<PAGE>
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 33-76892
MAIL-WELL I CORPORATION
(Exact name of Registrant as specified in its charter.)
DELAWARE 84-1250534
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
23 INVERNESS WAY EAST, ENGLEWOOD, CO 80112
(Address of principal executive offices) (Zip Code)
303-790-8023
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) or the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of April 30, 1997, the Registrant had 1,000 shares of Common Stock, $0.01
par value, outstanding.
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MAIL-WELL I CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of matters to a Vote of Securities Holders 14
Item 5. Other information 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAIL-WELL I CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
____________________________________________________________________________________________
(Unaudited)
March 31, December 31,
1997 1996
____________________________________________________________________________________________
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 10,761 $ 9,611
Receivables, net 37,129 40,612
Accounts receivable - other 7,491 7,743
Income tax receivable, net 3,170 3,504
Receivable from parent 1,926 1,381
Inventories 71,308 68,275
Deferred tax asset 2,370 2,309
Other current assets 2,906 3,341
-------- --------
Total current assets 137,061 136,776
PROPERTY, PLANT AND EQUIPMENT - NET 185,124 183,302
DEFERRED FINANCING COSTS - NET 13,874 14,497
GOODWILL- NET 127,535 128,812
OTHER ASSETS - NET 10,496 8,338
-------- --------
TOTAL $474,090 $471,725
======== ========
CURRENT LIABILITIES
Accounts payable $ 44,521 $ 44,539
Accrued compensation and vacation 22,503 23,312
Accrued interest 2,798 4,455
Other current liabilities 26,507 26,206
Current portion of long-term debt and
capital leases 14,652 14,975
-------- --------
Total current liabilities 110,981 113,487
ACCRUED PENSION 1,409 1,284
CAPITAL LEASES 2,874 2,958
BANK BORROWINGS 117,972 121,992
SUBORDINATED NOTES 85,000 85,000
DEFERRED INCOME TAXES 24,989 23,152
OTHER LONG TERM LIABILITIES 2,921 1,865
-------- --------
Total liabilities 346,146 349,738
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 1,000 shares
authorized and outstanding 1 1
Paid-in capital 93,269 92,806
Retained earnings 38,330 32,301
Unearned ESOP compensation (3,291) (2,896)
Cumulative foreign currency translation adjustment (255) (115)
Pension liability adjustment (110) (110)
-------- --------
Total stockholders' equity 127,944 121,987
-------- --------
TOTAL $474,090 $471,725
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
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MAIL-WELL I CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(DOLLARS IN THOUSANDS)
________________________________________________________________________________
Quarter Ended March 31,
1997 1996
-----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
NET SALES $212,032 $193,725
COST OF SALES:
Materials 89,958 90,930
Labor and other 59,017 53,294
Manufacturing 15,541 10,736
Depreciation 3,355 3,485
Waste recovery (2,473) (2,415)
-------- --------
Total cost of sales 165,398 156,030
GROSS PROFIT 46,634 37,695
OTHER OPERATING COSTS
Selling 15,421 14,032
Administrative 13,002 9,998
Amortization 1,112 942
Loss on disposal of assets 871 0
-------- --------
Total other operating costs 30,406 24,972
OPERATING INCOME 16,228 12,723
OTHER EXPENSE
Interest expense - debt 4,554 7,081
Interest expense - amortization
of deferred financing costs 724 732
Discount on sale of accounts receivable 1,023 0
Other (income) expense (530) 83
-------- --------
INCOME BEFORE INCOME TAXES 10,457 4,827
PROVISION FOR INCOME TAXES
Current 2,551 1,209
Deferred 1,877 852
-------- --------
NET INCOME $ 6,029 $ 2,766
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
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MAIL-WELL I CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
__________________________________________________________________________________________________
Quarter Ended March 31,
1997 1996
-----------------------
<S> <C> <C>
CASH FLOW PROVIDED BY (USED IN) OPERATIONS:
Net income $ 6,029 $ 2,766
Adjustments to reconcile net income (loss) to cash provided by
(used in) operations:
Depreciation 3,355 3,485
Amortization 1,836 1,674
Deferred tax provision 1,877 852
(Gain) loss on disposal of assets 871 0
ESOP compensation expense 68 418
Foreign currency gain 0 (119)
Other 20 (490)
Change in operating assets and liabilities:
Receivables 3,724 (7,359)
Current income taxes 334 (604)
Inventories (3,034) 7,686
Accounts payable (1,193) 1,672
Accrued interest (1,658) (3,206)
Other working capital (1,128) (6,937)
Accrued pension, current and long term (40) 97
Other assets and other long-term liabilities 399 (1,081)
-------- --------
Net cash provided by (used in) operating activities 11,460 (1,146)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,601) (3,197)
Proceeds from sale of property, plant and equipment 24 2,715
Acquisition costs (189) -
Maturity of temporary cash investments - 250
-------- --------
Net cash used in investing activities (5,766) (232)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdrafts 361 (744)
Proceeds from long-term debt 7,000 50,000
Repayments of long-term debt (11,333) (47,768)
Repayments of capital lease obligations (258) (150)
-------- --------
Net cash (used in) provided by financing activities (4,230) 1,338
EFFECT OF EXCHANGE RATE CHANGES ON CASH (314) 40
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 1,150 0
BALANCE AT BEGINNING OF PERIOD 9,611 0
-------- --------
BALANCE AT END OF PERIOD $ 10,761 $ 0
======== ========
NON-CASH FINANCING ACTIVITIES:
Cash paid for interest $ 6,211 $ 10,287
Cash paid for taxes 2,803 180
</TABLE>
See notes to unaudited consolidated financial statements.
5
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MAIL-WELL I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF OPERATIONS - Mail-Well, Inc. is one of the largest
printers in North America, manufacturing both envelopes and high impact
color commercial work. Within envelope printing, the Company competes in
the consumer direct segment in which envelopes are designed and
manufactured to customer specifications. In addition, the Company
manufactures envelopes sold into the office products market. The Company
is also a leading high impact commercial printer specializing in printing
advertising literature, high-end catalogs, annual reports, calendars and
computer instruction books and is recognized as an innovative provider of
quality printed products to leading companies in the United States. The
Company commenced operations on February 24, 1994 with the acquisition of
the envelope businesses of Georgia-Pacific Corporation ("GP Envelope") and
Pavey Envelope and Tag Corp. ("Pavey").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - Mail-Well I Corporation, a wholly-
owned subsidiary of Mail-Well, Inc. conducts most of the business of Mail-
Well, Inc. Mail-Well I Corporation, together with its subsidiaries, is the
owner of the operating assets and the borrower of debt. These financial
statements include the accounts of Mail-Well I Corporation and its
subsidiaries (collectively referred to as the "Company"). All significant
intercompany accounts and transactions have been eliminated.
INTERIM FINANCIAL INFORMATION - The interim financial information
contained herein is unaudited and includes all normal and recurring
adjustments which, in the opinion of management, are necessary to present
fairly the information set forth. The consolidated financial statements
should be read in conjunction with the Notes to the Consolidated Financial
Statements which are included in the Company's Form 10-K. The results for
interim periods are not necessarily indicative of results to be expected
for the fiscal year of the Company ending December 31, 1997. The Company
believes that the report filed on Form 10-Q is representative of its
financial position, its results of operations and its cash flow for the
quarters ended March 31, 1997 and 1996.
EMPLOYEE STOCK OWNERSHIP PLAN - Unearned ESOP compensation balance
is presented in the accompanying financial statements as a reduction of
equity. As the ESOP shares are allocated to participants, the unearned
ESOP compensation balance will decrease and compensation expense will be
recorded.
6
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RECLASSIFICATION - Certain amounts in the 1996 financial statements
have been reclassified to conform to 1997 presentation.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS)
<TABLE>
<CAPTION>
INVENTORY:
March 31, 1997 December 31, 1996
<S> <C> <C>
Raw materials $ 27,482 $ 25,953
Work in process 7,360 7,549
Finished goods 39,165 37,385
Reserve for obsolescence and loss (2,699) (2,612)
-------- --------
Total $ 71,308 $ 68,275
======== ========
PROPERTY, PLANT AND EQUIPMENT:
March 31, 1997 December 31, 1996
<CAPTION>
<S> <C> <C>
Land and land improvements $ 11,699 $ 11,429
Buildings 46,478 45,385
Leasehold improvements 3,721 3,627
Machinery and equipment 123,336 124,028
Furniture and fixtures 3,255 3,066
Automobiles and trucks 479 556
Computers and software 9,787 7,457
Assets under capital lease 3,430 3,584
Construction in progress 8,537 6,576
-------- ---------
210,722 205,708
Less accumulated depreciation (25,598) (22,406)
-------- --------
Total $185,124 $183,302
======== ========
</TABLE>
7
<PAGE>
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Bank Borrowings:
Revolving Credit Loans $ 362 $ 768
Term Loans 131,500 135,000
Subordinated Notes 85,000 85,000
Other 297 651
-------- --------
217,159 221,419
Less current maturities (14,187) (14,427)
-------- --------
Long-term debt $202,972 $206,992
======== ========
</TABLE>
The bank credit agreements of the Company now include a $30.0 million
revolving credit facility, a C$10.0 million revolving credit facility,
$135.0 million of term loans, a $30.0 million acquisitions loan facility, a
$12.0 million letter of credit facility and a C$8.0 million letter of
credit facility. The Company's obligations under the bank credit agreement
are secured by substantially all of the assets of the domestic subsidiaries
of the Company and by 66% of the common stock of Supremex.
Interest rate cap agreements are used to reduce the potential impact
of increases in the rates on floating-rate long-term debt. At March 31,
1997, the Company was party to an interest rate cap agreement for the
notional amount of $55.0 million which provide an effective LIBOR interest
rate cap of 9.0% and expire June 30, 1999. The agreements entitle the
Company to receive from counterparties the amounts, if any, by which the
Company's interest payments exceed the interest rate caps.
