-----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, QzdsRe4jnVf59ecOOqiilYE8WnJkCgRlAfUqs0LVsnJF3vXerK/rGg0GVCcEkeqk q5FQQ4oG45Od4QX45OzOvg== 0001068800-04-000465.txt : 20040802 0001068800-04-000465.hdr.sgml : 20040802 20040802120219 ACCESSION NUMBER: 0001068800-04-000465 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENVEO, INC CENTRAL INDEX KEY: 0000920321 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 841250533 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12551 FILM NUMBER: 04944244 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 INC DATE OF NAME CHANGE: 19950817 FORMER COMPANY: FORMER CONFORMED NAME: MAIL WELL HOLDINGS INC DATE OF NAME CHANGE: 19940328 10-Q 1 cen10q.txt ============================================================================ - ---------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004 COMMISSION FILE NUMBER 1-12551 ------------------------ CENVEO, INC. (Exact name of Registrant as specified in its charter.) COLORADO 84-1250533 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 8310 S. VALLEY HIGHWAY, #400 ENGLEWOOD, CO 80112 (Address of principal executive offices) (Zip Code)
303-790-8023 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / 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 July 29, 2004 was $73,109,398. As of July 29, 2004 the Registrant had 48,413,044 shares of Common Stock, $0.01 par value, outstanding. - ---------------------------------------------------------------------------- ============================================================================ TABLE OF CONTENTS PART I--FINANCIAL INFORMATION PAGE ---- Item 1. Condensed Consolidated Financial Statements................. 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................................... 29 Item 4. Controls and Procedures..................................... 29 PART II--OTHER INFORMATION Item 5. Submission of Matters to a Vote of Securities Holders....... 30 Item 6. Exhibits and Reports on Form 8-K............................ 30 i PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
JUNE 30, 2004 (UNAUDITED) DECEMBER 31, 2003 ------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents............................... $ 165 $ 307 Accounts receivable, net................................ 218,588 223,541 Inventories, net........................................ 111,278 91,402 Other current assets.................................... 44,349 48,135 ---------- ---------- TOTAL CURRENT ASSETS................................ 374,380 363,385 Property, plant and equipment, net.......................... 374,419 388,240 Goodwill.................................................... 297,585 299,392 Other intangible assets, net................................ 17,140 19,687 Other assets, net........................................... 40,504 36,689 ---------- ---------- TOTAL ASSETS................................................ $1,104,028 $1,107,393 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................................ $ 146,507 $ 140,468 Accrued compensation and related liabilities............ 54,421 53,209 Other current liabilities............................... 59,379 64,360 Current maturities of long-term debt.................... 2,584 2,575 ---------- ---------- TOTAL CURRENT LIABILITIES........................... 262,891 260,612 Long-term debt, less current maturities..................... 770,372 746,386 Deferred income taxes....................................... -- 6,717 Other liabilities........................................... 26,140 25,659 ---------- ---------- TOTAL LIABILITIES........................................... 1,059,403 1,039,374 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, 48,413,044 and 48,380,457 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively.................................... 484 484 Paid-in capital......................................... 213,896 213,850 Retained deficit........................................ (168,933) (150,331) Deferred compensation................................... (1,424) (1,714) Accumulated other comprehensive income.................. 602 5,730 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY.......................... 44,625 68,019 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $1,104,028 $1,107,393 ========== ========== See notes to condensed consolidated financial statements.
1 CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except earnings per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Net sales................................. $409,396 $407,826 $833,138 $835,146 Cost of sales............................. 325,762 328,705 661,084 672,098 -------- -------- -------- -------- Gross profit.............................. 83,634 79,121 172,054 163,048 Operating expenses: Selling, general and administrative... 66,415 62,722 134,413 126,157 Amortization of intangibles........... 1,396 418 2,801 863 Restructuring charges................. 1,018 356 1,121 1,125 -------- -------- -------- -------- Operating income.......................... 14,805 15,625 33,719 34,903 Other expense: Interest expense...................... 17,513 18,119 35,912 36,333 Loss from the early extinguishment of debt................................ -- -- 17,748 -- Other................................. 527 355 968 487 -------- -------- -------- -------- Loss from continuing operations before income taxes and cumulative effect of a change in accounting principle.......... (3,235) (2,849) (20,909) (1,917) Income tax expense (benefit).............. 61 (1,168) (1,078) (767) -------- -------- -------- -------- Loss from continuing operations before cumulative effect of a change in accounting principle.................... (3,296) (1,681) (19,831) (1,150) Loss (gain) on disposal of discontinued operations, net of taxes of $770 in 2004.................................... (1,230) 581 (1,230) (1,919) Cumulative effect of a change in accounting principle.................... -- -- -- 322 -------- -------- -------- -------- Net income (loss)......................... $ (2,066) $ (2,262) $(18,601) $ 447 ======== ======== ======== ======== Earnings (loss) per share--basic and diluted: Continuing operations................. $ (0.07) $ (0.04) $ (0.42) $ (0.02) Discontinued operations............... 0.03 (0.01) 0.03 0.04 Cumulative effect of a change in accounting principle................ -- -- -- (0.01) -------- -------- -------- -------- Earnings (loss) per share--basic and diluted................................. $ (0.04) $ (0.05) $ (0.39) $ 0.01 ======== ======== ======== ======== Weighted average shares--basic............ 47,740 47,679 47,737 47,672 Weighted average shares--diluted.......... 47,740 47,679 47,737 48,207 See notes to condensed consolidated financial statements.
2 CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
SIX MONTHS ENDED JUNE 30, ----------------------------- 2004 2003 ----------- --------- Cash flows from operating activities: Loss from continuing operations........................... $ (19,831) $ (1,150) Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities: Depreciation.......................................... 22,841 23,347 Amortization.......................................... 5,093 2,815 Write-off of deferred financing fees.................. 4,220 -- Deferred income tax benefit........................... (7,949) (6,270) Loss on disposal of assets............................ 240 581 Other noncash charges, net............................ (366) 846 Changes in operating assets and liabilities, excluding the effects of operations sold: Accounts receivable................................... 4,210 26,150 Inventories........................................... (20,011) 4,070 Accounts payable and accrued compensation............. 7,686 (37,009) Income taxes payable.................................. (991) 8,808 Other working capital changes......................... 211 (2,634) Other, net............................................ (76) 605 ----------- --------- Net cash provided by (used in) operating activities........................................ (4,723) 20,159 Cash flows from investing activities: Capital expenditures.................................. (12,460) (13,010) Proceeds from divestitures, net....................... 2,000 3,864 Proceeds from sales of property, plant and equipment.. 346 627 ----------- --------- Net cash used in investing activities............... (10,114) (8,519) Cash flows from financing activities: Proceeds from issuance of long-term debt.............. 1,677,071 947,205 Repayments of long-term debt.......................... (1,653,074) (960,947) Proceeds from issuance of common stock................ 46 16 Capitalized loan fees................................. (8,936) (437) ----------- --------- Net cash provided by (used in) financing activities........................................ 15,107 (14,163) Effect of exchange rate changes on cash and cash equivalents............................................... (412) 619 ----------- --------- Net decrease in cash and cash equivalents........... (142) (1,904) Cash and cash equivalents at beginning of year.............. 307 2,650 ----------- --------- Cash and cash equivalents at end of quarter................. $ 165 $ 746 =========== ========= See notes to condensed consolidated financial statements.
3 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Cenveo, Inc. (formerly known as Mail-Well, Inc.) and subsidiaries (collectively, the "Company") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2003. The Company's reporting periods in this report consist of thirteen and twenty-six week periods, respectively, ending on the Saturday closest to the last day of the calendar month. The reporting periods for 2004 and 2003 ended June 26, 2004 and June 28, 2003, respectively. For convenience, the accompanying financial statements have been shown as ending on the last day of the calendar month. On April 29, 2004, the shareholders of the Company approved the change of the Company's name from Mail-Well, Inc. to Cenveo, Inc. 2. 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 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 Statement of Financial Accounting Standards 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):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- ---------------------- 2004 2003 2004 2003 ------- ------- -------- ------- Net income (loss): As reported............................ $(2,066) $(2,262) $(18,601) $ 447 Pro forma.............................. $(2,706) $(3,139) $(19,666) $(1,274) Earnings (loss) per share--basic and diluted: As reported............................ $ (0.04) $ (0.05) $ (0.39) $ 0.01 Pro forma.............................. $ (0.06) $ (0.07) $ (0.41) $ (0.03)
The effect on pro forma net income (loss), earnings (loss) per share--basic and earnings (loss) per share--diluted 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. 4 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. STOCK-BASED COMPENSATION (CONTINUED) 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 grant date. This deferred compensation is being recognized as compensation expense ratably over the vesting period. The Company recorded compensation expense in the amount of $0.1 million and $0.3 million for the three and six months ended June 30, 2004 and $0.2 million and $0.3 million for the three and six months ended June 30, 2003. 3. SUPPLEMENTAL INFORMATION INVENTORIES The Company's inventories by major category were as follows (in thousands):
JUNE 30, DECEMBER 31, 2004 2003 -------- ------------ Raw materials........................................... $ 34,410 $ 28,344 Work in process......................................... 26,910 21,483 Finished goods.......................................... 54,862 46,570 -------- -------- 116,182 96,397 Reserves................................................ (4,904) (4,995) -------- -------- $111,278 $ 91,402 ======== ========
PROPERTY, PLANT AND EQUIPMENT The Company's investment in property, plant and equipment consisted of the following (in thousands):
JUNE 30, DECEMBER 31, 2004 2003 --------- ------------ Land and land improvements............................. $ 19,684 $ 20,043 Buildings and building improvements.................... 109,621 109,563 Machinery and equipment................................ 518,865 511,820 Furniture and fixtures................................. 16,115 15,986 Construction in progress............................... 11,392 9,696 --------- --------- 675,677 667,108 Accumulated depreciation............................... (301,258) (278,868) --------- --------- $ 374,419 $ 388,240 ========= =========
COMPREHENSIVE INCOME (LOSS) A summary of the comprehensive income (loss) was as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- ---------------------- 2004 2003 2004 2003 ------- ------- -------- ------- Net income (loss)......................... $(2,066) $(2,262) $(18,601) $ 447 Other comprehensive income (loss): Currency translation adjustment, net................................. (3,150) 11,099 (5,128) 18,487 ------- ------- -------- ------- Comprehensive income (loss)............... $(5,216) $ 8,837 $(23,729) $18,934 ======= ======= ======== =======
5 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SUPPLEMENTAL INFORMATION (CONTINUED) AMORTIZATION EXPENSE Amortization expense reported in the condensed statements of cash flows includes the following:
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2004 JUNE 30, 2003 ---------------- ---------------- Amortization of intangibles........................ $2,801 $ 863 Amortization of deferred financing fees............ 2,192 1,952 Other.............................................. 100 -- ------ ------ Total amortization............................. $5,093 $2,815 ====== ======
The amortization of deferred financing fees is included in interest expense in the condensed consolidated statements of operations. 4. LONG-TERM DEBT At June 30, 2004 and December 31, 2003, long-term debt consisted of the following (in thousands):
JUNE 30, DECEMBER 31, 2004 2003 -------- ------------ Senior Secured Credit Facility, due 2008............... $ 80,116 $ 73,310 Senior Notes, due 2012................................. 350,000 350,000 Senior Subordinated Notes, due 2008.................... -- 300,000 Senior Subordinated Notes, due 2013.................... 320,000 -- Other.................................................. 22,840 25,651 -------- -------- 772,956 748,961 Less current maturities................................ (2,584) (2,575) -------- -------- Long-term debt..................................... $770,372 $746,386 ======== ========
