at December 31, 2003 and 2002 by investment category were as follows:
US PLANS CANADIAN PLANS DECEMBER 31 DECEMBER 31 --------------- --------------- 2003 2002 2003 2002 ---- ---- ---- ---- US Large Cap Equity.................................... 38% 39% -- -- US Small Cap Equity.................................... 13% 12% -- -- International Equity................................... 16% 15% 17% 14% US Emerging Markets Equity............................. 3% 3% -- -- US Fixed income........................................ 24% 25% -- -- Real estate mutual funds............................... 5% 5% -- -- Cash equivalents....................................... 1% 1% 6% 8% Canadian equity funds.................................. -- -- 30% 28% Canadian fixed income.................................. -- -- 47% 50% --- --- --- --- Total.............................................. 100% 100% 100% 100%
The Company employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return on the assets of the pension plans for a prudent level of risk. In order to achieve investment objectives, target asset allocations have been established and are reviewed quarterly. The intent of this strategy is to minimize pension cost by outperforming liabilities of the pension plans over the long run. Risk tolerance is established through careful consideration of the liabilities and the funded status of the pension plans and the Company's financial condition. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks as well as growth, value, and small and large capitalizations. 54 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. RETIREMENT PLANS (CONTINUED) The Company's policy is to allocate pension plan assets for each major asset category as follows:
US PLANS CANADIAN PLANS -------- -------------- US Large Cap Equity......................................... 38% 8% US Small Cap Equity......................................... 12% -- International Equity........................................ 15% 17% US Emerging Markets Equity.................................. 3% -- US Fixed income............................................. 26% -- Real estate mutual funds.................................... 5% -- Cash equivalents............................................ 1% 5% Canadian equity funds....................................... -- 25% Canadian fixed income....................................... -- 45% --- --- Total................................................... 100% 100%
The accumulated benefit obligation and fair value of plan assets for the plans with accumulated benefit obligations in excess of plan assets were as follow (in thousands):
US PLANS CANADIAN PLANS DECEMBER 31 DECEMBER 31 -------------------- --------------------- 2003 2002 2003 2002 ------- ------ ------- ------- Projected benefit obligation...................... $10,556 $9,700 $35,308 $25,111 Accumulated benefit obligation.................... $ 2,019 $2,378 $ 6,527 $ -- Fair value of plan assets......................... $ 8,347 $7,054 $29,330 $24,134
The increase in the minimum liability included in other comprehensive income was $5.2 million in 2003 and $1.9 million in 2002. The Company expects to contribute $2.8 million to its pension plans in 2004. The Company does not expect to contribute to the SERP in 2004. Certain other U.S. employees are included in multi-employer pension plans to which the Company makes contributions in accordance with the contractual union agreements. Such contributions are made on a monthly basis in accordance with the requirements of the plans and the actuarial computations and assumptions of the administrators of the plans. Contributions to multi-employer plans were $3.0 million, $3.1 million and $2.9 million for the years ended December 31, 2003, 2002 and 2001, respectively. 55 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. COMMITMENTS AND CONTINGENCIES LEASES. The Company leases buildings and equipment under operating lease agreements expiring at various dates through 2011. Certain leases include renewal and purchase options. At December 31, 2003, future minimum annual payments under non-cancelable lease agreements with original terms in excess of one year were as follows (in thousands): 2004................................. $ 31,057 2005................................. 26,308 2006................................. 21,786 2007................................. 16,301 2008................................. 14,777 Thereafter........................... 11,412 -------- Total............................ $121,641 ========
Aggregate future minimum rentals to be received under noncancelable subleases as of December 31, 2003 are approximately $0.8 million. Rent expense for the years ended December 31, 2003, 2002 and 2001 was $37.2 million, $40.5 million and $39.9 million, respectively. CONCENTRATIONS OF CREDIT RISK. The Company has limited concentrations of credit risk with respect to financial instruments. Temporary cash investments and other investments are placed with high credit quality institutions, and concentrations within accounts receivable are limited due to the Company's customer base and its dispersion across different industries and geographic areas. LITIGATION. The Company is party to various legal actions that are ordinary and incidental to its business. Refer to Note 19 for disclosure related to the settlement of a lawsuit. While the outcome of pending legal actions cannot be predicted with certainty, management believes the outcome of these various proceedings will not have a material adverse effect on the Company's consolidated financial condition or results of operations. TAX AUDITS. The Company's income, sales and use, and other tax returns are routinely subject to audit by various authorities. The Company believes that the resolution of any matters raised during such audits will not have a material adverse effect on the Company's financial position or results of operations. 56 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. EARNINGS PER SHARE Basic earnings per share exclude dilution and are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation of the amounts included in the computation of basic earnings (loss) per share and diluted earnings (loss) per share is as follows (in thousands, except per share amounts):
DECEMBER 31 ------------------------------------- 2003 2002 2001 ------- -------- -------- Numerator: Numerator for basic and diluted earnings (loss) per share--income (loss) from continuing operations........ $ 3,924 $(73,488) $(45,213) ======= ======== ======== Denominator: Denominator for basic earnings (loss) per share--weighted average shares......................................... 47,687 47,665 47,562 Effects of dilutive securities: Stock options........................................ 628 -- -- ------- -------- -------- Denominator for diluted earnings (loss) per share--adjusted weighted average shares................ 48,315 47,665 47,562 ======= ======== ======== Earnings (loss) for continuing operations per share: Basic and diluted.................................... $ 0.08 $ (1.54) $ (0.95) ======= ======== ========
During the years ended December 31, 2003, 2002 and 2001, outstanding options and shares of restricted stock in the amount of 5,795,000, 5,357,000 and 5,625,000 common shares, respectively, were excluded from the calculation of diluted earnings per share because the effect would be antidilutive. In 2002 and 2001, interest, net of tax, on convertible notes in the amount of $4.9 million 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. 17. SEGMENT INFORMATION In October 2003, the Company reorganized into two business segments: commercial and resale. This reorganization aligns the structure with the Company's distribution channels and with the Company's principle strategic goals: to operate as one company; to provide customers with one point of entry into Mail-Well; and to go to market with a complete range of products and services. Segment data for prior years has been restated to reflect the new operating segments. The commercial segment consists of commercial printing facilities that specialize in printing of annual reports, car brochures, brand marketing collateral, catalogs, maps and guidebooks, calendars, financial communications, and facilities that produce customized envelopes for billing and remittance and direct mail advertising. The resale segment includes facilities that produce specialty packaging, customized and stock labels, envelopes, and printed business documents which are sold to distributors and value-added resellers of office products. Intercompany sales for 2003, 2002 and 2001 were $164.5 million, $142.7 million and $177.0 million, respectively, which are eliminated in consolidation and excluded from reported net sales. Operating income includes all costs and expenses directly related to the segment involved. Corporate expenses include corporate general and administrative expenses, amortization expense, and gains and losses on disposal of assets. 57 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. SEGMENT INFORMATION (CONTINUED) Identifiable assets are accumulated by facility within each business segment. Corporate assets consist primarily of cash and cash equivalents, miscellaneous receivables, deferred financing fees, deferred tax assets and other assets. The following tables present certain business segment information (in thousands):
YEAR ENDED DECEMBER 31 -------------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Net sales: Commercial................................. $1,272,525 $1,268,367 $1,357,430 Resale..................................... 399,139 460,338 511,338 ---------- ---------- ---------- Total...................................... $1,671,664 $1,728,705 $1,868,768 ========== ========== ========== Operating income (loss): Commercial................................. $ 60,816 $ 3,076 $ 42,305 Resale..................................... 45,711 44,317 44,588 Corporate(a)............................... (26,312) (80,312) (72,069) ---------- ---------- ---------- Total...................................... $ 80,215 $ (32,919) $ 14,824 ========== ========== ========== Restructuring, asset impairments and other charges: Commercial................................. $ 1,198 $ 44,894 $ 29,938 Resale..................................... 332 6,639 7,639 Corporate.................................. -- 23,018 4,277 ---------- ---------- ---------- Total...................................... $ 1,530 $ 74,551 $ 41,854 ========== ========== ========== Significant other noncash charges(b): Commercial................................. $ -- $ 23,016 $ 9,476 Resale..................................... -- 925 -- Corporate.................................. -- 41,240 36,523 ---------- ---------- ---------- Total...................................... $ -- $ 65,181 $ 45,999 ========== ========== ========== Depreciation and amortization: Commercial................................. $ 36,428 $ 36,014 $ 36,272 Resale..................................... 9,106 11,389 12,613 Corporate(c)............................... 2,433 2,652 14,511 ---------- ---------- ---------- Total...................................... $ 47,967 $ 50,055 $ 63,396 ========== ========== ========== Capital expenditures: Commercial................................. $ 28,507 $ 22,949 $ 22,097 Resale..................................... 3,076 7,668 9,537 Corporate.................................. 19 279 1,108 ---------- ---------- ---------- Total...................................... $ 31,602 $ 30,896 $ 32,742 ========== ========== ========== Net sales by product line: Commercial Printing........................ $ 781,010 $ 764,404 $ 817,937 Envelopes.................................. 691,968 760,487 835,534 Printed Office Products.................... 198,686 203,814 215,297 ---------- ---------- ---------- Total...................................... $1,671,664 $1,728,705 $1,868,768 ========== ========== ==========
58 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. SEGMENT INFORMATION (CONTINUED)
DECEMBER 31 --------------------------- 2003 2002 ---------- ---------- Identifiable assets: Commercial.......................................... $ 785,649 $ 763,250 Resale.............................................. 261,619 275,948 Corporate........................................... 60,125 63,677 ---------- ---------- $1,107,393 $1,102,875 Net assets held for sale............................ -- 4,492 ---------- ---------- Total............................................... $1,107,393 $1,107,367 ========== ========== - -------- (a) Includes $5.3 million for a settlement of litigation in 2003. In 2002, corporate expenses includes $16.5 million loss from the early extinguishment of debt, the $6.4 million impairment loss on assets held for sale and the $12.8 million impairment on operations formerly held for sale. In 2001, corporate expenses include the $36.5 million impairment on operations formerly held for sale. (b) Represents the noncash portion of restructuring, impairments, and other charges. (c) Includes adjustments to depreciation for assets held for sale in 2002 and 2001.
Geographic information for the years ended December 31, 2003, 2002 and 2001 and at December 31, 2003 and 2002, is presented below (in thousands):
2003 2002 2001 ---------- ---------- ---------- Net sales: U.S........................................ $1,482,443 $1,561,859 $1,691,837 Canada..................................... 189,221 166,846 176,931 ---------- ---------- ---------- Total...................................... $1,671,664 $1,728,705 $1,868,768 ========== ========== ========== Identifiable assets: U.S........................................ $ 948,530 $ 964,310 Canada..................................... 158,863 138,565 ---------- ---------- Total...................................... $1,107,393 $1,102,875 ========== ==========
59 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table sets forth certain quarterly financial data for the periods indicated (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH QUARTER(a) QUARTER QUARTER QUARTER ---------- ---------- ---------- ---------- 2003 Net sales................................... $ 427,320 $407,826 $412,218 $424,300 Gross profit................................ 83,920 79,125 81,877 89,624 Income (loss) from continuing operations.... 532 (1,683) 2,172 2,903 Discontinued operations..................... (2,500) 581 -- 371 Cumulative effect of a change in accounting principle................................. 322 -- -- -- --------- -------- -------- -------- Net income (loss)........................... $ 2,710 $ (2,264) $ 2,172 $ 2,532 ========= ======== ======== ======== Earnings (loss) per share--basic and diluted: Income (loss) from continuing operations............................ $ 0.01 $ (0.04) $ 0.05 $ 0.06 Discontinued operations................. 0.05 (0.01) -- (0.01) Cumulative effect of a change in accounting principle.................. -- -- -- -- --------- -------- -------- -------- Net income (loss) per share--basic and diluted............................... $ 0.06 $ (0.05) $ 0.05 $ 0.05 ========= ======== ======== ======== FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ---------- ---------- ---------- ---------- 2002 Net sales................................... $ 443,482 $420,967 $428,720 $435,536 Gross profit................................ 88,029 78,838 85,235 91,239 Income (loss) from continuing operations.... (13,609) (38,069) (22,149) 339 Discontinued operations..................... (7,999) (153) (5,804) (2,912) Cumulative effect of a change in accounting principle................................. (111,748) -- -- -- --------- -------- -------- -------- Net loss.................................... $(133,356) $(38,222) $(27,953) $ (2,573) ========= ======== ======== ======== Loss per share--basic and diluted Income (loss) from continuing operations............................ $ (0.29) $ (0.80) $ (0.46) $ 0.01 Discontinued operations................. (0.17) -- (0.13) (0.06) Cumulative effect of a change in accounting principle.................. (2.34) -- -- -- --------- -------- -------- -------- Net loss per share--basic and diluted... $ (2.80) $ (0.80) $ (0.59) $ (0.05) ========= ======== ======== ======== - -------- (a) The first quarter data for 2003 has been restated from data previously reported to reflect the adoption of FIN 46 effective January 1, 2003 (See Note 2).
19. SUBSEQUENT EVENT On February 20, 2004, a jury in Los Angeles County, California returned a $5.3 million verdict in favor of an ex-employee who had sued the Company alleging wrongful dismissal. In order to avoid the expense and risk of further litigation and appeals, the Company settled the dispute. The amount of the settlement and the costs of the litigation are reflected in the consolidated statement of operations for the year ended December 31, 2003. 60 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. 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 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, and Guarantor Subsidiaries. The Issuer and the Guarantor Subsidiaries comprise all of the direct and indirect subsidiaries of the Parent Guarantor. 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. 61 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION December 31, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ --------- ------------ Current assets: Cash and cash equivalents............ $ -- $ -- $ 307 $ -- $ 307 Accounts receivable, net............. -- 50,125 173,416 -- 223,541 Inventories, net..................... -- 35,509 55,893 -- 91,402 Note receivable from subsidiaries.... -- 603,100 -- (603,100) -- Other current assets................. -- 32,109 16,026 -- 48,135 ------- -------- -------- --------- ---------- Total current assets............... -- 720,843 245,642 (603,100) 363,385 Investment in subsidiaries............. 68,019 12,364 -- (80,383) -- Property, plant and equipment, net..... -- 90,956 297,284 -- 388,240 Goodwill and other intangible assets, net................................... -- 67,474 251,605 -- 319,079 Other assets, net...................... -- 29,322 7,367 -- 36,689 ------- -------- -------- --------- ---------- Total assets........................... $68,019 $920,959 $801,898 $(683,483) $1,107,393 ======= ======== ======== ========= ========== Current liabilities: Accounts payable..................... $ -- $ 29,092 $111,376 $ -- $ 140,468 Other current liabilities............ -- 58,868 58,701 -- 117,569 Intercompany payable (receivable).... -- 9,059 (9,059) -- -- Note payable to Issuer............... -- -- 603,100 (603,100) -- Current portion of long-term debt.... -- 1,776 799 -- 2,575 ------- -------- -------- --------- ---------- Total current liabilities.......... -- 98,795 764,917 (603,100) 260,612 Long-term debt......................... -- 741,589 4,797 -- 746,386 Deferred income taxes.................. -- (4,040) 10,757 -- 6,717 Other long-term liabilities............ -- 16,596 9,063 -- 25,659 ------- -------- -------- --------- ---------- Total liabilities.................. -- 852,940 789,534 (603,100) 1,039,374 Shareholders' equity................... 68,019 68,019 12,364 (80,383) 68,019 ------- -------- -------- --------- ---------- Total liabilities and shareholders' equity................................ $68,019 $920,959 $801,898 $(683,483) $1,107,393 ======= ======== ======== ========= ==========
62 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION December 31, 2002 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- ---------- ------------ ----------- ------------ Current assets: Cash and cash equivalents......... $ -- $ 1,957 $ 693 $ -- $ 2,650 Accounts receivable, net.......... -- 54,274 165,650 -- 219,924 Inventories, net.................. -- 42,805 60,728 -- 103,533 Net assets held for sale.......... -- -- 4,492 -- 4,492 Other current assets.............. -- 32,462 13,300 -- 45,762 ------- ---------- --------- ----------- ---------- Total current assets............ -- 131,498 244,863 -- 376,361 Investment in subsidiaries.......... 42,768 417,049 -- (459,817) -- Property, plant and equipment, net................................ -- 119,737 259,887 -- 379,624 Goodwill and other intangible assets, net........................ -- 85,097 223,850 -- 308,947 Note receivable from subsidiaries... -- 603,100 -- (603,100) -- Other assets, net................... -- 34,030 8,405 -- 42,435 ------- ---------- --------- ----------- ---------- Total assets........................ $42,768 $1,390,511 $ 737,005 $(1,062,917) $1,107,367 ======= ========== ========= =========== ========== Current liabilities: Accounts payable.................. $ -- $ 41,057 $ 110,873 $ -- $ 151,930 Other current liabilities......... -- 68,128 53,012 -- 121,140 Intercompany payable (receivable)..................... -- 507,381 (507,381) -- -- Current portion of long-term debt............................. -- 970 1,991 -- 2,961 ------- ---------- --------- ----------- ---------- Total current liabilities....... -- 617,536 (341,505) -- 276,031 Long-term debt...................... -- 754,983 5,955 -- 760,938 Note payable to Issuer.............. -- -- 603,100 (603,100) -- Deferred income tax liabilities (assets)........................... -- (38,269) 48,605 -- 10,336 Other long-term liabilities......... -- 13,493 3,801 -- 17,294 ------- ---------- --------- ----------- ---------- Total liabilities............... -- 1,347,743 319,956 (603,100) 1,064,599 Shareholders' equity................ 42,768 42,768 417,049 (459,817) 42,768 ------- ---------- --------- ----------- ---------- Total liabilities and shareholders' equity............................. $42,768 $1,390,511 $ 737,005 $(1,062,917) $1,107,367 ======= ========== ========= =========== ==========
63 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ -------- ------------ Net sales.............................. $ -- $412,819 $1,258,845 $ -- $1,671,664 Cost of sales.......................... -- 342,852 994,266 -- 1,337,118 ------ -------- ---------- -------- ---------- Gross profit........................... -- 69,967 264,579 -- 334,546 Operating expenses: Selling, administrative and other.... -- 62,671 184,917 -- 247,588 Restructuring and other operating charges............................. -- 4,617 2,126 -- 6,743 ------ -------- ---------- -------- ---------- Operating income (loss)................ -- 2,679 77,536 -- 80,215 Other (income) expense: Interest expense..................... -- 71,503 388 -- 71,891 Intercompany interest expense (income)............................ -- (54,340) 54,340 -- -- Other (income) expense............... -- 1,154 665 -- 1,819 ------ -------- ---------- -------- ---------- Income (loss) from continuing operations, before income taxes and undistributed earnings of subsidiaries.......................... -- (15,638) 22,143 -- 6,505 Provision for income taxes............. -- (6,255) 8,836 -- 2,581 ------ -------- ---------- -------- ---------- Income (loss) from continuing operations, before undistributed earnings of subsidiaries.............. -- (9,383) 13,307 -- 3,924 Equity in undistributed earnings of subsidiaries.......................... 5,150 13,307 -- (18,457) -- ------ -------- ---------- -------- ---------- Income from continuing operations...... 5,150 3,924 13,307 (18,457) 3,924 Gain from discontinued operations...... -- 1,548 -- -- 1,548 Cumulative effect of a change in accounting principle.................. -- (322) -- -- (322) ------ -------- ---------- -------- ---------- Net income (loss)...................... $5,150 $ 5,150 $ 13,307 $(18,457) $ 5,150 ====== ======== ========== ======== ==========
64 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 2002 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- --------- ------------ -------- ------------ Net sales............................ $ -- $ 519,971 $1,208,734 $ -- $1,728,705 Cost of sales........................ -- 420,696 964,665 -- 1,385,361 --------- --------- ---------- -------- ---------- Gross profit......................... -- 99,275 244,069 -- 343,344 Other operating expenses............. 161 75,033 190,777 -- 265,971 Restructuring and other operating charges............................. -- 56,641 17,910 -- 74,551 Impairment charges................... -- 22,524 13,217 -- 35,741 --------- --------- ---------- -------- ---------- Operating income (loss).............. (161) (54,923) 22,165 -- (32,919) Other expense (income): Interest expense................... 5,188 75,580 58,008 (68,315) 70,461 Other expense (income)............. (5,820) (61,341) 600 68,315 1,754 --------- --------- ---------- -------- ---------- Income (loss) from continuing operations before income taxes and equity in undistributed earnings of subsidiaries........................ 471 (69,162) (36,443) -- (105,134) Income tax benefit................... -- (19,646) (12,000) -- (31,646) --------- --------- ---------- -------- ---------- Income (loss) from continuing operations before equity in undistributed earnings of subsidiaries........................ 471 (49,516) (24,443) -- (73,488) Equity in undistributed earnings of subsidiaries........................ (202,575) (136,191) -- 338,766 -- --------- --------- ---------- -------- ---------- Income (loss) from continuing operations before extraordinary items and cumulative effect of a change in accounting principle...... (202,104) (185,707) (24,443) 338,766 (73,488) Loss on disposal, net of tax benefit............................. -- (16,868) -- -- (16,868) Cumulative effect of a change in accounting principle................ -- -- (111,748) -- (111,748) --------- --------- ---------- -------- ---------- Net income (loss).................... $(202,104) $(202,575) $ (136,191) $338,766 $ (202,104) ========= ========= ========== ======== ==========
65 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Year Ended December 31, 2001 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- --------- ------------ -------- ------------ Net sales............................ $ -- $ 590,082 $1,278,686 $ -- $1,868,768 Cost of sales........................ -- 477,170 1,003,965 -- 1,481,135 --------- --------- ---------- -------- ---------- Gross profit......................... -- 112,912 274,721 -- 387,633 Operating expenses: Selling, administrative and other............................. 378 87,621 205,202 -- 293,201 Impairment on assets held for sale and former discontinued operation......................... -- -- 36,523 -- 36,523 Restructuring and other operating charges........................... -- 38,878 4,207 -- 43,085 --------- --------- ---------- -------- ---------- Operating income (loss).............. (378) (13,587) 28,789 -- 14,824 Other (income) expense: Interest expense................... 7,970 73,260 58,590 (76,506) 63,314 Other expense (income)............. (8,923) (66,925) 1,265 76,506 1,923 --------- --------- ---------- -------- ---------- Income (loss) from continuing operations, before income taxes and undistributed earnings of subsidiaries........................ 575 (19,922) (31,066) -- (50,413) Provision (benefit) for income taxes............................... -- (7,670) 2,470 -- (5,200) --------- --------- ---------- -------- ---------- Income (loss) from continuing operations, before undistributed earnings of subsidiaries............ 575 (12,252) (33,536) -- (45,213) Equity in undistributed earnings of subsidiaries........................ (136,792) (42,845) -- 179,637 -- --------- --------- ---------- -------- ---------- Income from continuing operations.... (136,217) (55,097) (33,536) 179,637 (45,213) Loss from discontinued operations.... -- (81,695) (9,309) -- (91,004) --------- --------- ---------- -------- ---------- Net income (loss).................... $(136,217) $(136,792) $ (42,845) $179,637 $ (136,217) ========= ========= ========== ======== ==========