* * * * *
[The remainder of this page intentionally left blank.]
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Acquisitions - In April 1996, the Company acquired Quality Park Products, Inc.
("QPP"), a printer and manufacturer of envelopes. In November 1996, the Company
acquired Pac National Group Products, Inc. ("PNG"), a Canadian envelope printer
and manufacturer based in Ontario. In December 1996, the Company acquired
Shepard Poorman Communications Corporation ("SP"), a high impact color printer
located in Indianapolis, Indiana.
OVERVIEW - First quarter sales for 1997 increased 9% to $212.0 million from
$193.7 million for the first quarter of 1996. Net income for the quarter ended
March 31, 1997 increased to $6.0 million ($0.50 per share) from $2.8 million
($0.23 per share) for the quarter ended March 31, 1996. During the first
quarter of 1997, Mail-Well, Inc. (the "Company") focused efforts on integrating
the operations of PNG and SP into the Canadian Envelope and High Impact Color
Printing segments of the Company, respectively. These efforts included
reviewing the acquired operations to determine changes to be made to cost
structures, pricing and strategic markets. The High Impact Color Printing
segment continued to address market pressures by repositioning its marketing
efforts toward the channels within this segment for which the gross margins were
higher. In November 1996, the bank credit agreement was amended, the Company
refinanced certain equipment under a sale/leaseback arrangement and a receivable
securitization facility was arranged. The effects of these transactions are
reflected in the results for the first quarter of 1997.
RESULTS OF OPERATIONS
U.S. Envelope
- --------------
The following table presents 1997 historical financial data for the U.S.
Envelope operations of the Company, including the operations of QPP. The 1996
data includes the historical operations of the Company and the historical
operations of QPP for the three months ended March 31, 1996 which was included
to provide comparability to the 1997 information.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1997 1996
---- ----
(DOLLARS IN THOUSANDS) $ % $ %
-------------------------------------------
<S> <C> <C> <C> <C>
Net sales $139,700 100.0 $151,943 100.0
Cost of sales 108,323 77.5 122,546 80.6
Operating expenses 16,733 12.0 16,549 10.9
Operating income $ 14,644 10.5 $ 12,848 8.5
</TABLE>
QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER ENDED MARCH 31, 1996
Net sales - Net sales decreased 8.1% for the quarter ended March 31, 1997
compared to the quarter ended March 31, 1996. The average selling price
decreased 9.0% to $19.46 per thousand units for the quarter ended March 31, 1997
from $21.39 per thousand units for the quarter ended March 31, 1996. The primary
cause for the decrease was lower paper costs of approximately 25%. The paper
price decrease was offset by additional sales of more complex, higher margin
products for which fewer units were sold. Additionally, in the office products
market, the entrance of two additional competitors has put pressure on prices.
Total volume for the U.S. Envelope segment increased 1.1% to 7.2 billion units
in 1997 from 7.1 billion units in 1996. The volume increase occurred despite the
fact that 1997 units reflect the decline of 0.1 million units due to the loss of
a major customer by QPP (which occurred prior to the acquisition of QPP by the
Company). The additional volume is predominantly from the contract stationer
customer group that is growing at a pace faster than the industry as a whole due
to rapid consolidation of small dealers.
9
<PAGE>
Cost of sales - Total cost of sales, as a percentage of sales, decreased from
80.6% in 1996 to 77.5% in 1997. Cost of sales includes material, labor,
manufacturing, depreciation, other manufacturing costs and waste recovery
revenue. The 25% decrease in average paper costs was the major factor in the
reduction in total cost of sales. The Company uses material gross margin per
unit (measured on a per thousand envelope basis) and volume of units sold as an
indicator of trends in revenues, since historically the Company has passed on to
its customers changes in its cost of paper. When measured on a unit basis,
material gross margin increased from $10.92 per thousand units in the first
quarter of 1996 to $11.28 per thousand units for the first quarter of 1997. The
increase in material gross margin on a unit basis is attributable to the
Company's ability to manage selling price relative to declining paper prices.
Operating expenses - For the quarter ended March 31, 1997, selling and
administrative expenses, as a percent of sales, increased to 11.9% from 11.7%
compared to the same period in 1996. The increase was less than $0.2 million and
includes increases in salaries, profit sharing and health insurance.
Canadian Envelope
- -----------------
The following table presents financial information with respect to the Canadian
Envelope operations for the quarters ended March 31, 1997 and 1996. The 1996
information excludes the operations of PNG for the three months ended March 31,
1996.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1997 1996
---- ----
(DOLLARS IN THOUSANDS) $ % $ %
------------------------------
<S> <C> <C> <C> <C>
Net sales $31,616 100.0 $22,150 100.0
Cost of sales 22,777 72.0 16,163 73.0
Operating expenses 4,570 14.5 2,984 13.5
Operating income $ 4,269 13.5 $ 3,003 13.6
</TABLE>
QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER ENDED MARCH 31, 1996
Net sales - The 42.7% increase in net sales for the first quarter ended March
31, 1997 compared to the quarter ended March 31, 1996 was mainly due to the
acquisition of PNG. Total volume for Supremex (excluding PNG) increased by 4.1%
for the first quarter of 1997 compared to the first quarter of 1996. The
average selling price decreased 1.7% despite a 15% decrease in paper costs as
compared to the first quarter of 1996. This decrease in average selling price
was partially offset by a higher average selling price in the courier envelope
division.
Cost of sales - Total cost of sales, as a percentage of sales, decreased from
73.0% to 72.0% in 1997. Material gross margin increased from $10.57 per
thousand units in the quarter ended March 31, 1996 to $11.29 per thousand units
for the same quarter in 1997. The higher added value was attributable to the
Company's ability to manage selling price relative to declining paper prices.
The gross profit per thousand units increased 2.2% from 1996. The general
manufacturing expenses included expenses related to the closure of a plant which
were higher than the amount that had been accrued. As PNG's operations are
integrated with those of Supremex, the cost of sales (as a percentage of net
sales), is expected to decrease as Supremex's operating strategies are applied
to PNG's operations.
10
<PAGE>
Operating expenses - As a percentage of sales, the operating expenses have
increased to 14.5% of net sales for 1997 from 13.5% of net sales in 1996 due to
the higher cost structure of PNG. Operating expenses as a percentage of net
sales are expected to decrease as PNG's cost structure is changed to reflect
that of Supremex. Specifically, PNG's costs for administrative expenses
exceeded the parameters of Supremex's cost structure.
High Impact Color Printing.
- ---------------------------
The following table presents financial information with respect to the High
Impact Color Printing operations for the quarters ended March 31, 1997 and 1996.
The operations of SP are excluded from the results for the quarter ended March
31, 1996.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1997 1996
---- ----
(DOLLARS IN THOUSANDS) $ % $ %
-------------------------------
<S> <C> <C> <C> <C>
Net sales $40,716 100.0 $42,898 100.0
Cost of sales 33,702 82.8 36,974 86.2
Operating expenses 5,165 12.7 5,042 11.7
Operating income $ 1,849 4.5 $ 882 2.1
</TABLE>
QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER ENDED MARCH 31, 1996
Net sales - Net sales for the quarter ended March 31, 1997 were $40.7 million, a
5.1% decrease from the prior year. Net sales produced at SP constituted $12.1
million of the quarter's net sales and represented flat volumes compared with
those of the prior year (before SP was owned by the Company). Exclusive of SP,
net sales fell short of prior year actual figures by 33%. This decline is due
to several factors. The Company has targeted higher margin markets and is
aggressively allocating sales resources to these markets. Operating income
margins for the High Impact Color Printing segment of the Company have increased
to 4.5% of net sales from 2.1% of net sales. Another factor affecting the
decline in sales dollars was the decrease in paper costs. The final factor in
the net sales decline is the shift of annual report work from the first quarter
to the second quarter. Sales recorded for the month of April are unseasonably
strong for annual reports.
Cost of sales - Total cost of sales declined from 86.2% in the first quarter of
1996 to 82.8% in the first quarter of 1996. Reductions in paper prices, coupled
with improved corporate purchasing power, resulted in lower paper costs of
approximately $6.1 million as compared to the quarter ended March 31, 1996.
Outside tradework declined both as a percentage of revenue and by $2.0 million
in nominal dollars. A reduction in factory costs constitutes the remainder of
the favorable variance and corresponds largely to the downward movement in
volumes. Improved control over overtime and factory chargeability also yielded
favorable variances. SP cost of sales of $10.6 million is included in the 1997
amounts and represents 87.5% of SP's sales.
Operating expenses - Total operating expense is $0.1 million greater than the
amount for the quarter ended March 31, 1996. The fluctuation includes $1.2
million of operating expenses related to SP offset by $1.1 million in operating
expense reductions implemented by the GAC operations of the High Impact Color
Printing segment. The reductions include $0.3 million reduction in salary
expense, $0.3 million reduction in bad debt expense and $0.1 million decrease in
insurance expense. The remaining decrease is due to reductions in other general
and administrative expenses.
11
<PAGE>
Consolidated Information
- ------------------------
The following table presents historical financial information for the Company
and includes the operations of each acquired company from the date of its
acquisition. The percentage column presents the specific expense items as a
percentage of historical net sales for the year.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1997 1996
---- ----
(DOLLARS IN THOUSANDS) $ % $ %
----------------------------
<S> <C> <C> <C> <C>
Cost of sales - operating lease expenses $ 596 0.3 $ 0 0.0
Operating expenses 1,955 0.9 1,172 0.6
Amortization expense 1,112 0.5 946 0.5
Loss on disposal of assets 871 0.4 0 0.0
Interest expense - debt 4,554 2.1 7,081 3.7
Interest expense - amortization of deferred
financing costs 724 0.3 732 0.4
Discount on sale of accounts receivable 1,023 0.5 0 0.0
Other (income) expense (530) (0.2) 55 0.0
Income taxes 4,428 2.1 $2,062 1.1
</TABLE>
Cost of sales - operating lease expenses - Certain property, plant and equipment
of the Company was sold as part of a sales/leaseback transaction. This amount
represents the operating lease payments for the first quarter of 1997. The
operating lease expense is now recorded in a separate line item. This
transaction occurred in the fourth quarter of 1996, thus, there is not a
comparative number in the first quarter of 1996.