Current maturities consist of scheduled payments on other long-term debt. In January 2004, the Company sold $320 million of 7 7/8% senior subordinated notes due 2013. The proceeds from the sale of these notes were used to redeem the $300 million of 8 3/4% senior subordinated notes due 2008. The Company incurred costs of $7.1 million to issue the 7 7/8% senior subordinated notes. These costs have been deferred and will be amortized over the term of the notes. A loss of $17.7 million was recorded on the early extinguishment of the 8 3/4% senior subordinated notes consisting of redemption premiums of $13.5 million and unamortized debt issuance costs of $4.2 million. In March 2004, the Company amended its $300 million senior secured credit facility due 2005 to extend its term to June 2008. The cost incurred to amend the credit facility was $1.8 million. These debt issuance costs will be amortized over the extended term of the facility. As of June 30, 2004, the Company was in compliance with all of the covenants of its various debt agreements. GUARANTEES On May 21, 2002, the Company sold its prime label business. The Company continues to guarantee a lease obligation of this former business. The guarantee requires the lessor to pursue 6 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. LONG-TERM DEBT (CONTINUED) collection and other remedies against the buyer of this business before demanding payment from the Company. The remaining payment under the lease term, which expires April 2008, totals approximately $5.4 million. If the Company were required to honor its obligation under the guarantee, any loss would be reduced by the amount generated from the liquidation of the equipment. The senior notes due 2012 and the senior subordinated notes due 2013 are guaranteed by Cenveo, Inc. (the "Parent Guarantor") and all of its wholly-owned operating subsidiaries (the "Guarantor Subsidiaries"). 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. 5. INCOME TAXES The income tax benefit recorded on the loss before income taxes was based on the effective tax rate of 5.2% for the six months ended June 30, 2004. The Company's effective tax rate was negatively impacted by the establishment of additional valuation allowances on certain deferred tax assets. Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, ("SFAS 109") requires the evaluation of the realizability of deferred tax assets on a quarterly basis. SFAS 109 requires a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence with respect to the realizability of deferred tax assets, establishment of a valuation allowance must be considered. Under provisions of SFAS 109, the substantial losses incurred by the Company over the most recent three-year period represent sufficient negative evidence. Accordingly, the Company is providing an additional valuation allowance to cover the estimated impairment of the U.S. related deferred tax asset arising from operating losses generated in 2004. In the second quarter of 2004, $6.4 million of tax contingency reserves established in prior years were deemed no longer necessary. Also in the second quarter of 2004, the Company added $6.0 million to its valuation allowance to cover the estimated impairment of certain capital loss carryforwards. This adjustment was necessary because of changes made to the assumptions used in the tax planning strategies available to the Company to fully utilize its capital loss carryforwards. 6. RESTRUCTURING CHARGES In February 2004, the commercial segment announced the closure of its envelope manufacturing plant in Bensalem, Pennsylvania and its integration into the Company's Philadelphia printing facility. The expenses incurred during the six months ended June 30, 2004 were $1.1 million and were primarily employee separation and related expenses; expenses incurred incidental to equipment moves; and preparing the building in Bensalem for sale. The total cost of the closure is expected to be approximately $2.2 million consisting of the following (in thousands): Employee separation and related expenses................ $ 875 Equipment write-downs, net.............................. 500 Equipment moving expenses............................... 225 Building clean-up and other expenses.................... 570 ------ Total............................................... $2,170 ======
The Company has substantially completed the restructuring programs initiated in June 2001 and 2002. 7 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. RESTRUCTURING CHARGES (CONTINUED) A summary of the activity charged to the 2002 restructuring liability during the six months ended June 30, 2004 is as follows (in thousands):
COMMERCIAL RESALE TOTAL ---------- ------ ------ Balance, December 31, 2003............................. $1,279 $ 30 $1,309 Payments for lease termination and property exit costs............................................ (261) (13) (274) Payments for other exit costs...................... (86) -- (86) ------ ---- ------ Balance, June 30, 2004................................. $ 932 $ 17 $ 949 ====== ==== ======
A summary of the activity charged to the 2001 restructuring liability during the six months ended June 30, 2004 is as follows (in thousands):
COMMERCIAL ---------- Balance, December 31, 2003.............................. $688 Payments for lease termination and property exit costs............................................. (153) ---- Balance, June 30, 2004.................................. $535 ====
7. PENSION PLANS The components of the net periodic pension cost for the Company's pension plans and the supplemental executive retirement plans were as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ----------------------- 2004 2003 2004 2003 ----- ----- ------- ------- Service cost................................. $ 521 $ 362 $ 1,065 $ 724 Interest cost................................ 765 833 1,476 1,667 Expected return on plan assets............... (812) (905) (1,656) (1,811) Net amortization and deferral................ 50 (47) 103 (93) Other........................................ -- 82 -- 165 ----- ----- ------- ------- Net periodic pension expense................. $ 524 $ 325 $ 988 $ 652 ===== ===== ======= =======
The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expects to contribute $2.8 million to its pension plans in 2004. As of June 30, 2004, contributions of $0.2 million have been made. 8 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. LOSS 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 and diluted loss per share from continuing operations is as follows (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 2004 2003 2004 2003 -------- ------- -------- ------- Numerator: Numerator for basic and diluted loss per share--loss from continuing operations...... $ (3,296) $(1,681) $(19,831) $(1,150) ======== ======= ======== ======= Denominator: Denominator for basic loss per share--weighted average shares.............................. 47,740 47,679 47,737 47,672 Effects of dilutive securities: Stock options and restricted stock........ -- -- -- 535 -------- ------- -------- ------- Denominator for diluted loss per share-- adjusted weighted average shares............ 47,740 47,679 47,737 48,207 ======== ======= ======== ======= Loss from continuing operations per share: Basic and diluted......................... $ (0.07) $ (0.04) $ (0.42) $ (0.02) ======== ======= ======== =======
In the three months ended June 30, 2004 and 2003, outstanding options and shares of restricted stock in the amount of 7,330,000 and 6,887,000, respectively, were excluded from the calculation of diluted loss per share because the effect would be antidilutive. In the six months ended June 30, 2004 and 2003, outstanding options and shares of restricted stock in the amount of 7,330,000 and 6,352,000, respectively, were excluded from the calculation of diluted loss per share because the effect would be antidilutive. 9. DISCONTINUED OPERATIONS In September 2000, the Company sold the extrusion coating and laminating business segment of American Business Products, Inc., a company acquired in February 2000. The consideration received for this business included an unsecured note which was fully reserved at the time of the sale. This note was redeemed by the issuer in June 2004 for $2.0 million. The proceeds, net of tax, have been recorded as a gain on disposal of discontinued operations. During the first quarter of 2003, the Company recorded a gain on the disposal of discontinued operations in the amount of $2.5 million. This gain was the result of a change in the estimated tax impact of the disposition of its prime label business, which was sold in May 2002. The gain was reduced by $0.6 million in the second quarter of 2003 based on the completion of the tax return. 10. SEGMENT INFORMATION In October 2003, the Company reorganized into two operating segments: commercial and resale. This reorganization aligned the Company's structure with its strategic goals. Segment information for the three and six months ended June 30, 2003 has been restated to reflect the new operating segments. The commercial segment specializes in printing annual reports, car brochures, brand marketing collateral, financial communications, general commercial printing and the manufacturing and printing 9 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SEGMENT INFORMATION (CONTINUED) of customized envelopes for billing and remittance and direct mail advertising. The commercial segment also offers services such as design, fulfillment, e-commerce and inventory management. The products and services of the commercial segment are sold directly to national and local customers. The resale segment produces business forms and labels, custom and stock envelopes and specialty packaging and mailers. These products are generally sold through professional print distributors, business forms suppliers, office-products retail chains and the Internet. Operating income of each segment includes all costs and expenses directly related to the segment's operations. Corporate expenses include corporate general and administrative expenses. Inter-company sales for the three months ended June 30, 2004 and 2003 were $53.3 million and $34.5 million, respectively. Inter-company sales for the six months ended June 30, 2004 and 2003 were $102.1 million and $71.4 million, respectively. These amounts were eliminated in consolidation and excluded from reported net sales. The following tables present certain segment information for the three and six months ended June 30, 2004 and 2003 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Net sales: Commercial.......................... $307,583 $306,608 $631,432 $630,670 Resale.............................. 101,813 101,218 201,706 204,476 -------- -------- -------- -------- Total............................... $409,396 $407,826 $833,138 $835,146 ======== ======== ======== ======== Operating income (expense): Commercial.......................... $ 9,920 $ 10,285 $ 21,914 $ 22,765 Resale.............................. 12,359 10,455 23,822 22,309 Corporate........................... (7,474) (5,115) (12,017) (10,171) -------- -------- -------- -------- Total............................... $ 14,805 $ 15,625 $ 33,719 $ 34,903 ======== ======== ======== ======== Restructuring charges: Commercial.......................... $ 1,018 $ 410 $ 1,121 $ 1,320 Resale.............................. -- (54) -- (195) -------- -------- -------- -------- Total............................... $ 1,018 $ 356 $ 1,121 $ 1,125 ======== ======== ======== ======== Net sales by product line: Commercial printing................. $186,873 $185,638 $385,073 $382,468 Envelopes........................... 172,077 171,845 346,180 352,035 Business forms and labels........... 50,446 50,343 101,885 100,643 -------- -------- -------- -------- Total............................... $409,396 $407,826 $833,138 $835,146 ======== ======== ======== ========
11. SUBSEQUENT EVENT On July 6, 2004 the Company purchased the stock of Valco Graphics Inc., a commercial printing company in Seattle, Washington with annual sales of approximately $18 million, for $9.5 million in cash. The Company plans to combine its existing commercial printing operation in Seattle with Valco Graphics and operate the combined entity as Cenveo, Seattle. 10 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION Cenveo Corporation (formerly known as Mail-Well I Corporation) ("Issuer"), the Company's wholly-owned subsidiary, and the only direct subsidiary of the Company, has issued $350 million aggregate principal amount of 9 5/8% Senior Notes ("Senior Notes") due in 2012 and $320 million aggregate principal amount of 7 7/8% Senior Subordinated Notes ("Senior Subordinated Notes") due in 2013. The Senior Notes and Senior Subordinated Notes are guaranteed by the Guarantor Subsidiaries and 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 the issuer 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. 11 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED) June 30, 2004 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- ---------- ------------ ----------- ------------ Current assets: Cash and cash equivalents......... $ -- $ -- $ 165 $ -- $ 165 Accounts receivable, net.......... -- 54,196 164,392 -- 218,588 Inventories, net.................. -- 46,767 64,511 -- 111,278 Note receivable from subsidiaries..................... -- 603,100 -- (603,100) -- Other current assets.............. -- 26,266 18,083 -- 44,349 ------- ---------- -------- ----------- ---------- Total current assets............ -- 730,329 247,151 (603,100) 374,380 Investment in subsidiaries.......... 44,625 407,949 -- (452,574) -- Property, plant and equipment, net................................ -- 89,278 285,141 -- 374,419 Goodwill and other intangible assets, net........................ -- 67,289 247,436 -- 314,725 Deferred tax asset (liability)...... -- 12,402 (9,777) -- 2,625 Other assets, net................... -- 33,635 4,244 -- 37,879 ------- ---------- -------- ----------- ---------- Total assets........................ $44,625 $1,340,882 $774,195 $(1,055,674) $1,104,028 ======= ========== ======== =========== ========== Current liabilities: Accounts payable.................. $ -- $ 42,266 $104,241 $ -- $ 146,507 Other current liabilities......... -- 51,159 62,641 -- 113,800 Intercompany payable (receivable)..................... -- 417,637 (417,637) -- -- Note payable to Issuer............ -- -- 603,100 (603,100) -- Current maturities of long-term debt............................. -- 1,784 800 -- 2,584 ------- ---------- -------- ----------- ---------- Total current liabilities....... -- 512,846 353,145 (603,100) 262,891 Long-term debt, less current maturities......................... -- 766,037 4,335 -- 770,372 Other liabilities................... -- 17,374 8,766 -- 26,140 ------- ---------- -------- ----------- ---------- Total liabilities............... -- 1,296,257 366,246 (603,100) 1,059,403 Shareholders' equity................ 44,625 44,625 407,949 (452,574) 44,625 ------- ---------- -------- ----------- ---------- Total liabilities and shareholders' equity............................. $44,625 $1,340,882 $774,195 $(1,055,674) $1,104,028 ======= ========== ======== =========== ==========
12 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. 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 maturities of long-term debt................................ -- 1,776 799 -- 2,575 ------- -------- -------- --------- ---------- Total current liabilities.......... -- 98,795 764,917 (603,100) 260,612 Long-term debt, less current maturities............................ -- 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 ======= ======== ======== ========= ==========
13 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Three Months Ended June 30, 2004 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ ------ ------------ Net sales................................. $ -- $100,793 $308,603 $ -- $409,396 Cost of sales............................. -- 82,734 243,028 -- 325,762 ------- -------- -------- ------ -------- Gross profit.............................. -- 18,059 65,575 -- 83,634 Operating expenses: Selling, general and administrative..... -- 17,269 50,542 -- 67,811 Restructuring charges................... -- -- 1,018 -- 1,018 ------- -------- -------- ------ -------- Operating income.......................... -- 790 14,015 -- 14,805 Other expense: Interest expense........................ -- 17,461 52 -- 17,513 Intercompany interest expense (income)............................... -- (12,713) 12,713 -- -- Other................................... -- 638 (111) -- 527 ------- -------- -------- ------ -------- Income (loss) from continuing operations, before income taxes and undistributed earnings of subsidiaries................. -- (4,596) 1,361 -- (3,235) Income tax expense (benefit).............. -- (239) 300 -- 61 ------- -------- -------- ------ -------- Income (loss) from continuing operations, before undistributed earnings of subsidiaries............................. -- (4,357) 1,061 -- (3,296) Gain on disposal of discontinued operations, net of taxes of $770......... -- (1,230) -- -- (1,230) Equity in undistributed earnings of subsidiaries............................. (2,066) 1,061 -- 1,005 -- ------- -------- -------- ------ -------- Net income (loss)......................... $(2,066) $ (2,066) $ 1,061 $1,005 $ (2,066) ======= ======== ======== ====== ========
