<PAGE> 1
SCHEDULE 14A INFORMATION
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Shorewood Packaging Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Shorewood Packaging Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(j)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid :
(2) Form, schedules or registration statement no. :
(3) Filing party :
(4) Date filed :
<PAGE> 2
SHOREWOOD PACKAGING CORPORATION
277 PARK AVENUE
NEW YORK, NEW YORK 10172-0124
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 30, 1996
------------------------
TO THE STOCKHOLDERS OF SHOREWOOD PACKAGING CORPORATION
NOTICE is hereby given that the Annual Meeting (the "Meeting") of
Stockholders of SHOREWOOD PACKAGING CORPORATION (the "Company"), a Delaware
corporation, will be held at The Chase Manhattan Bank, 270 Park Avenue, 11th
Floor, Room C, New York, New York, on October 30, 1996 at 9:30 A.M. for the
following purposes:
1. To elect two directors comprising the Class I Directors to serve until
the 1999 Annual Meeting of Stockholders.
2. To ratify the stock option grant to Jefferson Capital Group, Ltd.
3. To consider and vote upon proposals to amend the Company's 1993
Incentive Program.
4. To ratify the selection of Deloitte & Touche LLP as the independent
auditors of the Company for the fiscal year ending May 3, 1997.
5. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
All of the above matters are more fully described in the accompanying Proxy
Statement.
The Board of Directors has fixed the close of business on September 9, 1996
as the date for the determination of stockholders entitled to notice of, and to
vote at, the Meeting. A list of stockholders entitled to vote at the Meeting
will be open to examination by stockholders during ordinary business hours for a
period of ten (10) days prior to the Meeting at the executive offices of the
Company, 277 Park Avenue, New York, New York 10172-0124.
By order of the Board of Directors,
Andrew Shore
Secretary
New York, New York
September 20, 1996
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE
MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE> 3
SHOREWOOD PACKAGING CORPORATION
277 PARK AVENUE
NEW YORK, NEW YORK 10172-0124
------------------------
ANNUAL MEETING OF STOCKHOLDERS
------------------------
PROXY STATEMENT
APPROXIMATE DATE OF MAILING: SEPTEMBER 20, 1996
The enclosed Proxy is solicited on behalf of the Board of Directors (the
"Board" or the "Board of Directors") of Shorewood Packaging Corporation (the
"Company") for use at the Annual Meeting of Stockholders to be held at the time
and place set forth in the foregoing notice and at any adjournment thereof (the
"Meeting"). Proxies in the accompanying form, which are properly executed and
duly returned to the Company and not revoked prior to exercise, will be voted in
accordance with the instructions contained therein. If a Proxy is executed and
returned without instructions as to how it is to be voted, such Proxy will be
voted in favor of all proposals contained in this Proxy Statement. Each Proxy
granted pursuant to this solicitation is revocable and may be revoked at any
time prior to its exercise provided written notice of revocation is received by
the Secretary of the Company prior to the Meeting. A Stockholder who attends the
Meeting in person may, if he or she wishes, vote by ballot at the Meeting,
thereby canceling any Proxy previously given by such Stockholder. Only
stockholders of record (the "Stockholders") of the Company's common stock, $.01
par value per share (the "Common Stock"), at the close of business on September
9, 1996 are entitled to notice of, and to vote at, the Meeting.
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting, present in person or
represented by proxy, shall constitute a quorum at the Meeting. Any stockholder
present in person or by proxy who abstains from voting on any particular matter
described herein will be counted for purposes of determining a quorum. For
purposes of voting on the matters described herein, (i) directors shall be
elected by a plurality of the voting power present in person or represented by
proxy at the Meeting and entitled to vote and (ii) the other matters shall be
determined by the affirmative vote of the majority of the voting power present
in person or represented by proxy at the Meeting and entitled to vote on the
matter. With respect to the election of directors, only shares that are voted in
favor of a particular nominee will be counted towards such nominee's achievement
of a plurality. Shares present at the Meeting that are not voted for a
particular nominee or shares present by proxy where the Stockholder properly
withholds authority to vote for such nominee or broker non-votes will not be
counted towards such nominee's achievement of a plurality. With respect to any
of the other matters to be voted upon, if the Stockholder abstains from voting
or directs his proxy to abstain from voting, the shares are considered present
at the Meeting for such matter but, since they are not affirmative votes for the
matter, they will have the same effect as votes against the matter. With respect
to broker non-votes on any such matter, the shares are not considered present at
the Meeting for such matter and they are, therefore, not counted in respect of
such matter. Such broker non-votes do have the practical effect of reducing the
number of affirmative votes required to achieve a majority for such matter by
reducing the total number of shares from which the majority is calculated.
<PAGE> 4
PRINCIPAL STOCKHOLDERS
The outstanding voting stock of the Company as of August 1, 1996 consisted
of 18,398,135 shares of Common Stock, with each share entitled to one vote.
Beneficial ownership has been determined for purposes herein in accordance with
Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), under which a person is deemed to be the beneficial owner of securities
if such person has or shares voting power or investment power in respect of such
securities or has the right to acquire beneficial ownership within 60 days. So
far as is known to the Company, the following were the only beneficial owners of
more than 5% of the outstanding Common Stock of the Company on such date:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
----------------------------------------------------------- ------------------ --------
<S> <C> <C>
Marc P. Shore(1)........................................... 3,577,247 19.35%
c/o Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172-0124
Ariel Capital Management, Inc.(2).......................... 2,471,956 13.44%
307 North Michigan Avenue
Chicago, Illinois 60601
Oppenheimer Group, Inc.(3)................................. 1,090,900 5.93%
Oppenheimer Tower
World Financial Center
New York, New York 10281
</TABLE>
- ---------------
(1) Marc P. Shore is the President, Chairman and Chief Executive Officer of
Company. His father, Paul B. Shore, formerly the Chief Executive Officer and
Chairman of the Company, passed away on December 10, 1995. Marc Shore
succeeded his father in those capacities in January 1996. The shares
reflected in this column consist of: (1) 840,401 shares owned outright by
Marc P. Shore, of which 34,201 shares are restricted shares awarded pursuant
to the Company's Long Term Incentive Program which are subject to forfeiture
(for a description of the restricted shares, see "Executive Compensation --
Summary Compensation Table -- Footnote (5)"); (2) 84,546 shares which could
be acquired on or within 60 days after August 1, 1996 upon the exercise of
stock options granted under the Company's incentive and stock option plans
(collectively, the "Incentive Plans"); (3) 675,900 shares held by the Estate
of Paul B. Shore (the "Estate") (see discussion below); (4) 1,800,000 shares
held by the Paul Shore Family Partnership, L.P., a California limited
partnership (the "Family Partnership") (see discussion below); and (5)
176,400 shares held by the Shore Family Trust (the "Family Trust", see
discussion below).