66 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS December 31, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED --------- ----------- ------------ ------------ Cash flows from operating activities........... $ -- $ 5,431 $ 54,028 $ 59,459 Cash flows from investing activities: Acquisitions, net of cash acquired........... -- -- (2,800) (2,800) Proceeds from divestitures, net.............. -- -- 3,864 3,864 Capital expenditures......................... -- (2,162) (29,440) (31,602) Intercompany advances........................ (75) 26,341 (26,266) -- Proceeds from sales of property, plant and equipment................................... -- 3 679 682 ---- ----------- -------- ----------- Net cash provided by (used in) investing activities.................................. (75) 24,182 (53,963) (29,856) Cash flows from financing activities: Proceeds from exercise of stock options...... 75 -- -- 75 Proceeds from issuance of long-term debt..... -- 1,915,452 -- 1,915,452 Repayments of long-term debt................. -- (1,946,539) (1,760) (1,948,299) Capitalized loan fees........................ -- (484) -- (484) ---- ----------- -------- ----------- Net cash provided by (used in) financing activities.................................. 75 (31,571) (1,760) (33,256) Effect of exchange rate changes on cash and cash equivalents.............................. -- -- 1,310 1,310 ---- ----------- -------- ----------- Net decrease in cash and cash equivalents...... -- (1,958) (385) (2,343) Cash and cash equivalents at beginning of year.......................................... -- 1,958 692 2,650 ---- ----------- -------- ----------- Cash and cash equivalents at end of year....... $ -- $ -- $ 307 $ 307 ==== =========== ======== ===========
67 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS December 31, 2002 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED --------- ----------- ------------ ------------ Cash flows from operating activities.......... $ (3,914) $ (31,306) $ 58,191 $ 22,971 Cash flows from investing activities: Acquisition costs........................... -- (2,610) -- (2,610) Capital expenditures........................ -- (8,336) (22,560) (30,896) Proceeds from divestitures, net............. -- 122,330 -- 122,330 Intercompany advances....................... -- (108,783) 108,783 -- Proceeds from the sale of assets............ -- 9,862 2,133 11,995 --------- ----------- --------- ----------- Net cash provided by investing activities... -- 12,463 88,356 100,819 Cash flows from financing activities: Proceeds from common stock issuance......... 18 -- -- 18 Proceeds from long-term debt................ -- 1,635,102 -- 1,635,102 Proceeds for repayment of intercompany note from Issuer................................ 142,959 (142,959) -- -- Repayments of long-term debt................ (139,063) (1,575,902) (11,753) (1,726,718) Intercompany dividends...................... -- 129,246 (129,246) -- Debt issuance costs......................... -- (18,624) -- (18,624) --------- ----------- --------- ----------- Net cash provided by (used in) financing activities................................. 3,914 26,863 (140,999) (110,222) Effect of exchange rate changes on cash....... -- -- (985) (985) Net cash used in discontinued operations...... -- -- (10,827) (10,827) --------- ----------- --------- ----------- Net change in cash and cash equivalents....... -- 8,020 (6,264) 1,756 Balance at beginning of year.................. -- (1,589) 2,483 894 --------- ----------- --------- ----------- Balance at end of year........................ $ -- $ 6,431 $ (3,781) $ 2,650 ========= =========== ========= ===========
68 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS December 31, 2001 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- --------- ------------ --------- ------------ Cash flows from operating activities........................... $ -- $ 17,692 $(101,449) $ 254,692 $ 170,935 Cash flows from investing activities: Acquisition costs, net of cash acquired........................... -- (3,838) -- -- (3,838) Capital expenditures................ -- (13,187) (19,555) -- (32,742) Purchase of investments............. -- (100) -- -- (100) Investment in subsidiaries.......... (413) (12,940) 13,353 -- -- Other, net.......................... -- -- 3,782 -- 3,782 ----- --------- --------- --------- --------- Net cash used in investing activities......................... (413) (30,065) (2,420) -- (32,898) Cash flows from financing activities: Decrease in accounts receivable financing facility................. -- -- (75,000) -- (75,000) Proceeds from exercise of stock options............................ 413 -- -- -- 413 Proceeds from issuance of long-term debt............................... -- 628,013 6,391 -- 634,404 Repayments of long-term debt........ -- (682,612) (16,910) -- (699,522) Capitalized loan fees............... -- (4,439) -- -- (4,439) Investment by parent................ -- 68,233 186,459 (254,692) -- ----- --------- --------- --------- --------- Net cash provided by (used in) financing activities............... 413 9,195 100,940 (254,692) (144,144) Effect of exchange rate changes on cash and cash equivalents............ -- -- (73) -- (73) Cash flows from discontinued operations........................... -- -- 6,612 -- 6,612 ----- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents..................... -- (3,178) 3,610 -- 432 Cash and cash equivalents at beginning of year.............................. -- 1,589 (1,127) -- 462 ----- --------- --------- --------- --------- Cash and cash equivalents at end of year................................. $ -- $ (1,589) $ 2,483 $ -- $ 894 ===== ========= ========= ========= =========
69 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date. There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 70 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT Under the terms of the Company's Articles of Incorporation and Bylaws, each of the Directors named below is to serve until the next annual meeting of Shareholders.
DIRECTOR NAME AGE POSITION SINCE(1) - ---- --- -------- --------- Paul V. Reilly.................... 51 Chairman, President and Chief Executive Officer 1998 Thomas E. Costello(3)(5).......... 64 Director 2003 Frank P. Diassi(2)(5)............. 70 Director 1993 Frank J. Hevrdejs(2)(4)........... 58 Director 1993 Martin J. Maloney(3)(4)........... 59 Director 2003 David M. Olivier(3)(5)............ 60 Director 2003 Jerome W. Pickholz(2)(4).......... 71 Director 1994 Alister W. Reynolds(3)(4)......... 46 Director 2002 Susan O. Rheney(2)(4)............. 44 Director 2003 Gordon A. Griffiths............... 61 President--Commercial Division Robert C. Hart.................... 66 President--Resale Division Herbert H. Davis III.............. 56 Senior Vice President--Corporate Development and Chief Legal Officer Michel P. Salbaing................ 58 Senior Vice President--Finance and Chief Financial Officer Brian P. Hairston................. 46 Vice President--Human Resources William W. Huffman, Jr............ 55 Vice President--Corporate Controller D. Robert Meyer, Jr............... 47 Vice President--Treasurer Matthew H. Mitchell............... 39 Vice President--Chief Information Officer Keith T. Pratt.................... 57 Vice President--Purchasing Wayne M. Wolberg.................. 54 Vice President--General Auditor Mark L. Zoeller................... 44 Vice President--General Counsel and Secretary - -------- (1) Directors serve one year terms. (2) Member of the Governance and Nominating Committee. (3) Member of the Compensation and Human Resources Committee. (4) Member of the Audit Committee. (5) Member of the Health, Safety and Environmental Committee.
PAUL V. REILLY has served as the Parent Company's President and Chief Executive Officer since January 2001, Chairman of the Board since June 2001, and has been a Director since 1998. Mr. Reilly was President and Chief Operating Officer from January 1998 to March 2001, and was Senior Vice President--Finance and Chief Financial Officer from 1995 to 1998. Mr. Reilly spent 14 years with Polychrome Corporation, a prepress supplier to the printing industry, where he held a number of positions including Assistant Corporate Treasurer, Corporate Treasurer, Vice President and Chief Financial Officer, and General Manager of United States Operations. Mr. Reilly is a Certified Public Accountant. THOMAS E. COSTELLO became a director in February 2003. From 1991 through retirement in 2002, Mr. Costello served as Chief Executive Officer of Xpedx, a multi-billion dollar business to business distributor of printing and packaging products, and Senior Vice President of International Paper Co. Xpedx is a wholly-owned division of International Paper. He is a director of Cadmus Communications 71 Corporation, a customized printer, and Intertape Polymer Group, a manufacturer of tape for plastic packaging. Mr. Costello is a member of the Compensation and Human Resources Committee and the Health, Safety and Environmental Committee of the Board of Directors. FRANK P. DIASSI has been a director since 1993. Mr. Diassi was Chairman of Sterling Chemicals, Inc., a manufacturer of commodity petrochemicals and chemicals used primarily in the pulp and paper industry, from 1996 through 2001. He was a founding director of Arcadian Corporation, the largest nitrogen fertilizer company in North America. From 1989 to 1994 Mr. Diassi was a director and Chairman of the Finance Committee of Arcadian Corporation. Mr. Diassi has been manager and a member of The Unicorn Group, LLC, an investment company, since 1981. Mr. Diassi is a director of Fibreglass Holdings, Inc., a truck accessory manufacturer, a director and Chairman of Amerlux Inc., a commercial lighting company, a director and Chairman of Software Plus, Inc., a human resources/ payroll software design firm, and a director of Lifelines Technology, Inc., a manufacturer of time and temperature indicator labels. On July 16, 2001, Sterling Chemicals, Inc., a company for which Mr. Diassi has served as an executive officer, filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. Mr. Diassi is a member of the Governance and Nominating Committee and Chairman of the Health, Safety and Environmental Committee of the Board of Directors. FRANK J. HEVRDEJS has been a director since 1993. In 1982, Mr. Hevrdejs co-founded The Sterling Group, L.P., a private investment company, where he is currently a principal and Chairman. He also serves as President of First Sterling Ventures Corp., an investment company, and Chairman of Enduro Holdings, Inc., a structural and electrical manufacturing company, and Chairman of Fibreglass Holdings, Inc., a truck accessory manufacturer. He is a director of Eagle U.S.A., an air-freight company. From 1998 through 2003, he was a director of the Houston Regional Board of J.P. Morgan Chase and Co., a financial institution. Mr. Hevrdejs is a certified public accountant. He was a public accounting auditor in the accounting firm of Deloitte Haskins and Sells, now known as Deloitte & Touche LLP, corporate accounting manager of Baker International and a financial consultant. He is also chairman of the audit committee of Eagle U.S.A. Mr. Hevrdejs is a member of the Audit Committee and serves as Chairman of the Governance and Nominating Committee of the Board of Directors. MARTIN J. MALONEY became a director in February 2003. Since 1984, Mr. Maloney has served as Chairman and Co-Founder of Broadford and Maloney, Inc., an agency specializing in public relations, advertising and marketing communications for graphic arts related companies. Since 1989, he has served on the Board of Advisors of the New York University Center for Graphic Arts Management. He is also a Director of the Association of Graphic Communications and serves on the Board of Governors of Legatus. Mr. Maloney served as internal auditor and prepared annual reports for companies for over 20 years. Mr. Maloney is a member of the Compensation and Human Resources Committee and the Audit Committee of the Board of Directors. DAVID M. OLIVIER became a director in February 2003. Mr. Olivier was with Wyeth Corporation, a pharmaceutical company, and its affiliated entities for over 35 years when he retired in May 2002. He was a Director and Senior Vice President at the time of his retirement. He is also a Director of Summerset Medical Center, a Director and advisor to Taratec, a management consulting company, and an Advisor to AIG Healthcare Partners, a private equity firm. Mr. Oliver is a member of the Compensation and Human Resources Committee and the Health, Safety and Environmental Committee of the Board of Directors. JEROME W. PICKHOLZ has been a director since 1994. From 1978 until 1994, he was Chief Executive Officer of Ogilvy & Mather Direct Worldwide, a direct advertising agency. From 1994 through 1995, he served as Chairman of the Board of Ogilvy & Mather Direct Worldwide where he is now Chairman Emeritus. Mr. Pickholz served as founder and Chairman of Pickholz, Tweedy, Cowan, L.L.C., a marketing communications company, from 1996 until January 2001, and he has been a direct marketing consultant since February 2001. Mr. Pickholz is a certified public accountant. Mr. Pickholz serves as the 72 Chairman of the Audit Committee and as a member of the Governance and Nominating Committee of the Board of Directors. ALISTER W. REYNOLDS has been a director since 2002. Mr. Reynolds has been employed by Quest Diagnostics, Inc., a provider of diagnostic laboratory testing services, and its former parent company, Corning Incorporated, since 1982 in various positions, including Senior Vice President--U.S. Operations and, most recently, Senior Advisor to the Office of the Chairman. Mr. Reynolds received an MBA in finance from Cornell University. He is also a director of Soma Logic Incorporated, a privately held biotechnology company, Health Care Waste Solutions and Viecore, Inc., a privately held software integration company. He is a member of the Audit Committee and Chairman of the Compensation and Human Resources Committee of the Board of Directors. SUSAN O. RHENEY became a director in February 2003. Ms. Rheney previously served as a director of the Company from 1993 to 1997. She was a principal in The Sterling Group, L.P., a private investment company, from 1992 to 2001. Ms. Rheney is also a Director of Genesis Energy LP, an oil pipeline company, and Texas Petrochemical Holdings, Inc., a chemical manufacturer. From 1999 through 2003, she served as a Director of American Plumbing and Mechanical, Inc., a plumbing contractor. Texas Petrochemical filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in July 2003. In connection with this filing, the holder of discount notes issued by Texas Petrochemical filed a lawsuit against the directors and officers of Texas Petrochemical in December 2003. Ms. Rheney received an MBA from Harvard University. She is a certified public accountant and was a public accounting auditor for the accounting firm of Deloitte & Touche. Ms. Rheney is a member of the Governance and Nominating Committee and the Audit Committee of the Board of Directors. GORDON A. GRIFFITHS served as Senior Vice President since 2002 and as President of our Commercial Segment since our reorganization in October 2003. From April 2002 until October 2003, he served as President and Chief Executive Officer of our former Commercial Printing Division. From February 2000 until April 2002, Mr. Griffiths was Chairman and Chief Executive Officer of Pareto Corporation, a Canadian knowledge services provider. He continues to serve as Director of Pareto Corporation. In 2000, Mr. Griffiths co-founded the Caxton Group, a marketing services agency, which became a public company in 2001. He was President of St. Joseph Corporation, Canada's largest privately owned printer, from May 1997 until February 2000. ROBERT C. HART served as Senior Vice President since 2000, and as President of our Resale Segment since our reorganization in October 2003. From 2000 until October 2003, he served as President and Chief Executive Officer of our former Envelope Division. From 1998, until he joined the Company, he owned his own consulting firm after having spent over 30 years with Riverwood International, a paperboard and packaging company. While at Riverwood, Mr. Hart served as Vice President and Mill Manager, Vice President, Sales and Marketing, Vice President, and General Manager of Paperboard Operations. As Senior Vice President of the paperboard operation, Mr. Hart directed the operations of three paper mills. HERBERT H. "WOODY" DAVIS III has been Senior Vice President--Corporate Development and Chief Legal Officer since August 2001. Before that, Mr. Davis was in the private practice of law and was a partner at the Denver, Colorado law firm of Rothgerber Johnson & Lyons LLP for over 20 years. Mr. Davis remains "Of Counsel" at Rothgerber Johnson & Lyons LLP. MICHEL P. SALBAING has been Senior Vice President--Finance and Chief Financial Officer since November 2000. From 1996 to November 2000, Mr. Salbaing was with Quebecor World, the largest North American printer, where he held a number of positions including Chief Financial Officer of the overall corporation, President and Chief Executive Officer of Quebecor Printing Europe and Senior Vice President and Chief Financial Officer of Quebecor World North America. Before 1996 Mr. Salbaing held various senior financial positions with three large Canadian manufacturing firms and spent eight years with Ernst & Young LLP. Mr. Salbaing is a member of the Canadian Institute of Chartered Accountants. 73 BRIAN P. HAIRSTON has been Vice President--Human Resources since August 2002. From April 2001 through August 2002, he was a human resources consultant for a variety of firms. From October 1999 until April 2001, he was Senior Vice President--Human Resources for Kellogg Corporation, a cereal producer. From 1997 to 1999, he served as Vice President--Human Resources for CitiGroup, a financial institution. WILLIAM W. HUFFMAN, JR. has been Vice President--Corporate Controller since November 2000. From January 1999 to November 2000, he was Vice President--Chief Financial Officer of the Company's commercial printing division. In 1997 and 1998, he was a financial consultant. Mr. Huffman began his career with the accounting firm of Coopers & Lybrand and is a Certified Public Accountant. D. ROBERT MEYER, JR. has been Vice President--Treasurer since 1998. From 1994 to 1998, Mr. Meyer was a partner in the tax department of the accounting firm of Deloitte & Touche LLP. Mr. Meyer is a licensed attorney, Certified Public Accountant and Certified Financial Planner. MATTHEW H. MITCHELL has been Vice President--Chief Information Officer since December 2003. From 1996 to November 2003, he served as Vice President--Information Services with Aramark Educational Resources, Inc., an educational service provider. KEITH T. PRATT has been Vice President--Purchasing and Supply Chain Management since 1998. From 1994 to 1998, Mr. Pratt was Vice President of Material Sourcing and Logistics of Ply Gem Industries, a subsidiary of Nortek, Inc., a building products manufacturer. WAYNE M. WOLBERG has been Vice President--General Auditor since October 2001. From June 2000 to April 2001, he served as Vice President--Finance of AT&T Broadband. Mr. Wolberg was Vice President and General Auditor of MediaOne from 1996 to 2000. He is a Certified Management Accountant. MARK L. ZOELLER has been Vice President--General Counsel and Secretary since January 2003. He joined the Company in 1997 as Corporate Counsel, was Assistant General Counsel from May 2000 to May 2001 and was Vice President--Corporate Development from May 2001 until January 2003. He is a licensed attorney. The sections captioned "GOVERNANCE, BOARD COMMITTEES AND BOARD COMPENSATION--Corporate Governance," and "OTHER INFORMATION--Section 16(a) Beneficial Ownership Reporting Compliance" appearing in the Company's Proxy Statement filed pursuant to Regulation 14A in connection with the 2004 Annual Meeting of Stockholders are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The sections captioned "GOVERNANCE, BOARD COMMITTEES AND BOARD COMPENSATION--Board Compensation," and "--Compensation and Human Resources Committee Interlocks and Insider Participation," "COMPENSATION OF EXECUTIVE OFFICERS," "REPORT ON EXECUTIVE COMPENSATION," and "COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN" appearing in the Company's Proxy Statement filed pursuant to Regulation 14A in connection with the 2004 Annual Meeting of Stockholders are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The sections captioned "OWNERSHIP OF VOTING SECURITIES" and "COMPENSATION OF EXECUTIVE OFFICERS--Equity Compensation Plan Information" appearing in the Company's Proxy Statement filed pursuant to Regulation 14A in connection with the 2004 Annual Meeting of Stockholders are incorporated herein by reference. 74 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section captioned "COMPENSATION OF EXECUTIVE OFFICERS--Executive Agreements--Loan to Mr. Salbaing" appearing in the Company's Proxy Statement filed pursuant to Regulation 14A in connection with the 2004 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The section captioned "INDEPENDENT PUBLIC AUDITORS" appearing in the Company's Proxy Statement filed pursuant to Regulation 14A in connection with the 2004 Annual Meeting of Stockholders is incorporated herein by reference. 75 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS Included in Part II, Item 8 of this Report. (a)(2) FINANCIAL STATEMENT SCHEDULES Included in Part IV of this Report:
PAGE ---- Schedule I Condensed Parent-Only Balance Sheets at December 31, 2003 and 2002 and Condensed Parent-Only Statements of Operations and Cash Flows for the Years Ended December 31, 2003, 2002, and 2001...................................... 80 Schedule II Valuation and Qualifying Accounts for the Years Ended December 31, 2003, 2002, and 2001......................... 84
(a)(3) EXHIBITS EXHIBIT NUMBER 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 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 Indenture dated as of December 16, 1998 between Mail-Well I Corporation and State Street Bank and Trust Company, as Trustee, relating to Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008--incorporated by reference from Exhibit 4.4 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 4.2 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. 4.3 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. 4.4 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. 4.5* Indenture dated as of February 4, 2004 between Mail-Well I Corporation and U.S. Bank National Association, as Trustee, and Form of Senior Subordinated Note and Guarantee 76 EXHIBIT NUMBER DESCRIPTION - ------- ----------- relating to Mail-Well I Corporation's $320,000,000 aggregate principal amount of 7 7/8% Senior Subordinated Notes due 2013. 4.6* Registration Rights Agreement dated February 4, 2004, between Mail-Well I Corporation, and Credit Suisse First Boston, as Initial Purchaser, relating to Mail-Well I Corporation's $320,000,000 aggregate principal amount of 7 7/8% Senior Notes due 2013. 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 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. 10.6 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. 10.7 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. 10.8 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. 10.9 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. 10.10 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. 10.11 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. 10.12 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. 10.13 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 77 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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. 10.14 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. 10.15 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. 10.16 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. 10.17 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. 10.18 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--incorporated by reference to Exhibit 10.26 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.19 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--incorporated by reference to Exhibit 10.27 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.20 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--incorporated by reference to Exhibit 10.28 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.21 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--incorporated by reference to Exhibit 10.29 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.22 Amendment No. 2 to Amended and Restated Credit Agreement, dated December 27, 2002, among the Company, 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 78 EXHIBIT NUMBER DESCRIPTION - ------- ----------- administrative agent for the lenders--incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed January 8, 2003. 10.23 Amendment No. 1 to Amended and Restated Security Agreement, dated December 27, 2002, among the Company, Mail-Well I Corporation, certain subsidiaries of Mail-Well I, and Bank of America, N.A., as agent--incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K filed January 8, 2003. 10.24 Employment and Executive Severance Agreement dated as of March 10, 2003, between the Company and Paul V. Reilly--incorporated by reference to Exhibit 10.26 of the Company's Annual Form 10-K filed March 21, 2003. 10.25 Form of Executive Severance Agreement entered into between the Company and each of the following: Michel Salbaing, Gordon Griffiths, Brian Hairston, Herbert H. Davis, Keith Pratt, William Huffman, D. Robert Meyer and Mark Zoeller--incorporated by reference to Exhibit 10.27 of the Company's Annual Form 10-K filed March 21, 2003. 21* Subsidiaries of the Company. 23* Consent of Ernst & Young LLP. 24 Power of Attorney--incorporated by reference to page 86. 31.1* Certification of Periodic Report by Paul V. Reilly, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Periodic Report by Michel P. Salbaing, Senior Vice President--Finance and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Periodic Report by Paul V. Reilly, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Periodic Report by Michel P. Salbaing, Senior Vice President--Finance and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - -------- * Filed herewith. ** Furnished herewith. (b) REPORTS ON FORM 8-K 1. Current Report on Form 8-K filed November 3, 2003, providing certain disclosures under Regulation FD. 2. Current Report on Form 8-K filed November 5, 2003, disclosing other events and providing certain disclosures under Regulation FD. (c) EXHIBITS FILED Included in Item 15(a)(3) of this Report. (d) FINANCIAL STATEMENT SCHEDULES FILED Included in Item 15(a)(2) of this Report. 79 SCHEDULE I MAIL-WELL, INC. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS) CONDENSED BALANCE SHEETS (dollars in thousands)
DECEMBER 31 --------------------- 2003 2002 ------- ------- ASSETS Investment in subsidiary........................ $68,019 $42,768 ------- ------- Total assets.................................... $68,019 $42,768 ======= ======= LIABILITIES AND SHAREHOLDER'S EQUITY Shareholders' equity............................ $68,019 $42,768 ------- ------- Total liabilities and shareholders' equity...... $68,019 $42,768 ======= ======= See notes to condensed financial statements.