Operating expenses - Total operating expenses increased $0.8 million for the
quarter ended March 31, 1997 compared to the quarter ended March 31, 1996. The
increases included $0.2 million in legal expenses for litigation reserves, $0.2
million of shareholders expenses which include the printing of the annual report
and proxy materials and $0.2 million of administrative expenses which includes
sales and benefits. Also included in operating expenses in 1997 is $0.2 million
of administrative expenses related to the accounts receivable securitization
program which includes items such as liquidity fees, trustee fees and audit
expense.
Amortization expense - The amortization expense increased due to the
acquisitions of QPP, PNG and SP and the amortization of the intangibles acquired
in these transactions.
Loss on disposal of assets - The majority of the loss on disposal of assets
relates to $0.8 million of building and equipment costs written off related to
the closing of the Pittsburgh warehouse and reductions in the plants in Salt
Lake City and Chicago.
Interest expense- debt - The interest expense decreased for the quarter ended
March 31, 1997 as compared to the quarter ended March 31, 1996 primarily as a
result of the lower average bank debt balance which was $132.4 million in 1997
as compared to $218.7 million in 1996. The bank debt restructuring, the
sale/leaseback transaction and the accounts receivable securitization
transaction resulted in the reduction of outstanding debt balances toward the
end of 1996. The average interest rate of 7.65% for the quarter ended March 31,
1997 is less than the average interest rate of 8.0% for the same period in 1996.
Discount on sale of accounts receivable - This amount represents the 5.6%
discount paid on the accounts receivable sold under the accounts receivable
securitization program.
12
<PAGE>
Other (income) expense - This line item includes a $0.3 million foreign exchange
gain and $0.2 million of interest income earned from the investment of funds in
cash equivalents.
Income taxes - The effective tax rate for the quarter ended March 31, 1997 is
42.5% as compared to an effective tax rate of 42.7% for the quarter ended March
31, 1996. The effective tax rate for both quarters is higher than the federal
statutory rate due to state and provincial income taxes. Additionally, certain
goodwill amortization and a portion of the employee stock ownership contribution
is not tax deductible.
LIQUIDITY AND CAPITAL RESOURCES
Historical cash flow - Net cash provided by operating activities was $11.5
million for the quarter ended March 31, 1997 as compared to net cash used in
operating activities of $1.1 million for the quarter ended March 31, 1996.
Capital expenditures totaled $5.6 million for the first quarter of 1997 as
compared to $3.2 million for the first quarter of 1996. Proceeds from the sale
of property, plant and equipment totaled $2.7 million in 1996 compared to
proceeds of less than $0.1 million for the same period in 1997.
In November 1996, the Company entered into a five year agreement whereby it can
sell, on a revolving basis, an undivided percentage interest in a designated
pool of accounts receivable up to a maximum of $100.0 million. At March 31,
1997, $64.4 million of accounts receivable were sold under this agreement.
Debt obligations - In November 1996, the Company amended its bank credit
agreement which now includes a $30.0 million revolving credit facility, a $C10.0
million revolving credit facility, $135.0 million of term loans, a $30.0 million
acquisition loans facility, a $12.0 million letter of credit facility and an
C$8.0 million letter of credit facility. As of March 31, 1997, the Company had
borrowed $6.4 million (including $6.0 million in letters of credit) under the
revolving credit facility of the bank credit agreement and $131.5 million under
the term loans. Availability at March 31, 1997 included $36.9 million under the
revolving credit facilities and $30.0 million under the acquisition loan
facility. Interest rates on the Company's bank debt ranged from 5.25% to 8.5% as
of March 31, 1997. The weighted average interest rate on bank debt was 7.65% for
the quarter ended March 31, 1997. The senior subordinated debt balance remained
stable at $85.0 million at an interest rate of 10.5%.
Capital requirements - The Company estimates that, based on current utilization
of its existing equipment and expected demand, it will spend $20.0 to $30.0
million per year on capital expenditures exclusive of acquisitions.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Certificate of Incorporation of the Company, as amended -incorporated
by reference from Exhibit 3.1 of the Company's Registration Statement
on Form S-1 dated March 25, 1994.
3.2 Certificate of Amendment of Certificate of Incorporation of the Company
dated December 8, 1994 - incorporated by reference from Exhibit 3.1 of
the Company's Registration Statement on Form S-1 dated May 9, 1995.
3.3 Certificate of Amendment of Certificate of Incorporation of the
Company - incorporated by reference from Exhibit 3.3 of the Company's
Registration Statement on Form S-1 dated September 21, 1995.
3.4 Bylaws of the Company - incorporated by reference from Exhibit 3.4 of
the Company's Registration Statement on Form S-1 dated September 21,
1995.
4.1 Form of Certificate representing the Common Stock, par value $0.01 per
share, of the Company - incorporated by reference from Exhibit 4.1 of
the Company's Registration Statement on Form S-1 dated March 25, 1994.
4.2 Indenture dated February 24, 1994 by and between the Company and
Shawmut Bank, National Association, as Trustee, with respect to the
$39,500,000 in aggregate principal amount of Original Senior Deferred
Coupon Notes and Exchange Senior Deferred Coupon Notes due 2006,
including the form of Deferred Coupon Note - incorporated by reference
from Exhibit 4.2 of the Company's Registration Statement on Form S-1
dated March 25, 1994.
4.3 Indenture dated as of February 24, 1994 by and between M-W Corp. and
Shawmut Bank, National Association, as Trustee, with respect to the 10-
1/2% Original Senior Subordinated Notes and the 10-1/2% Exchange Senior
Subordinated Notes due 2004, including the form of Note and the
guarantees of the Company, Wisco and Pavey -incorporated by reference
from Exhibit 4.3 of the Company's Registration Statement on Form S-1
dated March 25, 1994.
4.3.1 Supplemental Indenture dated July 31, 1995 to the Indenture identified
in Exhibit 4.3 - incorporated by reference from Exhibit 4.4.1 of the
Company's Registration Statement on Form S-1 dated September 21, 1995 .
4.3.2 Form of Second Supplemental Indenture to the Indenture identified in
Exhibit 4.3 -incorporated by reference from Exhibit 4.4.2 of the
Company's Registration Statement on Form S-1 dated September 21, 1995.
4.4 Form of Stockholders Agreement among the Company and certain holders of
the Common Stock effective as of February 24, 1994 and Amendment No. 1
thereto -
14
<PAGE>
incorporated by reference from Exhibit 4.4 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
4.5 Form of Employee Stockholders Agreement among the Company and certain
employee holders of the Common Stock effective as of February 24, 1994
- incorporated by reference from Exhibit 4.5 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
4.6 Form of American Mail-Well Employee Stockholders Agreement among the
Company and certain holders of the Common Stock - incorporated by
reference from Exhibit 10.44 of the Company's Registration Statement on
Form S-1 dated May 9, 1995.
4.7 Form of Registration Rights Agreement among the Company and certain
holders of the Common Stock effective as of February 24, 1994 -
incorporated by reference from Exhibit 4.6 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
4.8 Form of Registration Rights Agreement among M-W Corp., the Company and
Merrill Lynch effective as of February 24, 1994 - incorporated by
reference from Exhibit 4.7 of the Company's Registration Statement on
Form S-1 dated March 25, 1994.
10.1 Asset Purchase Agreement dated December 7, 1993 by and among GP
Envelope, G-P, M-W Corp. and the Company, as amended - incorporated by
reference from Exhibit 10.1 of the Company's Registration Statement on
Form S-1 dated March 25, 1994.
10.2 Letter Agreement dated December 13, 1993 by and between Sterling, M-W
Corp. and the Company relating to compensation payable by M-W Corp. and
the Company to Sterling for services performed in connection with the
Acquisition and the financing thereof -incorporated by reference from
Exhibit 10.2 of the Company's Registration Statement on Form S-1 dated
March 25, 1994.
10.3 Letter Agreement dated December 13, 1993 by and between The Unicorn
Group and Sterling regarding engagement of The Unicorn Group by
Sterling -incorporated by reference from Exhibit 10.3 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
10.4 Letter Agreement dated December 13, 1993 from Saddle River Capital to
Sterling regarding engagement of Saddle River Capital by Sterling -
incorporated by reference from Exhibit 10.4 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
10.5 Communications Paper Supply Agreement dated February 24, 1994 between
G-P and M-W Corp. - incorporated by reference from Exhibit 10.11 of the
Company's Registration Statement on Form S-1 dated March 25, 1994.
10.6 Computer Services Agreement dated February 24, 1994 between G-P and M-W
Corp. -incorporated by reference from exhibit 10.12 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
10.7 Trademark License Agreement dated February 24, 1994 by and among G-P,
Great Northern Nekoosa Corporation and M-W Corp. - incorporated by
reference from Exhibit 10.13 of the Company's Registration Statement on
Form S-1 dated March 25, 1994.
10.8 Securities Exchange Agreement dated February 22, 1994 by and among the
Company First Sterling, Unicorn, The Unicorn Group and Gerald F.
Mahoney, including the form of Escrow Agreement by and among the
parties to the Securities Exchange Agreement -incorporated by reference
from Exhibit 10.14 of the Company's Registration Statement on Form S-1
dated March 25, 1994 .