Pursuant to the terms of Paul B. Shore's will, Marc P. Shore has sole
decision-making power with respect to all shares of Common Stock included
in the Estate. The Estate held 675,900 shares of Common Stock as of August
1, 1996. Marc P. Shore disclaims beneficial ownership with respect to
675,900 of such shares.
The Family Partnership is an investment partnership for the benefit of Marc
P. Shore and the other children of Paul B. Shore. The Family Partnership
terminates on January 1, 2030, subject to earlier termination by operation
of law or under the terms of the Limited Partnership Agreement. By virtue
of his control over the Shore Family, LLC, which is the sole general
partner of the Family Partnership, Marc P. Shore has effective
decision-making power with respect to all shares of Common Stock owned
2
<PAGE> 5
by the Family Partnership. The Family Partnership owned 1,800,000 shares of
Common Stock as of August 1, 1996. Marc P. Shore disclaims beneficial
ownership as to 1,350,000 of such shares.
Marc P. Shore serves as co-trustee of the Family Trust, which holds 176,400
shares of Common Stock for the benefit of two of Paul B. Shore's other
children. As co-trustee, Marc P. Shore shares decision-making authority
with respect to any shares of Common Stock held by the Family Trust. Marc
P. Shore disclaims beneficial ownership of all of such shares.
(2) Represents shares held by investment advisory clients of Ariel Capital
Management, Inc. This information is based solely upon the contents of
filings under Section 13 of the Exchange Act made by Ariel Capital
Management, Inc.
(3) Represents shares held by Oppenheimer Group, Inc. and/or various of its
affiliates and/or their respective investment advisory clients or
discretionary accounts. This information is based solely upon the contents
of filings under Section 13 of the Exchange Act made by Oppenheimer Group,
Inc.
EXECUTIVE OFFICERS
The executive officers of the Company are identified in the table below.
Each executive officer of the Company serves at the pleasure of the Board of
Directors.
<TABLE>
<CAPTION>
YEAR
BECAME AN
EXECUTIVE
NAME AGE OFFICER POSITIONS
-------------------------------- --- --------- --------------------------------
<S> <C> <C> <C>
Marc P. Shore................... 42 1982 Chairman of the Board, Chief
Executive Officer and President
Floyd S. Glinert................ 67 1968 Executive Vice President --
Marketing and Director
Howard M. Liebman............... 54 1994 Executive Vice President, Chief
Financial Officer and Director
Charles Kreussling.............. 67 1966 Executive Vice President --
Manufacturing
Kenneth M. Rosenblum............ 53 1988 Senior Vice President -- Sales
William H. Hogan................ 37 1995 Corporate Controller
</TABLE>
ELECTION OF DIRECTORS
At the Meeting, two directors comprising the Class I Directors are to be
elected for three-year terms expiring in 1999 and until their successors are
elected and qualified. The Board of Directors has designated Melvin L. Braun and
Floyd S. Glinert as nominees. Proxies received from Stockholders will be voted,
unless authority to so vote is withheld, for the election of the nominees
identified in the following table. Authority to vote for any or all of the
nominees may be withheld in the manner indicated on the enclosed Proxy. If for
any reason any of the nominees becomes unavailable for election, the Proxies
solicited will be voted for such other nominees as are selected by the Board of
Directors. The Board of Directors has no reason to believe that any of the
nominees will not be available or will not serve if elected. Set forth in the
following table is certain information with respect to (i) each nominee
nominated to serve as a Class I Director for a term to expire in
3
<PAGE> 6
1999 and (ii) the Class II Directors and the Class III Directors whose terms
expire in 1997 and 1998, respectively. Each nominee described is presently a
director of the Company.
Paul B. Shore, formerly a Class III Director, passed away on December 10,
1995. Howard M. Liebman, Executive Vice President and Chief Financial Officer of
the Company, was elected by the Board as a Class III Director to serve the
remainder of Paul B. Shore's term. Each nominee for director at the Meeting and,
except for Mr. Liebman, each director in office after the Meeting, was
previously elected to the Board by the Stockholders of the Company.
<TABLE>
<CAPTION>
YEAR FIRST
BECAME
NAME AGE A DIRECTOR
------------------------------------------------------------ --- ----------
<S> <C> <C>
NOMINEES
CLASS I: NEW TERM TO EXPIRE IN 1999
Melvin L. Braun............................................. 74 1987
Floyd S. Glinert............................................ 67 1968
DIRECTORS CONTINUING IN OFFICE
CLASS II: TERM TO EXPIRE IN 1997
R. Timothy O'Donnell........................................ 41 1991
Kevin J. Bannon............................................. 44 1992
William P. Weidner.......................................... 51 1993
CLASS III: TERM TO EXPIRE IN 1998
Howard M. Liebman........................................... 54 1996
Marc P. Shore............................................... 42 1982
Seymour Leslie.............................................. 73 1985
</TABLE>
The Board of Directors recommends a vote FOR each of the nominees for
election as Class I DIRECTORS.
BIOGRAPHICAL INFORMATION
Certain information about the executive officers and directors of the
Company is set forth below. This information has been furnished to the Company
by the individuals named.
Marc P. Shore, was elected Chairman of the Board and Chief Executive
Officer of the Company following the passing of his father, Paul B. Shore, the
founder of the Company, in January 1996. He has served as the President of the
Company since October 1991, and has been employed by the Company in various
executive capacities since 1982.
Howard M. Liebman joined the Company as Executive Vice-President and Chief
Financial Officer in June, 1994. He was elected as a director in January 1996 to
fill the vacancy created by the passing of Paul B. Shore. Mr. Liebman is a
Certified Public Accountant. Prior to joining the Company, Mr. Liebman had been
an audit partner for more than twenty years at the accounting firm of Deloitte &
Touche LLP, where he was actively involved in the Company account.