14 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Three Months Ended June 30, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ -------- ------------ Net sales............................... $ -- $101,904 $305,922 $ -- $407,826 Cost of sales........................... -- 85,035 243,670 -- 328,705 ------- -------- -------- -------- -------- Gross profit............................ -- 16,869 62,252 -- 79,121 Other operating expenses................ -- 18,054 45,086 -- 63,140 Restructuring and other charges......... -- -- 356 -- 356 ------- -------- -------- -------- -------- Operating income (loss)................. -- (1,185) 16,810 -- 15,625 Other expense (income): Interest expense...................... -- 18,172 13,650 (13,703) 18,119 Other expense (income)................ -- (13,724) 376 13,703 355 ------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes and equity in undistributed earnings of subsidiaries........................... -- (5,633) 2,784 -- (2,849) Income tax expense (benefit)............ -- (2,206) 1,038 -- (1,168) ------- -------- -------- -------- -------- Income (loss) from continuing operations before equity in undistributed earnings of subsidiaries........................ -- (3,427) 1,746 -- (1,681) Equity in undistributed earnings of subsidiaries........................... (2,262) 1,746 -- 516 -- ------- -------- -------- -------- -------- Income (loss) from continuing operations............................. (2,262) (1,681) 1,746 516 (1,681) Loss on disposal........................ -- 581 -- -- 581 ------- -------- -------- -------- -------- Net income (loss)....................... $(2,262) $ (2,262) $ 1,746 $ 516 $ (2,262) ======= ======== ======== ======== ========
15 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Six Months Ended June 30, 2004 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ -------- ------------ Net sales............................... $ -- $201,383 $631,755 $ -- $833,138 Cost of sales........................... -- 163,878 497,206 -- 661,084 -------- -------- -------- -------- -------- Gross profit............................ -- 37,505 134,549 -- 172,054 Other operating expenses................ -- 33,700 103,514 -- 137,214 Restructuring and other charges......... -- -- 1,121 -- 1,121 -------- -------- -------- -------- -------- Operating income........................ -- 3,805 29,914 -- 33,719 Other expense (income): Interest expense...................... -- 35,794 118 -- 35,912 Intercompany interest expense (income)............................. -- (26,275) 26,275 -- -- Loss on early extinguishment of debt................................. -- 17,748 -- -- 17,748 Other expense (income)................ -- 956 12 -- 968 -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes and equity in undistributed earnings of subsidiaries........................... -- (24,418) 3,509 -- (20,909) Income tax expense (benefit)........... -- (1,270) 192 -- (1,078) -------- -------- -------- -------- -------- Income (loss) from continuing operations before equity in undistributed earnings of subsidiaries........................ -- (23,148) 3,317 -- (19,831) Equity in undistributed earnings of subsidiaries........................... (18,601) 3,317 -- 15,284 -- -------- -------- -------- -------- -------- Income (loss) from continuing operations............................. (18,601) (19,831) 3,317 15,284 (19,831) Gain on disposal of discontinued operations, net of taxes of $770....... -- (1,230) -- -- (1,230) -------- -------- -------- -------- -------- Net income (loss)....................... $(18,601) $(18,601) $ 3,317 $ 15,284 $(18,601) ======== ======== ======== ======== ========
16 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Six Months Ended June 30, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ -------- ------------ Net sales............................... $ -- $209,547 $625,599 $ -- $835,146 Cost of sales........................... -- 175,019 497,079 -- 672,098 ------ -------- -------- -------- -------- Gross profit............................ -- 34,528 128,520 -- 163,048 Other operating expenses................ -- 33,884 93,136 -- 127,020 Restructuring and other charges......... -- -- 1,125 -- 1,125 ------ -------- -------- -------- -------- Operating income (loss)................. -- 644 34,259 -- 34,903 Other expense (income): Interest expense...................... -- 36,259 27,430 (27,356) 36,333 Other expense (income)................ -- (27,381) 512 27,356 487 ------ -------- -------- -------- -------- Income (loss) from continuing operations before income taxes and equity in undistributed earnings of subsidiaries........................... -- (8,234) 6,317 -- (1,917) Income tax expense (benefit)............ -- (3,294) 2,527 -- (767) ------ -------- -------- -------- -------- Income (loss) from continuing operations before equity in undistributed earnings of subsidiaries........................ -- (4,940) 3,790 -- (1,150) Equity in undistributed earnings of subsidiaries........................... 447 3,790 -- (4,237) -- ------ -------- -------- -------- -------- Income (loss) from continuing operations............................. 447 (1,150) 3,790 (4,237) (1,150) Gain on disposal........................ -- (1,919) -- -- (1,919) Cumulative effect of a change in accounting principle................... -- 322 -- -- 322 ------ -------- -------- -------- -------- Net income (loss)....................... $ 447 $ 447 $ 3,790 $ (4,237) $ 447 ====== ======== ======== ======== ========
17 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2004 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED --------- ----------- ------------ ------------ Cash flows provided by (used in) from operating activities......................... $ -- $ (12,064) $ 7,341 $ (4,723) Cash flows from investing activities: Capital expenditures........................ -- (3,549) (8,911) (12,460) Intercompany advances....................... (46) 92 (46) -- Proceeds from sales of property, plant & equipment.................................. -- -- 346 346 Proceeds on divestitures, net............... -- -- 2,000 2,000 --------- ----------- -------- ----------- Net cash used in investing activities....... (46) (3,457) (6,611) (10,114) Cash flows from financing activities: Proceeds from issuance of long-term debt.... -- 1,677,071 -- 1,677,071 Repayments of long-term debt................ -- (1,652,614) (460) (1,653,074) Proceeds from issuance of common stock...... 46 -- -- 46 Capitalized loan fees....................... -- (8,936) -- (8,936) --------- ----------- -------- ----------- Net cash provided by (used in) financing activities................................. 46 15,521 (460) 15,107 Effect of exchange rate changes on cash and cash equivalents............................. -- -- (412) (412) --------- ----------- -------- ----------- Net change in cash and cash equivalents....... -- -- (142) (142) Cash and cash equivalents at beginning of year......................................... -- -- 307 307 --------- ----------- -------- ----------- Cash and cash equivalents at end of period.... $ -- $ -- $ 165 $ 165 ========= =========== ======== ===========
18 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED --------- --------- ------------ ------------ Cash flows from (used in) operating activities..................................... $ -- $ (17,035) $ 37,194 $ 20,159 Cash flows from investing activities: Capital expenditures.......................... -- (976) (12,034) (13,010) Proceeds from divestitures, net............... -- 3,864 -- 3,864 Intercompany advances......................... (16) 25,257 (25,241) -- Proceeds from the sale of assets.............. -- -- 627 627 --------- --------- -------- --------- Net cash provided by (used in) investing activities................................... (16) 28,145 (36,648) (8,519) Cash flows from financing activities: Proceeds from the issuance of common stock.... 16 -- -- 16 Proceeds from long-term debt.................. -- 947,205 -- 947,205 Repayments of long-term debt.................. -- (960,176) (771) (960,947) Capitalized loan fees......................... -- (437) -- (437) --------- --------- -------- --------- Net cash provided by (used in) financing activities................................... 16 (13,408) (771) (14,163) Effect of exchange rate changes on cash......... -- -- 619 619 --------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents.................................... -- (2,298) 394 (1,904) Balance at beginning of year.................... -- 1,957 693 2,650 --------- --------- -------- --------- Balance at end of period........................ $ -- $ (341) $ 1,087 $ 746 ========= ========= ======== =========
19 CENVEO, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS OVERVIEW We are one of North America's leading providers of visual communications. We produce a variety of products and provide services that help our customers deliver customized messages more effectively. In keeping with our strategy to unite all of our operations under one identity, our shareholders approved the change of the Company's name from Mail-Well, Inc. to Cenveo, Inc. on April 29, 2004. In October 2003, we reorganized Cenveo into two business segments. This reorganization aligned our structure with our principal strategic goals: to operate as one company; to provide our customers with one point of entry into Cenveo; and to provide our customers with a full spectrum of our products and services delivered with speed, reliability and efficiency. COMMERCIAL Our commercial segment specializes in printing annual reports, car brochures, brand marketing collateral, financial communications, general commercial printing and the manufacturing and printing of customized envelopes for billing and remittance and direct mail advertising. We also offer our customers services such as design, fulfillment, e-commerce, inventory management and other enterprise solutions for companies seeking strategic partners for their branding and other communications priorities. These products and services are sold directly to national and local customers. Our commercial segment consists of 36 printing plants, 29 envelope plants and five distribution and fulfillment centers. MARKET AND OTHER FACTORS. Approximately 50% of our commercial printing sales and approximately 40% of our custom envelope sales are related to advertising and direct mail promotions. Beginning in 2001, many of our customers significantly reduced promotional spending in response to the economic slowdown. Advertising and promotional spending historically have not improved as quickly as the overall economy after a recession. Additionally, we expect growth in printed advertising and promotional spending to be slower than it was prior to the recession. While the volumes of certain of our products are beginning to increase and our margins are improving, there is overcapacity in our industry and significant competitive pricing pressures. We do not expect strong internal growth until capacity is reduced or the markets served by our commercial segment, particularly advertising and direct mail, fully recover from the recession. AREAS OF FOCUS. Because of the changes that have occurred in our markets we have two principal areas of focus: * It is important that we grow our share of the market. We have made a substantial investment in our sales and marketing organization to differentiate ourselves from our competitors and enable us to offer and deliver to our customers a full spectrum of our products and services with speed, reliability and efficiency. * We must continue to manage our capacity and operating leverage. In 2001, we began a restructuring program to consolidate many of our manufacturing facilities to reduce excess capacity and improve our competitive position. We have closed eleven of our envelope facilities and four printing operations to improve the utilization of our capacity. In the second quarter of 2004 we closed another envelope facility. RESALE Our resale segment produces business forms and labels, custom and stock envelopes and specialty packaging and mailers. These products are generally sold through professional print distributors, business forms suppliers, office-products retail chains and the Internet. The resale segment operates 20 manufacturing facilities. 20 CENVEO, INC. AND SUBSIDIARIES MARKET AND OTHER FACTORS. Demand for business forms has been declining for several years as businesses have acquired laser-printing capabilities. The resale market for office products has become extremely price competitive. Mass merchandisers, wholesalers and paper merchants are consolidating suppliers. Product offerings, competitive prices and service are keys to retaining business. AREAS OF FOCUS. In response to industry and market challenges, we are focusing on the following: * We are defending our share of the business forms market and our sales into the office products retail channel. We believe we have the national manufacturing capability and the cost structure to be successful in this effort. * We must grow our sales of business labels and specialty business documents. The markets for these products are growing and we have the production capability and products to benefit from this market growth. * We must match our manufacturing capacity of business forms to the demands of our customers. Since 2001, we have closed two of our business forms plants. CORPORATE In addition to the business improvement actions and areas of focus for each of our business segments, we have several important corporate-wide initiatives. * Our company was formed through a strategic roll-up of many acquisitions. The companies we acquired had different cultures, operating procedures and information systems. We have taken and will continue to take actions to integrate our operations into one company, build our own unique culture and standardize procedures and systems. * We have refinanced our debt over the last several years. Currently, we have no significant maturities on any of our long-term debt until 2008. Our focus is on generating sufficient internal cash flow to fund investments in capital equipment and acquisitions and reductions in our outstanding debt. * In 2003, we launched a major initiative we refer to as "Mobilization." Mobilization is a comprehensive program designed to actively involve all of our employees in improving service, quality, efficiency and innovation. We believe this initiative has and will continue to improve teamwork, communication and accountability throughout our business and thus improve operations, safety and customer service, and reduce costs. * The cost of coated and uncoated paper has increased in the first six months of 2004 and additional price increases have been announced. These increases in the cost of manufacturing our products will negatively impact the profit margins of both resale and commercial to the extent we are unable to increase our prices on these products. It will be important for us to mitigate the impact of this price increase. CONSOLIDATED RESULTS The summary financial data set forth in the tables that follow present reported amounts as well as comparable financial data for our commercial and resale operating segments. Division net sales are the sales of our operating segments and exclude sales of our digital graphics operations sold in March 2003. Division operating income is the operating income of our segments before considering restructuring expenses and the operating results of the digital graphics operations and excludes 21 CENVEO, INC. AND SUBSIDIARIES unallocated corporate expenses. We believe this presentation provides information useful to understanding of the performance of our two operating segments.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Division net sales.......................... $409,396 $407,826 $833,138 $832,273 Divested operations..................... -- -- -- 2,873 -------- -------- -------- -------- Net sales................................... 409,396 407,826 833,138 835,146 Division operating income................... 23,298 21,096 46,857 46,031 Unallocated corporate expense........... (7,475) (5,115) (12,017) (10,171) Restructuring expense................... (1,018) (356) (1,121) (1,125) Divested operations..................... -- -- -- 168 -------- -------- -------- -------- Operating income............................ 14,805 15,625 33,719 34,903 Interest expense........................ 17,513 18,119 35,912 36,333 Loss on early extinguishment of debt.... -- -- 17,748 -- Other................................... 527 355 968 487 -------- -------- -------- -------- Loss from continuing operations before income taxes.............................. (3,235) (2,849) (20,909) (1,917) Income tax benefit (expense)............ (61) 1,168 1,078 767 -------- -------- -------- -------- Loss from continuing operations............. (3,296) (1,681) (19,831) (1,150) Gain (loss) on disposal of discontinued operations............................ 1,230 (581) 1,230 1,919 Change in accounting principle.......... -- -- -- (322) -------- -------- -------- -------- Net income (loss)........................... $ (2,066) $ (2,262) $(18,601) $ 447 ======== ======== ======== ======== Earnings (loss) per share................... $ (0.04) $ (0.05) $ (0.39) $ 0.01 ======== ======== ======== ========