80 SCHEDULE I MAIL-WELL, INC. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS) CONDENSED STATEMENTS OF OPERATIONS (dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31 ------------------------------------------ 2003 2002 2001 ------ --------- --------- Other operating costs: Administrative.................................. $ -- $ -- $ 359 Amortization.................................... -- 161 19 ------ --------- --------- Total other operating costs................. -- 161 378 ------ --------- --------- Operating loss...................................... -- (161) (378) Other (income) expense: Interest expense-debt........................... -- 5,188 7,970 Interest income from subsidiary................. -- (5,820) (8,923) ------ --------- --------- Income before equity in undistributed earnings of subsidiary........................................ -- 471 575 ------ --------- --------- Equity (loss) in undistributed earnings of subsidiary........................................ 5,150 (202,575) (136,792) ------ --------- --------- Net income (loss)................................... $5,150 $(202,104) $(136,217) ====== ========= ========= See notes to condensed financial statements.
81 SCHEDULE I MAIL-WELL, INC. (PARENT-ONLY FINANCIAL SUPPLEMENTAL STATEMENTS) CONDENSED STATEMENTS OF CASH FLOWS (dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31 -------------------------------------- 2003 2002 2001 ------ --------- --------- Cash flow from operating activities: Net income (loss).................................... $5,150 $(202,104) $(136,217) Adjustments to reconcile net income to net cash provided (used in) by operating activities: Equity in undistributed earnings (loss) of subsidiary..................................... 5,150 202,575 136,792 Amortization..................................... -- 1,023 859 Changes in operating assets and liabilities, net of effects of acquired businesses: Other working capital........................ -- (5,408) (1,434) ------ --------- --------- Net cash used in operating activities........ -- (3,914) -- Cash flow from investing activities: Investment in subsidiary............................. -- -- (413) Other activity with subsidiary, net.................. (75) -- -- ------ --------- --------- Net cash provided by (used in) investing activities................................. (75) -- (413) Cash flow from financing activities: Net proceeds from issuance of common stock........... 75 18 413 Proceeds from intercompany debt...................... -- 142,959 -- Repayment of long-term debt.......................... -- (139,063) -- ------ --------- --------- Net cash provided by financing activities.... 75 3,914 413 ------ --------- --------- Net increase (decrease) in cash and cash equivalents..... -- -- -- Cash and cash equivalents at beginning of year........... -- -- -- ------ --------- --------- Cash and cash equivalents at end of year................. $ -- $ -- $ -- ====== ========= ========= See notes to condensed financial statements.
82 SCHEDULE I MAIL-WELL, INC. (PARENT-ONLY SUPPLEMENTAL FINANCIAL STATEMENTS) CONDENSED SUPPLEMENTAL FINANCIAL INFORMATION OF THE REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The financial statements of Mail-Well, Inc. (the "Company") reflect the investment in Mail-Well I Corporation ("MWI"), a wholly-owned subsidiary, using the equity method. 2. CONSOLIDATED FINANCIAL STATEMENTS Reference is made to the consolidated financial statements and related Notes of Mail-Well, Inc. and Subsidiaries included elsewhere herein for additional information. 3. DEBT AND GUARANTEES The Company has guaranteed all debt of MWI and it's subsidiaries ($749.0 million outstanding at December 31, 2003, including current maturities) and certain other obligations arising in the ordinary course of business. The aggregate amounts of MWI's and it's subsidiaries debt maturities for the five years following 2003 are: 2004--$2.6 million; 2005--$75.8 million; 2006--$2.3 million; 2007--$13.5 million; 2008--$301.0 million; and $353.8 million thereafter. 4. DIVIDENDS RECEIVED No dividends have been received from MWI since the Company's inception. MWI's ability to declare dividends to the Company is restricted by the terms of its bank credit agreements and the indentures relating to MWI's Senior Notes and Senior Subordinated Notes. 83 SCHEDULE II MAIL-WELL, INC. AND SUBSIDIARIES SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (amounts in thousands)
FOR THE YEAR ENDED DECEMBER 31 --------------------------------------- 2003 2002 2001 ------- ------- ------- ACCOUNTS RECEIVABLE ALLOWANCES Balance at beginning of year......................... $ 4,673 $ 5,385 $ 4,618 Charged to costs and expenses........................ 3,276 4,026 3,674 Recoveries and other charges......................... (72) 552 3,994 (1) Deductions(2)........................................ (3,893) (5,290) (6,901) ------- ------- ------- Balance at end of year............................... $ 3,984 $ 4,673 $ 5,385 ======= ======= ======= INVENTORY RESERVES Balance at beginning of year......................... $ 5,668 $ 4,636 $ 4,995 Charged to costs and expenses........................ 2,072 2,830 1,408 Recoveries and other charges......................... (1,514) (602) (559)(1) Deductions(2)........................................ (1,234) (1,196) (1,208) ------- ------- ------- Balance at end of year............................... $ 4,992 $ 5,668 $ 4,636 ======= ======= ======= - -------- (1) Includes amounts transferred from Mail-Well Trade Receivable Corporation in the amount of $3,169. In addition, this amount includes the reclassifications in the amounts of $290 and $169 which relate to reserves for accounts receivable allowances and inventory reserves transferred to assets held for sale, respectively. (2) Accounts and inventories written off.
84 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in the city of Englewood, state of Colorado, on February 25, 2004. MAIL-WELL, INC. By: /s/ PAUL V. REILLY ------------------------------------------- Paul V. Reilly, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) By: /s/ MICHEL P. SALBAING ------------------------------------------- Michel P. Salbaing, Senior Vice President-- Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 85 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Herbert H. Davis III as attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission.
SIGNATURE TITLE DATE --------- ----- ---- /s/ PAUL V. REILLY Chairman of the Board, February 25, 2004 ---------------------------- President & Chief Executive Officer Paul V. Reilly /s/ THOMAS E. COSTELLO Director February 25, 2004 ---------------------------- Thomas E. Costello /s/ FRANK P. DIASSI Director February 25, 2004 ---------------------------- Frank P. Diassi /s/ FRANK. J. HEVRDEJS Director February 25, 2004 ---------------------------- Frank J. Hevrdejs /s/ MARTIN J. MALONEY Director February 25, 2004 ---------------------------- Martin J. Maloney /s/ DAVID M. OLIVIER Director February 25, 2004 ---------------------------- David M. Olivier /s/ JEROME W. PICKHOLZ Director February 25, 2004 ---------------------------- Jerome W. Pickholz /s/ ALISTER W. REYNOLDS Director February 25, 2004 ---------------------------- Alister W. Reynolds /s/ SUSAN O. RHENEY Director February 25, 2004 ---------------------------- Susan O. Rheney
86 This page intentionally left blank This page intentionally left blank This page intentionally left blank This page intentionally left blank This page intentionally left blank This page intentionally left blank EX-4.5 3 exh4p5.txt Exhibit 4.5 EXECUTION COPY ============================================================================== MAIL-WELL I CORPORATION, as Issuer, the GUARANTORS named herein and U.S. BANK NATIONAL ASSOCIATION as Trustee ------------------------ INDENTURE ------------------------ Dated as of February 4, 2004 7 7/8% Senior Subordinated Notes due 2013 ============================================================================== CROSS-REFERENCE TABLE Trust Indenture Act Section Indenture Section - --------------------------- ----------------- 310(a)(1)............................................ 7.10 (a)(2)............................................ 7.10 (a)(3)............................................ N.A. (a)(4)............................................ N.A. (a)(5)............................................ 7.10 (b)............................................... 7.10 (c)............................................... N.A. 311(a)............................................... 7.11 (b)............................................... 7.11 (c)............................................... N.A. 312(a)............................................... 2.05 (b)............................................... 12.03 (c)............................................... 12.03 313(a)............................................... 7.06 (b)(1)............................................ N.A. (b)(2)............................................ 7.06 (c)............................................... 7.06; 12.02 (d)............................................... 7.6 314(a)............................................... 4.03; 4.19; 12.02 (b)............................................... N.A. (c)(1)............................................ 12.04 (c)(2)............................................ 12.04 (c)(3)............................................ N.A. (d)............................................... N.A. (e)............................................... 12.05 (f)............................................... N.A. 315(a)............................................... 7.01 (b)............................................... 7.05, 12.02 (c)............................................... 7.01 (d)............................................... 7.01; 6.05 (e)............................................... 6.11 316(a) (last sentence)............................... 2.09 (a)(1)(A)......................................... 6.05 (a)(1)(B)......................................... 6.04 (a)(2)............................................ N.A. (b)............................................... 6.07 (c)............................................... 12.14 317(a)(1)............................................ 6.08 (a)(2)............................................ 6.09 (b)............................................... 2.04 318(a)............................................... 12.01 (b)............................................... N.A. (c)............................................... 12.01 - --------------------- N.A. means not applicable. This Cross-Reference Table is not part of the Indenture. -i- TABLE OF CONTENTS Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions..............................................1 SECTION 1.02. Other Definitions.......................................20 SECTION 1.03. Incorporation by Reference of Trust Indenture Act.......21 SECTION 1.04. Rules of Construction...................................22 ARTICLE 2 THE NOTES SECTION 2.01. Form and Dating.........................................22 SECTION 2.02. Execution and Authentication............................24 SECTION 2.03. Registrar and Paying Agent..............................24 SECTION 2.04. Paying Agent to Hold Money in Trust.....................25 SECTION 2.05. Holder Lists............................................25 SECTION 2.06. Transfer and Exchange...................................25 SECTION 2.07. Replacement Notes.......................................40 SECTION 2.08. Outstanding Notes.......................................41 SECTION 2.09. Treasury Notes..........................................41 SECTION 2.10. Temporary Notes.........................................42 SECTION 2.11. Cancellation............................................42 SECTION 2.12. Defaulted Interest......................................42 SECTION 2.13. CUSIP Numbers...........................................43 SECTION 2.14. Liquidated Damages......................................43 SECTION 2.15. Issuance of Additional Notes............................43 ARTICLE 3 REDEMPTION AND PREPAYMENT SECTION 3.01. Notices to Trustee......................................44 SECTION 3.02. Selection of Notes to Be Redeemed.......................44 SECTION 3.03. Notice of Redemption....................................44 SECTION 3.04. Effect of Notice of Redemption..........................45 -ii- Page ---- SECTION 3.05. Deposit of Redemption Price.............................46 SECTION 3.06. Notes Redeemed in Part..................................46 SECTION 3.07. Optional Redemption.....................................46 SECTION 3.08. Mandatory Redemption....................................47 SECTION 3.09. Offer to Purchase by Application of Net Proceeds........47 ARTICLE 4 COVENANTS SECTION 4.01. Payment of Notes........................................49 SECTION 4.02. Maintenance of Office or Agency.........................50 SECTION 4.03. Compliance Certificate..................................50 SECTION 4.04. Taxes...................................................51 SECTION 4.05. Stay, Extension and Usury Laws..........................51 SECTION 4.06. Change of Control.......................................52 SECTION 4.07. Asset Sales.............................................53 SECTION 4.08. Restricted Payments.....................................54 SECTION 4.09. Incurrence of Indebtedness..............................57 SECTION 4.10. Limitations on Layering.................................59 SECTION 4.11. Liens...................................................59 SECTION 4.12. Dividend and Other Payment Restrictions Affecting Subsidiaries..........................................60 SECTION 4.13. Transactions with Affiliates............................60 SECTION 4.14. Additional Subsidiary Guarantees........................61 SECTION 4.15. Limitations on Issuances of Guarantees of Indebtedness..61 SECTION 4.16. Business Activities.....................................62 SECTION 4.17. Advances to Subsidiaries................................62 SECTION 4.18. Payments for Consent....................................62 SECTION 4.19. Reports.................................................62 ARTICLE 5 SUCCESSORS SECTION 5.01. Merger, Consolidation, or Sale of Assets................63 SECTION 5.02. Successor Corporation Substituted.......................64 -iii- Page ---- ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default.......................................65 SECTION 6.02. Acceleration............................................67 SECTION 6.03. Other Remedies..........................................68 SECTION 6.04. Waiver of Past Defaults.................................68 SECTION 6.05. Control by Majority.....................................68 SECTION 6.06. Limitation on Suits.....................................69 SECTION 6.07. Rights of Holders of Notes to Receive Payment...........69 SECTION 6.08. Collection Suit by Trustee..............................69 SECTION 6.09. Trustee May File Proofs of Claim........................70 SECTION 6.10. Priorities..............................................70 SECTION 6.11. Undertaking for Costs...................................71 SECTION 6.12. Notice..................................................71 ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee.......................................71 SECTION 7.02. Rights of Trustee.......................................72 SECTION 7.03. Individual Rights of Trustee............................73 SECTION 7.04. Trustee's Disclaimer....................................74 SECTION 7.05. Notice of Defaults......................................74 SECTION 7.06. Reports by Trustee to Holders of the Notes..............74 SECTION 7.07. Compensation and Indemnity..............................74 SECTION 7.08. Replacement of Trustee..................................75 SECTION 7.09. Successor Trustee by Merger, etc........................77 SECTION 7.10. Eligibility; Disqualification...........................77 SECTION 7.11. Preferential Collection of Claims Against Company.......77 SECTION 7.12. Patriot Act.............................................77 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. Option to Effect Legal Defeasance or Covenant Defeasance............................................77 SECTION 8.02. Legal Defeasance and Discharge..........................78 SECTION 8.03. Covenant Defeasance.....................................78 SECTION 8.04. Conditions to Legal or Covenant Defeasance..............79 -iv- Page ---- SECTION 8.05. Deposited Money and Government Securities to Be Held in Trust; Other Miscellaneous Provisions..............80 SECTION 8.06. Repayment to Company....................................81 SECTION 8.07. Reinstatement...........................................81 ARTICLE 9 AMENDMENTS, SUPPLEMENT AND WAIVER SECTION 9.01. Without Consent of Holders of Notes.....................82 SECTION 9.02. With Consent of Holders of Notes........................82 SECTION 9.03. Compliance with Trust Indenture Act.....................84 SECTION 9.04. Revocation and Effect of Consents.......................84 SECTION 9.05. Notation on or Exchange of Notes........................85 SECTION 9.06. Trustee to Sign Amendments, etc.........................85 ARTICLE 10 SUBORDINATION SECTION 10.01. Agreement to Subordinate................................85 SECTION 10.02. [Intentionally Omitted].................................85 SECTION 10.03. Liquidation; Dissolution; Bankruptcy....................85 SECTION 10.04. Default on Designated Senior Debt.......................86 SECTION 10.05. Acceleration of Notes...................................87 SECTION 10.06. When Distribution Must Be Paid Over.....................87 SECTION 10.07. Notice by Company.......................................87 SECTION 10.08. Subrogation.............................................87 SECTION 10.09. Relative Rights.........................................88 SECTION 10.10. Subordination May Not Be Impaired by Company............88 SECTION 10.11. Distribution or Notice to Representative................88 SECTION 10.12. Rights of Trustee and Paying Agent......................88 SECTION 10.13. Authorization to Effect Subordination...................89 SECTION 10.14. Amendments..............................................89 ARTICLE 11 GUARANTEES SECTION 11.01. Note Guarantees.........................................89 SECTION 11.02. Limitation of Guarantor's Liability.....................91 SECTION 11.03. Execution and Delivery of Note Guarantees...............91 -v- Page ---- SECTION 11.04. Guarantors May Consolidate, etc., on Certain Terms......92 SECTION 11.05. Releases................................................93 SECTION 11.06. "Trustee" to Include Paying Agent.......................93 SECTION 11.07. Subordination of Note Guarantees........................93 ARTICLE 12 SATISFACTION AND DISCHARGE SECTION 12.01. Satisfaction and Discharge..............................94 SECTION 12.02. Application of Trust....................................95 ARTICLE 13 MISCELLANEOUS SECTION 13.01. Trust Indenture Act Controls............................96 SECTION 13.02. Notices.................................................96 SECTION 13.03. Communication by Holders of Notes with Other Holders of Notes..............................................97 SECTION 13.04. Certificate and Opinion as to Conditions Precedent......97 SECTION 13.05. Statements Required in Certificate or Opinion...........97 SECTION 13.06. Rules by Trustee and Agents.............................98 SECTION 13.07. No Personal Liability of Directors, Officers, Employees and Stockholders............................98 SECTION 13.08. Governing Law...........................................98 SECTION 13.09. No Adverse Interpretation of Other Agreements...........98 SECTION 13.10. Successors..............................................99 SECTION 13.11. Severability............................................99 SECTION 13.12. Counterpart Originals...................................99 SECTION 13.13. Table of Contents, Headings, etc........................99 SECTION 13.14. Record Date for Voting by or Consent of Holders.........99 Schedule A SCHEDULE OF GUARANTORS EXHIBITS -------- Exhibit A-1 FORM OF NOTE Exhibit A-2 FORM OF REGULATION S TEMPORARY NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER -vi- Page ---- Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF GUARANTEE Exhibit E FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit F FORM OF INTERCOMPANY NOTE Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. -vii- INDENTURE dated as of February 4, 2004 among Mail-Well I Corporation, a Delaware corporation (the "Company"), the Guarantors (as defined herein) listed on Schedule A hereto, and U.S. Bank National Association, a national banking association, as trustee (the "Trustee"). The Company, the Guarantors, and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 7 7/8% Series A Senior Subordinated Notes due 2013 (the "Series A Notes") and the 7 7/8% Series B Senior Subordinated Notes due 2013 (the "Exchange Notes" and, together with the Series A Notes and Additional Notes, the "Notes"). ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. ----------- "144A Global Note" means the Global Note in the form of ---------------- Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified ------------- Person: (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Additional Notes" means, subject to the Company's ---------------- compliance with the provisions of Section 4.09, such additional Notes as the Company may issue under this Indenture on the same terms and conditions and with the same interest rate, maturity and CUSIP numbers as the Notes being issued on the Issue Date. "Affiliate" of any specified Person means any other Person --------- directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the -2- Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. "Agent" means any Registrar, Paying Agent or co-registrar. ----- "Applicable Procedures" means, with respect to any --------------------- transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary that apply to such transfer or exchange. "Asset Sale" means (i) the sale, lease, conveyance or ---------- other disposition of any assets or rights, including sales and leasebacks, but excluding sales of inventory and equipment in the ordinary course of business consistent with past practices; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of Section 4.06 and/or the provisions of Article 5 hereof and not by the provisions of Section 4.07; and (ii) the issuance of Equity Interests by any of the Company's Restricted Subsidiaries or the sale by the Company or any of its Restricted Subsidiaries of Equity Interests in any of its Subsidiaries. Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales: (i) any single transaction or series of related transactions that: (a) involves assets having a fair market value of less than $7.5 million; or (b) results in net proceeds to the Company and its Restricted Subsidiaries of less than $7.5 million; (ii) a transfer of assets between or among the Company and its Wholly Owned Restricted Subsidiaries; (iii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary; and (iv) a Restricted Payment that is permitted under Section 4.08 hereof. "Attributable Debt" in respect of a sale and leaseback ----------------- transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Bankruptcy Law" means Title 11, U.S. Code or any similar -------------- federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term ---------------- in Rule 13d-3 and Rule l3d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as such term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. -3- "Board of Directors" means the Board of Directors of the ------------------ Company, or the Parent Company, as applicable, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. ------------ "Capital Lease Obligation" means, at the time any ------------------------ determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, ------------- corporate stock; (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars or ---------------- Canadian dollars, (ii) securities issued or directly and fully guaranteed or insured by the full faith and credit of the United States government or the Canadian government or any agency or instrumentality thereof, having maturities of not more than one year from the date of acquisition, (iii) demand or time deposits, certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any lender party to a Credit Facility or with any domestic commercial bank having capital and surplus in excess of $250 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Ratings Services and in each case maturing within one year after the date of acquisition, and (vi) investments in money market or other mutual funds at least 95% of whose assets comprise securities described in clauses (ii) through (v) above. "Change of Control" means the occurrence of any of the ----------------- following: (i) the sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a Principal; (ii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Principals and their Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 35% of the Voting Stock of the Company or the Parent Company, measured by voting power rather than -4- number of shares; (iv) the first day on which a majority of the members of the Board of Directors of the Company or the Parent Company are not Continuing Directors; or (v) the Company or the Parent Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company or the Parent Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or the Parent Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company or the Parent Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person immediately after giving effect to such issuance. For the avoidance of doubt, the sales of the assets or stocks of Subsidiaries that the Company is currently holding for sale as part of its strategic plan will not constitute a change of control. "Company" means Mail-Well I Corporation, a Delaware ------- corporation, and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any Person ---------------------- for any period, the Consolidated Net Income of such Person for such period plus: (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments, if any, pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles) and other non-cash expenses of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (v) non-cash items increasing such Consolidated Net Income for such period, other than items that were accrued in the ordinary course of business, in each case, on a consolidated basis. Notwithstanding the preceding, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash charges of a Subsidiary of, the Company shall be added to Consolidated Net Income to compute Consolidated Cash Flow of the Company only to the extent that a corresponding amount would be permitted at -5- the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any ----------------------- specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, provided that: (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Wholly Owned Subsidiary thereof; (ii) the Net Income of any Non-Guarantor Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Non-Guarantor Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Non- Guarantor Restricted Subsidiary or its shareholders; (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded; (iv) the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the specified Person or one of its Subsidiaries; (v) any writedowns with respect to, or losses on dispositions of, Subsidiaries and assets and all restructuring charges incurred by the Company, the Parent Company and the Subsidiaries, shall be excluded; (vi) non-recurring fees, expenses or charges (including, without limitation, the write-off of deferred financing charges) incurred in connection with the Transactions shall be excluded; and (vii) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person ---------------------- as of any date, the sum of: (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date; plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock. "Continuing Directors" means, as of any date of -------------------- determination, any member of the Board of Directors of the Company or the Parent Company who: (i) was a member of such Board of Directors on the Issue Date; or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of the Board of Directors of the Parent Company at the time of such nomination or election. -6- "Corporate Trust Office of the Trustee" shall be at the ------------------------------------- address of the Trustee specified in Section 13.