4
<PAGE> 7
Floyd S. Glinert has been employed by the Company since 1968. Mr. Glinert
is responsible for certain aspects of the Company's marketing management
including advertising, sales promotion and public relations. In addition, he is
responsible for the development and planning of new packaging opportunities.
Melvin L. Braun was a partner of Touche Ross & Co. (now known as Deloitte &
Touche LLP), New York, New York, and predecessor firms from 1950 until he
retired on September 1, 1987. Mr. Braun now acts as an independent consultant
and serves as a director of Conair Corp.
R. Timothy O'Donnell is the President of Jefferson Capital Group, Ltd., an
investment banking firm located in Richmond, Virginia. He has served in that
capacity since August 1989. Mr. O'Donnell also serves on the boards of directors
of All American Communications and Cinergi Pictures, Inc.
Kevin J. Bannon is an Executive Vice President and Chief Investment
Officer, The Bank of New York. From April 1979 to the present date, Mr. Bannon
has held various management positions with The Bank of New York. He is a
Chartered Financial Analyst.
Seymour Leslie has served as Chairman of the Leslie Group, Inc., an
investment company, from March 1978 to the present date and as Co-Chairman of
Leslie/Linton Entertainment, Inc., an investment and consulting firm, from March
1990 until the present date. Both companies are located in New York, New York.
Mr. Leslie is also a director of Gametek, Inc. and Allied Digital Technologies,
Inc.
William P. Weidner is the President of LVSI Development, Inc., a developer
of hotel and casino properties based in Las Vegas, Nevada. He assumed that
position in December 1995. Previously, from 1985 until December 1995, he served
as the President and Chief Operating Officer of Pratt Hotel Corporation. Pratt
Hotel Corporation operates and develops casino and resort properties worldwide.
He also served as the President of Hollywood Casino-Aurora, Inc., an operator of
riverboat casinos, from 1992 until December 1995.
Charles Kreussling has been employed by the Company since its inception in
1966 and has been an Executive Vice President of the Company since 1979. Mr.
Kreussling is responsible for the Company's overall manufacturing and plant
administration. From 1967 until 1979, he was the Plant Manager of the Company's
Farmingdale, New York facility. Prior to joining the Company, he was employed in
various capacities in the printing and paperboard packaging industry.
Kenneth M. Rosenblum joined the Company in 1969 as an account executive for
the music industry. From 1970 until 1993, Mr. Rosenblum served as Vice
President-Sales of the Company. In 1993, he was promoted to Senior Vice
President Sales-Home Entertainment. In that capacity, he is responsible for all
sales to video, music and computer software accounts.
William H. Hogan joined the Company as Corporate Controller in June 1995.
Mr. Hogan, a Certified Public Accountant, was a senior manager with the
accounting firm of Grant Thornton, LLP, from 1994 to 1995. From 1981 until 1994,
Mr. Hogan was employed by the accounting firm of Deloitte & Touche LLP. He was a
senior manager with Deloitte & Touche LLP from 1989 until 1994, where he was
actively involved in servicing the Company.
5
<PAGE> 8
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Executive Committee which is composed of Messrs. Marc P.
Shore, Seymour Leslie and Melvin L. Braun. The Executive Committee has the
responsibility, between meetings of the Board, to take all actions with respect
to the management of the Company's business that require action by the Board,
except for certain specified matters that by law must be approved by the entire
Board. The Executive Committee also coordinates and implements financial and
other policies and reviews the status of all operational activities.
In addition, the Company has an Audit Committee which is composed of
Messrs. Seymour Leslie, Melvin L. Braun and R. Timothy O'Donnell, each of whom
is not an officer or employee of the Company or its subsidiaries. The Audit
Committee has the responsibility of recommending the Company's outside auditors,
reviewing the scope and results of audits, and examining procedures for ensuring
compliance with the Company's policies on conflicts of interest.
The Company has a Compensation and Stock Option Committee (the "Committee"
or the "Compensation Committee") which presently consists of Messrs. William P.
Weidner, Kevin J. Bannon and R. Timothy O'Donnell. None of the aforementioned
persons is or ever was an officer or employee of the Company or its
subsidiaries. The Compensation Committee works closely with the Board in
establishing and implementing the Company's compensation policies and practices.
See "Report of Compensation Committee." Additionally, it administers the
Company's bonus and other compensation programs and the Company's Incentive
Plans under which employees of the Company are eligible to receive stock
options, restricted stock and other benefits.
The Company does not have a nominating committee.
MEETINGS OF THE BOARD
During the fiscal year ended April 27, 1996 ("fiscal year 1996"), the Board
of Directors held five meetings, the Audit Committee held one meeting and the
Compensation Committee held five meetings. During fiscal year 1996, each of the
directors attended at least 75% of the aggregate of (1) the total number of
meetings of the Board (held during the periods that he served) and (2) the total
number of meetings held by all committees of the Board on which he served
(during the periods that he served). In addition, during fiscal year 1996, the
Board acted once by unanimous written consent and the Compensation Committee
acted twice by unanimous written consent. The Company's directors discharge
their responsibilities throughout the year, not only at Board of Directors' and
committee meetings, but through personal meetings and other communications,
including telephone contacts with the Chairman and others.
EQUITY SECURITIES BENEFICIALLY OWNED BY THE DIRECTORS AND NAMED EXECUTIVE
OFFICERS
According to information furnished to the Company as of August 1, 1996, the
directors of the Company, the Company's "named executive officers" (the "Named
Executive Officers") within the meaning of Item 402(a)(3) of Regulation S-K of
the Securities Act of 1933, as amended (the "Act"), and all directors and
executive officers as a group, beneficially owned shares of Common Stock of the
Company as set forth below. Beneficial ownership has been determined for
purposes herein in accordance with Rule 13d-3 of the Exchange Act under which a
person is deemed to be the beneficial owner of securities if such person has or
shares voting
6
<PAGE> 9
power or investment power in respect of such securities or has the right to
acquire beneficial ownership within 60 days.