10.9 Tax Sharing Agreement dated February 24, 1994 among the Company, M-W
Corp., Wisco and Pavey - incorporated by reference from Exhibit 10.15
of the Company's Registration Statement on Form S-1 dated March 25,
1994.
10.10 General Indemnity Agreement between M-W Corp. and Amwest Surety
Insurance Company together with form of Letter of Credit - incorporated
by reference from Exhibit 10.16 of the Company's Registration Statement
on Form S-1 dated March 25, 1994.
10.11 Form of Indemnity Agreement between the Company and each of its
officers and directors - incorporated by reference from Exhibit 10.17
of the Company's Registration Statement on Form S-1 dated March 25,
1994.
15
<PAGE>
10.12 Form of Indemnity Agreement between M-W Corp. and each of its officers
and directors -incorporated by reference from Exhibit 10.18 of the
Company's Registration Statement on Form S-1 dated March 25, 1994.
10.13 Form of M-W Corp. Employee Stock Ownership Plan effective as of
February 23, 1994 and related Employee Stock Ownership Plan Trust
Agreement- incorporated by reference from Exhibit 10.19 of the
Company's Registration Statement on Form S-1 dated March 25, 1994.
10.14 Form of M-W Corp. 401(k) Savings Retirement Plan - incorporated by
reference from Exhibit 10.20 of the Company's Registration Statement on
Form S-1 dated March 25, 1994.
10.15 Company 1994 Stock Option Plan, as amended - incorporated by reference
from Exhibit 10.15 of the Company's Registration Statement on Form S-1
dated September 21, 1995.
10.16 Form of the Company Incentive Stock Option Agreement - incorporated by
reference from Exhibit 10.22 of the Company's Registration Statement on
Form S-1 dated March 25, 1994.
10.17 Form of the Company Nonqualified Stock Option Agreement -incorporated
by from Exhibit 10.23 of the Company's Registration Statement on Form
S-1 dated March 25, 1994.
10.18 Asset Purchase Agreement dated October 31, 1994 by and between American
and M-W Corp., as amended - incorporated by reference from Exhibit
10.30 of the Company's Registration Statement on Form S-1 dated May 9,
1995.
10.19 Transition Services Agreement dated December 19, 1994 by and among CC
Industries or American and M-W Corp. - incorporated by reference from
Exhibit 10.31 of the Company's Registration Statement on Form S-1 dated
May 9, 1995.
10.20 Guaranty dated December 19, 1994, executed by CC Industries in favor of
M-W Corp. -incorporated by reference from Exhibit 10.33 of the
Company's Registration Statement on Form S-1 dated May 9, 1995.
10.21 Commitment Letter dated December 19, 1994, from Henry Crown & Company
to M-W Corp. - incorporated by reference from Exhibit 10.34 of the
Company's Registration Statement on Form S-1 dated May 9, 1995.
10.22 Second Amended and Restated Credit Agreement dated as of July 31, 1995
by and among M-W Corp., the banks parties thereto and Banque Paribas,
as Agent - incorporated by reference from Exhibit 10.22 of the
Company's Registration Statement on Form S-1 dated September 21, 1995.
10.23 Credit Agreement dated as of July 31, 1995 by and among Supremex, M-W
Corp., the banks parties thereto and Bank Paribas, as Agent -
incorporated by reference from Exhibit 10.23 of the Company's
Registration Statement on Form S-1 dated September 21, 1995.
10.24 Second Amended and Restated Guaranty Agreement dated as of July 31,
1995, executed by the Company in favor of Banque Paribas, as Agent -
incorporated by reference from Exhibit 10.24 of the Company's
Registration Statement on Form S-1 dated September 21, 1995.
10.25 Share Purchase Agreement dated July 20, 1995, by and among the
shareholders of Supremex, 3159051 Canada Inc. and Schroder Investment
Canada Limited and Schroder Venture Managers (North America) Inc. -
incorporated by reference from Exhibit 10.25 of the Company's
Registration Statement on Form S-1 dated September 21, 1995.
10.26 Indemnification Escrow Agent dated July 31, 1995, by and among 3159051
Canada Inc., Royal Trust Company of Canada and Schroder Investment
Canada Limited and Schroder Venture Mangers (North America) Inc. -
incorporated by reference from Exhibit 10.26 of the Company's'
Registration Statement on Form S-1 dated September 21, 1995.
10.27 Guaranty dated July 31, 1995, executed by M-W Corp. in favor of
Schroder Investment Canada Limited and Schroder Venture Mangers (North
America) Inc., as Agents -incorporated by reference from Exhibit 10.27
of the Company's Registration Statement on Form S-1 dated September 21,
1995.
16
<PAGE>
10.28 Securities Purchase Agreement dated as of August 2, 1995, as amended,
by and among GAC Acquisition Company, Inc., GAC and the securityholders
of GAC and McCown De Leeuw & Co., as Agents - incorporated by reference
from Exhibit 10.28 of the Company's Registration Statement on Form S-1
dated September 21, 1995.
10.29 Escrow Agreement dated as of August 2, 1995, by and among GAC
Acquisition Company, Inc., GAC and securityholders of GAC and McCown De
Leeuw & Co., as Agents - incorporated by reference from Exhibit 10.29
of the Company's Registration Statement on Form S-1 dated September 21,
1995.
10.30 Guaranty dated as of August 2, 1995, by M-W Corp. in favor of McCown De
Leeuw & Co., as Agents - incorporated by reference from Exhibit 10.30
of the Company's Registration Statement on Form S-1 dated September 21,
1995.
10.31 Second Amendment to Second Amended and Restated Credit Agreement -
incorporated by reference from Exhibit 10.31 of the Company's Form 10-Q
dated March 31, 1996.
10.32 Asset Purchase Agreement dated April 26, 1996 by and between Quality
Park Products, Inc. and Mail-Well I Corporation - incorporated by
reference from Exhibit 1 of the Company's Form 8-K dated May 2, 1996.
10.33 Acquisition Agreement and Plan of Share Exchange by and among Graphic
Arts Center, Inc. and Shepard Poorman Communications Corporation dated
November 6, 1996 -incorporated by reference from exhibit 10.33 of the
Company's Form 10-K for the year ended December 31, 1996.
10.34 Amendment No. 1 to Acquisition Agreement and Plan of Share Exchange by
and among Graphic Arts Center, Inc. and Shepard Poorman Communications
Corporation dated November 6, 1996- incorporated by reference from
exhibit 10.34 of the Company's Form 10-K for the year ended December
31, 1996.
10.35 Asset Purchase Agreement dated as of October 15, 1996 by and between
Supremex, Inc. and PNG Products, Inc. Pac National Group and PNG
Envelope Internationale, Inc-incorporated by reference from exhibit
10.35 of the Company's Form 10-K for the year ended December 31, 1996.
10.36 Master Lease Agreement dated as of August 1, 1996 between General
Electric Capital Corporation and Mail-Well, Inc., Mail-Well I
Corporation, Graphic Arts Center, Inc., Mail-Well West, Pavey Envelope
and Tag Corp., Wisco II, L.L.C and Wisco Envelope Corp- incorporated by
reference from exhibit 10.36 of the Company's Form 10-K for the year
ended December 31, 1996.
10.37 Third Amended and Restated Credit Agreement dated as of November 15,
1996, executed by Mail-Well I Corporation, as Borrower, and Wisco
Envelope Corp., Pavey Envelope and Tag Corp., Mail-Well West, Inc.,
Wisco II, L.L.C., Mail-Well Canada Holdings, Inc., Graphic Arts Center,
Inc. and Wisco III, L.L.C., as Guarantors, in favor of Banque Paribas,
as Agent, and the Lenders named herein - incorporated by reference from
exhibit 10.37 of the Company's Form 10-K for the year ended December
31, 1996.
10.38 Amended and Restated Credit Agreement dated as of November 15, 1996,
executed by Supremex, Inc., as borrower, and Mail-Well I Corporation
and Innova Envelope, Inc., as Guarantors, in favor of Banque Paribas,
as Agent, and the Lenders named herein -incorporated by reference from
exhibit 10.38 of the Company's Form 10-K for the year ended December
31, 1996.
10.39 Purchase and Contribution Agreement dated as of November 15, 1996
between Mail-Well I Corporation, Wisco Envelope Corp., Pavey Envelope
and Tag Corp., Mail-Well West, Inc., Graphic Arts Center, Inc., Wisco
III, L.L.C., Supremex, Inc., Innova Envelope, Inc., as Sellers, and
Mail-Well Trade Receivables Corp., as Purchaser -incorporated by
reference from exhibit 10.39 of the Company's Form 10-K for the year
ended December 31, 1996.
10.40 Mail-Well Receivables Master Trust Pooling and Servicing Agreement
dated as of November 15, 199 by and between Mail-Well Trade Receivables
Corporation, Seller, Mail-Well I Corporation, Servicer, and Norwest
Bank Colorado, National Association,
17
<PAGE>
Trustee - incorporated by reference from exhibit 10.40 of the Company's
Form 10-K for the year ended December 31, 1996.
10.41 Series 1996-1 Supplement dated as of November 15, 1996 to Pooling and
Servicing Agreement, dated as of November 15, 1996, by and between
Mail-Well Trade Receivables Corporation, Seller, Mail-Well I
Corporation, Servicer, and Norwest Bank Colorado, National Association,
as Trustee on behalf of the Series 1996-1 Certificateholders -
incorporated by reference from exhibit 10.41 of the Company's Form 10-K
for the year ended December 31, 1996.
10.42 Series 1996-1 Certificate Purchase Agreement dated as of November 15,
1996 among Mail-Well Trade Receivables Corporation, as Seller,
Corporate Receivables Corporation, as Purchaser, Norwest Bank Colorado,
National Association, as Trustee, and Mail-Well I Corporation, as
Servicer-incorporated by reference from exhibit 10.42 of the Company's
Form 10-K for the year ended December 31, 1996.