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means, with respect to the Company or ----------------- any Restricted Subsidiary, one or more debt facilities or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or other asset securitizations or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Default" means any event that is, or with the passage of ------- time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in --------------- the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or ---------- issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Senior Debt" means, (i) all Senior Debt under ---------------------- the Credit Facilities; and (ii) any Senior Debt permitted under this Indenture, the principal amount of which is $50 million or more and that has been designated by the Company as "Designated Senior Debt." "Equity Interests" means Capital Stock and all warrants, ---------------- options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means any private or underwritten public --------------- offering of common stock of the Company or the Parent Company in which the gross proceeds to the Company or the Parent Company, as applicable, are at least $50 million and, in the case of an offering by the Parent Company, the net proceeds are contributed to the Company. "Exchange Act" means the Securities Exchange Act of 1934, ------------ as amended. -7- "Exchange Notes" means those notes, having terms -------------- substantially identical to the Notes, offered to the Holders of the Notes under the Exchange Offer Registration Statement. "Exchange Offer" means the offer made to the Holders of -------------- the Notes to exchange their Notes for the Exchange Notes. "Exchange Offer Registration Statement" means that certain ------------------------------------- registration statement filed by the Company with the SEC to register the Exchange Offer. "Existing Indebtedness" means Indebtedness of the Company --------------------- and its Restricted Subsidiaries in existence on the Issue Date. "Fixed Charges" means, with respect to any Person for any ------------- period, the sum, without duplication, of: (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts, and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments, if any, pursuant to Hedging Obligations; plus (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus (iv) all cash dividend payments on any series of preferred stock of such Person or any of its Restricted Subsidiaries. "Fixed Charge Coverage Ratio" means, with respect to any --------------------------- specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period; provided, however, borrowings in the ordinary course of business under any revolving credit agreement shall not be given pro forma effect and shall be included in the calculation of the Fixed Charge Coverage Ratio only to the extent such borrowings were actually outstanding during the applicable four-quarter reference period. -8- In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (i) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income; (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded; and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded. "GAAP" means generally accepted accounting principles set ---- forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Global Note Legend" means the legend set forth in Section ------------------ 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Global Notes" means, individually and collectively, each ------------ of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A-1 hereto issued in accordance with Section 2.01, 2.06(b), 2.06(d) or 2.06(f) hereof. "Government Securities" means direct obligations of, or --------------------- obligations guaranteed by, the United States of America (including any agency or instrumentality thereof) for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee other than by endorsement of --------- negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Guarantors" means each of: (i) the Parent Company, (ii) ---------- each Subsidiary Guarantor as of the Issue Date and (iii) any other Subsidiary that executes a Note Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, ------------------- the obligations of such Person under: (i) interest rate swap agreements, interest rate cap agreements and interest -9- rate collar agreements; (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or the value of foreign currencies purchased or received by such Person in the ordinary course of business; and (iii) any commodity futures or option contract or similar commodity hedging contract designed to protect such Person against fluctuations in commodity prices. "Holder" means the Person in whose name a Note is ------ registered on the Registrar's books. "Indebtedness" means, with respect to any specified ------------ Person, any indebtedness of such Person, whether or not contingent, in respect of: (i) borrowed money; (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (iii) banker's acceptances; (iv) representing Capital Lease Obligations; (v) the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (vi) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be: (i) the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or --------- supplemented from time to time. "Indirect Participant" means a Person who holds a -------------------- beneficial interest in a Global Note through a Participant. "Institutional Accredited Investor" means an institution --------------------------------- that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Intercompany Notes" means the intercompany notes issued ------------------ by Restricted Subsidiaries of the Company that are not Guarantors in favor of the Company or a Guarantor to evidence advances by the Company or such Guarantor, in each case, in the form attached as Exhibit F to this Indenture. "Investments" means, with respect to any Person, all ----------- investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including -10- guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that would be classified as investments on a balance sheet prepared in accordance with GAAP excluding Hedging Obligations. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in Section 4.08(c). "Issue Date" shall mean February 4, 2004. ---------- "Legal Holiday" means a Saturday, a Sunday or a day on ------------- which banking institutions in the City of New York, New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Letter of Transmittal" means the letter of transmittal to --------------------- be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "Lien" means, with respect to any asset, any mortgage, ---- lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Liquidated Damages" means all liquidated damages then ------------------ owing pursuant to Section 6 of the Registration Rights Agreement. "Net Income" means, with respect to any Person, the net ---------- income (loss) of such Person and its Restricted Subsidiaries, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain or loss. -11- "Net Proceeds" means the aggregate cash proceeds received ------------ by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case after taking into account any available tax credits or deductions and any tax sharing arrangements and amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Guarantor Restricted Subsidiary" means any Restricted ----------------------------------- Subsidiary of the Company that is not a Guarantor. "Non-Recourse Debt" means Indebtedness: (i) as to which ----------------- neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Non-U.S. Person" means a person who is not a U.S. Person. --------------- "Note Custodian" means the Trustee, as custodian with -------------- respect to the Global Notes, or any successor entity thereto. "Note Guarantee" means, individually and collectively, the -------------- guarantees given by the Guarantors pursuant to Article 11 hereof, including a notation in the Notes substantially in the form attached hereto as Exhibit D. "Notes" has the meaning assigned to it in the preamble to ----- this Indenture. "Obligations" means any principal, interest, penalties, ----------- fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering of the Notes by the Company. -------- -12- "Officer" means, with respect to any Person, the Chairman ------- of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person, or any Guarantor, as applicable. "Officers' Certificate" means a certificate signed on --------------------- behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer or the principal accounting officer of the Company, that meets the requirements of Section 13.05 hereof. "Opinion of Counsel" means an opinion from legal counsel ------------------ who is reasonably acceptable to the Trustee, that meets the requirements of Section 13.05 hereof. The counsel may be an employee of or counsel to the Company (or any Guarantor, if applicable), the Parent Company, any Subsidiary of the Company or the Trustee. "Parent Company" means Mail-Well, Inc., a Colorado -------------- corporation. "Participant" means, with respect to DTC, a Person who has ----------- an account with DTC. "Permitted Businesses" means the printing business -------------------- generally including the business conducted by the Company and its Subsidiaries as of the Issue Date and any other business or businesses ancillary, complementary or related thereto. "Permitted Investments" means, (i) any Investment in the --------------------- Company or in a Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of the Company in a Person if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (iv) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.07 hereof; (v) Investments existing as of the Issue Date; (vi) any acquisition of assets solely in exchange for the issuance of Equity Interests of the Company; (vii) accounts receivable, endorsements for collection, deposits or similar Investments arising in the ordinary course of business; (viii) any Investment by the Company or a Restricted Subsidiary in assets of a Permitted Business or assets to be used in a Permitted Business; (ix) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Subsidiary or in satisfaction of judgments; (x) the acceptance of notes payable from employees of the Company or its Subsidiaries in payment for the purchase of Capital Stock by such employees; and (xi) any other Investment in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to -13- this clause (xi) since the Issue Date and existing at the time such Investment was made, did not exceed $30 million. "Permitted Junior Securities" means Equity Interests in --------------------------- the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt. "Permitted Liens" means (i) Liens securing Senior Debt; --------------- (ii) Liens in favor of the Company or the Guarantors; (iii) Liens when the Notes are secured by such Lien on an equal and ratable basis unless the Obligation secured by any such Lien is subordinate or junior in right of payment to the Notes, in which case the Lien securing such Obligation must be subordinate and junior to the Lien securing the Notes with the same or lesser relative priority as such Obligation shall have been with respect to the Notes; (iv) Liens on property of a Person existing at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition, merger or consolidation and do not extend to any assets other than those of the Person acquired or merged into or consolidated with the Company or the Restricted Subsidiary; (v) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (vi) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (vii) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by Section 4.09(b)(iv) hereof, covering only the assets acquired with such Indebtedness; (viii) Liens existing on the date of this Indenture; (ix) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (x) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, old age pension or public liability obligations or to secure the payment or performance of bids, tenders, statutory or regulatory obligations, surety, stay, or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (xi) easements, rights-of-way, restrictions, defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any of its Subsidiaries; (xii) purchase money liens (including extensions and renewals thereof); (xiii) Liens securing reimbursement obligations with respect to letters of credit which encumber only documents and other property relating to such letters of credit and the products and proceeds thereof; (xiv) judgment and attachment Liens not giving rise to an Event of Default; (xv) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements; (xvi) Liens arising out of con- -14- signment or similar arrangements for the sale of goods; (xvii) any interest or title of a lessor in property subject to any Capital Lease Obligation or operating lease; (xviii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith by appropriate proceeding, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (xix) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment, or storage of such inventory or other goods; (xx) Liens securing Hedging Obligations that are otherwise permitted under this Indenture; (xxi) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Subsidiaries; (xxii) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (xxiii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods; (xxiv) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of the Company or any Subsidiary on deposit with or in possession of such bank; (xxv) Liens to secure Non-Recourse Debt; (xxvi) Liens to secure any Permitted Refinancing Indebtedness (or successive Permitted Refinancing Indebtedness) which refinances as a whole, or in part, any Indebtedness secured by any Lien referred to in the foregoing clauses (i), (iv), (v), (vii), (viii) and (xii) provided, however, that (a) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements to or on such property) and (b) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (1) the outstanding principal amount or, if greater, committed amount of the Indebtedness secured by Liens described under clause (i), (iv), (v), (vii), (viii) or (xii) at the time the original Lien became a Permitted Lien under this Indenture and (2) an amount necessary to pay any fees and expenses, including premiums, related to such Permitted Refinancing Indebtedness; and (xxvii) Liens not otherwise permitted by clauses (i) through (xxvi) that are incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $15 million at any one time outstanding. "Permitted Payments to Parent Company" means (i) payments ------------------------------------ to the Parent Company in an amount sufficient to permit the Parent Company to pay reasonable and necessary operating expenses and other general corporate expenses to the extent such expenses relate or are fairly allocable to the Company and its Subsidiaries including any reasonable professional fees and expenses not in excess of $1 million in the aggregate during any consecutive 12-month period; (ii) payment to the Parent Company to enable the Parent Company to pay foreign, federal, state or local tax liabilities, not to exceed the amount of any tax liabilities that would be otherwise payable by the Company and its Subsidiaries to the appropriate taxing authorities if they filed separate tax returns, to the extent that the Parent Company has an obligation to pay such tax liabilities relating to the operations, assets or capital of the Com- -15- pany or its Subsidiaries; provided, however, that (a) notwithstanding the foregoing, in the case of determining the amount of a Tax Payment that is permitted to be paid by the Company and any of its U.S. Subsidiaries in respect of their Federal income tax liability, such payment shall be determined assuming that the Company is the parent company of an affiliated group (the "Company Affiliated Group") filing a consolidated Federal income tax return and that the Parent Company and each such U.S. Subsidiary is a member of the Company Affiliated Group and (b) any Tax Payments shall either be used by the Parent Company to pay such tax liabilities within 90 days of the Parent Company's receipt of such payment or refunded to the party from whom the Parent Company received such payments; and (iii) payments to the Parent Company in an amount sufficient to permit the Parent Company to repurchase, redeem or otherwise acquire or retire for value any Equity Interests of the Parent Company or any Restricted Subsidiary of the Parent Company held by any member of the Parent Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of the Indenture; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1.5 million in any twelve-month period. "Permitted Refinancing Indebtedness" means any ---------------------------------- Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount reasonable expenses incurred in connection therewith including premiums paid, if any, to the holder thereof); (ii) such Permitted Refinancing Indebtedness has a final maturity date either later than the final maturity date of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded or 91 days following the maturity of the Notes, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor, on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, ------ joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or -16- political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Principals" means the officers and directors of the ---------- Parent Company at the Issue Date, their Affiliates (as such term is defined under the Exchange Act) and the Parent Company's and Company's Employee Stock Ownership Plan and Trust. "Private Placement Legend" means the legend set forth in ------------------------ Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "QIB" means a "qualified institutional buyer" as defined --- in Rule 144A. "Registration Rights Agreement" means that certain ----------------------------- agreement among the Company, the Guarantors and Credit Suisse First Boston LLC requiring the Company to file the Exchange Offer Registration Statement and/or the Shelf Registration Statement. "Regulation S" means Regulation S promulgated under the ------------ Securities Act. "Regulation S Global Note" means a Regulation S Temporary ------------------------ Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent ---------------------------------- global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary ---------------------------------- global Note in the form of Exhibit A-2 hereto bearing the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Related Party" with respect to any Principal means (i) ------------- any controlling stockholder, 80% or more owned Subsidiary, or spouse or immediate family member (in the case of an individual) of such Principal; or (ii) any trust, corporation, partnership or other entity, the beneficiaries, shareholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (i). "Representative" means the indenture trustee or other -------------- trustee, agent or representative for any Senior Debt. -17- "Responsible Officer," when used with respect to the ------------------- Trustee, means any officer within the corporate trust department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing -------------------------- the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the ---------------------- Private Placement Legend. "Restricted Investment" means an Investment other than a --------------------- Permitted Investment. "Restricted Period" means the 40-day restricted period as ----------------- defined in Regulation S. "Restricted Subsidiary" of a Person means any Subsidiary --------------------- of the referenced Person that is not an Unrestricted Subsidiary. "RSTD Global Note" means the Global Note in the form of ---------------- Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with and registered in the name of the Depositary or its nominee which will be issued in a denomination equal to the outstanding principal amount of the Notes transferred or exchanged to the Company or any of its Subsidiaries, pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 under the Securities Act. "Rule 144" means Rule 144 promulgated under the Securities -------- Act. "Rule 144A" means Rule 144A promulgated under the --------- Securities Act. "Rule 903" means Rule 903 promulgated under the Securities -------- Act. "Rule 904" means Rule 904 promulgated the Securities Act. -------- "SEC" means the Securities and Exchange Commission. --- "Securities Act" means the Securities Act of 1933, as -------------- amended. "Senior Debt" means (i) all Indebtedness outstanding under ----------- Credit Facilities and all Hedging Obligations with respect thereto; (ii) any other Indebtedness permitted to be incurred by the Company or any Restricted Subsidiary under the terms of this Indenture -18- unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes; and (iii) all Obligations with respect to the items listed in the preceding clauses (i) and (ii). Notwithstanding anything to the contrary in the preceding sentence, Senior Debt will not include: (i) any liability for federal, state, local or other taxes owed or owing by the Company; (ii) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates; (iii) any trade payables; or (iv) any Indebtedness that is incurred in violation of this Indenture other than Indebtedness under a Credit Facility that is incurred on the basis of a representation by the Company to the applicable lenders that it is permitted to incur such as Indebtedness under this Indenture. "Shelf Registration Statement" means that certain shelf ---------------------------- registration statement filed by the Company with the SEC to register resales of the Notes or the Exchange Notes. "Significant Subsidiary" means any Subsidiary that is, or ---------------------- would be, a "significant subsidiary" as defined Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment --------------- of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person: (i) any ---------- corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantor" means any Restricted Subsidiary -------------------- that shall have guaranteed, pursuant to this Indenture or a supplemental indenture and the requirements therefor set forth in this Indenture, the payment of all principal of, and interest and premium, if any, on the Notes and all other amounts payable under the Notes or this Indenture. "Tax Payment" means any payment of foreign, federal, state ----------- or local tax liabilities. -19- "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. --- Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.03 hereof. "Transactions" means the incurrence of the Notes and the ------------ retirement of the Company's 8 3/4 Senior Subordinated Notes due 2008. "Trustee" means the party named as such above until a ------- successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Definitive Note" means one or more ---------------------------- Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Global Note" means a permanent global Note ------------------------ in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Subsidiary" means any Subsidiary of the ----------------------- Company that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a board resolution, but only to the extent that such Subsidiary: (i) has no Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (iii) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (iv) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (v) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and is permitted by Section 4.08 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of -20- such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof, the Company shall be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under Section 4.09 hereof, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (ii) no Default or Event of Default would be in existence following such designation. "U.S. Person" means a U.S. person as defined in Rule ----------- 902(k) under the Securities Act. "Voting Stock" of any Person as of any date means the ------------ Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to --------------------------------- any Indebtedness at any date, the number of years obtained by dividing: (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a ---------------------------------- Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person and/or by one or more Wholly Owned Restricted Subsidiaries of such Person. "Wholly Owned Subsidiary" of any Person means a Subsidiary ----------------------- of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. Other Definitions. ----------------- Defined in Term Section ---- ---------- "Affiliate Transaction" 4.13 "Asset Sale Offer" 3.09 -21- Defined in Term Section ---- ---------- "Calculation Date" 1.01 "Change of Control Offer" 4.06 "Change of Control Payment" 4.06 "Change of Control Payment Date" 4.06 "Company Affiliated Group" 1.01 "Covenant Defeasance" 8.03 "DTC" 2.03 "Event of Default" 6.01 "incur" 4.09 "Legal Defeasance" 8.02 "Offer Amount" 3.09 "Offer Period" 3.09 "Other Debt" 4.07 "Paying Agent" 2.03 "Payment Blockage Notice" 10.04 "Payment Default" 6.01 "Permitted Debt" 4.09 "Purchase Date" 3.09 "Registrar" 2.03 "Restricted Payment" 4.08 SECTION 1.03. Incorporation by Reference of Trust ----------------------------------- Indenture Act. ------------- Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes and the Note Guarantees; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company or any Guarantor and any successor obligor upon the Notes. -22- All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. Rules of Construction. --------------------- Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (iii) "or" is not exclusive; (iv) words in the singular include the plural, and in the plural include the singular; (v) provisions apply to successive events and transactions; and (vi) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time. ARTICLE 2 THE NOTES SECTION 2.01. Form and Dating. --------------- The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The notation on each Note relating to the Note Guarantees shall be substantially in the form set forth on Exhibit D, which is a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes (including the Note Guarantees) shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors, and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent -23- any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. Notes issued in global form shall be substantially in the form of Exhibit A-1 attached hereto (including the Global Note Legend and the "Schedule of Exchanges in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors), which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its St. Paul, Minnesota office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from a participant certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an RSTD Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. -24- SECTION 2.02. Execution and Authentication. ---------------------------- Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers, authenticate Notes, with the Note Guarantees endorsed thereon, for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The aggregate principal amount of the Notes that may be issued under this Indenture is unlimited. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. SECTION 2.03. Registrar and Paying Agent. -------------------------- The Company and the Guarantors shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. The Trustee will initially act as Paying Agent and Registrar for the Notes. The Company may change the Paying Agent or Registrar without prior notice to the Holders of the Notes, or the Company or any of its Subsidiaries or the Parent Company may act as Paying Agent or Registrar. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of the Guarantors may act as Paying Agent or Registrar. -25- The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. SECTION 2.04. Paying Agent to Hold Money in Trust. ----------------------------------- The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company or the Guarantors in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Guarantor) shall have no further liability for the money. If the Company or a Guarantor acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05. Holder Lists. ------------ The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company and/or the Guarantors shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company and the Guarantors shall otherwise comply with TIA Section 312(a). SECTION 2.06. Transfer and Exchange. --------------------- (a) Transfer and Exchange of Global Notes. A Global ------------------------------------- Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary or (ii) the Company in its sole -26- discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon the occurrence of either of the preceding events in (i) or (ii) above, Definitive Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.11 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to Section 2.07 or 2.11 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in ------------------------------------------------ the Global Notes. The transfer and exchange of beneficial interests in the - ---------------- Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs as applicable: (i) Transfer of Beneficial Interests in the Same -------------------------------------------- Global Note. Beneficial interests in any Restricted Global Note may ----------- be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred only to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial ----------------------------------------------- Interests in Global Notes. In connection with all transfers and ------------------------- exchanges of beneficial interests in a Global Note other than a transfer of a beneficial interest in a Global Note to a Person who takes delivery thereof in the form of a beneficial interest in the same Global Note, the transferor of such beneficial interest must deliver to the Registrar either (A) (i) a written order from a Participant or an Indirect Participant given to the Depositary in -27- accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (ii) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (ii) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (i) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another ------------------------------------------- Restricted Global Note. A beneficial interest in any Restricted ---------------------- Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of clause (ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the RSTD Global Note, then the transferor must deliver (x) a certificate in the form of Exhibit B hereto, including the certifications and certificates and Opinion of Counsel required by item (3) thereof, if applicable. -28- (iv) Transfer and Exchange of Beneficial Interests in ------------------------------------------------ a Restricted Global Note for Beneficial Interests in the -------------------------------------------------------- Unrestricted Global Note. A beneficial interest in any Restricted ------------------------ Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of clause (ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and (iii) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee -29- shall authenticate one or more Unrestricted Global Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for ------------------------------------------------ Definitive Notes. ---------------- (i) If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; -30- (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be (A) exchanged for a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act or (B) transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to the conditions set forth in clause (A) above or unless the transfer is pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Notwithstanding Section 2.06(c)(i) hereof, a holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; -31- (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company, to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. (iv) If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant -32- to this Section 2.06(c)(iv) shall not bear the Private Placement Legend. A beneficial interest in an Unrestricted Global Note cannot be exchanged for a Definitive Note bearing