<TABLE>
<CAPTION>
AMOUNT OF SHARES
NAME BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED OF CLASS
--------------------------------------------------------- ---------------- ---------
<S> <C> <C>
Marc P. Shore(1)......................................... 3,577,247 19.35%
Charles Kreussling(2).................................... 230,925 1.25%
Floyd S. Glinert(3)...................................... 198,200 1.08%
Seymour Leslie(4)........................................ 197,474 1.07%
R. Timothy O'Donnell(5).................................. 115,546 (6)
Howard M. Liebman(7)..................................... 55,280 (6)
Melvin L. Braun(8)....................................... 22,256 (6)
William Weidner(9)....................................... 20,800 (6)
Kevin J. Bannon(9)....................................... 9,300 (6)
William H. Hogan(10)..................................... 2,000 (6)
All directors and executive officers as a group (11
persons)(11)(12)....................................... 4,516,886 24.30%
</TABLE>
- ---------------
(1) See "Principal Stockholders -- Footnote (1)."
(2) Includes: (i) 60,000 shares owned by Charles Kreussling's wife, as to which
Mr. Kreussling disclaims beneficial ownership; and (ii) 10,000 shares which
could be acquired on or within 60 days after August 1, 1996 upon the
exercise of stock options granted under the Incentive Plans. (See
"Executive Compensation -- Aggregated Option Exercises and Fiscal Year-End
Option Values"). The table does not include 500 shares owned by one of Mr.
Kreussling's adult children who shares the same household.
(3) Includes: (i) 15,000 shares which could be acquired on or within 60 days
after August 1, 1996 upon the exercise of stock options granted under the
Company's Incentive Plans (see "Executive Compensation -- Aggregated Option
Exercises and Fiscal Year-End Option Values"); and (ii) 3,000 shares owned
by Floyd S. Glinert's wife, as to which Mr. Glinert disclaims beneficial
ownership.
(4) Includes: (i) 175,818 shares held by the Leslie Group, Inc., of which
Seymour Leslie is Chairman of the Board and a principal stockholder; and
(ii) 4,800 shares which could be acquired upon the exercise of Director
Options granted under the Incentive Plans. (See "Executive
Compensation -- Compensation of Directors").
(5) Includes: (i) 300 shares owned by Mr. O'Donnell's wife as custodian for
their two minor children; (ii)14,821 shares owned by Jefferson Capital
Group, Ltd. (of which Mr. O'Donnell is the President and a principal
shareholder); and (iii) 9,800 shares which could be acquired on or within
60 days after August 1, 1996 upon the exercise of Director Options granted
under the Incentive Plans. (See "Executive Compensation -- Compensation of
Directors").
(6) Less than 1%.
(7) Includes: (i) 32,477 shares which could be acquired on or within 60 days
after August 1, 1996 upon the exercise of stock options granted under the
Incentive Plans (see "Executive Compensation -- Aggregated Option Exercises
and Fiscal Year-End Option Values"); and (ii) 18,803 shares of restricted
stock
7
<PAGE> 10
awarded under the Company's Long-Term Incentive Program, all of which are
subject to forfeiture. (see "Executive Compensation -- Summary Compensation
Table-Footnote (5)").
(8) Includes 7,800 shares which could be acquired on or within 60 days after
August 1, 1996 upon the exercise of Director Options granted under the
Company's Incentive Plans. (See "Executive Compensation -- Compensation of
Directors").
(9) Includes 2,800 shares which could be acquired on or within 60 days after
August 1, 1996 upon the exercise of Director Options granted under the 1993
Program. (See "Executive Compensation -- Compensation of Directors").
(10) Includes 2,000 shares which could be acquired on or within 60 days after
June 1, 1996 upon the exercise of stock options granted under the Incentive
Plans. (See "Executive Compensation -- Aggregated Option Exercises and
Fiscal Year-End Option Values").
(11) The total number of directors and executive officers of the Company
includes one executive officer who was not included as a Named Executive
Officer for fiscal year 1996.
(12) Includes 192,826 shares subject to stock options which could be acquired on
or within 60 days after August 1, 1996 and 59,909 shares of restricted
stock awarded pursuant to the Company's long term incentive program, all of
which are subject to forfeiture.
8
<PAGE> 11
EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
concerning the compensation of the Named Executive Officers for each of the
three fiscal years during the period ended April 27, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM ALL OTHER
COMPENSATION(4) COMPENSATION AWARDS COMPENSATION(7)
------------------ ------------------------- ---------------
OPTIONS TO
RESTRICTED PURCHASE
SALARY BONUS STOCK AWARDS SHARES(6)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(5) (#) ($)
- ----------------------------- ------------ -------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul B. Shore(1)............. Fiscal 1996 353,600 -- -- -- --
Chairman of the Board Fiscal 1995 574,600 -- -- -- 1,500
and Chief Executive Officer Fiscal 1994 574,600 -- -- -- 2,358
-----------------------------------------------------------------------------
Marc P. Shore(1)............. Fiscal 1996 700,000 50,000 -- 29,710 11,720
Chairman of the Board and Fiscal 1995 500,000 225,000 607,068 29,708 9,078
Chief Executive Officer Fiscal 1994 399,816 200,000 -- 75,000 5,088
-----------------------------------------------------------------------------
Floyd S. Glinert............. Fiscal 1996 299,988 -- -- -- 16,041
Executive Vice President -- Fiscal 1995 299,988 -- -- -- 17,990
Marketing and Director Fiscal 1994 299,988 -- -- -- 15,932
-----------------------------------------------------------------------------
Charles Kreussling........... Fiscal 1996 200,000 100,000 -- -- 16,623
Executive Vice President -- Fiscal 1995 200,000 70,000 -- -- 17,889
Manufacturing Fiscal 1994 200,000 50,000 -- -- 15,318
-----------------------------------------------------------------------------
Howard M. Liebman(2)......... Fiscal 1996 275,000 100,000 -- 17,825 41,626(8)
Executive Vice President, Fiscal 1995 249,616 78,000 333,753 57,824 22,484(8)
Chief Financial Officer and
Director
-----------------------------------------------------------------------------
William H. Hogan(3).......... Fiscal 1996 126,000 35,000 -- 10,000 --
Corporate Controller
-----------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Paul B. Shore, the Company's founder, and formerly its Chairman and Chief
Executive Officer, passed away on December 10, 1995. Marc P. Shore, Paul B.
Shore's son, and the President of the Company, was elected Chairman and
Chief Executive Officer in January 1996 to fill the vacancies created by the
passing of his father.