NET SALES Net sales and division net sales increased $1.6 million in the second quarter of 2004 compared to net sales for the second quarter of 2003. Sales of our commercial segment increased $1.0 million, and sales of our resale segment increased $0.6 million. For the six months ended June 30, 2004, net sales declined $2.0 million compared to net sales for the comparable period of 2003. Sales in the first six months of 2003 included $2.9 million of the digital graphics operations divested in the first quarter of 2003. Division net sales for the six months ended June 30, 2004 increased $0.9 million. Sales of our commercial segment increased $3.6 million while sales of our resale segment decreased $2.8 million. OPERATING INCOME Operating income declined $0.8 million in the second quarter of 2004 and $1.2 million for the six months ended June 30, 2004 compared to operating income earned in the comparable periods of 2003. DIVISION OPERATING INCOME. Division operating income increased $2.2 million in the second quarter of 2004 compared to division operating income earned in the second quarter of 2003. Division operating income of our commercial segment improved $0.2 million. Division operating income of our resale segment improved $2.0 million. For the six months ended June 30, 2004, division operating income increased $0.8 million. The increase in division operating income was due to our resale segment which improved its operating 22 CENVEO, INC. AND SUBSIDIARIES income by $1.7 million. The division operating income of the commercial segment declined $0.9 million. UNALLOCATED CORPORATE EXPENSES. Unallocated corporate expenses include the costs of our corporate headquarters. The increase in corporate expenses in the second quarter of 2004 and for the six months ended June 30, 2004 is primarily due to an increase in the cost of workers' compensation claims. We did not allocate these expenses to our segments because the increased costs related to the development of claims incurred prior to 2004. RESTRUCTURING EXPENSES. We continue to evaluate our operations for opportunities to optimize capacity and reduce costs. In February 2004, we announced the closure of our envelope plant in Bensalem, Pennsylvania and its integration into our Philadelphia printing facility. The expenses incurred in connection with this closure, which were primarily employee separation and related expenses and expenses for equipment moves and preparing the building in Bensalem for sale, totaled $1.0 million in the second quarter of 2004 and $1.1 million for the six months ended June 30, 2004. The total cost of the closure is expected to be approximately $2.2 million consisting of the following (in thousands): Employee separation and related expenses................ $ 875 Equipment write-downs, net.............................. 500 Equipment moving expenses............................... 225 Building clean-up and other expenses.................... 570 ------ Total............................................... $2,170 ======
We anticipate incurring the remainder of these expenses prior to the end of 2004. DIVESTED OPERATIONS. Operating income in 2003 included operating income of $0.2 million from the digital graphics operations divested in March 2003. INTEREST EXPENSE Interest expense decreased by $0.6 million in the second quarter of 2004 compared to the second quarter of 2003. Interest expense incurred during the second quarter of 2004 reflected our average outstanding debt during the quarter of $807.1 million and a weighted average interest rate of 8.06% compared to the average outstanding debt of $801.9 million and a weighted average interest rate of 8.36% in the second quarter of 2003. For the six months ended June 30, 2004, interest expense was $0.4 million lower than the comparable period of 2003. Interest expense incurred during this period reflected our average outstanding debt of $812.4 million and a weighted average interest rate of 8.19% compared to the average outstanding debt of $807.5 million and a weighted average interest rate of 8.35% during the first six months of 2003. Our average outstanding debt and weighted average interest rate in 2004 reflect the issuance of the 7 7/8% senior subordinated notes in January, the proceeds of which were used to redeem our 8 3/4% senior subordinated notes and lower outstanding debt issued under our credit facility. LOSS FROM THE EARLY EXTINGUISHMENT OF DEBT In January 2004, we sold $320 million of 7 7/8% senior subordinated notes due 2013. The proceeds from the sale of these notes were used to redeem our 8 3/4% senior subordinated notes due 2008. The premium paid to redeem the 8 3/4% notes and the unamortized debt issuance costs on the 8 3/4% notes, which were written off, totaled $17.7 million. 23 CENVEO, INC. AND SUBSIDIARIES TAX BENEFIT The income tax benefit recorded on the loss before income taxes was based on the effective tax rate of 5.2% for the six months ended June 30, 2004. Our effective tax rate was negatively impacted by the establishment of additional valuation allowances on certain deferred tax assets. Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, ("SFAS 109") requires us to evaluate the realizability of our deferred tax assets on a quarterly basis. SFAS 109 requires us to provide a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. In circumstances where there is sufficient negative evidence with respect to the realizability of deferred tax assets, establishment of a valuation allowance must be considered. Under provisions of SFAS 109, the substantial losses we incurred over the most recent three-year period represent sufficient negative evidence. Accordingly, we are providing an additional valuation allowance to cover the estimated impairment of the deferred tax asset arising from U.S. related operating losses that are expected to be generated in 2004. In the second quarter of 2004, we determined that $6.4 million of our tax contingency reserves established in prior years were no longer necessary. Also in the second quarter of 2004, we determined that certain assumptions in our tax planning strategies were no longer sufficient to utilize all of our capital loss carryforwards and added $6.0 million to our valuation allowance. We believe our remaining deferred tax assets will be realized through the reversal of our existing temporary differences and the execution of available tax planning strategies. Additional valuation allowances may be required if we are unable to execute our tax planning strategies or generate future taxable income. The valuation allowance that has been established will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that our deferred tax assets will be realized. When sufficient positive evidence occurs, our income tax expense will be reduced to the extent we decrease the amount of our valuation allowance. The establishment or reversal of valuation allowances could have a significant negative or positive impact on future earnings. GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS In September 2000, we sold the extrusion coating and laminating business segment of American Business Products, Inc., a company we acquired in February 2000. The consideration received for this business included an unsecured note which was fully reserved at the time of the sale. This note was redeemed by the issuer in June 2004 for $2.0 million. The proceeds, net of tax, have been recorded as a gain on disposal of discontinued operations. The loss on the disposal of discontinued operations recorded in the second quarter of 2003 and the gain recorded for the six months ended June 30, 2003 were the results of adjustments made to the tax impact of the sale of the prime label business in 2002. NET LOSS AND LOSS PER SHARE--DILUTED The net loss and loss per share for the second quarter of 2004 reflect the improved performance of our operating segments and the gain on disposal of discontinued operations. These gains were offset by higher workers' compensation expense, higher amortization expense and higher restructuring expense. Operating income was not sufficient to cover interest expense. For the six month ended June 30, 2004, our net loss and net loss per share reflect operating income that was not sufficient to cover interest expense and the $17.7 million loss incurred on the early extinguishment of debt. 24 CENVEO, INC. AND SUBSIDIARIES BUSINESS SEGMENTS COMMERCIAL
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Division net sales.......................... $307,583 $306,608 $631,432 $627,797 Divested operations..................... -- -- -- 2,873 -------- -------- -------- -------- Net sales................................... 307,583 306,608 631,432 630,670 Division operating income................... 10,938 10,695 23,035 23,917 Restructuring expense................... (1,018) (410) (1,121) (1,320) Divested operations..................... -- -- -- 168 -------- -------- -------- -------- Operating income............................ 9,920 10,285 21,914 22,765 Operating income margin..................... 3.2% 3.4% 3.5% 3.6%
Net sales of our commercial segment for the second quarter of 2004 increased $1.0 million to $307.6 million compared to net sales in the second quarter of 2003. Sales of our commercial printing and envelope products in the second quarter of 2004 were comparable to the second quarter of 2003. The sales increase in the second quarter of 2004 was primarily due to the favorable impact of the strength of the Canadian dollar on the sales of our Canadian operations. Operating income for the second quarter of 2004 decreased slightly to $9.9 million from the $10.3 million earned in the second quarter of 2003. This decrease was due to the higher restructuring expenses incurred in the second quarter of 2004. Division operating income increased slightly to $10.9 million from the $10.7 million earned in the prior year. This improvement was due to a 140 basis point, or 7.8%, improvement in gross profit margin which more than covered higher sales and marketing expenses and higher amortization expense. Amortization expense was $1.0 million higher in the second quarter of 2004 due to the amortization of an intangible asset recorded in connection with the payment of contingent purchase price on an acquisition completed in 2002. Net sales of our commercial segment for the six months ended June 30, 2004 were slightly higher than net sales in the comparable period of 2003. Net sales in 2003 included sales of $2.9 million of the digital graphics operations that were sold in March 2003. Division net sales were $631.4, an increase of $3.6 million, in 2004 compared to division net sales in 2003. * Sales of our commercial printing products increased by $2.0 million. This increase was driven by higher sales of high impact printing products. * Envelope sales of our domestic operations were $5.8 million lower driven by lower volume in the first quarter and lower average selling prices. * The favorable impact of the strength of the Canadian dollar on the sales of our Canadian operations was $7.4 million. Operating income for the six months ended June 30, 2004 was $21.9 million, $0.9 million lower than the operating income earned in the comparable period of 2003. Division operating income of $23.0 million declined by a similar amount. A 120 basis point, or 6.8%, improvement in gross profit margin was offset by increases in sales and marketing expenses and a $2.0 million increase in amortization expense. 25 CENVEO, INC. AND SUBSIDIARIES RESALE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Net sales................................... $101,813 $101,218 $201,706 $204,476 Division operating income................... 12,359 10,401 23,822 22,114 Restructuring income.................... -- 54 -- 195 -------- -------- -------- -------- Operating income............................ 12,359 10,455 23,822 22,309 Operating income margin..................... 12.1% 10.3% 11.8% 10.9%
Net sales of our resale segment for the second quarter of 2004 increased by $0.6 million, to $101.8 million, compared to net sales in the second quarter of 2003. Growth in sales of business labels which began in the first quarter of 2004 continued during the second quarter. Sales of business labels grew $2.3 million, or 9.2%, during the quarter; however, this sales growth was offset by lower sales of business forms and lower sales of office products. Demand for traditional business forms, especially continuous forms, continued to decline in the second quarter as users of these products acquire laser printing capabilities. Operating income for the second quarter of 2004 increased $1.9 million to $12.4 million compared to operating income earned in the second quarter of 2003. This improvement was due primarily to the sales growth of business labels and reductions in administrative expenses. Net sales for the six months ended June 30, 2004 were $2.8 million lower than net sales in the comparable period of 2003. For the first half of 2004, sales of business labels were $5.8 million higher than in 2003. This strong sales performance was offset by lower sales in the office products retail channel during the first quarter of 2004 and lower sales of business forms. Operating income for the six months ended June 30, 2004 was $1.5 million higher than operating income earned in the comparable period of 2003. The strong performance of our business labels products and lower fixed expenses more than offset the impact of lower sales. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES. Cash used in operations was $4.7 million during the first six months of 2004 compared to $20.2 million provided by operations during the comparable period of 2003. During the first six months of 2004, we paid redemption premiums of $13.5 million to redeem our 8 3/4% senior subordinated notes. In addition, cash used for increases in working capital during the first six months of 2004 totaled $8.9 million compared to an increase of $0.6 million during the comparable period of 2003. This increase was primarily due to the payment of a $4.9 million legal settlement accrued at December 31, 2003 and increases in inventory needed to support new business. We do not expect the increase in inventories to be permanent. INVESTING ACTIVITIES. Capital expenditures were $12.5 million as of June 30, 2004 compared to $13.0 million as of June 30, 2003. We anticipate capital expenditures for all of 2004 to be approximately $25.0 million. On July 6, 2004, we purchased the stock of Valco Graphics Inc., a commercial printing company in Seattle, Washington. The cost of this acquisition was $9.5 million. FINANCING ACTIVITIES. In January 2004, we sold $320 million of 7 7/8% senior subordinated notes due 2013. The proceeds from the sale of these notes were used to redeem the $300 million of 8 3/4% senior subordinated notes due 2008. The cost incurred to issue the 7 7/8% senior subordinated notes was $7.1 million. These debt issuance costs have been deferred and will be amortized over the term of the notes. We recorded a loss of $17.7 million on the early extinguishment of the 8 3/4% senior subordinated notes 26 CENVEO, INC. AND SUBSIDIARIES which consisted of redemption premiums of $13.5 million and unamortized debt issuance costs of $4.2 million. In March 2004, we amended our $300 million senior secured credit facility to extend its term to June 2008. The cost incurred to amend the credit facility was $1.8 million. These debt issuance costs will be amortized over the extended term of the facility. The following table summarizes our cash payment obligations as of June 30, 2004 by year:
OTHER LONG- PURCHASE TOTAL CASH LONG-TERM DEBT OPERATING LEASES TERM LIABILITIES COMMITMENTS OBLIGATIONS -------------- ---------------- ---------------- ----------- ----------- Year 1............... $ 2,584 $ 31,508 $ -- $360 $ 34,452 Year 2............... 2,340 26,797 3,521 420 33,078 Year 3............... 2,358 23,220 3,259 -- 28,837 Year 4............... 92,917 17,139 2,220 -- 112,276 Year 5............... 1,033 9,833 2,042 -- 12,908 Thereafter........... 671,724 18,574 15,098 -- 705,396 -------- -------- ------- ---- -------- Total................ $772,956 $127,071 $26,140 $780 $926,947 ======== ======== ======= ==== ========
At June 30, 2004, we had outstanding letters of credit of approximately $24.9 million related to performance and payment guarantees. In addition, we have issued letters of credit of $1.6 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. In conjunction with the sale of the prime label business in May 2002, we guaranteed certain lease obligations. As of June 30, 2004, the contingent liability under the guarantee was $5.4 million. We have not made and do not expect to make any payments under this guarantee. See Note 4 to the condensed consolidated financial statements for additional information with respect to this guarantee. Our current credit ratings are as follows:
SENIOR SECURED SENIOR CREDIT SENIOR SUBORDINATED REVIEW AGENCY FACILITY NOTES DEBT LAST UPDATE ------------- -------- ------ ------------ ----------- Standard & Poor's......... BB BB- B April 2004 Moody's................... Ba3 B1 B3 April 2004
The terms of our existing debt agreements have no rating triggers, and we do not believe that our current ratings will impact our ability to raise additional capital. 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. Based on the certificate filed for June 30, 2004 activity, we had $112.2 million of unused credit available under this credit facility. 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 27 CENVEO, INC. AND SUBSIDIARIES 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. AVAILABLE INFORMATION Our Internet address is: www.cenveo.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 Securities Exchange Act of 1934 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. 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 can be estimated. Although the ultimate outcome of these claims or lawsuits cannot be ascertained, on the basis of present information and advice received from counsel, it is our opinion that the disposition or ultimate determination of such claims or lawsuits will not have a material adverse effect on us. FORWARD-LOOKING INFORMATION 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 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 Cenveo 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 * The ability to implement our strategic initiatives * The ability to sustain profitability after substantial losses in 2002 and 2001 and in the first six months of 2004 * The majority of our sales are not subject to long-term contracts * The industry is extremely competitive due to over capacity in the industry * 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 28 CENVEO, INC. AND SUBSIDIARIES * 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 * The ability to successfully identify, manage and integrate possible future acquisitions * Dependence on suppliers and the costs of paper and other raw materials and the ability to pass paper price increases onto customers * The ability 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 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks such as changes in interest and foreign currency exchange rates, which may adversely affect results of our operations and our financial position. We have operations in Canada, and thus are exposed to market risk for changes in foreign currency exchange rates of the Canadian dollar. 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 have we hedged interest rate exposure through the use of swaps and options or foreign exchange exposure through the use of forward contracts. Exposure to market risk from changes in interest rates relates primarily to our variable rate debt obligations. The interest on this debt is the London Interbank Offered Rate ("LIBOR") plus a margin. At June 30, 2004, we had variable rate debt outstanding of $100.3 million. A 1% increase in LIBOR on the maximum amount of debt subject to variable interest rates, which is $316.4 million, would increase our annual interest expense by $3.2 million. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities. CHANGES IN INTERNAL CONTROLS. There were no significant changes in our internal controls or procedures or in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date. 29 PART II OTHER INFORMATION ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS On April 29, 2004, the Company held its Annual Meeting of Stockholders, at which the following matters were voted upon: ELECTION OF DIRECTORS--The following individuals were elected or re-elected to the Board of Directors by the following vote:
NAME FOR WITHHOLD ----------------------------------------- ---------- --------- Paul V. Reilly 42,151,726 3,016,492 Thomas E. Costello 42,202,747 2,965,471 Martin J. Maloney 42,157,190 3,011,027 David M. Olivier 42,238,168 2,930,049 Jerome W. Pickholz 42,404,619 2,763,599 Alister W. Reynolds 42,155,190 3,013,027 Susan O. Rheney 41,361,028 3,807,190
AMENDMENT OF ARTICLES OF INCORPORATION--A proposal to amend the articles of incorporation to change the Company's name to Cenveo, Inc., was approved by the following vote: 40,219,570 For, 4,765,497 Against, 183,149 Abstentions. AMENDMENT OF 2001 LONG TERM EQUITY INCENTIVE PLAN--A proposal to amend the Company's 2001 Long Term Equity Incentive Plan, increasing the number of shares reserved for issuance under the Plan to 7,450,000 and increasing the number of shares that may be granted as awards other than options, was approved by the following vote: 29,214,882 For, 7,548,684 Against, 668,145 Abstentions. SELECTION OF AUDITORS--The selection by the Audit Committee of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending December 31, 2004 was ratified by the following vote: 44,666,635 For, 311,452 Against, 175,628 Abstentions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Articles of Incorporation of the Company--incorporated by reference from Exhibit 3(i) of the Company's Form 10-Q for the quarter ended June 30, 1997. 3.2* Articles of Amendment to the Articles of Incorporation of the Company dated May 17, 2004. 3.3 Bylaws of the Company--incorporated by reference from Exhibit 3(ii) of the Company's Form 10-Q for the quarter ended June 30, 1997. 3.4* Certificate of Amendment of Certificate of Incorporation of Cenveo Corporation (formerly known as Mail-Well I Corporation) dated May 14, 2004. 3.5 Bylaws of Mail-Well I Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 4.1 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. 30 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.2 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. 4.3 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 relating to Mail-Well I Corporation's $320,000,000 aggregate principal amount of 7 7/8 Senior Subordinated Notes due 2013--incorporated by reference to Exhibit 4.5 to Mail-Well, Inc.'s Annual Form 10-K filed February 27, 2004. 4.4 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 Subordinated Notes due 2013--incorporated by reference to Exhibit 4.6 to Mail-Well, Inc.'s Annual Form 10-K filed February 27, 2004. 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. 31 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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 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 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. 10.16 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. 10.17 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. 10.18 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. 10.19 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 31, 2003. 10.20 Form of Executive Severance Agreement entered into between the Company and each of the following: Michel Salbaing, Gordon Griffiths, Brian Hairston, 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 31, 2003. 10.21 Amendment Agreement No. 2 dated as of March 25, 2004 among Mail-Well I Corporation as Lessee, certain of its subsidiaries and Mail-Well, Inc. as Guarantor, Fleet Capital Corporation as Agent, and the Trust Purchasers named therein--incorporated by reference to Exhibit 10.21 of the Company's Form 10-Q for quarter ended March 31, 2004. 32 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.22 Second Amended and Restated Credit Agreement dated March 25, 2004 among Mail-Well, Inc., Mail-Well I Corporation, certain subsidiaries of Mail-Well I, the lenders under the Second Amended and Restated Credit Agreement, and Bank of America, N.A., as administrative agent for the lenders--incorporated by reference to Exhibit 10.22 of the Company's Form 10-Q for quarter ended March 31, 2004. 10.23 Second Amended and Restated Security Agreement dated March 25, 2004 among Mail-Well, Inc., Mail-Well I Corporation, certain subsidiaries of Mail-Well I, the lenders under the Second Amended and Restated Credit Agreement, and Bank of America, N.A., as administrative agent for the lenders--incorporated by reference to Exhibit 10.23 of the Company's Form 10-Q for quarter ended March 31, 2004. 10.24* Cenveo, Inc. 2001 Long-Term Equity Incentive Plan, as amended. 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 filed under Item 5 of Form 8-K dated as of May 17, 2004 in connection with the Company amending its articles of incorporation to change its name, and a change in the symbol under which the Company's common stock is traded. 2. Current report filed under Item 9 of Form 8-K dated as of May 6, 2004 in connection with the Company's earnings release. 3. Current report filed under Item 5 of Form 8-K dated as of May 6, 2004 in connection with the transcript of the Company's investor conference call held on May 3, 2004. 33 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 July 30, 2004. CENVEO, 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) 34 EX-3.2 2 ex3p2.txt Exhibit 3.2 FILED-CUSTOMER COPY DONETTA DAVIDSON COLORADO SECRETARY OF STATE CHANGE OF NAME DELAYED EFFECTIVE DATE 5/17/04 ARTICLES OF AMENDMENT 20041161295 C TO THE $ 75.00 ARTICLES OF INCORPORATION SECRETARY OF STATE OF 05-03-2004 14:31:54 MAIL-WELL, INC. Pursuant to Section 7-110-106 and part 3 of article 90 of title 7, Colorado Revised Statutes (C.R.S.), these Articles of Amendment to its Articles of Incorporation are delivered to the Colorado Secretary of State for filing. FIRST: The name of the corporation is Mail-Well, Inc. SECOND: The following amendment to the Articles of Incorporation was adopted by the Board of Directors of the Company at a regular meeting of the Board on February 5, 2004, and adopted by a vote of the shareholders on April 29, 2004, with a number of votes being cast by each voting group entitled to vote separately on the amendment, sufficient for approval by that voting group. RESOLVED, that the Articles of Incorporation of the Company, as amended (the "Articles of Incorporation"), be amended by deleting the first sentence of Article I in its entirety and substituting the following sentence: The Name of the corporation is: Cenveo, Inc. THIRD: The effective date of this amendment shall be May 17, 2004. IN WITNESS WHEREOF, Mail-Well, Inc. has caused these Articles of Amendment to be signed by Mark L. Zoeller, Vice President-General Counsel and Secretary this 3rd day of May, 2004. MAIL-WELL, INC. /s/ Mark L. Zoeller ---------------------------------------- Mark L. Zoeller Vice President-General Counsel and Sec. The (a) name or names, and (b) mailing address or addresses, of any one or more of the individuals who cause this document to be delivered for filing, and to whome the Secretary of State may deliver notice if filing of this document is refused, are: Benita Coleman-Davis, 8310 South Valley Highway, Suite 400, Englewood, CO 80112. EX-3.4 3 ex3p4.txt Exhibit 3.4 DELAWARE --------------------------- Page 1 The First State I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "MAIL-WELL I CORPORATION", CHANGING ITS NAME FROM "MAIL-WELL I CORPORATION" TO "CENVEO CORPORATION", FILED IN THIS OFFICE ON THE FOURTEENTH DAY OF MAY, A.D. 2004, AT 5:27 O'CLOCK P.