the Private Placement Legend or transferred to a Person who takes delivery thereof in the form of a Definitive Note bearing the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for --------------------------------------------- Beneficial Interests. -------------------- (i) If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(A) thereof; (E) if such Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(B) thereof; or -33- (G) if such Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(C) thereof, the Trustee shall cancel the Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the RSTD Global Note. (ii) A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; (ii) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and (iii) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in or- -34- der to maintain compliance with the Securities Act, and such Definitive Notes are being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above. (e) Transfer and Exchange of Definitive Notes for --------------------------------------------- Definitive Notes. Upon request by a Holder of Definitive Notes and such - ---------------- Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, pursuant to the provisions of this Section 2.06(e). (i) Restricted Definitive Notes may be transferred to and registered in the name of Persons who take delivery thereof if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; -35- (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, is not (i) a broker-dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; (ii) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and (iii) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in or- -36- der to maintain compliance with the Securities Act, and such Restricted Definitive Note is being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. (iii) A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request for such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. Unrestricted Definitive Notes cannot be exchanged for or transferred to Persons who take delivery thereof in the form of a Restricted Definitive Note. (f) Exchange Offer. Upon the occurrence of the Exchange -------------- Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by persons that are not (x) broker-dealers, (y) Persons participating in the distribution of the Exchange Notes or (z) Persons who are affiliates (as defined in Rule 144) of the Company and accepted for exchange in the Exchange Offer and (ii) Definitive Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrent with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends shall appear on ------- the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. ------------------------ (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, -37- OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (i) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (ii) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHO THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (iii) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, -38- THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraph (b)(iv), (c)(iii), (c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a ------------------ legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) Regulation S Temporary Global Note Legend. The ----------------------------------------- Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS -39- REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Notes. ---------------------------------------------- At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee or by the Depositary at the direction of the Trustee, to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note, by the Trustee or by the Depositary at the direction of the Trustee, to reflect such increase. (i) General Provisions Relating to Transfers and -------------------------------------------- Exchanges. - --------- (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes (in each case, accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.06, 4.07 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes (in each case, accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company and the Guarantors, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. -40- (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of mailing of notice of redemption and ending at the close of business on the day of such mailing, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes (in each case, accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a transfer or exchange may be submitted by facsimile. (ix) Each Holder of a Note agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Note in violation of any provision of this Indenture and/or applicable United States federal or state securities law. (x) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depositary participants or beneficial owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. SECTION 2.07. Replacement Notes. ----------------- If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Note (accompanied by a notation -41- of the Note Guarantees duly endorsed by the Guarantors) if the Trustee's requirements are met. An indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Guarantors, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and the Guarantors and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. Outstanding Notes. ----------------- The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. Treasury Notes. -------------- In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, by any Guarantor or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any Guarantor, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. -42- SECTION 2.10. Temporary Notes. --------------- Until Definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) upon a written order of the Company signed by two Officers of the Company. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. SECTION 2.11. Cancellation. ------------ The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return such canceled Notes to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. Defaulted Interest. ------------------ If either the Company or any Guarantor defaults in a payment of interest on the Notes, it or they (to the extent of their obligations under the Note Guarantees) shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. -43- SECTION 2.13. CUSIP Numbers. ------------- The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. SECTION 2.14. Liquidated Damages. ------------------ If Liquidated Damages are payable by the Company pursuant to Section 6 of the Registration Rights Agreement, the Company shall deliver to the Trustee a certificate to that effect stating (i) the amount of such Liquidated Damages that are payable and (ii) the date on which such damages are payable. Unless and until a Responsible Officer of the Trustee receives such a certificate, the Trustee may assume without inquiry that no Liquidated Damages are payable. If the Company has paid Liquidated Damages directly to the persons entitled to them, the Company shall deliver to the Trustee a certificate setting forth the particulars of such payment. SECTION 2.15. Issuance of Additional Notes. ---------------------------- The Company shall be entitled to issue Additional Notes under this Indenture which shall have substantially identical terms as the Notes, other than with respect to the date of issuance, issue price, amount of interest payable on the first payment date applicable thereto or upon a registration default as provided under a registration rights agreement related thereto and, terms of optional redemption, if any (and, if such Additional Notes shall be issued in the form of Exchange Notes, other than with respect to transfer restrictions); provided that such issuance is not -------- prohibited by Section 4.09. The Notes, any Additional Notes and all Exchange Notes issued in exchange therefor shall be treated as a single class for all purposes under this Indenture. With respect to any Additional Notes, the Company shall set forth in a resolution of its Board of Directors (or a duly appointed committee thereof) and in an Officers' Certificate, a copy of each of which shall be delivered to the Trustee, the following information: (1) the aggregate principal amount of such Additional Notes to be authenticated and delivered pursuant to this Indenture; (2) the issue price and the issue date of such Additional Notes and the amount of interest payable on the first payment date applicable thereto; and -44- (3) whether such Additional Notes shall be transfer restricted securities and issued in the form of Notes or shall be registered securities issued in the form of Exchange Notes, each as set forth in the Exhibits hereto. ARTICLE 3 REDEMPTION AND PREPAYMENT SECTION 3.01. Notices to Trustee. ------------------ If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 35 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Such notice shall be given at least 45 days prior to the redemption date in the event the Company desires that the Trustee give notice of redemption to the holders of the Notes as more particularly set forth in Section 3.03. SECTION 3.02. Selection of Notes to Be Redeemed. --------------------------------- If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. No Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. SECTION 3.03. Notice of Redemption. -------------------- Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first -45- class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed (including CUSIP numbers) and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. Effect of Notice of Redemption. ------------------------------ Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. -46- SECTION 3.05. Deposit of Redemption Price. --------------------------- One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. SECTION 3.06. Notes Redeemed in Part. ---------------------- Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07. Optional Redemption. ------------------- (a) Except as set forth in clause (b) of this Section 3.07, the Company shall not have the option to redeem the Notes pursuant to this Section 3.07 prior to December 1, 2008. Thereafter, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on December 1 of the years indicated below: -47- YEAR PERCENTAGE ---- ---------- 2008......................................... 103.938% 2009......................................... 102.625% 2010......................................... 101.313% 2011 and thereafter.......................... 100.000% (b) Notwithstanding the provisions of clause (a) of this Section 3.07, at any time prior to December 1, 2006, the Company may at its option on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes (including Additional Notes, if any) originally issued under this Indenture at a redemption price of 107.875% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that: (i) at least 65% of such aggregate principal amount of Notes (including Additional Notes, if any) originally issued remains outstanding immediately after the occurrence of such redemption (excluding Notes held directly or indirectly by the Parent Company, the Company and their Affiliates); and (ii) each such redemption must occur within 90 days of the date of the closing of such Equity Offering. (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. SECTION 3.08. Mandatory Redemption. -------------------- Except as set forth under Sections 4.06 and 4.07 hereof, the Company shall not be required to make mandatory redemption payments with respect to the Notes. SECTION 3.09. Offer to Purchase by Application of Net --------------------------------------- Proceeds. - -------- In the event that, pursuant to Section 4.07 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). Promptly after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.07 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in -48- whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.07 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date and, if the Company or any Restricted Subsidiary is required to and does make an offer to holders of Other Debt as contemplated by clause (c) of the second paragraph of Section 4.07, the notice shall state that fact, that the Offer Amount will be reduced by the amount of Other Debt required to be purchased pursuant to such other offer, and that the amount of such reduction will not be known until the expiration of such other offer, which shall not be later than the expiration of the Offer Period; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; -49- (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note (in each case, accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors), and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4 COVENANTS SECTION 4.01. Payment of Notes. ---------------- The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or any Guarantor thereof, holds as of 10:00 a.m. Eastern Time on the -50- due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. Maintenance of Office or Agency. ------------------------------- The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company or the Guarantors in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in location of any such other office or agency. The Company hereby designates the office of U.S. Bank Trust National Association, 100 Wall Street, Suite 1600, New York, NY 10005, as one such office or agency of the Company in accordance with Section 2.03. SECTION 4.03. Compliance Certificate. ---------------------- (a) The Company and the Guarantors shall deliver to the Trustee, within 90 days after the end of the fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company or such Guarantor, as the case may be, has kept, observed, performed and fulfilled its obligations -51- under this Indenture and the Guarantees, respectively, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company or such Guarantor, as the case may be, has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto). (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.19(a) shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) Each of the Company and the Guarantors shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer of the Company or any Guarantor becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.04. Taxes. ----- The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.05. Stay, Extension and Usury Laws. ------------------------------ Each of the Company and the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and each of the Company and the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power -52- herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.06. Change of Control. ----------------- (a) If a Change of Control occurs, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that Holder's Notes pursuant to the offer described below (the "Change of Control Offer"). In the Change of Control Offer, the Company shall offer a "Change of Control Payment" in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice (the "Change of Control Payment Date"), pursuant to the procedures required by this Indenture and described in such notice. The Company shall comply with the requirements of Rule 14e-l under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent the provisions of any securities laws are inconsistent with the terms of this Indenture, the Company will not be deemed to have breached this covenant by complying with such laws. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful: (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. (c) The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book-entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. (d) The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. -53- (e) The provisions described in this Section 4.06 that require the Company to make a Change of Control Offer following a Change of Control shall be applicable regardless of whether or not any other provisions of this Indenture are applicable. (f) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. SECTION 4.07. Asset Sales. ----------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (a) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of; (b) such fair market value is determined by the Company's Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee; and (c) at least 75% of the Net Proceeds received by the Company or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash: (i) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Note Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability; and (ii) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received in that conversion). Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company or a Restricted Subsidiary must apply such Net Proceeds: -54- (a) by reinvesting in the business of the Company or such Restricted Subsidiary; or (b) by repaying or retiring any Senior Debt; or (c) by offering to purchase the Notes at 100% of principal amount, plus accrued and unpaid interest and Liquidated Damages, if any, and if applicable, to make an offer to the holders of other Indebtedness of the Company that ranks pari passu with the Notes (the "Other Debt") and that by its terms requires the Company to make an offer to purchase such Other Debt upon consummation of an Asset Sale, to purchase such Other Debt on a pro rata basis with the Notes. Pending the final application of any Net Proceeds, the Company may temporarily reduce revolving credit borrowings. SECTION 4.08. Restricted Payments. ------------------- (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests of the Company or to the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company or any Restricted Subsidiary of the Company (other than any such Equity Interests owned by the Company or any Restricted Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is pari passu with or subordinated to the Notes or the Note Guarantees (other than the Notes or the Note Guarantees), except a payment of interest or principal at the Stated Maturity thereof; or (iv) make any Restricted Investment -55- (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a); and (iii) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after December 31, 2003 (excluding Restricted Payments permitted by clauses (iii), (v), (vii), (viii) and (ix) of the next succeeding paragraph), is less than the sum, without duplication, of: (A) 50% of the Consolidated Net Income (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit) of the Company since December 31, 2003, plus (B) the aggregate net cash proceeds received by the Company after December 31, 2003 from the sale of Equity Interests or any Indebtedness that is convertible into Capital Stock and has been so converted, plus (C) the aggregate cash received by the Company as capital contributions after December 31, 2003, plus (D) $30 million. (b) So long as no Default has occurred and is continuing or would be caused thereby, the preceding provisions of paragraph (a) of this Section 4.08 shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the repurchase, redemption, defeasance, retirement or other acquisition of any pari passu or subordinated Indebtedness of the Company or any Guarantor or of any Equity Interests of the Company or any Restricted Subsidiary in exchange for, -56- or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company; (iii) the redemption, repurchase, defeasance, retirement or other acquisition of pari passu or subordinated Indebtedness of the Company or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the Company's (or any of its Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement in effect as of the date of this Indenture; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1.5 million in any twelve-month period; (vi) the making of any Restricted Investment, directly or indirectly, out of the net cash proceeds of substantially concurrent sales (other than to a Subsidiary) of Equity Interests of the Company; (vii) the repurchase, redemption, retirement or other acquisition of Equity Interests of the Company or any Restricted Subsidiary issued, or Indebtedness incurred, by the Company or any Restricted Subsidiary in connection with the acquisition of any Person or any assets to the former owners of such Person or assets; and (viii) Permitted Payments to Parent Company. (c) The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $10 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.08 were computed, together with a copy of any fairness opinion or appraisal required by this Indenture. -57- SECTION 4.09. Incurrence of Indebtedness. -------------------------- (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt); provided, however, that the Company and any Restricted Subsidiary may incur Indebtedness (including Acquired Debt), if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred at the beginning of such four-quarter period. (b) Notwithstanding the prohibitions of paragraph (a) of this Section 4.09, the Company may incur of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company and any Restricted Subsidiary of the Indebtedness under Credit Facilities (including amounts outstanding at the Issue Date); provided that the aggregate principal amount of all Indebtedness under such Credit Facilities (including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (i)) permitted by this clause (i) does not exceed an amount equal to $375 million, less any repayments actually made thereunder with the Net Proceeds of Asset Sales in accordance with clause (b) of the second paragraph of Section 4.07; (ii) the incurrence by the Company and its Subsidiaries of Existing Indebtedness (excluding amounts outstanding under Credit Facilities at the Issue Date); (iii) the incurrence by the Company and the Subsidiary Guarantors of Indebtedness represented by the Notes and the Note Guarantees issued on the Issue Date; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount (including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (iv)) not to exceed $50 million at any time outstanding; -58- (v) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace, Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under paragraph (a) of this Section 4.09 or clause (i), (ii), (iii), (iv) or (ix) of this paragraph (b); (vi) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Wholly Owned Restricted Subsidiaries; provided, however, that: (A) if the Company or any Subsidiary Guarantor is the obligor on such Indebtedness and such Indebtedness is owed to or held by a Restricted Subsidiary that is not a Subsidiary Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Company, or the Note Guarantee of such Subsidiary Guarantor, in the case of a Subsidiary Guarantor; and (B) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Restricted Subsidiary thereof and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Restricted Subsidiary thereof, shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (vi); (vii) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of hedging interest rate risk with respect to any Indebtedness that is permitted by the terms of this Indenture to be outstanding; (viii) the guarantee by the Company or any of its Restricted Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this Section 4.09; (ix) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accrued value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (ix), not to exceed $50 million; (x) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to be Non- -59- Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (x); (xi) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of judgment, appeal, surety, performance and other like bonds, bankers acceptances and letters of credit provided by the Company and its Subsidiaries in the ordinary course of business (including any Indebtedness incurred to refinance, retire, renew, defease, refund or otherwise replace any Indebtedness referred to in this clause (xi)); and (xii) Indebtedness incurred by the Company or any of its Subsidiaries arising from agreements or their respective bylaws providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees of letters of credit, surety bonds or performance bonds securing the performance of the Company or any of its Subsidiaries to any Person acquiring all or a portion of such business or assets of a Subsidiary of the Company. (c) For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in paragraphs (b)(i) through (b)(xii) above, or is entitled to be incurred pursuant to paragraph (a) of this Section 4.09, the Company shall be permitted to classify such item of Indebtedness on the date of its incurrence in any manner that complies with this Section 4.09. SECTION 4.10. Limitations on Layering. ----------------------- The Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes. No Guarantor shall incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of such Guarantor and senior in any respect in right of payment to such Guarantor's Guarantee of the Notes. SECTION 4.11. Liens. ----- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to own any Lien of any kind securing Indebtedness, Attributable Debt or trade payables on any asset now owned or hereafter acquired, except Permitted Liens. -60- SECTION 4.12. Dividend and Other Payment Restrictions --------------------------------------- Affecting Subsidiaries. ---------------------- The Company shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to pay dividends or make any other distributions or pay Indebtedness to the Company or any of the Company's Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of the Company's Restricted Subsidiaries. SECTION 4.13. Transactions with Affiliates. ---------------------------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"), unless: (a) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (b) the Company delivers to the Trustee: (i) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5 million, a resolution of the Board of Directors set forth in the Officers' Certificate certifying that such Affiliate Transaction complies with this Section 4.13 and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and (ii) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The following items shall not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of the prior paragraph: -61- (a) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary; (b) indemnification agreements permitted by law entered into by the Company or any of its Restricted Subsidiaries with any of its Affiliates who are directors, employees or agents of the Company or any of its Restricted Subsidiaries; (c) transactions between or among the Company and/or its Restricted Subsidiaries; (d) payment of reasonable directors fees to Persons who are not otherwise Affiliates of the Company; and (e) Restricted Payments that are permitted by Section 4.08. SECTION 4.14. Additional Subsidiary Guarantees. -------------------------------- If after the Issue Date the Company or any Restricted Subsidiary of the Company acquires or creates another Restricted Subsidiary (other than a special purpose financing vehicle) and such Restricted Subsidiary is formed under the laws of a state of the United States (including the District of Columbia) and has its principal place of business within the United States, then at such time as such Restricted Subsidiary first becomes a Significant Subsidiary of the Company, that newly acquired or created Restricted Subsidiary must become a Guarantor and execute a supplemental indenture satisfactory to the Trustee and deliver an opinion of counsel to the Trustee within 10 Business Days of the date on which it was acquired or created. SECTION 4.15. Limitations on Issuances of Guarantees -------------------------------------- of Indebtedness. --------------- The Company shall not permit any of its Restricted Subsidiaries that is not a Guarantor of the Notes, directly or indirectly, to Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company or the Parent Company unless such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture providing for the Guarantee of the payment of the Notes by such Restricted Subsidiary to the same extent as such Guarantee of such other Indebtedness, which Guarantee shall be senior to or pari passu with such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness, unless such other Indebtedness is Senior Debt, in which case the Guarantee of the Notes may be subordinated to the Guarantee of such Senior Debt to the same extent as the Notes are subordinated to such Senior Debt. Notwithstanding the preceding paragraph, any Note Guarantee of the Notes shall provide by its terms that it shall be automatically and unconditionally released and dis- -62- charged under the circumstances described in Section 11.05. The form of the Guarantee of the Notes is attached as Exhibit D hereto. SECTION 4.16. Business Activities. ------------------- The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses. SECTION 4.17. Advances to Subsidiaries. ------------------------ All advances to Restricted Subsidiaries that are not Guarantors made by the Company after the date of this Indenture will be evidenced by Intercompany Notes in favor of the Company. Each Intercompany Note will be payable upon demand and will bear interest at the same rate as the Notes. The form of Intercompany Note is attached as Exhibit F hereto. SECTION 4.18. Payments for Consent. -------------------- The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. SECTION 4.19. Reports. ------- (a) Whether or not required by the SEC, so long as any Notes are outstanding, the Company shall furnish to the Holders of Notes, within the time periods specified in the SEC's rules and regulations: (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by the Company's certified independent accountants; and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. (b) The quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, or in Management's Discussion and Analysis of -63- Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Subsidiary Guarantors separate from the financial condition and results of operations of the other Subsidiaries of the Company. (c) In addition, whether or not required by the SEC, the Company shall file a copy of all of the information and reports referred to in clauses (a) and (b) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC shall not accept such a filing) and make such information available to securities analysts and prospective investors upon request. (d) In addition, the Company shall file with the Trustee such other information, documents and other reports which the Company is required to file with the SEC pursuant to Section 13 or Section 15(d) of the Exchange Act. (e) For so long as any Notes remain outstanding (unless the Company is subject to the reporting requirements of the Exchange Act), the Company and the Guarantors shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (f) The foregoing reporting obligations set forth in this Section 4.19 may be satisfied by reports prepared and filed by the Parent Company on a consolidated basis under the requirements of the Exchange Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE 5 SUCCESSORS SECTION 5.01. Merger, Consolidation, or Sale of Assets. ---------------------------------------- The Company may not, directly or indirectly: (i) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person; unless: -64- (a) either: (i) the Company is the surviving corporation; or (ii) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made, expressly assumes all the obligations of the Company under the Notes and this Indenture pursuant to agreements reasonably satisfactory to the Trustee; (c) immediately after such transaction no Default or Event of Default exists; and (d) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company): (i) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction; and (ii) shall, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a). In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. This Section 5.01 shall not apply to a merger, consolidation, sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Wholly Owned Subsidiaries. For the avoidance of doubt, this Section 5.01 also will not apply to sales of the assets or stocks of Subsidiaries that the Company currently is holding for sale as part of its strategic plan. SECTION 5.02. Successor Corporation Substituted. --------------------------------- Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from -65- and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company, and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default. ----------------- Each of the following is an "Event of Default": (a) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes (whether or not prohibited by the subordination provisions of this Indenture); (b) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of this Indenture); (c) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under Sections 3.09, 4.06, 4.07, 4.08 and 4.09 hereof; (d) failure by the Company or any of its Restricted Subsidiaries to comply with any of the other agreements in this Indenture for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding; (e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, if that default: (i) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period pro- -66- vided in such Indebtedness on the date of such default (a "Payment Default"); or (ii) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25 million or more; (f) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $25 million, which judgments are not paid, discharged or stayed within 60 days following entry of judgment; (g) except as permitted by this Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; (h) the Company or any of the Company's Restricted Subsidiaries that are Significant Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of the Company's Restricted Subsidiaries that are Significant Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; -67- (ii) appoints a custodian of the Company or any of the Company's Restricted Subsidiaries that are Significant Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of the Company's Restricted Subsidiaries that are Significant Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of the Company's Restricted Subsidiaries that are Significant Subsidiaries or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. SECTION 6.02. Acceleration. ------------ If any Event of Default (other than an Event of Default specified in clause (h) or (i) of Section 6.01 hereof with respect to the Company, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (h) or (i) of Section 6.01 hereof occurs with respect to the Company, any Restricted Subsidiary constituting a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to December 1, 2008 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an addi- -68- tional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on December 1, of the years set forth below, as set forth below (expressed as percentages of principal amount): YEAR PERCENTAGE ---- ---------- 2003............................................. 