10.43 Intercreditor Agreement dated as of November 15, 1996 by and among
Citicorp North America, Inc., as Securitization Company Agent, Banque
Paribas, New York Branch, as Liquidity Agent, Banque Paribas, as Credit
Lenders' Agent, Norwest Bank Colorado, National Association, as
Trustee, Mail-Well Trade Receivables Corporation, as Servicer,
originator and Mail-Well Credit Borrower, Supremex, Inc., as the
Supremex Credit Borrower and the other parties hereto - incorporated by
reference from exhibit 10.43 of the Company's Form 10-K for the year
ended December 31, 1996.
10.44 Series 1996-1 Asset Purchase Agreement among Corporate Receivables
Corporation, the Liquidity Providers Parties hereto, Citicorp North
America, Inc., as Securitization Company Agent, Banque Paribas, New
York Branch, as Liquidity Agent, and Norwest Bank Colorado, National
Association, as trustee, dated as of November 15, 1996 -incorporated by
reference from exhibit 10.44 of the Company's Form 10-K for the year
ended December 31, 1996.
10.45 Participation Agreement dated as of November 15, 1996 among Mail-Well I
Corporation, as Lessee and Guarantor, Certain Subsidiaries of Mail-Well
I Corporation, as Subsidiary Guarantors, Paribas Properties, Inc., as
Lessor, Various Financial Institutions Identified herein, as Equity
Lenders, Various Financial Institutions Identified herein, as Financing
Lenders and Banque Paribas, as Agent for the Financing Lenders and
Equity Lenders -incorporated by reference from exhibit 10.45 of the
Company's Form 10-K for the year ended December 31, 1996.
10.46 Loan Agreement dated as of November 15, 1996 among Paribas Properties,
Inc., as Lessor, Various Financial Institutions Identified herein, as
Financing Lenders, Various Financial Institutions Identified herein, as
Equity Lenders, and Banque Paribas, as Agent for the Lenders -
incorporated by reference from exhibit 10.46 of the Company's Form 10-K
for the year ended December 31, 1996.
10.47 Master Equipment Lease and Security Agreement dated November 15, 1996
between Mail-Well I Corporation, as the Lessee or Debtor and Paribas
Properties, Inc., as the Lessor or Secured Party - incorporated by
reference from exhibit 10.47 of the Company's Form 10-K for the year
ended December 31, 1996.
10.48 Security Agreement (Second and Subordinated Security Interest) made and
entered into by Paribas Properties, Inc. and Mail-Well I Corporation,
as Debtors, and Banque Paribas, as Agent for Secured Party date
November 15, 1996 - incorporated by reference from exhibit 10.48 of the
Company's Form 10-K for the year ended December 31, 1996.
10.49 Appendix A to Participation Agreement, Master Lease, and Loan
Agreement - incorporated by reference from exhibit 10.49 of the
Company's Form 10-K for the year ended December 31, 1996.
10.50 Lease Facility Guaranty dated as of November 15, 1996 made by Mail-Well
I Corporation, Mail-Well, Inc. and certain of their Subsidiaries, as
Guarantors, in favor of Various Financial Institutions, as the Lenders,
and Banque Paribas, as Agent for the Lenders - incorporated by
reference from exhibit 10.50 of the Company's Form 10-K for the year
ended December 31, 1996.
18
<PAGE>
10.51 Assignment of Lease and rent dated as of November 15, 1996 from Paribas
Properties, Inc., as Assignor to Banque Paribas, as Agent for the
Lenders, as Assignee - incorporated by reference from exhibit 10.51 of
the Company's Form 10-K for the year ended December 31, 1996.
10.52 Security Agreement (First and Prior Security Interest) made and entered
into by Paribas Properties, Inc. and Mail-Well I Corporation, as
Debtors, and Banque Paribas, as Agent for Secured Party dated November
15, 1996 - incorporated by reference from exhibit 10.52 of the
Company's Form 10-K for the year ended December 31, 1996.
10.53 Bill of Sale and Assignment of Equipment made and entered into on this
15th day of November, 1996 by Mail-Well I Corporation to and for the
benefit of Paribas Properties, Inc. - incorporated by reference from
exhibit 10.53 of the Company's Form 10-K for the year ended December
31, 1996.
10.54* 1997 Non-Qualified Stock Option Plan
10.55* 1997 Non-Qualified Stock Option Agreement
____________
* Filed herewith.
(B) REPORTS ON FORM 8-K
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAIL-WELL I CORPORATION
(Registrant)
By /s/ PAUL V. REILLY
----------------------
Paul V. Reilly
Senior Vice President,
Chief Financial Officer
May 13, 1997
20
<PAGE>
MAIL-WELL HOLDINGS, INC.MAIL-WELL, INC.
1997 NON-QUALIFIED STOCK OPTION PLAN
SECTION 1. Purpose of the Plan. The purpose of this Mail-Well, Inc. 1997
-------------------
Non-Qualified Stock Option Plan, as amended ("Plan") is to encourage ownership
of common stock, $.01 par value ("Common Stock"), of Mail-Well, Inc., a Delaware
corporation (the "Company"), by eligible key employees of the Company and its
Affiliates (as defined below) and to provide increased incentive for such
employees and directors to render services and to exert maximum effort for the
business success of the Company. In addition, the Company expects that the Plan
will further strengthen the identification of employees and directors with the
stockholders. Options to be granted under this Plan are not intended to qualify
as Incentive Stock Options pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended ("Code"). As used in this Plan, the term "Affiliates" means
any "parent corporation" of the Company and any "subsidiary corporation" of the
Company within the meaning of Code Sections 424(e) and (f), respectively.
SECTION 2. Administration of the Plan.
--------------------------
(a) Composition of Committee. The Plan shall be administered by the
------------------------
Compensation Committee (the "Committee") comprised of two or more
directors designated by the Board of Directors of the Company (the
"Board"), which shall also designate the Chairman of the Committee. No
director shall serve as a member of the Committee unless he is a "Non-
Employee Director" within the meaning of such Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Exchange Act").
(b) Committee Action. The Committee shall hold its meetings at such
----------------
times and places as it may determine. A majority of its members shall
constitute a quorum, and all determinations of the Committee shall be
made by not less than a majority of its members. Any decision or
determination reduced to writing and signed by a majority of the members
shall be fully effective as if it had been made by a majority vote of its
members at a meeting duly called and held. The Committee may designate
the Secretary of the Company or other Company employees to assist the
Committee in the administration of the Plan, and may grant authority to
such persons to execute award agreements or other documents on behalf of
the Committee and the Company. Any duly constituted committee of the
Board satisfying the qualifications of this Section 2 may be appointed as
the Committee.
(c) Committee Expenses. All expenses and liabilities incurred by the
------------------
Committee in the administration of the Plan shall be borne by the
Company. The Committee may employ attorneys, consultants, accountants or
other persons.
SECTION 3. Stock Reserved for the Plan. Subject to adjustment as
---------------------------
provided in Section 6(i) hereof, the aggregate number of shares of Common Stock
that may be optioned under the Plan is 650,000. The shares subject to the Plan
shall consist of authorized but unissued shares of Common Stock and such number
of shares shall be and is hereby reserved
1
<PAGE>
for sale for such purpose. Any of such shares which may remain unsold and which
are not subject to outstanding options at the termination of the Plan shall
cease to be reserved for the purpose of the Plan, but until termination of the
Plan or the termination of the last of the options granted under the Plan,
whichever last occurs, the Company shall at all times reserve a sufficient
number of shares to meet the requirements of the Plan. Should any option expire
or be canceled prior to its exercise in full, the shares theretofore subject to
such option may again be made subject to an option under the Plan.
SECTION 4. Eligibility. The persons eligible to participate in the Plan
-----------
as a recipient of options ("Optionee") shall include only key employees of the
Company or its Affiliates at the time the option is granted. An employee who
has been granted an option hereunder may be granted an additional option or
options, if the Committee shall so determine.
SECTION 5. Grant of Options. The Committee shall have sole and absolute
----------------
discretionary authority (i) to determine, authorize, and designate those key
employees of the Company or its Affiliates who are to receive options under the
Plan, (ii) to determine the number of shares of Common Stock to be covered by
such options, (iii) to determine the exercise price for options granted under
the Plan, and (iv) to determine the other terms of such options and the
conditions for exercise thereof. The Committee shall thereupon grant options in
accordance with such determinations and such options shall be evidenced by a
written option agreement. Subject to the express provisions of the Plan, the
Committee shall have discretionary authority to prescribe, amend and rescind
rules and regulations relating to the Plan, to interpret the Plan, to prescribe
and amend the terms of the option agreements (which need not be identical) and
to make all other determinations deemed necessary or advisable for the
administration of the Plan.
SECTION 6. Terms and Conditions. Each option granted under the Plan
--------------------
shall be evidenced by an agreement, in a form approved by the Committee, which
shall be subject to the following express terms and conditions and to such other
terms and conditions as the Committee may deem appropriate.
(a) Option Period. The Committee shall promptly notify the Optionee
-------------
of the option grant and a written agreement shall promptly be executed
and delivered by and on behalf of the Company and the Optionee. The date
of grant shall be the date the option is actually granted by the
Committee, even though the written agreement may be executed and
delivered by the Company and the Optionee after that date. Each option
agreement shall specify the period for which the option thereunder is
granted (which in no event shall exceed ten years from the date of grant)
and shall provide that the option shall expire at the end of such period.
If the original term of an option is less than ten years from the date of
grant, the option may be amended prior to its expiration, with the
approval of the Committee and the Optionee, to extend the term so that
the term as amended is not more than ten years from the date of grant.