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS. 2361607 8100 [SEAL] /s/ Harriet Smith Windsor ----------------------------------------- Harriet Smith Windsor, Secretary of State 040356886 Authentication: 3113582 Date: 05-14-04 State of Delaware Secretary of State Division of Corporations Delivered 05:32 PM 05/14/2004 FILED 05:27 PM 05/14/2004 SRV 040356886 - 2361607 FILE STATE OF DELAWARE CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Mail-Well I Corporation - ---------------------------------------------------------------------------- a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Mail-Well I Corporation - ---------------------------------------------------------------------------- Resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certification of Incorporation of this corporation be amended by changing the Article thereof numbered "First "so that, ----------------- as amended, said Article shall be and read as follows: The name of the corporation (hereinafter called the "corporation") - ---------------------------------------------------------------------------- is: Cenveo Corporation SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said Mail-Well I Corporation -------------------------------------------- has caused this certificate to be signed by Mark L. Zoeller , an Authorized Officer, this 13th day of - ------------------------ ---------- May 2004. - -----------------, By: /s/ Mark L. Zoeller ------------------------------------ Authorized Officer Title: Vice Pres., General Csl. & Secretary ------------------------------------ Name: Mark L. Zoeller ------------------------------------ Print or Type EX-10.24 4 exh10p24.txt Exhibit 10.24 CENVEO, INC. 2001 LONG-TERM EQUITY INCENTIVE PLAN SECTION 1 PURPOSE This plan shall be known as the "Cenveo, Inc. 2001 Long-Term Equity Incentive Plan" (the "Plan"). The purpose of the Plan is to promote the interests of Cenveo, Inc. (the "Company") and its Subsidiaries and the Company's stockholders by (i) attracting and retaining key officers, employees, and directors of, and consultants to, the Company and its Subsidiaries and any future Affiliates; (ii) motivating such individuals by means of performance-related incentives to achieve long-range performance goals; (iii) enabling such individuals to participate in the long-term growth and financial success of the Company; (iv) encouraging ownership of stock in the Company by such individuals; and (v) linking their compensation to the long-term interests of the Company and its stockholders. With respect to any awards granted under the Plan that are intended to comply with the requirements of "performance-based compensation" under Section 162(m) of the Code, the Plan shall be interpreted in a manner consistent with such requirements. SECTION 2 DEFINITIONS As used in the Plan, the following terms shall have the meanings set forth below: (a) "AFFILIATE" shall mean (i) any entity that, directly or indirectly, is controlled by the Company, (ii) any entity in which the Company has a significant equity interest, (iii) an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act, and (iv) any entity in which the Company has at least twenty percent (20%) of the combined voting power of the entity's outstanding voting securities, in each case as designated by the Board as being a participating employer in the Plan. (b) "AWARD" shall mean any Option, Stock Appreciation Right, Restricted Share Award, Restricted Share Unit, Performance Award, Other Stock-Based Award or other award granted under the Plan, whether singly, in combination, or in tandem, to a Participant by the Committee (or the Board) pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee (or the Board) may establish. (c) "AWARD AGREEMENT" shall mean any written agreement, contract, or other instrument or document evidencing any Award, which may, but need not, be executed or acknowledged by a Participant. (d) "BOARD" shall mean the board of directors of the Company. (e) "CHANGE IN CONTROL" shall mean, unless otherwise defined in the applicable Award Agreement, any of the following events: (i) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term Person is used for purposes of Section 13(d) or 14(d) of the Exchange Act) immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) or more of the combined voting power of the then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any Subsidiary or (ii) the Company or any Subsidiary; (ii) The individuals who, as of the date hereof, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that if the election or nomination for election by the Company's stockholders of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if (1) such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest or (2) such individual was designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (i) or (iii) of this paragraph; or (iii) Approval by stockholders of the Company of: (A) A merger, consolidation or reorganization involving the Company, unless, (1) The stockholders of the Company immediately before such merger, consolidation or reorganization, own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least seventy-five percent (75%) of the combined voting power of the outstanding Voting Securities of the corporation (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization; (2) The individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least two-thirds of the members of the board of directors of the Surviving Corporation; and (3) No Person (other than the Company, any Subsidiary, any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Subsidiary, or any Person who, immediately prior to such merger, consolidation or reorganization, had Beneficial Ownership of forty percent (40%) or more of - 2 - the then outstanding Voting Securities) has Beneficial Ownership of forty percent (40%) or more of the combined voting power of the Surviving Corporation's then outstanding Voting Securities. (B) A complete liquidation or dissolution of the Company; or (C) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increased the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (f) "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. (g) "COMMITTEE" shall mean a committee of the Board composed entirely of Non-Employee Directors, each of whom shall be a "Non-Employee Director" for purposes of Exchange Act Section 16 and Rule 16b-3 thereunder and an "outside director" for purposes of Section 162(m) and the regulations promulgated under the Code. (h) "CONSULTANT" shall mean any consultant to the Company or its Subsidiaries or Affiliates. (i) "COVERED OFFICER" shall mean at any date (i) any individual who, with respect to the previous taxable year of the Company, was a "covered employee" of the Company within the meaning of Section 162(m); provided, however, that the term "Covered Officer" shall not include any such individual who is designated by the Committee, in its discretion, at the time of any Award or at any subsequent time, as reasonably expected not to be such a "covered employee" with respect to the current taxable year of the Company and (ii) any individual who is designated by the Committee, in its discretion, at the time of any Award or at any subsequent time, as reasonably expected to be such a "covered employee" with respect to the current taxable year of the Company or with respect to the taxable year of the Company in which any applicable Award will be paid. (j) "DIRECTOR" shall mean a member of the Board. (k) "EMPLOYEE" shall mean a current or prospective officer or employee of the Company or of any Subsidiary or Affiliate. (l) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended from time to time. - 3 - (m) "FAIR MARKET VALUE" with respect to the Shares, shall mean, for purposes of a grant of an Award as of any date, (i) the closing sales price of the Shares on the New York Stock Exchange, or any other such exchange on which the shares are traded, on such date, or in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported or (ii) in the event there is no public market for the Shares on such date, the fair market value as determined, in good faith, by the Committee in its sole discretion, and for purposes of a sale of a Share as of any date, the actual sales price on that date. (n) "INCENTIVE STOCK OPTION" shall mean an option to purchase Shares from the Company that is granted under Section 6 of the Plan and that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. (o) "NON-QUALIFIED STOCK OPTION" shall mean an option to purchase Shares from the Company that is granted under Section 6 or 10 of the Plan and is not intended to be an Incentive Stock Option. (p) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board who is not an officer or employee of the Company or any Subsidiary or Affiliate. (q) "OPTION" shall mean an Incentive Stock Option or a Non-Qualified Stock Option. (r) "OPTION PRICE" shall mean the purchase price payable to purchase one Share upon the exercise of an Option. (s) "OTHER STOCK-BASED AWARD" shall mean any Award granted under Section 9 or 10 of the Plan. (t) "PARTICIPANT" shall mean any Employee, Director, Consultant or other person who receives an Award under the Plan. (u) "PERFORMANCE AWARD" shall mean any Award granted under Section 8 of the Plan. (v) "PERSON" shall mean any individual, corporation, partnership, limited liability company, associate, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. (w) "RESTRICTED SHARE" shall mean any Share granted under Section 7 or 10 of the Plan. (x) "RESTRICTED SHARE UNIT" shall mean any unit granted under Section 7 or 10 of the Plan. (y) "SEC" shall mean the Securities and Exchange Commission or any successor thereto. - 4 - (z) "SECTION 16" shall mean Section 16 of the Exchange Act and the rules promulgated thereunder and any successor provision thereto as in effect from time to time. (aa) "SECTION 162(M)" shall mean Section 162(m) of the Code and the regulations promulgated thereunder and any successor or provision thereto as in effect from time to time. (bb) "SHARES" shall mean shares of the common stock, $0.01 par value, of the Company. (cc) "STOCK APPRECIATION RIGHT" or "SAR" shall mean a stock appreciation right granted under Section 6 or 10 of the Plan that entitles the holder to receive, with respect to each Share encompassed by the exercise of such SAR, the amount determined by the Committee and specified in an Award Agreement. In the absence of such a determination, the holder shall be entitled to receive, with respect to each Share encompassed by the exercise of such SAR, the excess of the Fair Market Value on the date of exercise over the Fair Market Value on the date of grant. (dd) "SUBSIDIARY" shall mean any Person (other than the Company) of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company. (ee) "SUBSTITUTE AWARDS" shall mean Awards granted solely in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines. (ff) "TANDEM SAR" shall mean an SAR that is granted under Section 6 or 10 of the Plan in relation to a particular Option and that can be exercised only upon the surrender to the Company, unexercised, of that portion of the Option to which the SAR relates. SECTION 3 ADMINISTRATION 3.1 Authority of Committee. The Plan shall be administered by the ---------------------- Committee, which shall be appointed by and serve at the pleasure of the Board; provided, however, with respect to Awards to Directors who are members of the Committee, all references in the Plan to the Committee shall be deemed to be references to the Board. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority in its discretion to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with Awards; (iv) determine the timing, terms, and conditions of any Award; (v) accelerate the time at which all or any part of an Award may be settled or exercised; (vi) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vii) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee; (viii) interpret - 5 - and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (ix) except to the extent prohibited by Section 6.2, amend or modify the terms of any Award at or after grant with the consent of the holder of the Award; (x) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan, subject to the exclusive authority of the Board under Section 14 hereunder to amend or terminate the Plan. 3.2 Committee Discretion Binding. Unless otherwise expressly ---------------------------- provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Subsidiary or Affiliate, any Participant and any holder or beneficiary of any Award. 3.3 Action by the Committee. The Committee shall select one of its ----------------------- members as its Chairperson and shall hold its meetings at such times and places and in such manner as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. The exercise of an Option or receipt of an Award shall be effective only if an Award Agreement shall have been duly executed and delivered on behalf of the Company following the grant of the Option or other Award. The Committee may appoint a Secretary and may make such rules and regulations for the conduct of its business, as it shall deem advisable. 3.4 Delegation. Subject to the terms of the Plan and applicable ---------- law, the Committee may delegate to one or more officers or managers of the Company or of any Subsidiary or Affiliate, or to a Committee of such officers or managers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to, or to cancel, modify or waive rights with respect to, or to alter, discontinue, suspend, or terminate Awards held by Participants who are not officers or directors of the Company for purposes of Section 16 or who are otherwise not subject to such Section. 3.5 No Liability. No member of the Board or Committee shall be ------------ liable for any action taken or determination made in good faith with respect to the Plan or any Award granted hereunder. SECTION 4 SHARES AVAILABLE FOR AWARDS 4.1 Shares Available. Subject to the provisions of Section 4.2 ---------------- hereof, the stock to be subject to Awards under the Plan shall be the Shares of the Company and the maximum number of Shares with respect to which Awards may be granted under the Plan shall be 7,450,000 (which includes 61,281 Shares with respect to which awards under the Mail-Well, Inc. 1994 Stock Option Plan (the "1994 Plan") were authorized but not granted, 294,000 Shares with respect to which awards under the Mail-Well, Inc. 1996 Directors Stock Option Plan (the "1996 Plan") were authorized but not granted, 26,465 Shares with respect to which awards under the Mail-Well, Inc. 1997 Non-Qualified Stock Option Plan (the "1997 Plan") were authorized but - 6 - not granted, and 42,971 Shares with respect to which awards under the Mail-Well, Inc. 1998 Stock Option Plan (the "1998 Plan") were authorized but not granted), of which (i) no more than 4,425,000 Shares shall be issued with respect to Incentive Stock Options, (ii) no more than 1,500,000 Shares shall be issued with respect to SARs, (iii) no more than 1,000,000 Shares shall be granted as Restricted Shares and (iv) no more than 750,000 Shares shall be granted as Restricted Share Units. Notwithstanding the foregoing and subject to adjustment as provided in Section 4.2, the maximum number of Shares with respect to which Awards may be granted under the Plan shall be increased by the number of Shares with respect to which Options or other Awards were granted under the 1994, 1996, 1997 and 1998 Plans, as of the effective date of this Plan, but which terminate, expire unexercised, or are settled for cash, forfeited or canceled without the delivery of Shares under the terms of such Plans after the effective date of this Plan. The number of Shares to which Awards may be granted under the Plan may not be increased unless such increase is approved by at least a majority of the outstanding Shares. If, after the effective date of the Plan, any Shares covered by an Award granted under this Plan, or to which such an Award relates, are forfeited, or if such an Award is settled for cash or otherwise terminates, expires unexercised, or is canceled without the delivery of Shares, then the Shares covered by such Award, or to which such Award relates, or the number of Shares otherwise counted against the aggregate number of Shares with respect to which Awards may be granted, to the extent of any such settlement, forfeiture, termination, expiration, or cancellation, shall again become Shares with respect to which Awards may be granted. In the event that any Option or other Award granted hereunder is exercised through the delivery of Shares or in the event that withholding tax liabilities arising from such Award are satisfied by the withholding of Shares by the Company, the number of Shares available for Awards under the Plan shall be increased by the number of Shares so surrendered or withheld. Notwithstanding the foregoing and subject to adjustment as provided in Section 4.2 hereof, no Participant may receive Options or SAR's under the Plan in any calendar year that relate to more than 1,500,000 shares, unless such Options or SAR's are granted in connection with the recruiting and hiring of a Participant simultaneously with such Award. 