(2) Mr. Liebman joined the Company on June 3, 1994.
(3) Mr. Hogan joined the Company on June 1, 1995.
(4) The aggregate amount of perquisites and other personal benefits for each of
the Named Executive Officers did not equal or exceed the lesser of either
$50,000 or 10% of the total of such individual's base salary and bonus, as
reported herein for the applicable fiscal years, and is not reflected in the
table.
(5) In July 1994, the Compensation Committee awarded shares of restricted stock
(the "Restricted Shares") to certain key employees and executives pursuant
to the Company's Long Term Incentive Program. The values reported in this
column were calculated by multiplying the closing market price of the Common
Stock as reported on NASDAQ on the date of grant by the respective number of
Restricted Shares granted, without any adjustment for forfeiture or
termination contingencies. The Restricted Shares are
9
<PAGE> 12
subject to a three year performance vesting requirement or, alternatively,
an eight year employment vesting requirement. The first vesting opportunity
arises at the end of fiscal year 1997. If the grantee's employment
terminates prior to vesting, the Restricted Shares awarded to him or her are
forfeited. During the vesting period, the recipient may not dispose of, but
may vote, the Shares and is entitled to receive any dividends paid on the
Shares.
The number and value of the aggregate Restricted Share holdings of each
Named Executive Officer as of April 27, 1996 are set forth below. Values
were calculated by multiplying the closing price of the Common Stock as
reported on NASDAQ on April 26, 1996 (the last trading day in the fiscal
year) by the respective number of Shares.
<TABLE>
<CAPTION>
NAMED EXECUTIVE OFFICER SHARES(#) VALUE($)
-------------------------------------------------------- --------- -------
<S> <C> <C>
Marc P. Shore........................................... 34,201 572,867
Howard M. Liebman....................................... 18,803 314,950
</TABLE>
(6) Stock options are granted under the terms and provisions of the Company's
Incentive Plans. For a description of the stock options awarded in fiscal
year 1996, see "Option Grants in Last Fiscal Year".
(7) Amounts reported under this column include the dollar value of the
following:
<TABLE>
<CAPTION>
CONTRIBUTIONS
VALUE OF LIFE- TO CONTRIBUTIONS TO
INSURANCE 401(K) EMPLOYEE PROFIT-SHARING
NAME YEAR PREMIUMS($) SAVINGS PLAN($) PLAN($)
------------------------------ ------------ -------------- --------------- -------------------
<S> <C> <C> <C> <C>
Paul B. Shore................. Fiscal 1996 -- -- --
Fiscal 1995 -- -- 1,500
Fiscal 1994 -- -- 2,358
--------------------------------------------------------------------
Marc P. Shore................. Fiscal 1996 7,895 3,825 --
Fiscal 1995 700 6,878 1,500
Fiscal 1994 645 2,085 2,358
--------------------------------------------------------------------
Floyd S. Glinert.............. Fiscal 1996 10,538 5,503 --
Fiscal 1995 10,538 5,952 1,500
Fiscal 1994 10,538 3,036 2,358
--------------------------------------------------------------------
Charles Kreussling............ Fiscal 1996 13,145 3,478 --
Fiscal 1995 11,417 4,972 1,500
Fiscal 1994 11,013 2,136 2,169
--------------------------------------------------------------------
Howard M. Liebman............. Fiscal 1996 8,981 3,506 --
Fiscal 1995 8,981 -- --
--------------------------------------------------------------------
William H. Hogan.............. Fiscal 1996 -- -- --
--------------------------------------------------------------------
</TABLE>
(8) Includes $29,139 earned in fiscal 1996 and $13,503 earned in fiscal 1995 by
a Trust established by the Company for Mr. Liebman's benefit, pursuant to
which income earned on the trust principal is accumulated for payment to Mr.
Liebman upon his retirement from the Company. For a description of the
Trust, see "Employment Agreement with Named Executive Officer".
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain summary information concerning
individual grants of stock options made to Named Executive Officers during
fiscal year 1996 under the Company's Incentive Plans. Except as
10
<PAGE> 13
set forth in the table below, during fiscal year 1996, the Company did not grant
any stock options under the Company's Incentive Plans to any of the Named
Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SHARES OPTIONS GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION
NAME GRANT(1)(#) FISCAL YEAR(%) ($) DATE 5%($) 10%($)
----------------------- ----------- ------------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Marc P. Shore.......... 29,710 14.8% 16.00 5/01/05 298,951 757,601
Howard M. Liebman...... 17,825 8.9% 16.00 5/01/05 179,361 454,535
William H. Hogan....... 10,000 5.0% 15.50 6/01/05 97,479 247,030
</TABLE>
- ---------------
(1) The stock options reported above were awarded pursuant to the 1993 Program
at exercise prices equal to the fair market value of the Common Stock on the
date of grant. The options vest ratably over a five-year period and
terminate ten years after the grant date, subject to early termination in
the event of death or termination of the optionee's employment for any
reason. Payment for options exercised may be in cash or shares of Common
Stock, the fair market value of which is determined by the Committee in
accordance with the terms of the 1993 Program.
(2) Amounts represent hypothetical gains that could be achieved from the
exercise of the respective stock options and the subsequent sale of the
Common Stock underlying such options if the options were exercised at the
end of the option terms. The gains are based upon assumed rates of stock
price appreciation of 5% and 10% compounded annually from the date the
respective options were granted. The rates of appreciation are mandated by
the rules of the Exchange Act and do not represent the Company's estimate or
projection of the future Common Stock price.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides certain summary information concerning stock
option exercises during the fiscal year 1996 by the Named Executive Officers and
the value of unexercised stock options held by the Named Executive Officers as
of April 27, 1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED "IN THE MONEY"
ACQUIRED ON VALUE OPTIONS AT FISCAL OPTIONS AT FISCAL
NAME EXERCISE(#) REALIZED($) YEAR END(1)(#) YEAR END(2)($)
- ---------------------------- ----------- ----------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Marc P. Shore............... -- -- 74,927 89,491 549,000 326,595
Floyd S. Glinert............ -- -- 30,000 -0- 245,625 -0-
Charles Kreussling.......... -- -- 25,000 -0- 204,375 -0-
Howard M. Liebman........... -- -- 14,456 61,193 -0- 13,369
William H. Hogan............ -- -- -0- 10,000 -0- 12,500
</TABLE>
- ---------------
(1) Represents the aggregate number of stock options held as of April 27, 1996
which could and could not be exercised on that date pursuant to the terms of
the stock option agreements related thereto and the Incentive Plans.