(b) Exercise Period. The Committee may provide in the option
---------------
agreement that an option may be exercised in whole, immediately, or is to
be exercisable in increments.
2
<PAGE>
(c) Procedure for Exercise. Options shall be exercised by the
----------------------
delivery of written notice to the Secretary of the Company setting forth
the number of shares with respect to which the option is being exercised.
Such notice shall be accompanied by cash or cashier's check, bank draft,
postal or express money order payable to the order of the Company, or at
the option of the Committee, in Common Stock theretofore owned by such
Optionee (or any combination of cash and Common Stock). Notice may also
be delivered by fax or telecopy provided that the purchase price of such
shares is delivered to the Company via wire transfer on the same day the
fax is received by the Company. The notice shall specify the address to
which the certificates for such shares are to be mailed. An Optionee
shall be deemed to be a stockholder with respect to shares covered by an
option on the date the Company receives such written notice and such
option payment.
As promptly as practicable after receipt of such written
notification and payment, the Company shall deliver to the Optionee
certificates for the number of shares with respect to which such option
has been so exercised, issued in the Optionee's name or such other name
as Optionee directs; provided, however, that such delivery shall be
deemed effected for all purposes when a stock transfer agent of the
Company shall have deposited such certificates in the United States mail,
addressed to the Optionee at the address specified pursuant to this
Section 6(c).
(d) Termination of Employment. If an employee to whom an option is
-------------------------
granted ceases to be employed by the Company for any reason other than
death or disability, any option which is exercisable on the date of such
termination of employment shall expire upon such date of such termination
of employment; provided, however, the Committee, in its sole discretion,
may allow an Optionee to exercise all or a portion of the Options granted
but unexercised for a period of time after the Optionee's termination of
employment, such extension not to exceed three months from the date of
termination.
(e) Disability or Death of Optionee. In the event of the
-------------------------------
determination of disability or death of an Optionee under the Plan while
he is employed by the Company, the options previously granted to him may
be exercised (to the extent he would have been entitled to do so at the
date of the determination of disability or death) at any time and from
time to time, within a three-month period after such determination of
disability or death, by the former employee, the guardian of his estate,
the executor or administrator of his estate or by the person or persons
to whom his rights under the option shall pass by will or the laws of
descent and distribution, but in no event may the option be exercised
after its expiration under the terms of the option agreement. An Optionee
shall be deemed to be disabled if, in the opinion of a physician selected
by the Committee, he is incapable of performing services for the Company
of the kind he was performing at the time the disability occurred by
reason of any medically determinable physical or mental impairment which
can be expected to result in death or to be of long, continued and
indefinite duration. The date of determination of disability for purposes
hereof shall be the date of such determination
3
<PAGE>
by such physician. The Committee, in its sole discretion, may allow an
Optionee to exercise all or a portion of the Options granted but
unexercised for a longer period than three months after disability or
death.
(f) Assignability. An option shall not be assignable or otherwise
-------------
transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined in the Code
or Title I of the Employee Retirement Income Security Act, as amended, or
the rules thereunder. During the lifetime of an Optionee, an option shall
be exercisable only by the Optionee.
(g) No Rights as Stockholder. No Optionee shall have any rights as a
------------------------
stockholder with respect to shares covered by an option until the option
is exercised by the written notice and accompanied by payment as provided
in clause (c) above.
(h) Extraordinary Corporate Transactions. The existence of
------------------------------------
outstanding options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, exchanges, or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issuance of Common Stock or other
securities or subscription rights thereto, or any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the
Common Stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise. If the Company recapitalizes or otherwise changes
its capital structure, or merges or consolidates, (each of the foregoing
a "Fundamental Change"), then thereafter upon any exercise of an option
theretofore granted the Optionee shall be entitled to purchase under such
option, in lieu of the number of shares of Common Stock as to which
option shall then be exercisable, the number and class of shares of stock
and securities to which the Optionee would have been entitled pursuant to
the terms of the Fundamental Change if, immediately prior to such
Fundamental Change, the Optionee had been the holder of record of the
number of shares of Common Stock as to which such option is then
exercisable.
(i) Changes in Company's Capital Structure. If the outstanding
--------------------------------------
shares of Common Stock or other securities of the Company, or both, for
which the option is then exercisable shall at any time be changed or
exchanged by declaration of a stock dividend, stock split, or combination
of shares, the number and kind of shares of Common Stock or other
securities which are subject to the Plan or subject to any options
theretofore granted, and the option prices, shall be appropriately and
equitably adjusted so as to maintain the proportionate number of shares
or other securities without changing the aggregate option price.
(j) Acceleration of Options. Except as hereinbefore expressly
-----------------------
provided, (i) the issuance by the Company of shares of stock of any class
of securities convertible into shares of stock of any class, for cash,
property, labor or services, upon direct sale,
4
<PAGE>
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such
shares or other securities, (ii) the payment of a dividend in property
other than Common Stock or (iii) the occurrence of any similar
transaction, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect
to, the number of shares of Common Stock subject to options theretofore
granted or the purchase price per share, unless the Committee shall
determine in its sole discretion that an adjustment is necessary to
provide equitable treatment to Optionee. Notwithstanding anything to the
contrary contained in this Plan, the Committee may in its sole discretion
accelerate the time at which any option may be exercised, including, but
not limited to, upon the occurrence of the events specified in this
Section 6, and is authorized at any time (with the consent of the
Optionee) to purchase options pursuant to Section 7.
(k) Stockholders Agreement. The Committee shall provide in the
----------------------
option agreement that prior to receiving any shares of Common Stock or
other securities on the exercise of the option, the Optionee (or the
Optionee's representative upon the Optionee's death) shall be required to
execute the American Mail-Well Employee Stockholders Agreement, or the
Company's Stockholders Agreement, whichever the Committee deems
appropriate.
(l) Change of Control. In the event that (i) there is a proposed
-----------------
action whereby the Company would not be the surviving entity in any
merger or consolidation (or survives only as a subsidiary of another
entity) other than a merger for the sole purpose of changing the
Company's state of incorporation, (ii) there is a proposed action whereby
the Company would sell all or substantially all of its assets to any
person or entity (other than a wholly-owned subsidiary), (iii) any person
or entity (including a "group" as contemplated by Section 13(d)(3) of the
Exchange Act), acquires or gains ownership or control of (including,
without limitation, power to vote) more than 50% of the outstanding
shares of Common Stock, (iv) there is a proposed action whereby the
Company would be dissolved and liquidated, or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board (each such event in clauses (i) through (v) above
is referred to herein as a "Corporate Change"), all Optionees hereunder
shall be given notice of such Corporate Change and shall have a period of
thirty (30) days thereafter to exercise their options after receipt of
such notice whether such options had vested in accordance with their
terms or not.
5
<PAGE>
SECTION 7. Relinquishment of Options.
-------------------------
(a) The Committee, in granting options hereunder, shall have
discretion to determine whether or not options shall include a right of
relinquishment as hereinafter provided by this Section 7. The Committee
shall also have discretion to determine whether an option agreement
evidencing an option initially granted by the Committee without a right
of relinquishment shall be amended or supplemented to include such a
right of relinquishment. Neither the Committee nor the Company shall be
under any obligation or incur any liability to any person by reason of
the Committee's refusal to grant or include a right of relinquishment in
any option granted hereunder or in any option agreement evidencing the
same. Subject to the Committee's determination in any case that the grant
by it of a right of relinquishment is consistent with Section 1 hereof,
any option granted under this Plan, and the option agreement evidencing
such option, may provide:
i) That the Optionee, or his heirs or other legal
representatives to the extent entitled to exercise the option under
the terms thereof, in lieu of purchasing the entire number of shares
subject to purchase thereunder, shall have the right to relinquish all
or any part of the then unexercised portion of the option (to the
extent then exercisable) for a number of shares of Common Stock, for
an amount of cash or for a combination of Common Stock and cash to be
determined in accordance with the following provisions of this clause
(i):
a) The written notice of exercise of such right of
relinquishment shall state the percentage, if any, of the
Appreciated Value (as defined below) that the Optionee elects to
receive in cash ("Cash Percentage"), such Cash Percentage to be
in increments of 10% of such Appreciated Value up to 100%
thereof;
b) The number of shares of Common Stock, if any, issuable
pursuant to such relinquishment shall be the number of such
shares, rounded to the next greater number of full shares, as
shall be equal to the quotient obtained by dividing (A) the
difference between (I) the Appreciated Value and (II) the result
obtained by multiplying the Appreciated Value and the Cash
Percentage by (B) the then current market value per share of
Common Stock;
c) The amount of cash payable pursuant to such
relinquishment shall be an amount equal to the Appreciated Value
less the aggregate current market value of the Common Stock
issued pursuant to such relinquishment, if any, which cash shall
be paid by the Company subject to such conditions as are deemed
advisable by the Committee to permit compliance by the Company
with the withholding provisions applicable to employers under the
Code and any applicable state income tax laws;
6
<PAGE>
d) For the purpose of this clause (i), "Appreciated Value"
means the excess of (x) the aggregate current market value of the
shares of Common Stock covered by the option or the portion
thereof to be relinquished over (y) the aggregate purchase price
for such shares specified in such option;
ii) That such right of relinquishment may be exercised only upon
receipt by the Company of a written notice of such relinquishment
which shall be dated the date of election to make such relinquishment;
and that, for the purposes of this Plan, such date of election shall
be deemed to be the date when such notice is sent by registered or
certified mail, or when receipt is acknowledged by the Company, if
mailed by other than registered or certified mail or if delivered by
hand or by any telegraphic communications equipment of the sender or
otherwise delivered; provided, that, in the event the method just
described for determining such date of election shall not be or remain
consistent with the provisions of Section 16(b) of the Exchange Act or
the rules and regulations adopted by the Commission thereunder, as
presently existing or as may be hereafter amended, which regulations
exempt from the operation of Section 16(b) of the Exchange Act in
whole or in part any such relinquishment transaction, then such date
of election shall be determined by such other method consistent with
Section 16 (b) of the Exchange Act or the rules and regulations
thereunder as the Committee shall in its discretion select and apply;
iii) That the "current market value" of a share of Common Stock
on a particular date shall be equal to the mean of the reported high
and low sales prices of the Common Stock on the New York Stock
Exchange Composite Tape on that date, or if no prices are reported on
that date, on the last preceding date on which such prices of the
Common Stock are so reported provided if the Common Stock is not
traded on the New York Stock Exchange at the time a determination of
its fair market value is required to be made hereunder, its fair
market value shall be deemed to be equal to the average between the
closing bid and ask prices of the Common Stock on the most recent date
the Common Stock was publicly traded, and, provided further, in the
event the Common Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Committee
in such manner as it deems appropriate; and
iv) That the option, or any portion thereof, may be relinquished
only to the extent that (A) it is exercisable on the date written
notice of relinquishment is received by the Company, (B) the
Committee, subject to the provisions of Section 7(b), shall consent to
the election of the holder to relinquish such option in whole or in
part for cash as set forth in such written notice of relinquishment
and (C) the holder of such option pays, or makes
7
<PAGE>
provision satisfactory to the Company for the payment of, any taxes
which the Company is obligated to collect with respect to such
relinquishment.