4.2 Adjustments. In the event that the Committee determines that ----------- any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property) recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee, in its sole discretion, to be appropriate, then the Committee shall, in such manner as it may deem equitable (and, with respect to Incentive Stock Options, in such manner as is consistent with Section 422 of the Code and the regulations thereunder): (i) adjust any or all of (1) the aggregate number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted under the Plan; (2) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards under the Plan; and (3) the grant or exercise price with respect to any Award under the Plan, provided that the number of shares subject to any Award shall always be a whole number; (ii) if deemed appropriate, provide for an equivalent award in respect of securities of the surviving entity of any merger, consolidation or other transaction or event having a similar effect; or (iii) if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award. - 7 - 4.3 Substitute Awards. Any Shares issued by the Company as ----------------- Substitute Awards in connection with the assumption or substitution of outstanding grants from any acquired corporation shall not reduce the Shares available for Awards under the Plan. 4.4 Sources of Shares Deliverable Under Awards. Any Shares ------------------------------------------ delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or of issued Shares that have been reacquired by the Company. SECTION 5 ELIGIBILITY Any Employee, Director or Consultant shall be eligible to be designated a Participant; provided, however, that Non-Employee Directors shall only be eligible to receive Awards granted consistent with Section 10.1. SECTION 6 STOCK OPTIONS AND STOCK APPRECIATION RIGHTS 6.1 Grant. Subject to the provisions of the Plan, the Committee ----- shall have sole and complete authority to determine the Participants to whom Options and SAR's shall be granted, the number of Shares subject to each Award, the exercise price and the conditions and limitations applicable to the exercise of each Option and SAR. An Option may be granted with or without a Tandem SAR. An SAR may be granted with or without a related Option. The Committee shall have the authority to grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to grant both types of Options. In the case of Incentive Stock Options or Tandem SAR's related to such Options, the terms and conditions of such grants shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code, as from time to time amended, and any regulations implementing such statute. A person who has been granted an Option or SAR under this Plan may be granted additional Options or SAR's under the Plan if the Committee shall so determine; provided, however, that to the extent the aggregate Fair Market Value (determined at the time the Incentive Stock Option or Tandem SAR related thereto is granted) of the Shares with respect to which all Incentive Stock Options or Tandem SAR's related to such Option are exercisable for the first time by an Employee during any calendar year (under all plans described in subsection (d) of Section 422 of the Code of the Company and its Subsidiaries) exceeds $100,000 (or such higher amount as is permitted in the future under Section 422(d) of the Code, such Options shall be treated as Non-Qualified Stock Options. 6.2 Price. The Committee in its sole discretion shall establish the ----- Option Price at the time each Option is granted. Except in the case of Substitute Awards, the Option Price of an Option may not be less than 100% of the Fair Market Value of the Shares with respect to which the Option is granted on the date of grant of such Option. Notwithstanding the foregoing and except as permitted by the provisions of Section 4.2 and Section 14 hereof, the Committee shall not have the power to (i) amend the terms of previously granted Options to reduce the Option Price of such Options, or (ii) cancel such Options and grant substitute Options with a lower Option Price than the canceled Options. Except with respect to Substitute Awards, SAR's may not be granted at a price less than the Fair Market Value of a Share on the date of grant. 6.3 Term. Subject to the Committee's authority under Section 3.1 ---- and the provisions of Section 6.6, each Option and SAR and all rights and obligations thereunder shall expire on - 8 - the date determined by the Committee and specified in the Award Agreement. The Committee shall be under no duty to provide terms of like duration for Options or SAR's granted under the Plan. Notwithstanding the foregoing, no Option or Tandem SAR that relates to such Option shall be exercisable after the expiration of ten (10) years from the date such Option or SAR was granted. 6.4 Exercise. -------- (a) Each Option and SAR shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or thereafter. The Committee shall have full and complete authority to determine, subject to Section 6.6 herein, whether an Option or SAR will be exercisable in full at any time or from time to time during the term of the Option or SAR, or to provide for the exercise thereof in such installments, upon the occurrence of such events and at such times during the term of the Option or SAR as the Committee may determine; provided, however, that a SAR may not be exercisable prior to three (3) years (for time-based vesting) or one (1) year (for performance-based vesting), except pursuant to a Change in Control or Section 10.2, which such minimum vesting period may not be changed or waived by the Committee. (b) The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal, state or foreign securities laws or the Code, as it may deem necessary or advisable. The exercise of any Option granted hereunder shall be effective only at such time as the sale of Shares pursuant to such exercise will not violate any state or federal securities or other laws. (c) An Option or SAR may be exercised in whole or in part at any time, with respect to whole Shares only, within the period permitted thereunder for the exercise thereof, and shall be exercised by written notice of intent to exercise the Option or SAR, delivered to the Company at its principal office, and payment in full to the Company at the direction of the Committee of the amount of the Option Price for the number of Shares with respect to which the Option is then being exercised. A Tandem SAR that is related to an Incentive Stock Option may be exercised only to the extent that the related Option is exercisable and only when the Fair Market Value exceeds the Option Price of the related Option. The exercise of either an Option or Tandem SAR shall result in the termination of the other to the extent of the number of Shares with respect to which either the Option or Tandem SAR is exercised. (d) Payment of the Option Price shall be made in cash or cash equivalents, or, at the discretion of the Committee, (i) in whole Shares valued at the Fair Market Value of such Shares on the date of exercise, together with any applicable withholding taxes, or (ii) by a combination of such cash (or cash equivalents) and such Shares; provided, however, that the optionee shall not be entitled to tender Shares pursuant to successive, substantially simultaneous exercises of an Option or any other stock option of the Company. Subject to applicable securities laws, an Option may also be exercised by (i) delivering a notice of exercise of the Option and simultaneously selling the Shares thereby acquired, pursuant to a brokerage or similar agreement approved in advance by proper officers of the Company, using the proceeds of such sale as payment of the Option Price, together with any applicable withholding taxes, or (ii) any other exercise method (including attestation of shares) approved by the Committee. - 9 - Until the optionee has been issued the Shares subject to such exercise, he or she shall possess no rights as a stockholder with respect to such Shares. (e) At the Committee's discretion, the amount payable as a result of the exercise of an SAR may be settled in cash, Shares, or a combination of cash and Shares. A fractional Share shall not be deliverable upon the exercise of a SAR but a cash payment will be made in lieu thereof. 6.5 [Reserved]. 6.6 Ten Percent Stock Rule. Notwithstanding any other provisions in ---------------------- the Plan, if at the time an Option or SAR is otherwise to be granted pursuant to the Plan the optionee or rights holder owns directly or indirectly (within the meaning of Section 424(d) of the Code) Shares of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of Stock of the Company or its parent or Subsidiary or Affiliate corporations (within the meaning of Section 422(b)(6) of the Code), then any Incentive Stock Option or Tandem SAR to be granted to such optionee or rights holder pursuant to the Plan shall satisfy the requirement of Section 422(c)(5) of the Code, and the Option Price shall be not less than 110% of the Fair Market Value of the Shares of the Company, and such Option by its terms shall not be exercisable after the expiration of five (5) years from the date such Option is granted. SECTION 7 RESTRICTED SHARES AND RESTRICTED SHARE UNITS 7.1 Grant. ----- (a) Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to whom Restricted Shares and Restricted Share Units shall be granted, the number of Restricted Shares and/or the number of Restricted Share Units to be granted to each Participant, the duration of the period during which, and the conditions under which, the Restricted Shares and Restricted Share Units may be forfeited to the Company, and the other terms and conditions of such Awards. The Restricted Share and Restricted Share Unit Awards shall be evidenced by Award Agreements in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the terms and conditions provided hereunder and any additional terms and conditions established by the Committee that are consistent with the terms of the Plan. (b) Each Restricted Share and Restricted Share Unit Award made under the Plan shall be for such number of Shares as shall be determined by the Committee and set forth in the Award Agreement containing the terms of such Restricted Share or Restricted Share Unit Award. The Award Agreement shall set forth a period of time during which the grantee must remain in the continuous employment of the Company in order for the forfeiture and transfer restrictions to lapse. If the Committee so determines, the restrictions may lapse during such restricted period in installments with respect to specified portions of the Shares covered by the Restricted Share or Restricted Share Unit Award. The restricted period shall be for a minimum of three (3) years (for time-based vesting) or one (1) year for performance-based vesting, except pursuant to a Change in Control or Section 10.2, which such minimum restrictive period may not be changed or waived by the Committee. The Award Agreement may also, in the discretion of the Committee, set forth performance or other conditions that will subject the Shares to - 10 - forfeiture and transfer restrictions. The Committee may, at its discretion, waive all or any part of the restrictions applicable to any or all outstanding Restricted Share and Restricted Share Unit Awards. 7.2 Delivery of Shares and Transfer Restrictions. At the time of a -------------------------------------------- Restricted Share Award, a certificate representing the number of Shares awarded thereunder shall be registered in the name of the grantee. Such certificate shall be held by the Company or any custodian appointed by the Company for the account of the grantee subject to the terms and conditions of the Plan, and shall bear such a legend setting forth the restrictions imposed thereon as the Committee, in its discretion, may determine. The grantee shall have all rights of a stockholder with respect to the Restricted Shares, including the right to receive dividends and the right to vote such Shares, subject to the following restrictions: (i) the grantee shall not be entitled to delivery of the stock certificate until the expiration of the restricted period and the fulfillment of any other restrictive conditions set forth in the Award Agreement with respect to such Shares; (ii) none of the Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during such restricted period or until after the fulfillment of any such other restrictive conditions; and (iii) except as otherwise determined by the Committee at or after grant, all of the Shares shall be forfeited and all rights of the grantee to such Shares shall terminate, without further obligation on the part of the Company, unless the grantee remains in the continuous employment of the Company for the entire restricted period in relation to which such Shares were granted and unless any other restrictive conditions relating to the Restricted Share Award are met. Any Shares, any other securities of the Company and any other property (except for cash dividends) distributed with respect to the Shares subject to Restricted Share Awards shall be subject to the same restrictions, terms and conditions as such restricted Shares. 7.3 Termination of Restrictions. At the end of the restricted --------------------------- period and provided that any other restrictive conditions of the Restricted Share Award are met, or at such earlier time as otherwise determined by the Committee, all restrictions set forth in the Award Agreement relating to the Restricted Share Award or in the Plan shall lapse as to the restricted Shares subject thereto, and a stock certificate for the appropriate number of Shares, free of the restrictions and restricted stock legend, shall be delivered to the Participant or the Participant's beneficiary or estate, as the case may be. 7.4 Payment of Restricted Share Units. Each Restricted Share Unit --------------------------------- shall have a value equal to the Fair Market Value of a Share. Restricted Share Units shall be paid in cash, Shares, other securities or other property, as determined in the sole discretion of the Committee, upon the lapse of the restrictions applicable thereto, or otherwise in accordance with the applicable Award Agreement. A Participant shall be credited with dividend equivalents on any vested Restricted Share Units credited to the Participant's account at the time of any payment of dividends to stockholders on Shares. The amount of any such dividend equivalents shall equal the amount that would have been payable to the Participant as a stockholder in respect of a number of Shares equal to the number of vested Restricted Share Units then credited to the Participant. Any such dividend equivalents shall be credited to the Participant's account as of the date on which such dividend would have been payable and shall be converted into additional Restricted Share Units (which shall be immediately vested) based upon the Fair Market Value of a Share on the date of such crediting. No dividend equivalents shall be paid in respect of Restricted Share Units that are not yet vested. Except as otherwise determined by the - 11 - Committee at or after grant, Restricted Share Units may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of, and all Restricted Share Units and all rights of the grantee to such Restricted Share Units shall terminate, without further obligation on the part of the Company, unless the grantee remains in continuous employment of the Company for the entire restricted period in relation to which such Restricted Share Units were granted and unless any other restrictive conditions relating to the Restricted Share Unit Award are met. SECTION 8 PERFORMANCE AWARDS 8.1 Grant. The Committee shall have sole and complete authority to ----- determine the Participants who shall receive a Performance Award, which shall consist of a right that is (i) denominated in cash or Shares, (ii) valued, as determined by the Committee, in accordance with the achievement of such performance goals during such performance periods as the Committee shall establish, and (iii) payable at such time and in such form as the Committee shall determine. All Performance Awards shall be subject to the terms and provisions of Section 11 hereof. 