110.503% 2004............................................. 109.190% 2005............................................. 107.877% 2006............................................. 106.564% 2007............................................. 105.251% SECTION 6.03. Other Remedies. -------------- If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. ----------------------- Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. Control by Majority. ------------------- Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trus- -69- tee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. SECTION 6.06. Limitation on Suits. ------------------- A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07. Rights of Holders of Notes to Receive ------------------------------------- Payment. ------- Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. -------------------------- If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal -70- and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. -------------------------------- The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company or any of the Guarantors (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. ---------- If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for ----- amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on ------ the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and -71- Third: to the Company or to such party as a court of ----- competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. --------------------- In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. SECTION 6.12. Notice. ------ The Company is required to deliver to the Trustee annually a statement regarding compliance with this Indenture. Upon becoming aware of any Default or Event of Default, the Company is required to deliver to the Trustee a statement specifying such Default or Event of Default. ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee. ----------------- (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and -72- (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. Rights of Trustee. ----------------- (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. -73- (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Guarantor shall be sufficient if signed by an Officer of the Company or any Guarantor. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by a Responsible Officer at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture. SECTION 7.03. Individual Rights of Trustee. ---------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, any Guarantors or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. -74- SECTION 7.04. Trustee's Disclaimer. -------------------- The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Notes or the Note Guarantees, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. Notice of Defaults. ------------------ If a Default or Event of Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. SECTION 7.06. Reports by Trustee to Holders of the Notes. ------------------------------------------ Within 60 days after each May 15 beginning with May 15, 2005 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 7.07. Compensation and Indemnity. -------------------------- The Company and the Guarantors shall pay to the Trustee from time to time such compensation as shall be agreed upon in writing between the Company and the Trustee for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for -75- its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors shall indemnify each of the Trustee or any successor Trustee against any and all losses, damages, claims, liabilities or expenses (including taxes (other than taxes based on the income of the Trustee)) incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Guarantors (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, any Guarantor, or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company and the Guarantors of their obligations hereunder. The Company and the Guarantors shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company and the Guarantors shall pay the reasonable fees and expenses of such counsel. The Company and the Guarantors need not pay for any settlement made without their consent, which consent shall not be unreasonably withheld. The obligations of the Company and the Guarantors under this Section 7.07 are joint and several and shall survive the satisfaction and discharge of this Indenture. To secure the Company's and the Guarantors' payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 7.08. Replacement of Trustee. ---------------------- A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. -76- The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, any Guarantor or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's and the Guarantors' obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. -77- SECTION 7.09. Successor Trustee by Merger, etc. -------------------------------- If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. Eligibility; Disqualification. ----------------------------- There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $250 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. Preferential Collection of Claims Against ----------------------------------------- Company. ------- The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. SECTION 7.12. Patriot Act ----------- To help the U.S. government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. For a non-individual person such as a business entity, a charity, a trust or other legal entity the Trustee will ask for documentation to verify its formation and existence as a legal entity. The Trustee may also ask to see financial statements, licenses, identification and authorization documents from individuals claiming authority to represent the entity or other relevant documentation. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. Option to Effect Legal Defeasance or ------------------------------------ Covenant Defeasance. ------------------- The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 -78- hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. SECTION 8.02. Legal Defeasance and Discharge. ------------------------------ Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their respective obligations with respect to all outstanding Notes and Note Guarantees, as applicable, on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company and the Guarantors shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest and Liquidated Damages on such Notes when such payments are due, (b) the Company's and the Guarantors' obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03. Covenant Defeasance. ------------------- Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17 and 5.01(d) hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "Outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of -79- any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(g) hereof shall not constitute Events of Default. SECTION 8.04. Conditions to Legal or Covenant Defeasance. ------------------------------------------ The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as shall be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and Liquidated Damages, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; -80- (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which shall be used to defease the Notes pursuant to this Article 8 concurrently with such incurrence); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any Senior Debt or any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or the Guarantors or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or the Guarantors or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for, in the case of the Officers' Certificate, clauses (a) through (g) and, in the case of the Opinion of Counsel, clauses (b), (c), (e), and (f) of this paragraph relating to the Legal Defeasance or the Covenant Defeasance, as applicable, have been complied with. SECTION 8.05. Deposited Money and Government Securities ----------------------------------------- to Be Held in Trust; Other Miscellaneous ---------------------------------------- Provisions. ---------- Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, Liquidated Damages and interest, but such money need not be segregated from other funds except to the extent required by law. The Company and the Guarantors shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Govern- -81- ment Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. Repayment to Company. -------------------- Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, Liquidated Damages or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, Liquidated Damages or interest has become due and payable shall, subject to applicable escheat law, be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company or Guarantors for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. SECTION 8.07. Reinstatement. ------------- If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and the Guarantors' obligations under this Indenture, the Notes and the Note Guarantees, as applicable, shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company or the Guarantors make any payment of principal of, premium, if any, Liquidated Damages or interest on any Note following the reinstatement of its obligations, the Company and the Guarantors shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. -82- ARTICLE 9 AMENDMENTS, SUPPLEMENT AND WAIVER SECTION 9.01. Without Consent of Holders of Notes. ----------------------------------- Notwithstanding Section 9.02 of this Indenture, the Company and the Guarantors and the Trustee may amend or supplement this Indenture, the Note Guarantees, or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation or sale of all or substantially all of the Company's assets pursuant to Article 5 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; or (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of the Guarantors, authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and each of the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. With Consent of Holders of Notes. -------------------------------- Except as provided below in this Section 9.02, the Company, the Guarantors and the Trustee may amend or supplement this Indenture (including Sections 3.09, 4.06 and 4.07 hereof), the Note Guarantees, and the Notes with the consent of the Holders of at least a -83- majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Note Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon the request of the Company accompanied by a resolution of the Board of Directors of the Company and each of the Guarantors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and each of the Guarantors in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes, except as provided below with respect to Sections 3.09, 4.06 and 4.07 hereof; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; -84- (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or Liquidated Damages or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes; (g) waive a redemption payment with respect to any Note (other than a payment required by the covenants contained in Sections 3.09, 4.06 or 4.07 hereof); (h) release any Guarantor from any of its obligations under its Note Guarantee or this Indenture, or amend the provisions of this Indenture relating to the release of Guarantors, except as set forth in this Indenture; or (i) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of this Indenture (which relate to subordination) shall require the consent of the Holders of at least 66-2/3% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes. SECTION 9.03. Compliance with Trust Indenture Act. ----------------------------------- Every amendment or supplement to this Indenture, the Note Guarantees, or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents. --------------------------------- Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. -85- SECTION 9.05. Notation on or Exchange of Notes. -------------------------------- The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. Trustee to Sign Amendments, etc. ------------------------------- The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company and the Guarantors may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10 SUBORDINATION SECTION 10.01. Agreement to Subordinate. ------------------------ The Company and the Guarantors agree, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. SECTION 10.02. [Intentionally Omitted] ----------------------- SECTION 10.03. Liquidation; Dissolution; Bankruptcy. ------------------------------------ Upon any distribution to creditors of the Company or any Guarantor in a liquidation or dissolution of the Company or such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or such Guarantor or its property, in an assignment for the benefit of creditors or any marshaling of the Company's -86- or such Guarantor's assets and liabilities: (a) holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before Holders of the Notes shall be entitled to receive any payment or distribution of any kind or character with respect to any Obligations on, or relating to, the Notes (except that Holders may receive and retain (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof so long as the deposit of the amounts therein satisfied the relevant conditions specified in this Indenture at the time of such deposit); and (b) until all Obligations with respect to Senior Debt (as provided in subsection (i) above) are paid in full, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of Senior Debt (except that Holders of Notes may receive and retain (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof), as their interests may appear. SECTION 10.04. Default on Designated Senior Debt. --------------------------------- The Company and the Guarantors may not make any payment or distribution of any kind or character to the Trustee or any Holder in respect of Obligations on, or with respect to, the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property or otherwise (other than (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full if: (a) a default in the payment of any principal, premium, if any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (b) any other default on Designated Senior Debt occurs and is continuing that then permits, or with the giving of notice or passage of time or both (unless cured or waived) shall permit holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Person who may give it pursuant to Section 10.12 hereof. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 days. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (a) the date upon which the default is cured or waived, or (b) in the case of a default referred to in Section 10.04(b) hereof, 179 days pass after notice is received if the maturity of such Designated Senior Debt has not been accelerated, if this Article 10 otherwise does not prohibit the payment, distribution or acquisition at the time of such payment or acquisition. -87- SECTION 10.05. Acceleration of Notes. --------------------- If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration, provided that any failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. SECTION 10.06. When Distribution Must Be Paid Over. ----------------------------------- In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when a Responsible Officer of the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.07. Notice by Company. ----------------- The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. SECTION 10.08. Subrogation. ----------- After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of -88- Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. SECTION 10.09. Relative Rights. --------------- This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (a) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (b) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (c) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. SECTION 10.10. Subordination May Not Be Impaired by ------------------------------------ Company. ------- No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. SECTION 10.11. Distribution or Notice to Representative. ---------------------------------------- Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.12. Rights of Trustee and Paying Agent. ---------------------------------- Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless a Responsible Officer of the Trustee shall have received at its Corporate Trust Office at least five Business Days -89- prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.13. Authorization to Effect Subordination. ------------------------------------- Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representative of the Designated Senior Debt are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. SECTION 10.14. Amendments. ---------- The provisions of this Article 10 shall not be amended or modified without the written consent of the holders of all Senior Debt. ARTICLE 11 GUARANTEES SECTION 11.01. Note Guarantees. ---------------- Subject to the provisions of this Article 11, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of, premium and Liquidated Damages, if any, and interest on the Notes shall be promptly paid in full when due, whether at the maturity or interest payment or mandatory redemption date, by acceleration, redemption or otherwise, and interest on the overdue principal of, premium and Liquidated Damages, if any, and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee under this Indenture and the Notes shall be promptly paid in full or performed, all in accordance with the terms of this Indenture and the Notes; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be -90- promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions of this Indenture and the Notes, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that the Guarantees shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. As more particularly set forth in Section 4.14, the Notes shall be guaranteed in the future by each new Restricted Subsidiary that is a Significant Subsidiary formed under the laws of a state of the United States (including the District of Columbia) and has its principal place of business within the United States. The Notes also shall be guaranteed in the future as required by Section 4.15. If any Holder or the Trustee is required by any court or otherwise to return to the Company or Guarantors, or any Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or Guarantors, any amount paid by either to the Trustee or such Holder, these Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of these Guarantees, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of these Guarantees. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under these Guarantees. -91- SECTION 11.02. Limitation of Guarantor's Liability. ------------------------------------ Each Guarantor and, by its acceptance hereof, each Holder hereof, hereby confirm that it is their intention that the Note Guarantee by such Guarantor not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to the Note Guarantees. To effectuate the foregoing intention, each such person hereby irrevocably agrees that the obligation of such Guarantor under its Note Guarantee under this Article 11 shall be limited to the maximum amount as shall, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws, and after giving effect to any rights to contribution of such Guarantor pursuant to any agreement providing for an equitable contribution among such Guarantor and other Affiliates of the Company of payments made by guarantees by such parties, result in the obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent conveyance. Each Holder, by accepting the benefits hereof, confirms its intention that, in the event of bankruptcy, reorganization or other similar proceeding of the Company or any Guarantor in which concurrent claims are made upon such Guarantor hereunder, to the extent such claims shall not be fully satisfied, each such claimant with a valid claim against the Company shall be entitled to a ratable share of all payments by such Guarantor in respect of such concurrent claims. SECTION 11.03. Execution and Delivery of Note Guarantees. ----------------------------------------- To evidence the Note Guarantees set forth in Section 11.01 hereof, each Guarantor hereby agrees that a notation of the Note Guarantees substantially in the form of Exhibit D shall be endorsed by an officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor by its President or one of its Vice Presidents and attested to by an Officer. Each Guarantor hereby agrees that the Note Guarantees set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of the Note Guarantees. If an officer or Officer whose signature is on this Indenture or on the Note Guarantees no longer holds that office at the time the Trustee authenticates the Note on which the Note Guarantees are endorsed, the Note Guarantees shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Note Guarantees set forth in this Indenture on behalf of the Guarantors. -92- SECTION 11.04. Guarantors May Consolidate, etc., on ------------------------------------ Certain Terms. ------------- (a) Except as set forth in Articles 4 and 5 hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to the Company or to a Subsidiary Guarantor. (b) Except as set forth in Articles 4 and 5 hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into a corporation or corporations other than the Company (whether or not affiliated with the Guarantor), or successive consolidations or mergers in which a Guarantor or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to a corporation other than the Company (whether or not affiliated with the Guarantor) authorized to acquire and operate the same; provided, however, that such transaction meets all of the following requirements: (i) either: (a) such Guarantor is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia or the jurisdiction in which such Guarantor is organized and under the laws of which it is existing; (ii) the Person formed by or surviving any such consolidation or merger (if other than such Guarantor), or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made, assumes all the obligations of such Guarantor under the Note Guarantees and this Indenture, as applicable, pursuant to a supplemental indenture reasonably satisfactory in form to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) such Guarantor or the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantees endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Guarantees had been issued at the date of the execution hereof. Notwithstanding anything herein to the contrary, the foregoing conditions shall not apply to a Guarantor which is a Subsidiary of the Company in connection -93- with a transaction as a result of which such Guarantor will be released from its Note Guarantee as provided in Section 11.05 hereof. SECTION 11.05. Releases. -------- Concurrently with any sale of assets (including, if applicable, all of the capital stock of any Guarantor), any Liens in favor of the Trustee in the assets sold thereby shall be released; provided that in the event of an Asset Sale, the Net Proceeds from such sale or other disposition are treated in accordance with the provisions of Section 4.07 hereof. The Note Guarantee or the obligations under Section 11.04 hereof of a Guarantor that is a subsidiary will be released (i) in connection with any sale or other disposition of all or substantially all of the assets of such Guarantor (including by way of merger or consolidation), if the Company applies the Net Proceeds of that sale or other disposition in accordance with Section 4.07 hereof, or (ii) in connection with the sale of all of the capital stock of a Guarantor that is a subsidiary, if the Company applies the Net Proceeds of that sale in accordance with Section 4.07 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.07 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantees. Any Guarantor not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. SECTION 11.06. "Trustee" to Include Paying Agent. --------------------------------- In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article 11 shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Article 11 in place of the Trustee. SECTION 11.07. Subordination of Note Guarantees. -------------------------------- The obligations of each Guarantor under its Guarantee pursuant to this Article 11 shall be junior and subordinated to the prior payment in full of all Senior Debt of such Guarantor and the amounts for which the Guarantors shall be liable under the guarantees issued from time to time with respect to Senior Debt on the same basis as the Notes are junior and subordinated to Senior Debt. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. -94- ARTICLE 12 SATISFACTION AND DISCHARGE SECTION 12.01. Satisfaction and Discharge. -------------------------- This Indenture shall upon the request of the Company cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Notes herein expressly provided for, the Company's obligations under Section 7.07 hereof, and the Trustee's and the Paying Agent's obligations under Section 12.02 hereof) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when (a) either (i) (all outstanding Notes theretofore authenticated and delivered (other than (A) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.07 and (B) Notes for whose payment money has been deposited in trust with the Trustee or any Paying Agent and thereafter paid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation; or (ii) all such Notes not theretofore delivered to the Trustee for cancellation (A) have become due and payable; (B) shall become due and payable at their Stated Maturity within one year; or (C) are to be called for redemption within one year under irrevocable arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name and at the expense of the Company, and the Company, in the case of clause (A), (B) or (C) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose money or Government Securities in an amount sufficient (as certified by an independent public accountant designated by the Company) to pay and discharge the entire indebtedness of such Notes not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest, if any, to the date of such deposit (in the case of Notes which have be- -95- come due and payable) or the Stated Maturity or redemption date, as the case may be; (b) the Company has paid or caused to be paid all other sums then due and payable hereunder by the Company; (c) no Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit and after giving effect to such deposit; and (d) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the Company's obligations in Sections 2.03, 2.04, 2.06, 2.07, 2.11, 7.07, 7.08, and 13.02, 13.03 and 13.04, and the Trustee's and Paying Agent's obligations in Section 12.02 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Section 7.07 shall survive. In order to have money available on a payment date to pay principal (and premium, if any, on) or interest on the Notes, the Government Securities shall be payable as to principal (and premium, if any) or interest at least one Business Day before such payment date in such amounts as shall provide the necessary money. Government Securities shall not be callable at the issuer's option. SECTION 12.02. Application of Trust. -------------------- All money deposited with the Trustee pursuant to Section 12.01 shall be held in trust and, at the written direction of the Company, be invested prior to maturity in U.S. Government Obligations, and applied by the Trustee in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for the payment of which money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. -96- ARTICLE 13 MISCELLANEOUS SECTION 13.01. Trust Indenture Act Controls. ---------------------------- If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 13.02. Notices. ------- Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company or any Guarantor: Mail-Well I Corporation c/o Mail-Well, Inc. 8310 S. Valley Highway, #400 Englewood, Colorado 80112 Telecopier No.: (303) 397-7400 Attention: General Counsel If to the Trustee: U.S. Bank National Association One Federal Street 3rd Floor Boston, Massachusetts 02110 Telecopier No.: (617) 603-6683 Attention: Corporate Trust Division: Mail-Well I Corporation The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. -97- Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 13.03. Communication by Holders of Notes with -------------------------------------- Other Holders of Notes. ---------------------- The Trustee is subject to TIA Section 312(b), and Holders may communicate pursuant thereto with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 13.04. Certificate and Opinion as to Conditions ---------------------------------------- Precedent. --------- Upon any request or application by the Company or any Guarantor to the Trustee to take any action under this Indenture, the Company or such Guarantors shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 13.05. Statements Required in Certificate or ------------------------------------- Opinion. ------- Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: -98- (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 13.06. Rules by Trustee and Agents. --------------------------- The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 13.07. No Personal Liability of Directors, ----------------------------------- Officers, Employees and Stockholders. ------------------------------------ No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the Notes, this Indenture or the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws. SECTION 13.08. Governing Law. ------------- THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES. SECTION 13.09. No Adverse Interpretation of Other ---------------------------------- Agreements. ---------- This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture or the Note Guarantees. -99- SECTION 13.10. Successors. ---------- All agreements of the Company and the Guarantors in this Indenture, the Notes and the Note Guarantees shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.11. Severability. ------------ In case any provision in this Indenture, the Notes or the Note Guarantees shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 13.12. Counterpart Originals. --------------------- The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 13.13. Table of Contents, Headings, etc. -------------------------------- The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 13.14. Record Date for Voting by or Consent of --------------------------------------- Holders. ------- In any instance in which the Holders shall be entitled to vote or consent to any matter, the record date for such vote or consent shall be the date specified in TIA Section 3.16(c), unless otherwise provided herein. [Signatures on following page] -100- IN WITNESS WHEREOF, the parties have executed this Indenture as of the date first written above. MAIL-WELL I CORPORATION By: ------------------------------------ Name: Title: MAIL-WELL, INC. 1158673 ONTARIO, INC. CLASSIC ENVELOPE PLUS, LTD. CML INDUSTRIES LTD. DISCOUNT LABELS, INC. ENVELOPE INC.-ENVELOPPE TRANSIT INC. INNOVA ENVELOPE INC. MAIL-WELL ALBERTA FINANCE LP MAIL-WELL CANADA LEASING COMPANY MAIL-WELL COMMERCIAL PRINTING, INC. MAIL-WELL GOVERNMENT PRINTING, INC. MAIL-WELL MEXICO HOLDINGS, INC. MAIL-WELL SERVICES LLC MAIL-WELL TEXAS FINANCE LP MAIL-WELL WEST, INC. MCLAREN MORRIS & TODD COMPANY MM&T PACKAGING COMPANY NATIONAL GRAPHICS COMPANY PNG INC. POSER BUSINESS FORMS, INC. PRECISION FINE PAPERS, INC. REGIONAL ENVELOPPE PRODUCTS INC.- PRODUCTS ENVELOPE REGIONAL INC. SUPREMEX, INC. WISCO III, L.L.C By: ------------------------------------ Name: Title: -101- U.S. BANK NATIONAL ASSOCIATION, as Trustee By: ------------------------------------ Name: Title: SCHEDULE A SCHEDULE OF GUARANTORS ---------------------- Mail-Well, Inc. 1158673 Ontario, Inc. Classic Envelope Plus, Ltd. CML Industries LTD. Discount Labels, Inc. Envelope Inc.-Enveloppe Transit Inc. Innova Envelope Inc. Mail-Well Alberta Finance LP Mail-Well Canada Leasing Company Mail-Well Commercial Printing, Inc. Mail-Well Government Printing, Inc. Mail-Well Mexico Holdings, Inc. Mail-Well Services LLC Mail-Well Texas Finance LP Mail-Well West, Inc. McLaren Morris & Todd Company MM&T Packaging Company National Graphics Company PNG Inc. Poser Business Forms, Inc. Precision Fine Papers, Inc. Regional Enveloppe Products Inc.-Products Enveloppe Regional Inc. Supremex, Inc. Wisco III, L.L.C EXHIBIT A-1 (Face of Note) CUSIP/CINS: 7 7/8% [Series A] [Series B] Senior Subordinated Notes due 2013 No. $ MAIL-WELL I CORPORATION ----------------------- promises to pay to Cede & Co. or registered assigns, the principal sum of DOLLARS AND NO CENTS - ---------------------------- Dollars on December 1, 2013. Interest Payment Dates: June 1 and December 1 Record Dates: May 15 and November 15 Dated: MAIL-WELL I CORPORATION By: ----------------------------------------------- Name: Title: President By: ----------------------------------------------- Name: Title: Senior Vice President and Chief Financial Officer -2- This is one of the Notes referred to in the within-mentioned Indenture: U.S. BANK NATIONAL ASSOCIATION as Trustee By: ------------------------------- Authorized Signatory -3- (Back of Note) 7 7/8% [Series A] [Series B] Senior Subordinated Notes due 2013 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (i) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (ii) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHO THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO -4- THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (iii) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. EACH IAI THAT IS NOT A QIB WILL BE REQUIRED TO EFFECT ANY TRANSFER OF NOTES OR INTERESTS THEREIN (OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT) THROUGH ONE OF THE INITIAL PURCHASERS. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. Mail-Well I Corporation, a Delaware -------- corporation (the "Company"), promises to pay interest on the principal amount of this Note at 7 7/8% per annum from the date hereof until maturity and shall pay the Liquidated Damages payable pursuant to Section 6 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually on June 1 and December 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 1, 2004. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without -5- regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest ----------------- on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the May 15 or November 15, next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, U.S. Bank -------------------------- National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of the Guarantors may act in any such capacity. 4. Indenture. The Company issued the Notes under an --------- Indenture dated as of February 4, 2004 ("Indenture") among the Company, the Guarantors and the Trustee. This Note is one of a duly authorized issue of Notes of the Company designated as its 7 7/8% Senior Subordinated Notes due 2013, which may be issued under the Indenture. The Company shall be entitled to issue Additional Notes pursuant to the Indenture. The Notes, any Additional Notes and any Exchange Notes issued in accordance with the Indenture are treated as a single class of securities under the Indenture unless otherwise specified. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are senior unsecured obligations of the Company. 5. Optional Redemption. ------------------- (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to December 1, 2008. Thereafter, the -6- Company shall have the option to redeem the Notes, in whole or in part upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on December 1 of the years indicated below: YEAR PERCENTAGE ---- ---------- 2008................................ 103.938% 2009................................ 102.625% 2010................................ 101.313% 2011 and thereafter................. 100.000% (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 1, 2006, the Company may at its option redeem, on one or more occasions, up to an aggregate of 35% of the aggregate principal amount of Notes (including Additional Notes, if any) issued at a redemption price equal to 107.875% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that at least 65% of such aggregate principal amount of Notes (including Additional Notes, if any) originally issued remain outstanding immediately after the occurrence of such redemption, excluding Notes held directly or indirectly by the Parent Company, the Company and their Affiliates; and each such redemption shall occur within 90 days of the date of the closing of such Equity Offering. 6. Mandatory Redemption. -------------------- Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. Repurchase At Option of Holder. ------------------------------ (a) If there is a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. -7- (b) If the Company or any of its Restricted Subsidiaries consummate an Asset Sale, the Company shall, if required by Section 4.07 of the Indenture, promptly commence an offer to all Holders of Notes (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Net Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase in accordance with the procedures set forth in the Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. Notice of Redemption. Notice of redemption will be -------------------- mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. Denominations, Transfer, Exchange. The Notes are in --------------------------------- registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption or during the period between a record date and the corresponding Interest Payment Date. 10. Persons Deemed Owners. The registered Holder of --------------------- a Note may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain -------------------------------- exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture, the Guarantees, or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture, the Guarantees, or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide -8- for the assumption of the Company's or a Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. Defaults and Remedies. Events of Default include: --------------------- (i) default for 30 days in the payment when due of interest on or Liquidated Damages, if any, with respect to the Notes; (ii) default in payment when due of the principal of or premium, if any, on the Notes; (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Sections 3.09, 4.06, 4.07, 4.08 and 4.09 of the Indenture; (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding to comply with certain other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or more; (vi) the failure by the Company or any of its Restricted Subsidiaries to pay final judgments by courts of competent jurisdiction aggregating in excess of $25.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) except as permitted by the Indenture, any Note Guarantee of a Guarantor shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any Restricted Subsidiary that is a Significant Subsidiary, or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Guarantor constituting a Significant Subsidiary or any group of Guarantors that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or -9- power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. If an Event of Default occurs by reason of willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 of the Indenture, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in the Indenture or herein to the contrary notwithstanding. If an Event of Default occurs prior to December 1, 2008 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on December 1, of the years set forth below, as set forth below (expressed as percentages of principal amount): YEAR PERCENTAGE ---- ---------- 2003................................ 110.503% 2004................................ 109.190% 2005................................ 107.877% 2006................................ 106.564% 2007................................ 105.251% The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Trustee Dealings with Company. The Trustee, in its ----------------------------- individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. No Recourse Against Others. A director, officer, -------------------------- employee, incorporator or stockholder of the Company or the Guarantors, as such, shall not have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture or the Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their crea- -10- tion. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall not be valid until -------------- authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used in ------------- the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Restricted Global ------------------------------------------------- Notes and Restricted Definitive Notes. In addition to the rights provided to - ------------------------------------- Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of February 4, 2004, among the Company, the Guarantors and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 18. CUSIP Numbers. Pursuant to a recommendation ------------- promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Mail-Well I Corporation c/o Mail-Well, Inc. 8310 S. Valley Highway, #400 Englewood, Colorado 80012 Attention: Secretary -11- ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - ----------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. No.) - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ------------------------------------------------------ to transfer this Note on the books of the Company. The agent may substitute another to act for him. - ----------------------------------------------------------------------------- Date: --------------------- Your Signature: ----------------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee: ------------------------------ -12- OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 3.09 or 4.06 of the Indenture, check the box below: Section 3.09 Section 4.06 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 3.09 or Section 4.06 of the Indenture, state the amount you elect to have purchased: $ --------------- Date: ------------------ Your Signature: ------------------------------------- (Sign exactly as your name appears on the Note) Tax Identification No.: ----------------------------- Signature Guarantee: -------------------------------- -13- SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount of Signature of Amount of decrease Amount of increase this Global Note authorized officer Date of in Principal Amount in Principal Amount following such of Trustee or Note Exchange of this Global Note of this Global Note decrease (or increase) Custodian -------- ------------------- ------------------- ---------------------- -------------------
EXHIBIT A-2 (Face of Regulation S Temporary Global Note) CUSIP/CINS: 7 7/8% [Series A] [Series B] Senior Subordinated Notes due 2013 No. $ MAIL-WELL I CORPORATION ----------------------- promises to pay to Cede & Co. or registered assigns, the principal sum of DOLLARS AND NO CENTS - ----------------------------- Dollars on December 1, 2013. Interest Payment Dates: June 1 and December 1 Record Dates: May 15 and November 15 Dated: MAIL-WELL I CORPORATION By: ------------------------------------------- Name: Title: President By: ------------------------------------------- Name: Title: Senior Vice President and Chief Financial Officer -2- This is one of the Notes referred to in the within-mentioned Indenture: U.S. BANK NATIONAL ASSOCIATION as Trustee By: -------------------------------- Authorized Signatory -3- (Back of Regulation S Temporary Note) 7 7/8% [Series A] [Series B] Senior Subordinated Notes due 2013 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (i) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (ii) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY -4- THEREOF, (B) TO A PERSON WHO THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (iii) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. EACH IAI THAT IS NOT A QIB WILL BE REQUIRED TO EFFECT ANY TRANSFER OF NOTES OR INTERESTS THEREIN (OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT) THROUGH ONE OF THE INITIAL PURCHASERS. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. Mail-Well I Corporation, a Delaware -------- corporation (the "Company"), promises to pay interest on the principal amount of this Note at 7 7/8% per annum from the date hereof until maturity and shall pay the Liquidated Damages payable pursuant to Section 6 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually on June 1 and December 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record -5- date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 1, 2004. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest ----------------- on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the May 15 or November 15, next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, U.S. Bank -------------------------- National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of the Guarantors may act in any such capacity. 4. Indenture. The Company issued the Notes under an --------- Indenture dated as of February 4, 2004 ("Indenture") among the Company, the Guarantors and the Trustee. This Note is one of a duly authorized issue of Notes of the Company designated as its 7 7/8% Senior Subordinated Notes due 2013, which may be issued under the Indenture. The Company shall be entitled to issue Additional Notes pursuant to the Indenture. The Notes, any Additional Notes and any Exchange Notes issued in accordance with the Indenture are treated as a single class of securities under the Indenture unless otherwise specified. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a state- -6- ment of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are senior unsecured obligations of the Company. 5. Optional Redemption. ------------------- (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to December 1, 2008. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on December 1 of the years indicated below: YEAR PERCENTAGE ---- ---------- 2008................................ 103.938% 2009................................ 102.625% 2010................................ 101.313% 2011 and thereafter................. 100.000% (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 1, 2006, the Company may at its option redeem, on one or more occasions, up to an aggregate of 35% of the aggregate principal amount of Notes (including Additional Notes, if any) issued at a redemption price equal to 107.875% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that at least 65% of such aggregate principal amount of Notes (including Additional Notes, if any) originally issued remain outstanding immediately after the occurrence of such redemption, excluding Notes held directly or indirectly by the Parent Company, the Company and their Affiliates; and each such redemption shall occur within 90 days of the date of the closing of such Equity Offering. 6. Mandatory Redemption. -------------------- Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. Repurchase At Option of Holder. ------------------------------ (a) If there is a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple -7- thereof) of each Holder's Notes (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or any of its Restricted Subsidiaries consummate an Asset Sale, the Company shall, if required by Section 4.07 of the Indenture, promptly commence an offer to all Holders of Notes (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Net Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase in accordance with the procedures set forth in the Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. Notice of Redemption. Notice of redemption will be -------------------- mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. Denominations, Transfer, Exchange. The Notes are in --------------------------------- registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption or during the period between a record date and the corresponding Interest Payment Date. 10. Persons Deemed Owners. The registered Holder of a --------------------- Note may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain -------------------------------- exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders -8- of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture, the Guarantees, or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture, the Guarantees, or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's or a Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 12. Defaults and Remedies. Events of Default include: --------------------- (i) default for 30 days in the payment when due of interest on or Liquidated Damages, if any, with respect to the Notes; (ii) default in payment when due of the principal of or premium, if any, on the Notes; (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Sections 3.09, 4.06, 4.07, 4.08 and 4.09 of the Indenture; (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding to comply with certain other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or more; (vi) the failure by the Company or any of its Restricted Subsidiaries to pay final judgments by courts of competent jurisdiction aggregating in excess of $25.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (vii) except as permitted by the Indenture, any Note Guarantee of a Guarantor shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any Restricted Subsidiary that is a Significant Subsidiary, or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising -9- from certain events of bankruptcy or insolvency, with respect to the Company, any Guarantor constituting a Significant Subsidiary or any group of Guarantors that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. If an Event of Default occurs by reason of willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 of the Indenture, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in the Indenture or herein to the contrary notwithstanding. If an Event of Default occurs prior to December 1, 2008 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, an additional premium shall also become and be immediately due and payable in an amount, for each of the years beginning on December 1, of the years set forth below, as set forth below (expressed as percentages of principal amount): YEAR PERCENTAGE ---- ---------- 2003................................ 110.503% 2004................................ 109.190% 2005................................ 107.877% 2006................................ 106.564% 2007................................ 105.251% The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Trustee Dealings with Company. The Trustee, in its ----------------------------- individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. -10- 14. No Recourse Against Others. A director, officer, -------------------------- employee, incorporator or stockholder of the Company or the Guarantors, as such, shall not have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture or the Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall not be valid until -------------- authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used ------------- in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Restricted Global ------------------------------------------------- Notes and Restricted Definitive Notes. In addition to the rights provided to - ------------------------------------- Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of February 4, 2004, among the Company, the Guarantors and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 18. CUSIP Numbers. Pursuant to a recommendation ------------- promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Mail-Well I Corporation c/o Mail-Well, Inc. 8310 S. Valley Highway, #400 Englewood, Colorado 80012 Attention: Secretary -11- ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - ------------------------------------------------------------------------------ (Insert assignee's soc. sec. or tax I.D. No.) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (Print or type assignee's name, address and zip code) and irrevocably appoint ------------------------------------------------------- to transfer this Note on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------------------------ Date: --------------------- Your Signature: ------------------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee: -------------------------------- -12- OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 3.09 or 4.06 of the Indenture, check the box below: Section 3.09 Section 4.06 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 3.09 or Section 4.06 of the Indenture, state the amount you elect to have purchased: $ --------------- Date: --------------------- Your Signature: ------------------------------------- (Sign exactly as your name appears on the Note) Tax Identification No.: ----------------------------- Signature Guarantee: -------------------------------- -13- SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount of Signature of Amount of decrease Amount of increase this Global Note authorized officer Date of in Principal Amount in Principal Amount following such of Trustee or Note Exchange of this Global Note of this Global Note decrease (or increase) Custodian -------- ------------------- ------------------- ---------------------- ------------------
EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Mail-Well I Corporation c/o Mail-Well, Inc. 8310 S. Valley Highway, #400 Englewood, Colorado 80012 U.S. Bank National Association [ ] [ ] Re: 7 7/8% Senior Subordinated Notes due 2013 Reference is hereby made to the Indenture, dated as of February 4, 2004 (the "Indenture"), between Mail-Well I Corporation, as --------- issuer (the "Company"), and U.S. Bank National Association, as trustee. ------- Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. , (the "Transferor") owns and proposes to ---------------- ---------- transfer the Notes[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $ in such Note[s] or interests -------- (the "Transfer"), to (the "Transferee"), as further specified in -------- ---------- ---------- Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. / / CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Notes is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. / / CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL ------------------------------------------------------ INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO - ------------------------------------------------------------------------- REGULATION S. The Transfer is - ------------ B-1 being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act, and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. / / CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RSTD GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one); (a) / / such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) / / such Transfer is being effected to the Company or a subsidiary thereof; or (c) / / such Transfer is being affected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) / / such Transfer is being effected to an Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transfer or hereby further certifies that it has not en- B-2 gaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the RSTD Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. / / CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. (a) / / CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) / / CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) / / CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain B-3 compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. B-4 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. --------------------------- [Insert Name of Transferor] By: ------------------------ Name: Title: Dated: , ------------- -------- B-5 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) / / a beneficial interest in the: (i) / / 144A Global Note (CUSIP ____), or (ii) / / Regulation S Global Note (CUSIP ____), or (iii) / / RSTD Global Note (CUSIP ____); or (b) / / a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) / / a beneficial interest in the: (i) / / 144A Global Note (CUSIP ____), or (ii) / / Regulation S Global Note (CUSIP ____), or (iii) / / RSTD Global Note (CUSIP ____), or (iv) / / Unrestricted Global Note (CUSIP ____); or (b) / / a Restricted Definitive Note; or (c) / / an Unrestricted Definitive Note. in accordance with the terms of the Indenture. B-6 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE (CUSIP ______) Mail-Well I Corporation c/o Mail-Well, Inc. 8310 S. Valley Highway, #400 Englewood, Colorado 80012 U.S. Bank National Association [ ] [ ] Re: 7 7/8% Senior Subordinated Notes due 2013 Reference is hereby made to the Indenture, dated as of February 4, 2004 (the "Indenture"), between Mail-Well I Corporation, as --------- issuer (the "Company"), and U.S. Bank National Association, as trustee. ------- Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. (the "Owner") owns and proposes to exchange ------------ ----- the Note[s] or interest in such Note[s] specified herein, in the principal amount of $ in such Note[s] or interests (the "Exchange"). In ---------- -------- connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) / / CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST --------------------------------------------- IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL - ---------------------------------------------------------------------------- NOTE. In connection with the Exchange of the Owner's beneficial interest in - ---- a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the -------------- Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) / / CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST --------------------------------------------- IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with - ----------------------------------------------------------- the Exchange of the C-1 Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) / / CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE ----------------------------------------------- NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection - ---------------------------------------------------------- with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) / / CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE ----------------------------------------------- NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's - ------------------------------------ Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) / / CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN ------------------------------------------------ A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the - ------------------------------------------------------ Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. C-2 (b) / / CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE ----------------------------------------------- NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with - ------------------------------------------------------- the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] / / 144A Global Note, / / Regulation S Global Note, / / RSTD Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. -------------------------------------- [Insert Name of Owner] By: ----------------------------------- Name: Title: Dated: , ---------- ---- C-3 EXHIBIT D GUARANTEE Each of the corporations listed on Schedule I hereto (hereinafter referred to as the "Guarantors", which term includes any successor or additional Guarantor under the Indenture (the "Indenture") referred to in the Note upon which this notation is endorsed) (i) has unconditionally guaranteed (a) the due and punctual payment of the principal of and interest on the Notes, whether at maturity or interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal of and (if lawful) interest on the Notes, (c) the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in the Indenture, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and (ii) has agreed to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in accordance with the terms of the Indenture in enforcing any rights under this Guarantee. No stockholder, officer, director, employee or incorporator, as such, past, present or future, of the Guarantors shall have any personal liability under this Guarantee by reason of his or its status as such stockholder, officer, director, employee or incorporator. This Guarantee shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. The obligations of the Guarantors to the Holders of the Notes and to the Trustee pursuant to the Guarantees are expressly subordinated to the extent set forth in Article 10 of the Indenture and reference is hereby made to such Indenture for the precise terms of such subordination. EACH ENTITY LISTED ON SCHEDULE I HERETO By: ------------------------------------- Name: Title: Senior Vice President and Chief Financial Officer D-1 SCHEDULE I Mail-Well, Inc. 1158673 Ontario, Inc. Classic Envelope Plus, Ltd. CML Industries LTD. Discount Labels, Inc. Envelope Inc.-Enveloppe Transit Inc. Innova Envelope Inc. Mail-Well Alberta Finance LP Mail-Well Canada Leasing Company Mail-Well Commercial Printing, Inc. Mail-Well Government Printing, Inc. Mail-Well Label USA, Inc. Mail-Well Mexico Holdings, Inc. Mail-Well Services LLC Mail-Well Texas Finance LP Mail-Well West, Inc. McLaren Morris & Todd Company MM&T Packaging Company National Graphics Company Poser Business Forms, Inc. PNG Inc. Precision Fine Papers, Inc. Regional Enveloppe Products Inc.-Products Enveloppe Regional Inc. Supremex, Inc. Wisco III, L.L.C D-2 EXHIBIT E FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Mail-Well I Corporation c/o Mail-Well, Inc. 8310 S. Valley Highway, #400 Englewood, Colorado 80012 U.S. Bank National Association [ ] [ ] Re: 7 7/8% Senior Subordinated Notes due 2013 Reference is hereby made to the Indenture, dated as of February 4, 2004 (the "Indenture"), between Mail-Well I Corporation, as --------- issuer (the "Company"), and U.S. Bank National Association, as trustee. ------- Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $ ------------ aggregate principal amount of: (a) / / a beneficial interest in a Global Note, or (b) / / a Definitive Note. We confirm that; 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the United States Securities Act of 1933, as amended (the "Securities Act"). -------------- 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (c) an "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel E-1 in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. We further understand that any subsequent transfer by us of the Notes or beneficial interest therein acquired by us must be effected through one of the Placement Agents. 4. We are an "accredited investor" (as defined in Rule 501(a)(1), (2), (3), (5), (6), (7) or (8) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. --------------------------------------- [Insert Name of Accredited Investor] By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Dated: , ---------- ----- E-2 EXHIBIT F FORM OF INTERCOMPANY NOTE $ 8310 S. Valley Highway, #400 ---------- Englewood, Colorado 80112 PROMISSORY NOTE FOR VALUE RECEIVED, [name of subsidiary of Mail-Well I Corporation], a corporation (hereinafter "Maker") promises to pay on ------- demand to MAIL-WELL I CORPORATION ("Lender"), or order, at the address set forth above, or such other place as may be designated from time to time by the holder hereof, the principal sum of ($ ), ----------------- ---------- with interest from the date of the making of the loan evidenced hereby, on the terms and conditions set forth herein. The rate of interest on the unpaid principal balance of this Note shall be seven and seven-eighths percent (7 7/8%) per annum. Maker shall make monthly payments of interest on the outstanding principal balance hereof at the aforementioned rate on or before the fifteenth (15th) day of each month during which the principal amount remains outstanding, commencing on the fifteenth day of the first month following the date of this Promissory Note, and until this Note shall have been paid in full. Maker reserves the right to prepay this Note at any time, wholly or partially, without penalty. This Promissory Note and the indebtedness evidenced hereby is unsecured. The payment of the principal amount of, interest on or any other amounts due under this Promissory Note shall not be subordinated in right of payment to any other existing or future indebtedness of the Maker. In the event any payments required by this Note are not paid when due, or in the event Maker violates any of the terms and conditions of this Note, then the whole sum of both principal and interest shall become due and payable at once without further notice at the option of the holder hereof. Maker hereby waives presentation of payment, notice of dishonor, protest and notice of protest. Holder's failure to exercise any right or option hereunder on certain occasions shall not constitute a waiver of the right to exercise such right or option on any other occasion. Maker hereby executes and delivers this Promissory Note as of the day of , . --- ------ ------------- --------------------------------- Maker By: ------------------------------ Name: ---------------------------- Title: --------------------------- F-1 EX-4.6 4 exh4p6.txt Exhibit 4.6 EXECUTION COPY $320,000,000 MAIL-WELL I CORPORATION 7 7/8% Senior Subordinated Notes Due 2013 REGISTRATION RIGHTS AGREEMENT ----------------------------- February 4, 2004 Credit Suisse First Boston LLC Eleven Madison Avenue New York, New York 10010-3629 Dear Ladies and Gentlemen: Mail-Well I Corporation, a Delaware corporation (the "COMPANY"), proposes to issue and sell to Credit Suisse First Boston LLC (the "INITIAL PURCHASER"), upon the terms set forth in a purchase agreement dated January 21, 2004 (the "PURCHASE AGREEMENT"), $320,000,000 aggregate principal amount of its 7 7/8% Senior Subordinated Notes Due 2013 (the "INITIAL SECURITIES") to be guaranteed by the Company's parent company, Mail-Well, Inc. and certain of the Company's subsidiaries (collectively, the "GUARANTORS" and, together with the COMPANY, the "ISSUERS"). The Initial Securities will be issued pursuant to an Indenture, dated as of February 4, 2004 (the "INDENTURE"), among the Issuers and U.S. Bank National Association, as trustee (the "TRUSTEE"). As an inducement to the Initial Purchaser to enter into the Purchase Agreement, the Company agrees with the Initial Purchaser, for the benefit of the Initial Purchaser and the holders of the Securities (as defined below) (collectively the "HOLDERS"), as follows: 1. Registered Exchange Offer. Unless not permitted by applicable law (after the Company has complied with the ultimate paragraph of this Section 1), the Company shall prepare and, not later than 90 days (such 90th day being a "FILING DEADLINE") after the date on which the Initial Purchaser purchases the Initial Securities pursuant to the Purchase Agreement (the "CLOSING DATE"), file with the Securities and Exchange Commission (the "COMMISSION") a registration statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the Securities Act of 1933, as amended (the "SECURITIES ACT"), with respect to a proposed offer (the "REGISTERED EXCHANGE OFFER") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities of the Company issued under the Indenture, identical in all material respects to the Initial Securities and registered under the Securities Act (the "EXCHANGE SECURITIES"). The Company shall use its reasonable best efforts to (i) cause such Exchange Offer Registration Statement to become effective under the Securities Act within 210 days after the Closing Date (such 210th day being an "EFFECTIVENESS DEADLINE") and (ii) keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER REGISTRATION PERIOD"). If the Company commences the Registered Exchange Offer, the Company shall use its reasonable best efforts to consummate the Registered Exchange Offer no later than 30 business days after the date on which the -2- Exchange Offer Registration Statement is declared effective (such 30th business day being the "CONSUMMATION DEADLINE"). Following the declaration by the Commission of the effectiveness of the Exchange Offer Registration Statement under the Securities Act, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder that is a broker-dealer electing to exchange Initial Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) the Initial Purchaser elects to sell Securities (as defined below) acquired in exchange for Initial Securities constituting any portion of an unsold allotment, is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus -------- ------- and any amendment or supplement thereto must be delivered by an Exchanging Dealer or the Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchaser sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, the Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to the Initial Purchaser upon the written request of the Initial Purchaser, in exchange (the "PRIVATE EXCHANGE") for the Initial Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects to the Initial Securities (the "PRIVATE EXCHANGE SECURITIES"). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the "SECURITIES". In connection with the Registered Exchange Offer, the Company shall: -3- (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 20 business days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (x) accept for exchange all the Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancellation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the date of original issue of the Initial Securities. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of its business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will be -4- required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If following the date hereof there has been announced a change in Commission policy with respect to exchange offers that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Registered Exchange Offer is permitted by applicable federal law, the Company will seek a no-action letter or other favorable decision from the Commission allowing the Company to consummate the Registered Exchange Offer. The Company will pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company will take all such other actions as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (i) participating in telephonic conferences with the Commission, (ii) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that the Registered Exchange Offer should be permitted and (iii) diligently pursuing a resolution (which need not be favorable) by the Commission staff. 2. Shelf Registration. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated by the 240th day after the Closing Date, (iii) the Initial Purchaser so requests in writing with respect to the Initial Securities (or the Private Exchange Securities) not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Securities on the date of the exchange and any such Holder so requests, the Company shall take the following actions (the date on which any of the conditions described in the foregoing clauses (i) through (iv) occur, including in the case of clauses (iii) or (iv) the receipt of the required notice, being a "TRIGGER DATE"): (a) The Company shall promptly (but in no event more than 30 days after the Trigger Date (such 30th day being a "FILING DEADLINE")) file with the Commission and thereafter use its reasonable best efforts to cause to be declared effective no later than 90 days after the Trigger Date (such 90th day being an "EFFECTIVENESS DEADLINE") a registration statement (the "SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer Registration Statement, a "Registration STATEMENT") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "SHELF REGISTRATION"); provided, however, that no Holder (other than an Initial Purchaser) -------- ------- shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. -5- (b) The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the date of its effectiveness or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof). The Company shall be deemed not to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to the Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that the Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as the Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by the Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchaser, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchaser based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. -6- (b) The Company shall give written notice to the Initial Purchaser, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and the Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. -7- (g) The Company shall deliver to the Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by the Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities pursuant to any Registration Statement the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, -------- however, that the Company shall not be required to (i) qualify ------- generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement (each a "SUSPENSION PERIOD"), the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchaser, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchaser, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchaser, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j); provided, however, that the Company shall not be -------- ------- required to amend or supplement a Shelf Registration Statement, and related prospectus, or any document incorporated therein by reference in the event that (i) an event occurs or is continuing as a result of which such Shelf Registration Statement would, in the Company's good faith judgment, contain an untrue statement of material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii)(a) the -8- Company determines on its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business opportunities of the Company or (b) the disclosure is otherwise related to a pending material business transaction that has not yet been publicly disclosed, provided, that no such -------- Suspension Period shall exceed 60 consecutive days and in no event shall there occur more than two such Suspension Periods in any one calendar year. (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and -------- ------- information gathering shall be coordinated on behalf of the Initial Purchaser by -9- you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement it being agreed that the matters to be covered by such opinion shall include, without limitation, the due formation and good standing of the Company and its subsidiaries; the qualification of the Company and its subsidiaries to transact business as foreign corporations, partnerships or limited liability companies, as the case may be; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested by the Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to the Initial Purchaser or such Participating Broker-Dealer a signed opinion substantially in the form set forth in Section 6(c) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants to deliver to the Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. -10- (t) The Company will use its reasonable best efforts to (a) if the Initial Securities have been rated prior to the initial sale of such Initial Securities, confirm such ratings will apply to the Securities covered by a Registration Statement, or (b) if the Initial Securities were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "RULES") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its reasonable best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. Registration Expenses. (a) All expenses incident to the Company's performance of and compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement is ever filed or becomes effective, including without limitation; (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state "blue sky" or securities laws; (iii) all expenses of printing (including printing certificates for the Securities to be issued in the Registered Exchange Offer and the Private Exchange and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company; (v) all application and filing fees in connection with listing the Exchange Securities on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). -11- The Company will bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company in connection with this Agreement. (b) In connection with any Registration Statement required by this Agreement, the Company will reimburse the Initial Purchaser and the Holders of Transfer Restricted Securities who are tendering Initial Securities in the Registered Exchange Offer and/or selling or reselling Securities pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Cahill Gordon & Reindel LLP unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. 5. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "INDEMNIFIED PARTIES") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, -------- however, that (i) the Company shall not be liable in any such case to the - ------- extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; provided further, however, that this indemnity agreement will -------- ------- ------- be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which -12- the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action, and does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Securities, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemni- -13- fied party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. Liquidated Damages Under Certain Circumstances. (a) Liquidated damages with respect to the Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iv) below being herein called a "REGISTRATION DEFAULT"): (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline; (ii) any Registration Statement required by this Agreement is not declared effective by the Commission on or prior to the applicable Effectiveness Deadline; (iii) the Registered Exchange Offer has not been consummated on or prior to the Consummation Deadline; or (iv) any Registration Statement required by this Agreement has been declared effective by the Commission but (A) such Registration Statement thereafter ceases to be effective or (B) such Registration Statement or the related prospectus ceases to be usable in connection with resales of Transfer Restricted Securities during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Each of the foregoing will constitute a Registration Default whatever the reason for any such event and whether it is voluntary or involuntary or is beyond the control of the Company or pursuant to operation of law or as a result of any action or inaction by the Commission. The Issuers agree liquidated damages shall be paid each Holder of Transfer Restricted Securities for the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $.05 per week per $1,000 principal amount of the Transfer Restricted Securities for so long as the Registration Default continues. The amount of liquidated damages payable to each Holder shall increase by an additional $.05 per -14- week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each subsequent 90-day period up to a maximum of $.50 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder; provided, however, that (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable, in the case of (iv) above, the liquidated damages payable with respect to such Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. In no event will the Issuers be required to pay Liquidated Damages for more than one Registration Default at any given time. (b) A Registration Default referred to in Section 6(a)(iv) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events, with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if -------- ------- such Registration Default occurs for a continuous period in excess of 30 days, liquidated damages shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (c) All accrued liquidated damages shall be paid by the Company to the Global Note Holder by wire transfer of immediately available funds or by federal funds check and to Holders of Certificated Securities by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified on each regular interest payment date. All obligations of the Company and the Guarantors set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Securities at the time such security ceases to be a Transfer Restricted Securities shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. (d) "TRANSFER RESTRICTED SECURITIES" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of an Initial Security for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. Rules 144 and 144A. The Company shall use its reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of -15- Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities identified to the Company by the Initial Purchaser upon request. Upon the request of any Holder of Initial Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("MANAGING UNDERWRITERS") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 1 and 2 hereof may result in material irreparable injury to the Initial Purchaser or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchaser or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 1 and 2 hereof; provided, however, that any -------- ------- damages recovered shall not include damages beyond those described in Section 5 or 6 or in this Section 9(a). The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. -16- (2) if to the Initial Purchaser: Credit Suisse First Boston LLC Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Cahill Gordon & Reindel LLP 80 Pine Street New York, New York 10005 Fax No.: (212) 269-5420 Attention: James J. Clark, Esq. (3) if to the Company, at its address as follows: Mail-Well I Corporation 8310 S. Valley Highway #400 Engelwood, Colorado 80112 Fax No.: (303) 397-7400 Attention: Secretary with a copy to: Faegre & Benson LLP 370 Seventeenth Street, #2500 Republic Plaza Denver, Colorado 80204 Fax No.: (303) 820-0600 Attention: Douglas Wright, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (e) Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Initial Purchaser, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. (f) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. -17- (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. By the execution and delivery of this Agreement, the Issuers submit to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in the City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. -18- If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Initial Purchaser, the Company and the Guarantors in accordance with its terms. Very truly yours, MAIL-WELL I CORPORATION By ---------------------------------------- Name: Title: MAIL-WELL, INC. By ---------------------------------------- Name: Title: 1158673 ONTARIO, INC. CLASSIC ENVELOPE PLUS, LTD. CML INDUSTRIES LTD. DISCOUNT LABELS, INC. ENVELOPE INC.-ENVELOPPE TRANSIT INC. INNOVA ENVELOPE INC. MAIL-WELL ALBERTA FINANCE LP MAIL-WELL CANADA LEASING COMPANY MAIL-WELL COMMERCIAL PRINTING, INC. MAIL-WELL GOVERNMENT PRINTING, INC. MAIL-WELL MEXICO HOLDINGS, INC. MAIL-WELL SERVICES LLC MAIL-WELL TEXAS FINANCE LP MAIL-WELL WEST, INC. MCLAREN MORRIS & TODD COMPANY MM&T PACKAGING COMPANY NATIONAL GRAPHICS COMPANY PNG INC. POSER BUSINESS FORMS, INC. PRECISION FINE PAPERS, INC. REGIONAL ENVELOPPE PRODUCTS INC. - PRODUCTS ENVELOPPE REGIONAL INC. SUPREMEX, INC. WISCO III, L.L.C. By ---------------------------------------- Name: Title: -19- The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON LLC By: CREDIT SUISSE FIRST BOSTON LLC By ------------------------------------ Name: Title: ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Initial Securities, where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 200[ ], all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus.(1) The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - -------- (1) In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Exchange Offer prospectus. ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ------------------------------------------------ Address: --------------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-21 5 exh21.txt Exhibit 21 SUBSIDIARIES OF REGISTRANT 1158673 Ontario, Inc. (Ontario) CML Industries Ltd. (Canada) Classic Envelope Plus, Ltd. (Canada) Colorhouse China, Inc. (Colorado) Discount Labels, Inc. (Indiana) Graphic Arts Center, S.A., de C.V. (Mexico) Innova Envelope Inc.-Enveloppe Innova Inc. (Ontario) MMTP Holdings, Inc. (Colorado) MM&T Packaging Company (Nova Scotia) Mail-Well Alberta Finance LP (Alberta) Mail-Well Canada Leasing Company Inc. (Nova Scotia) Mail-Well Commercial Printing, Inc. (Delaware) Mail-Well Government Printing, Inc. (Colorado) Mail-Well I Corporation (Delaware) Mail-Well Mexico Holdings, Inc. (Colorado) Mail-Well Services, LLC (Colorado) Mail-Well Texas Finance, LP (Texas) Mail-Well West, Inc. (Delaware) McLaren Morris & Todd Company (Nova Scotia) National Graphics Company (Colorado) PNG Inc. (Ontario) Poser Business Forms, Inc. (Delaware) Precision Fine Papers Inc. (Ontario) Regional Envelope Products Inc./Produits Enveloppe Regional Inc. (Ontario) Supremex Inc. (Canada) Transit Envelope Inc./Enveloppe Transit Inc. (Canada) Wisco III, LLC (Delaware) EX-23.1 6 exh23p1.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No.'s 333-26743, 333-61467 and 333-74490) of Mail-Well, Inc. of our report dated February 4, 2004, except for Note 19, as to which the date is February 23, 2004, with respect to the consolidated financial statements and schedules of Mail-Well, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2003. ERNST & YOUNG LLP Denver, Colorado February 25, 2004 EX-31.1 7 exh31p1.txt Exhibit 31.1 CERTIFICATION I, Paul V. Reilly, certify that: 1. I have reviewed this annual report on Form 10-K of Mail-Well, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) [intentionally omitted]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 25, 2004 /s/ Paul V. Reilly ---------------------------- Chief Executive Officer EX-31.2 8 exh31p2.txt Exhibit 31.2 CERTIFICATION I, Michel P. Salbaing, certify that: 1. I have reviewed this annual report on Form 10-K of Mail-Well, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) [intentionally omitted]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 25, 2004 /s/ Michel Salbaing ---------------------------- Chief Financial Officer EX-32.1 9 exh32p1.txt Exhibit 32.1 CERTIFICATION OF PERIODIC REPORT -------------------------------- I, Paul V. Reilly, chairman, president and chief executive officer of Mail-Well, Inc. (the "Company"), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: February 25, 2004 /s/ Paul V. Reilly ----------------------------- Paul V. Reilly Chairman, President and CEO EX-32.2 10 exh32p2.txt Exhibit 32.2 CERTIFICATION OF PERIODIC REPORT -------------------------------- I, Michel P. Salbaing, senior vice president and chief financial officer of Mail-Well, Inc. (the "Company"), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: February 25, 2004 /s/ Michel Salbaing --------------------------------- Michel P. Salbaing Senior Vice President and CFO -----END PRIVACY-ENHANCED MESSAGE-----