11
<PAGE> 14
(2) Values were calculated by multiplying the closing market price of the Common
Stock, as reported on NASDAQ on April 26, 1996 (the last trading day of the
fiscal year), by the respective number of shares and subtracting the
exercise price per share, without any adjustment for any termination or
vesting contingencies.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
Marc P. Shore
Marc P. Shore, the Company's Chairman, Chief Executive Officer and
President, and the Company entered into a five year employment agreement
effective as of May 1, 1995. If a "change in control" of the Company, as defined
in the agreement, occurs at any time during the last two years of the agreement,
the term of the agreement will be automatically extended for an additional two
years. The agreement grants Mr. Shore an annual base salary of $600,000 per
annum, subject to periodic increases at the discretion of the Board of
Directors. Subsequently, the Stock Option and Compensation Committee of the
Board of Directors authorized an increase in Mr. Shore's annual base salary to
$800,000 per year, effective November 1, 1995. Mr. Shore is also entitled to
participate in the Company's 1995 Bonus Plan (the "Bonus Plan") pursuant to
which he is eligible to receive performance bonuses of up to $2 million per
annum if certain pre-established thresholds are met. The agreement also
expressly authorizes the Company to grant Mr. Shore discretionary bonuses
outside of the scope of the Bonus Plan. If Mr. Shore's employment by the Company
is terminated in connection with a "change in control" of the Company, as
defined in the agreement, he would be entitled to a lump sum payment equal to
approximately three times his average annual compensation, as defined in the
agreement, during the Base Period. The agreement requires the Company to
maintain term life insurance on the life of Mr. Shore and to carry supplemental
disability insurance for his benefit.
Howard M. Liebman
On June 3, 1994, Mr. Howard M. Liebman joined the Company as Executive Vice
President and Chief Financial Officer. The Company and Mr. Liebman have entered
into a five year employment agreement pursuant to which Mr. Liebman receives an
annual base salary of $275,000 plus a guaranteed bonus of $35,000. These amounts
are subject to periodic increases at the discretion of the Board. The agreement
provides that if Mr. Liebman's employment by the Company is terminated in
connection with a "change in control" of the Company, as defined in the
agreement, Mr. Liebman will be entitled to receive a lump sum payment equal to
approximately three times his average annual compensation, as defined in the
agreement, during the Base Period. The Company has also established a Trust for
Mr. Liebman's benefit, pursuant to which income earned on the trust principal
fund of $300,000 is accumulated for payment to Mr. Liebman upon his retirement
from the Company, with the principal fund then being returned to the Company.
The Trust earned $29,139 in fiscal year 1996.
COMPENSATION OF DIRECTORS
Each director who is not an officer or an employee of the Company (an
"Outside Director") is entitled to receive a director's fee of $8,000 per annum
plus $2,000 for attendance at each meeting of the Board of Directors and $1,000
for attendance at each meeting of a committee of the Board of Directors. All
directors of the Company are also reimbursed for expenses. Under the 1993
Program, each Outside Director automatically receives, as of January 2 (or if
January 2 is not a business day, as of the next succeeding business day) of each
12
<PAGE> 15
year, a Director Option (as defined in the 1993 Program) to purchase, at an
option price equal to the fair market value of the Company's Common Stock on the
date of grant, a number of shares of the Company's Common Stock determined
pursuant to a prescribed formula. Director Options vest in equal annual
installments of 20% commencing on the first anniversary of the grant date and
become exercisable in full immediately upon the death of the grantee or
retirement from the Board by reason of disability or upon a change of control of
the Company (as defined in the 1993 Program). Director Options have a term of
ten years, subject to early termination in the event the grantee retires or is
removed from the Board. The 1993 Program permits awards of options of up to
100,000 shares in the aggregate to all Outside Directors (subject to certain
anti-dilution provisions). During fiscal year 1996, each Outside Director
received an option to purchase 4,000 shares of Common Stock pursuant to the 1993
Program.
The Board has approved an amendment to the 1993 Program which would
eliminate the formula plan arrangement for Outside Directors and authorize
instead the discretionary grant of option rights to Outside Directors by the
full Board of Directors. Stockholders will be asked to approve the amendment
elsewhere in this Proxy Statement. See "Approval of Amendments to 1993 Incentive
Program".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION -- CERTAIN
TRANSACTIONS
The Compensation Committee currently consists of Messrs. William P.
Weidner, Kevin J. Bannon and R. Timothy O'Donnell. No member of the Company's
Compensation Committee is a current or former officer or employee of the
Company. There are no compensation committee interlocks between the Company and
any other entities involving any of the executive officers or directors of such
other entities.
Jefferson Capital Group, Ltd. ("Jefferson Capital"), an investment banking
firm of which R. Timothy O'Donnell is the President and a principal shareholder,
serves as an investment advisor to the Company on various matters. Jefferson
Capital received advisory fees in fiscal 1996 aggregating $175,000. In addition,
Jefferson Capital was granted an option to purchase 25,000 shares of Common
Stock of the Company, subject to the approval of the Stockholders. The
Stockholders are asked to approve the terms of the option elsewhere in this
Proxy Statement. See "Approval of Option Grant to Jefferson Capital Group, Ltd."
The Bank of New York, of which Kevin J. Bannon is an Executive Vice
President, is a participant in the Company's lending syndicate. The aggregate
amount of The Bank of New York's participation in the Company's outstanding
borrowings pursuant to credit facilities as at the end of fiscal year 1996 was
approximately $15,900,000. The Bank of New York also acts as the Company's
transfer agent.
Prior to joining the Company on June 3, 1994, Howard M. Liebman was an
audit partner at Deloitte & Touche LLP, the Company's independent auditors.
In May 1995, the Company loaned Two Million Dollars to Marc P. Shore, then
its Vice Chairman of the Board and President, and now the Chairman, Chief
Executive Officer and President of the Company. The loan is due on May 4, 2000
and bears interest payable quarterly at the Applicable Federal Rate, as defined
(5.23% at April 27, 1996), adjusted monthly. Mandatory prepayments of the loan
are required if Mr. Shore's compensation exceeds certain specified thresholds.