8.2 Terms and Conditions. Subject to the terms of the Plan and any -------------------- applicable Award Agreement, the Committee shall determine the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award and the amount and kind of any payment or transfer to be made pursuant to any Performance Award, and may amend specific provisions of the Performance Award; provided, however, that such amendment may not adversely affect existing Performance Awards made within a performance period commencing prior to implementation of the amendment. 8.3 Payment of Performance Awards. Performance Awards may be paid ----------------------------- in a lump sum or in installments following the close of the performance period or, in accordance with the procedures established by the Committee, on a deferred basis. Termination of employment prior to the end of any performance period, other than for reasons of death or Disability, will result in the forfeiture of the Performance Award, and no payments will be made. A Participant's rights to any Performance Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of in any manner, except by will or the laws of descent and distribution, and/or except as the Committee may determine at or after grant. SECTION 9 OTHER STOCK-BASED AWARDS The Committee shall have the authority to determine the Participants who shall receive an Other Stock-Based Award, which shall consist of any right that is (i) not an Award described in Sections 6, 7 and 8 above and (ii) an Award of Shares or an Award denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as deemed by the Committee to be consistent with the purposes of the Plan. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of any such Other Stock-Based Award. - 12 - SECTION 10 DIRECTOR AWARDS 10.1 Awards to Non-Employee Directors. The Board may provide that -------------------------------- all or a portion of a Non-Employee Director's annual retainer, meeting fees and/or other awards or compensation as determined by the Board, be payable (either automatically or at the election of a Non-Employee Director) in the form of Non-Qualified Stock Options, SAR's, Restricted Shares, Restricted Share Units and/or Other Stock-Based Awards, including unrestricted Shares. The Board shall determine the terms and conditions of any such Awards, including the terms and conditions which shall apply upon a termination of the Non-Employee Director's service as a member of the Board, and shall have full power and authority in its discretion to administer such Awards, subject to the terms of the Plan and applicable law. 10.2 Awards of Restricted Shares and SARs to Directors. ------------------------------------------------- Notwithstanding the terms of the minimum vesting period for SARs set forth in Section 6.4(a) and the minimum restricted period for Restricted Shares set forth in Section 7.1(b), grants of SARs and Restricted Shares to Directors in lieu of cash stipends, in whole or in part, shall have no minimum vesting period or restrictive period as may be determined in the sole discretion of the Committee. SECTION 11 PROVISIONS APPLICABLE TO COVERED OFFICERS AND PERFORMANCE AWARDS 11.1 Notwithstanding anything in the Plan to the contrary, Performance Awards shall be subject to the terms and provisions of this Section 11. 11.2 The Committee may grant Performance Awards to Covered Officers based solely upon the attainment of performance targets related to one or more performance goals selected by the Committee from among the goals specified below. For the purposes of this Section 11, performance goals shall be limited to one or more of the following Company, Subsidiary, operating unit or division financial performance measures: (a) earnings before interest, taxes, depreciation and/or amortization; (b) operating income or profit; (c) operating efficiencies; (d) return on equity, assets, capital, capital employed, or investment; (e) after tax operating income; (f) net income; (g) earnings or book value per Share; (h) cash flow(s); (i) total sales or revenues or sales or revenues per employee; (j) production (separate work units or SWU's); - 13 - (k) stock price or total shareholder return; (l) dividends; or (m) strategic business objectives, consisting of one or more objectives based on meeting specified cost targets, business expansion goals, and goals relating to acquisitions or divestitures; or any combination thereof. Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company or any Subsidiary, operating unit or division of the Company and/or the past or current performance of other companies, and in the case of earnings-based measures, may use or employ comparisons relating to capital, shareholders' equity and/or Shares outstanding, or to assets or net assets. 11.3 With respect to any Covered Officer, the maximum annual number of Shares in respect of which all Performance Awards may be granted under Section 8 of the Plan is 150,000 and the maximum annual amount of any Award settled in cash is $1,000,000. 11.4 To the extent necessary to comply with Section 162(m), with respect to grants of Performance Awards, no later than 90 days following the commencement of each performance period (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (1) select the performance goal or goals applicable to the performance period, (2) establish the various targets and bonus amounts which may be earned for such performance period, and (3) specify the relationship between performance goals and targets and the amounts to be earned by each Covered Officer for such performance period. Following the completion of each performance period, the Committee shall certify in writing whether the applicable performance targets have been achieved and the amounts, if any, payable to Covered Officers for such performance period. In determining the amount earned by a Covered Officer for a given performance period, subject to any applicable Award Agreement, the Committee shall have the right to reduce (but not increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the performance period. SECTION 12 TERMINATION OF EMPLOYMENT The Committee shall have the full power and authority to determine the terms and conditions that shall apply to any Award upon a termination of employment with the Company, its Subsidiaries and Affiliates, including a termination by the Company with or without cause, by a Participant voluntarily, or by reason of death, disability or retirement, and may provide such terms and conditions in the Award Agreement or in such rules and regulations as it may prescribe. SECTION 13 CHANGE IN CONTROL Upon a Change in Control, all outstanding Awards shall vest, become immediately exercisable or payable and have all restrictions lifted. - 14 - SECTION 14 AMENDMENT AND TERMINATION 14.1 Amendments to the Plan. The Board may amend, alter, suspend, ---------------------- discontinue, or terminate the Plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement for which or with which the Board deems it necessary or desirable to comply; provided that any such waiver, amendment, alteration, suspension, discontinuance or termination that would adversely affect the rights of any Participants, or any holder or beneficiary, under any Award theretofore granted, shall not to that extent be effective without the consent of the affected Participant, holder, or beneficiary. 14.2 Amendments to Awards. Subject to the restrictions of Section 6.2, -------------------- the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of any Participants, or any holder or beneficiary of any Award theretofore granted, shall not to that extent be effective without the consent of the affected Participant, holder, or beneficiary. 14.3 Adjustments of Awards Upon the Occurrence of Certain Unusual ------------------------------------------------------------ or Nonrecurring Events. The Committee is hereby authorized to make - ---------------------- adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 hereof) affecting the Company, any Subsidiary or Affiliate, or the financial statements of the Company or any Subsidiary or Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. SECTION 15 GENERAL PROVISIONS 15.1 Limited Transferability of Awards. Except as otherwise --------------------------------- provided in the Plan, no Award shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant, except by will or the laws of descent and distribution and/or as may be provided by the Committee in its discretion, at or after grant, in the Award Agreement. No transfer of an Award by will or by laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary or appropriate to establish the validity of the transfer. 15.2 Dividend Equivalents. In the sole and complete discretion of -------------------- the Committee, an Award may provide the Participant with dividends or dividend equivalents, payable in cash, Shares, other securities or other property on a current or deferred basis. All dividend or dividend equivalents which are not paid currently may, at the Committee's discretion, accrue interest, be reinvested into additional Shares, or in the case of dividends or dividend equivalents credited in connection with Performance Awards, be credited as additional Performance Awards and paid to the Participant if and when, and to the extent that, payment is made - 15 - pursuant to such Award. The total number of Shares available for grant under Section 4 shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional Shares or credited as Performance Awards. 15.3 No Rights to Awards. No Person shall have any claim to be ------------------- granted any Award, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards need not be the same with respect to each Participant. 15.4 Share Certificates. All certificates for Shares or other ------------------ securities of the Company or any Subsidiary or Affiliate delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the SEC or any state securities commission or regulatory authority, any stock exchange or other market upon which such Shares or other securities are then listed, and any applicable Federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 15.5 Withholding. A Participant may be required to pay to the ----------- Company or any Subsidiary or Affiliate and the Company or any Subsidiary or Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan, or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, other Awards or other property) of any applicable withholding or other taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. The Committee may provide for additional cash payments to holders of Options to defray or offset any tax arising from the grant, vesting, exercise or payment of any Award. 15.6 Award Agreements. Each Award hereunder shall be evidenced by ---------------- an Award Agreement that shall be delivered to the Participant and may specify the terms and conditions of the Award and any rules applicable thereto. In the event of a conflict between the terms of the Plan and any Award Agreement, the terms of the Plan shall prevail. 15.7 No Limit on Other Compensation Arrangements. Nothing contained ------------------------------------------- in the Plan shall prevent the Company or any Subsidiary or Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of Options, Restricted Shares, Restricted Share Units, Other Stock-Based Awards or other types of Awards provided for hereunder. 15.8 No Right to Employment. The grant of an Award shall not be ---------------------- construed as giving a Participant the right to be retained in the employ of the Company or any Subsidiary or Affiliate. Further, the Company or a Subsidiary or Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in an Award Agreement. 15.9 No Rights as Stockholder. Subject to the provisions of the ------------------------ Plan and the applicable Award Agreement, no Participant or holder or beneficiary of any Award shall have - 16 - any rights as a stockholder with respect to any Shares to be distributed under the Plan until such person has become a holder of such Shares. Notwithstanding the foregoing, in connection with each grant of Restricted Shares hereunder, the applicable Award Agreement shall specify if and to what extent the Participant shall not be entitled to the rights of a stockholder in respect of such Restricted Shares. 15.10 Governing Law. The validity, construction and effect of the ------------- Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Colorado without giving effect to conflicts of laws principles. 15.11 Severability. If any provision of the Plan or any Award is, ------------ or becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect. 15.12 Other Laws. The Committee may refuse to issue or transfer any ---------- Shares or other consideration under an Award if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation (including applicable non-U.S. laws or regulations) or entitle the Company to recover the same under Exchange Act Section 16(b), and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder, or beneficiary. 15.13 No Trust or Fund Created. Neither the Plan nor any Award ------------------------ shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Subsidiary or Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Subsidiary or Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Subsidiary or Affiliate. 15.14 No Fractional Shares. No fractional Shares shall be issued or -------------------- delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. 15.15 Headings. Headings are given to the sections and subsections -------- of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 16 TERM OF THE PLAN 16.1 Effective Date. The Plan shall be effective as of May 1, 2001 -------------- provided it has been approved by the Board and by the Company's stockholders. - 17 - 16.2 Expiration Date. No new Awards shall be granted under the Plan --------------- after the tenth (10th) anniversary of the Effective Date. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under any such Award shall, continue after the tenth (10th) anniversary of the Effective Date. - 18 - EX-31.1 5 exh31p1.txt Exhibit 31.1 CERTIFICATION I, Paul V. Reilly, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cenveo, 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: July 30, 2004 /s/ Paul V. Reilly ----------------------------- Chief Executive Officer EX-31.2 6 exh31p2.txt Exhibit 31.2 CERTIFICATION I, Michel P. Salbaing, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cenveo, 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: July 30, 2004 /s/ Michel P. Salbaing ----------------------------- Chief Financial Officer EX-32.1 7 exh32p1.txt Exhibit 32.1 CERTIFICATION OF PERIODIC REPORT -------------------------------- I, Paul V. Reilly, chairman, president and chief executive officer of Cenveo, Inc. (the "Company"), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2004 (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: July 30, 2004 /s/ Paul V. Reilly -------------------------------- Paul V. Reilly Chairman, President and CEO EX-32.2 8 exh32p2.txt Exhibit 32.2 CERTIFICATION OF PERIODIC REPORT -------------------------------- I, Michel P. Salbaing, senior vice president and chief financial officer of Cenveo, Inc. (the "Company"), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2004 (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: July 30, 2004 /s/ Michel P. Salbaing -------------------------------- Michel P. Salbaing Senior Vice President and CFO -----END PRIVACY-ENHANCED MESSAGE-----