(b) The Committee shall have sole discretion to consent to or
disapprove, and neither the Committee nor the Company shall be under any
liability by reason of the Committee's disapproval of, any election by a
holder of an option to relinquish such option in whole or in part for cash
as provided in Section 7(a), except that no such consent to or approval of
a relinquishment for cash shall be required under the following
circumstances. Each Optionee who is subject to the short-swing profits
recapture provisions of Section 16(b) of the Exchange Act ("Covered
Optionee") shall be entitled to receive payment only in cash when options
are relinquished during any window period commencing on the third business
day following the Company's release of a quarterly or annual summary
statement of sales and earnings and ending on the twelfth business day
following such release ("Window Period"); provided, however, that payment
shall be so made in cash only in respect of 50% of the options covered by
any stock option agreement. A Covered Optionee shall be entitled to
receive payment only in shares of Common Stock upon (a) the relinquishment
of options outside a Window Period and (b) the relinquishment of options
during a Window Period once such Optionee has received payment in cash for
the relinquishment of 50% of the options covered by any stock option
agreement.
(c) The Committee, in granting options hereunder, shall have
discretion to determine the terms upon which such options shall be
relinquishable, subject to the applicable provisions of this Plan, and
including such provisions as are deemed advisable to permit the exemption
from the operation from Section 16(b) of the Exchange Act of any such
relinquishment transaction, and options outstanding, and option agreements
evidencing such options, may be amended, if necessary, to permit such
exemption. If an option is relinquished, such option shall be deemed to
have been exercised to the extent of the number of shares of Common Stock
covered by the option or part thereof which is relinquished, and no further
options may be granted covering such shares of Common Stock.
(d) Neither any option nor any right to relinquish the same to the
Company as contemplated by this Section 7 shall be assignable or otherwise
transferable except by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined in the Code or
Title I of the Employee Retirement Income Security Act, as amended, or the
rules thereunder.
(e) Except as provided in Section 7(f) below, no right of
relinquishment may be exercised within the first six months after the
initial award of any Option containing, or the amendment or supplementation
of any existing option agreement adding, the right of relinquishment.
(f) No right of relinquishment may be exercised after the initial
award of any option containing, or the amendment or supplementation of any
existing option agreement adding the right of relinquishment, unless such
right of relinquishment is
8
<PAGE>
effective upon the Optionee's death, disability or termination of his
relationship with the Company and the payment upon the exercise of such
right is only in cash.
SECTION 8. Amendments or Termination. The Board may amend, alter or
-------------------------
discontinue the Plan, but no amendment or alteration shall be made which would
impair the rights of any Optionee, without his or her consent.
SECTION 9. Compliance With Other Laws and Regulations. The Plan, the
------------------------------------------
grant and exercise of options thereunder, and the obligation of the Company to
sell and deliver shares under such options, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
governmental or regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock prior
to the completion of any registration or qualification of such shares under any
federal or state law or issuance of any ruling or regulation of any government
body which the Company shall, in its sole discretion, determine to be necessary
or advisable.
SECTION 10. Purchase for Investment. Unless the options and shares of
-----------------------
Common Stock covered by this Plan have been registered under the Securities Act
of 1933, as amended, or the Company has determined that such registration is
unnecessary, each person exercising an option under this Plan may be required by
the Company to give a representation in writing that he is acquiring such shares
for his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof.
SECTION 11. Taxes.
-----
(a) The Company may make such provisions as it may deem appropriate
for the withholding of any taxes which it determines is required in
connection with any options granted under this Plan.
(b) Notwithstanding the terms of Section 11(a), any Optionee may pay
all or any portion of the taxes required to be withheld by the Company or
paid by him in connection with the exercise of a nonqualified option by
electing to have the Company withhold shares of Common Stock, or by
delivering previously owned shares of Common Stock, having a current market
value, determined in accordance with Section 7(a)(iii), equal to the amount
required to be withheld or paid. An Optionee must make the foregoing
election on or before the date that the amount of tax to be withheld is
determined ("Tax Date"). All such elections are irrevocable and subject to
disapproval by the Committee.
SECTION 12. Replacement of Options. The Committee from time to time may
----------------------
permit an Optionee under the Plan to surrender for cancellation any unexercised
outstanding option and receive from the Company in exchange an option for such
number of shares of Common Stock as may be designated by the Committee. The
Committee may, with the consent of the person entitled to exercise any
outstanding option, amend such option, including reducing the exercise price of
any option to not less than the fair market value of the Common Stock at the
time of the amendment and extending the term thereof.
9
<PAGE>
SECTION 13. No Right to Company Employment. Nothing in this Plan or as
------------------------------
a result of any option granted pursuant to this Plan shall confer on any
individual any right to continue in the employ of the Company or interfere in
any way with the right of the Company to terminate an individual's employment at
any time. The option agreements may contain such provisions as the Committee
may approve with reference to the effect of approved leaves of absence.
SECTION 14. Liability of Company. The Company and any Affiliate which
--------------------
is in existence or hereafter comes into existence shall not be liable to an
Optionee or other persons as to:
(a) The Non-Issuance of Shares. The non-issuance or sale of
--------------------------
shares as to which the Company has been unable to obtain from any
regulatory body having jurisdiction with the authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of
any shares hereunder; and
(b) Tax Consequences. Any tax consequence expected, but not
----------------
realized, by any Optionee or other person due to the exercise of any
option granted hereunder.
SECTION 15. Effectiveness and Expiration of Plan. The Plan shall be
------------------------------------
effective as of March 31, 1997.
SECTION 16. Non-Exclusivity of the Plan. Neither the adoption by the
---------------------------
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including without limitation, the granting of restricted stock or stock options
otherwise than under the Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
SECTION 17. Governing Law. This Plan and any agreements hereunder shall
-------------
be interpreted and construed in accordance with the laws of the state in which
the Company is incorporated and applicable federal law.
SECTION 18. Cashless Exercise. The Committee also may allow cashless
-----------------
exercises as permitted under Federal Reserve Board's Regulation T, subject to
applicable securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and applicable
law. The proceeds from such a payment shall be added to the general funds of
the Company and shall be used for general corporate purposes.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by directors of the Company, Mail-Well, Inc. has caused these presents
to be duly executed in its name and behalf by its proper officers thereunto duly
authorized.
10
<PAGE>
Mail-Well, Inc.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
ATTEST:
____________________________
Secretary
[CORPORATE SEAL]
11
<PAGE>
MAIL-WELL, INC.
1997 NON-QUALIFIED STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Option Agreement") is between
Mail-Well, Inc., a Delaware corporation (the "Company"), and ___________________
(the "Optionee").
W I T N E S S E T H:
--------------------
WHEREAS, the Company has heretofore adopted the Mail-Well, Inc. 1997 Non-
Qualified Stock Option Plan (the "Plan") for the purpose of providing employees
and directors of the Company and its Affiliates (as defined in the Plan) with
additional incentive to promote the success of the business, to increase their
proprietary interest in the success of the Company, and to encourage them to
remain in the employ or remain as a director of the Company and its Affiliates;
and
WHEREAS, the Company, acting through the Compensation Committee of its
Board of Directors (the "Committee"), has determined that its interests will be
advanced by the issuance to Optionee of a nonqualified stock option under the
Plan;
NOW THEREFORE, for and in consideration of these premises it is agreed as
follows:
1. Option. Subject to the terms and conditions contained herein, the
-------
Company hereby irrevocably grants to Optionee the right and option ("Option") to
purchase from the Company __________ shares of the Company's common stock, $0.01
par value ("Common Stock"), at a price at $______ per share.