The aggregate principal amount outstanding under this loan as at August 1, 1996
was $2,000,000.
13
<PAGE> 16
In March 1996, the Company loaned an additional Eight Hundred Thousand
Dollars to Marc P. Shore pursuant to a promissory note bearing interest at the
rate of 6% per annum. The loan is due on November 11, 1996. The aggregate
principal amount outstanding at August 1, 1996 was $800,000.
SECTION 16(A) REPORTING UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of the Common Stock of
the Company to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the exchange on which the Common Stock is
listed for trading. Executive officers, directors and more than ten percent
stockholders are required by regulations promulgated under the Exchange Act to
furnish the Company with copies of all Section 16(a) reports filed. Based solely
on the Company's review of copies of the Section 16(a) reports filed for the
fiscal year ended April 27 1996, the Company believes that all reporting
requirements applicable to its executive officers, directors, and more than ten
percent stockholders were complied with for fiscal year 1996.
14
<PAGE> 17
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the Company's cumulative shareholder return on the Common Stock for the last
five years with the cumulative total return during the same period of the
Russell 2000 Index, and a peer group selected by the Compensation Committee
consisting of: R.R. Donnelley & Sons Co., Sonoco Products, Inc., Federal Paper
Board Company, Gibraltar Packaging Group, Graphic Industries, Union Camp
Corporation, and Westvaco Corporation (the "Peer Group").
The Company has a 52-53 week fiscal year ending on the Saturday closest to
April 30th of each fiscal year. Accordingly, for purposes of the line graph, the
Company has selected as the "measurement period" the period beginning on April
27, 1991 and ending on April 27, 1996.
Cumulative total returns are calculated assuming that $100 was invested on
April 27, 1991 in each of the Common Stock, the Russell 2000 Index and the Peer
Group, and that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG SHOREWOOD PACKAGING CORPORATION, RUSSELL 2000 INDEX
AND SELECTED PEER GROUP
INDEXED RETURNS FOR THE 5 YEAR PERIOD ENDED APRIL 1996
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) SHOREWOOD PEER GROUP RUSSELL 2000
<S> <C> <C> <C>
1991 100 100 100
1992 90.42 123.03 117.06
1993 110.83 118.04 135.52
1994 169.17 115.91 155.55
1995 183.75 147.33 166.79
1996 201.25 165.67 221.82
</TABLE>
15
<PAGE> 18
REPORT OF COMPENSATION COMMITTEE
OVERALL POLICY
The Company's executive compensation program is designed to be closely
linked to corporate performance and the total return to stockholders over the
long-term. To that end, the Company has developed an overall compensation
strategy and specific compensation plans which tie executive compensation to the
Company's success in meeting specified objectives and to appreciation in the
Company's stock price. The overall objectives are to attract and retain the best
possible executive talent, motivate key executives to achieve the goals inherent
in the Company's business strategy, link executive and stockholder interests
through participation in the Company's Long Term Incentive Plan (the "LTIP") and
provide a compensation package that recognizes individual contributions as well
as overall business results.
Each year the Compensation Committee conducts a review of the Company's
executive compensation program. The review includes a comparison of the
Company's executive compensation, corporate performance, stock price
appreciation and total return to stockholders with a peer group of public
corporations that represent the Company's direct competitors for executive
talent. The annual compensation reviews permit an ongoing evaluation of the link
between the Company's performance and its executive compensation in the context
of the compensation programs of other companies. The peer group presently
utilized by the Compensation Committee is the Peer Group. See "Stock Performance
Graph."
The Compensation Committee approves the compensation of executive officers
of the Company, including the individuals whose compensation is detailed in this
Proxy Statement. In reviewing the individual performance of the executive
officers of the Company whose compensation is detailed in this Proxy Statement,
the Compensation Committee takes into account the views of Mr. Marc P. Shore,
the Chairman and Chief Executive Officer of the Company, and the other members
of the Board of Directors.
The key elements of the Company's executive compensation during the last
fiscal year consisted of base salary, an annual bonus and grants of stock
options under the LTIP. The Compensation Committee's policies with respect to
each of these elements, including the bases for the compensation awarded to Mr.
Shore, are discussed below. In addition, while the elements of compensation
described below are considered separately, the Compensation Committee takes into
account the full compensation package afforded by the Company to each
individual.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION PLANS
It is the policy of the Compensation Committee to have the executive
compensation plans of the Company treated as fully tax deductible under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code") whenever,
in the judgment of the Committee, to do so would be consistent with the business
objectives of those plans. All compensation paid during fiscal year 1996 was, in
fact, fully tax deductible. The Compensation Committee, however, reserves the
right to grant future compensation awards in such amounts as it may deem
appropriate in the exercise of its business judgment, notwithstanding whether
those awards are fully tax deductible.
16
<PAGE> 19
BASE SALARIES AND ANNUAL BONUSES
Base salaries and annual bonuses for executive officers are determined by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for executive
talent, including a comparison of base salaries for comparable positions at
other companies in the Peer Group. Annual salary adjustments and bonuses, if
any, are determined by evaluating the performance of the Company and of each
executive officer, and by taking into account added responsibilities. The
Compensation Committee, where appropriate, also considers non-financial
performance measures. These include increases in market share, manufacturing
efficiency gains, improvements in product quality and improvements in relations
with customers, suppliers and employees. These factors are afforded varying
levels of significance by the Committee depending upon the circumstances. All
final determinations are subjective.
In fiscal year 1996, the Committee increased the annual base salary of Marc
P. Shore, the Company's Chairman and Chief Executive Officer, to $800,000. The
Committee granted the increase in view of Mr. Shore's pivotal role in providing
strategic and organizational leadership to the Company and in recognition of the
increased responsibilities which he assumed as Chairman and Chief Executive
Officer of the Company. In establishing Marc P. Shore's base salary, the
Committee also took into account a comparison of base salaries of chief
executive officers of the Peer Group, the Company's results of operations in
fiscal year 1996, the performance of the Company's Common Stock and the
subjective assessment by the members of the Committee of Mr. Shore's individual
performance.
In fiscal year 1996, the Committee recommended, and the Board and the
Stockholders approved, a performance Bonus Program for the benefit of Marc P.