2. Option Period. The Option herein granted may be exercised by
--------------
Optionee in whole or in part at any time during a ten (10) year period beginning
on ________________ (the "Option Period"), subject to the limitation that said
Option shall not be exercisable for more than a percentage of the aggregate
number of shares offered by this Option determined by the number of full years
of employment with the Company or its Affiliates from the effective date of the
Optionee's grant, to the date of such exercise, in accordance with the following
schedule:
Number of Percentage of
Full Years Shares Purchasable
---------- ------------------
Nothwithstanding the above vesting schedule, in the event that (i) there is
a proposed action whereby the Company would not be the surviving entity in any
merger or consolidation (or survives only as a subsidiary of another entity)
other than a merger
1
<PAGE>
for the sole purpose of changing the Company's state of incorporation, (ii)
there is a proposed action whereby the Company would sell all or substantially
all of its assets to any person or entity (other than a wholly-owned
subsidiary), (iii) any person or entity (including a "group" as contemplated by
Section 13(d)(3) of the Exchange Act), acquires or gains ownership or control of
(including, without limitation, power to vote) more than 50% of the outstanding
shares of Common Stock, (iv) there is a proposed action whereby the Company
would be dissolved and liquidated, or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board (each
such event in clauses (i) through (v) above is referred to herein as a
"Corporate Change"), the entire Option shall vest and be exercisable for a
period of thirty (30) days after receipt of notice from the Company of such
Change of Control, after which this Option shall terminate. Notwithstanding
anything in this Agreement to the contrary, the Committee, in its sole
discretion may waive the foregoing schedule of vesting and upon written notice
to the Optionee, accelerate the earliest date or date on which any of the
Options granted hereunder are exercisable.
3. Procedure for Exercise. The Option herein granted may be exercised by
-----------------------
written notice by Optionee to the Secretary of the Company setting forth the
number of shares of Common Stock with respect to which the Option is to be
exercised accompanied by payment for the shares to be purchased, and specifying
the address to which the certificate for such shares is to be mailed. Payment
shall be by means of cash, or a cashier's check, bank draft, postal or express
money order payable to the order of the Company, or at the option of the
Optionee, in Common Stock theretofore owned by such Optionee (or a combination
of cash and Common Stock). As promptly as practicable after receipt of such
written notification and payment, the Company shall deliver to Optionee
certificates for the number of shares of Common Stock with respect to which such
Option has been so exercised.
4. Termination of Employment. If Optionee's employment with the Company
--------------------------
or its Affiliates is terminated during the Option Period for any reason,
Options granted to him which are not exercisable on such date thereupon
terminate. Subject to paragraph 5 below, any Options which are exercisable on
the date of his termination of employment which have not been exercised within
thirty (30) days of such termination shall expire and be of no force or effect.
5. Disability or Death. If Optionee's employment with the Company or its
--------------------
Affiliates is terminated by his disability or death, all Options hereunder
exercisable at the date of such disability or death shall be thereafter
exercisable by Optionee, his executor or administrator, or the person or persons
to whom his rights under this Option Agreement shall pass by will or by the laws
of descent and distribution, as the case may be, for a period of six months from
the date of Optionee's disability or death, unless this Option Agreement should
earlier terminate in accordance with its other terms. In no event may any
Option be exercised after the end of the Option Period. Optionee shall be
deemed to be disabled if, in the option of a physician selected by the
Committee, he is incapable of
2
<PAGE>
performing services for the Company by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be
of long, continued and indefinite duration.
6. Transferability. This Option shall not be transferable by Optionee
----------------
otherwise than by Optionee's will or by the laws of descent and distribution.
During the lifetime of Optionee, the Option shall be exercisable only by him.
Any heir or legatee of Optionee shall take rights herein granted subject to the
terms and conditions hereof. No such transfer of this Option Agreement to heirs
or legatees of Optionee shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and a copy of such
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions hereof.
7. No Rights as Stockholder. Optionee shall have no rights as a
-------------------------
stockholder with respect to any shares of Common Stock covered by this Option
Agreement until the date of issuance of a certificate for shares of Common Stock
purchased pursuant to this Option Agreement. Until such time, Optionee shall
not be entitled to dividends or to vote at meetings of the stockholders of the
Company. Except as provided in paragraph 9 hereof, no adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash or securities or other
property) paid or distributions or other rights granted in respect of any share
of Common Stock for which the record date for such payment, distribution or
grant is prior to the date upon which the Optionee shall have been issued share
certificates, as provided hereinabove.
8. Extraordinary Corporate Transactions. If the Company recapitalizes or
-------------------------------------
otherwise changes its capital structure, or merges, consolidates, sells all of
its assets or dissolves (each of the foregoing a "Fundamental Change"), then
thereafter upon any exercise of an option theretofore granted the Optionee shall
be entitled to purchase under such option, in lieu of the number of shares of
Common Stock as to which option shall then be exercisable, the number and class
of shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the Fundamental Change if, immediately prior to such
Fundamental Change, the Optionee had been the holder or record of the number of
shares of Common Stock as to which such option is then exercisable. If the
Company shall not be the surviving entity upon the occurrence of a Fundamental
Change the Options granted hereunder shall be governed by subparagraph 6(j) of
the Plan.
9. Changes in Capital Structure. The existence of outstanding Options
-----------------------------
shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issuance of
Common Stock or subscription rights thereto, or any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
3
<PAGE>
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceedings, whether of a similar character or otherwise.
If the outstanding shares of Common Stock of the Company shall at any time be
changed or exchanged by declaration of a stock dividend, stock split,
combination of shares, or recapitalization, the number and kind of shares
subject to the Plan or subject to any Options theretofore granted, and the
Option prices, shall be appropriately and equitably adjusted so as to maintain
the proportionate number of shares without changing the aggregate Option price.
10. Compliance With Securities Laws. Upon the acquisition of any shares
--------------------------------
pursuant to the exercise of the Option herein granted, Optionee (or any person
acting under paragraph 6) will enter into such written representations,
warranties and agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option Agreement.
11. Compliance With Laws. Notwithstanding any of the other provisions
---------------------
hereof, Optionee agrees that he will not exercise the Option(s) granted hereby,
and that the Company will not be obligated to issue any shares pursuant to this
Option Agreement, if the exercise of the Option(s) or the issuance of such
shares of Common Stock would constitute a violation by the Optionee or by the
Company of any provision of any law or regulation of any governmental authority.
12. Withholding of Tax. To the extent that the exercise of this Option or
-------------------
the disposition of shares of Common Stock acquired by exercise of this Option
results in compensation income to the Optionee for federal or state income tax
purposes, the Optionee shall pay to the Company at the time of such exercise or
disposition (or such other time as the law permits if the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended) such amount of
money as the Company may require to meet its obligation under applicable tax
laws or regulations; and, if the Optionee fails to do so, the Company is
authorized to withhold from any cash remuneration then or thereafter payable to
the Optionee, any tax required to be withheld by reason of such resulting
compensation income or Company may otherwise refuse to issue or transfer any
shares otherwise required to be issued or transferred pursuant to the terms
hereof. Payment of the withholding tax by the Optionee shall be made in
accordance with Section 11 of the Plan.
13. Resolution of Disputes. As a condition of the granting of the Option
-----------------------
hereby, the Optionee and his heirs and successors agree that any dispute or
disagreement which may arise hereunder shall be determined by the Committee in
its sole discretion and judgment, and that any such determination and any
interpretation by the Committee of the terms of this Option Agreement shall be
final and shall be binding and conclusive, for all purposes, upon the Company,
Optionee, his heirs and personal representatives.
14. Stockholder Agreement. Optionee, or the Optionee's representative
----------------------
upon the Optionee's death, prior to the exercise of an Option granted hereunder,
agrees to
4
<PAGE>
enter into the Company's Stockholders Agreement or the American Mail-Well
Employee Stockholders Agreement, whichever the Committee deems appropriate.
15. Legends on Certificate. The certificates representing the shares of
-----------------------
Common Stock purchased by exercise of an Option will be stamped or otherwise
imprinted with legends in such form as the Company or its counsel may require
with respect to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer instructions with
respect to such shares.
16. Notices. Every notice hereunder shall be in writing and shall be
--------
given by registered or certified mail. All notices of the exercise of any
Option hereunder shall be directed to Mail-Well Holdings, Inc. 23 Inverness Way
East, Englewood, Colorado 80112, Attention: Secretary. Any notice given by the
Company to Optionee directed to him at his address on file with the Company
shall be effective to bind him and any other person who shall acquire rights
hereunder. The Company shall be under no obligation whatsoever to advise
Optionee of the existence, maturity or termination of any of Optionee's rights
hereunder and Optionee shall be deemed to have familiarized himself with all
matters contained herein and in the Plan which may affect any of Optionee's
rights or privileges hereunder.
17. Construction and Interpretation. Whenever the term "Optionee" is used
--------------------------------
herein under circumstances applicable to any other person or persons to whom
this award, in accordance with the provisions of paragraph 6 hereof, may be
transferred, the word "Optionee" shall be deemed to include such person or
persons. References to the masculine gender herein also include the feminine
gender for all purposes.
18. Agreement Subject to Plan. This Option Agreement is subject to the
--------------------------
Plan. The terms and provisions of the Plan (including any subsequent amendments
thereto) are hereby incorporated herein by reference thereto. In the event of a
conflict between any term or provision contained herein and a term or provision
of the Plan, the applicable terms and provisions of the Plan will govern and
prevail. All definitions of words and terms contained in the Plan shall be
applicable to this Option Agreement.
19. Employment Relationship. Employees shall be considered to be in the
------------------------
employment of the Company as long as they remain employees of the Company or a
parent or subsidiary corporation (as defined in Section 424 of the Internal
Revenue Code of 1986, as amended). Any questions as to whether and when there
has been a termination of such employment and the cause of such termination,
shall be determined by the Committee, and its determination shall be final.
Nothing contained herein shall be construed as conferring upon the Optionee the
right to continue in the employ of the Company, nor shall anything contained
herein be construed or interpreted to limit the "employment at will"
relationship between the Optionee and the Company.
5
<PAGE>
20. Binding Effect. This Option Agreement shall be binding upon and inure
---------------
to the benefit of any successors to the Company and all persons lawfully
claiming under Optionee.
6
<PAGE>
IN WITNESS WHEREOF, this Option Agreement has been executed as of the ___
day of ________________, 19__.
MAIL-WELL HOLDINGS, INC.
ATTEST: By: ________________________
___________________________
OPTIONEE
____________________________
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<PAGE>
<ARTICLE> 5
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