Shore, with effect for the five fiscal years beginning with fiscal year 1996.
The Bonus Plan provides for the grant of graduated performance bonuses, up to $2
million per annum, to Mr. Shore based upon yearly comparisons of the Company's
earnings from operations plus depreciation and amortization. Bonuses pursuant to
the Bonus Plan are payable only if certain pre-established thresholds are met.
The Bonus Plan is based solely upon the performance criteria described above.
Marc P. Shore did not earn any bonus under the Bonus Plan in respect of fiscal
year 1996. In addition to the Bonus Plan, the Committee may grant general
discretionary bonuses to Mr. Shore and in 1996 did grant Mr. Shore a
discretionary bonus of $50,000 in recognition of leadership skills which he
displayed in guiding the Company through a challenging fiscal year. Prior to his
passing away in December 1995, Paul B. Shore was awarded a base salary of
$574,600 for fiscal year 1996, the same as his base salary for fiscal year 1995.
Mr. Paul B. Shore was not eligible for a bonus in respect of fiscal 1996.
LONG TERM INCENTIVE PLANS
Pursuant to the 1993 Incentive Program, approved by the Stockholders in
1993, the Committee adopted the LTIP which allows various types of awards keyed
to corporate performance, including stock options (focus on absolute growth in
shareholder value) and Restricted Shares (focus on relative growth in
shareholder value) subject to performance-based contingencies, which are made
available in amounts which the Committee determines to be competitive based on
the competitive market analyses described above.
STOCK OPTIONS
Under the LTIP and the Company's other Incentive Plans, stock options are
periodically granted to the Company's employees, including executive officers.
The Compensation Committee sets guidelines for the size
17
<PAGE> 20
of the stock option awards based on similar factors, including competitive
compensation data, as are used to determine base salaries and bonuses, if any.
In the event of poor corporate performance, the Compensation Committee can elect
not to award stock options. Final determinations are subjective.
Stock options are designed to align the interests of executives with those
of the stockholders. Stock options are granted with an exercise price equal to
the market price of the Common Stock on the date of grant and generally vest in
increments over a period of four or five years. This approach is designed to
incentivize the creation of stockholder value over the long term since the full
benefit of the compensation package cannot be realized by the option recipients
unless stock price appreciation occurs over a number of years.
For fiscal year 1996, Mr. Paul B. Shore was not awarded any stock options
and Mr. Marc P. Shore was awarded stock options to purchase 29,710 shares of
Common Stock. See "Executive Compensation -- Option Grants in Last Fiscal Year".
PERFORMANCE BASED RESTRICTED STOCK
Under the LTIP, awards of Restricted Shares are made preceding a three-year
performance period. The Committee, together with the Company's Chief Executive
Officer, determine the size of the awards based on the same competitive
compensation data as are used to determine base salaries and bonuses. Final
determinations are subjective. At the end of the three-year performance period,
some or all of the shares may vest dependent upon the Company's relative
shareholder growth compared to that of the Peer Group over the same period. The
Peer Group consists of the same companies that make up the peer group for the
performance graph. See "Stock Performance Graph." Shares that do not vest, due
to relative shareholder performance, will vest at the end of eight years
assuming continued employment. Initial grants of Restricted Shares were made
during fiscal year 1995. For fiscal year 1996, 11,000 restricted shares were
awarded by the Company. The first performance based vesting opportunity will
arise in 1997.
Compensation Committee
KEVIN J. BANNON
R. TIMOTHY O'DONNELL
WILLIAM WEIDNER
18
<PAGE> 21
APPROVAL OF OPTION GRANT TO JEFFERSON CAPITAL GROUP, LTD.
The Board of Directors has authorized, and the Company has granted, an
option (the "Option") to Jefferson Capital Group, Ltd. (the "Optionee") to
purchase 25,000 shares of Common Stock of the Company (the "Option Shares") upon
the terms of a certain Stock Option Agreement dated as of February 1, 1996
between the Company and the Optionee (the "Stock Option Agreement"), subject to
Stockholder approval at the Meeting. The complete text of the Stock Option
Agreement is attached as Exhibit A to this Proxy Statement.
The following is a summary of the material terms of the Stock Option
Agreement for which Stockholder approval is being sought.
PURPOSE
Optionee is an investment banking firm located in Richmond, Virginia, which
has a longstanding advisory relationship with the Company. Optionee has served
an instrumental role in structuring several of the Company's key strategic
transactions, and has assisted the Company in its financing activities. Mr. R.
Timothy O'Donnell, a director of the Company, and a member of its Compensation
and Audit Committees, is the President and a principal shareholder of the
Optionee.
The purpose of the Option Grant is to reward the Optionee for prior
performance and to incentivize the Optionee to continue providing superior
service to the Company in the future. The Option is structured in such a way as
to align the interests of the Optionee with the interests of the Company and its
Stockholders by tying Option rewards to the appreciation in the price of the
Company's Common Stock. Stockholder approval for the Option Grant is being
sought in view of Mr. O'Donnell's relationship with the Company.
TERMS OF THE OPTION
The Option entitles the Optionee to purchase the Option Shares at an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant, $13.50 per share, subject to dilution or adjustment in the
event of a merger, recapitalization or the like. The Option is exercisable, in
whole or in part, at any time after the approval of the Stock Option Agreement
by the Company's Stockholders and before the expiration of five years from the
date of grant. Payment of the purchase price may be made in cash, in the form of
shares of Common Stock already owned by the Optionee for a minimum of six (6)
months and having a fair market value on the date of exercise equal to the
purchase price, or any combination of cash and shares of Common Stock. Neither
the Option nor the Option Shares have been registered for resale under
applicable Federal or state securities laws, but are being issued pursuant to an
exemption from registration contained in the Act. Optionee has certain rights to
cause the Option Shares to be registered in conjunction with other public
offerings by the Company of its securities (i.e., "piggy-back" registration
rights), but does not have any independent demand right to cause such
registration to occur.
TAX IMPLICATIONS
Although the Optionee will not recognize income at the time of the grant of
the Option, the Optionee will recognize ordinary income upon the exercise of the
Option in an amount equal to the excess, if any, of the fair market value of the
Common Stock on the date of exercise of the Option over the amount paid for the
Common Stock. As a result of the Optionee's exercise of the Option, the Company
will be entitled to deduct
19
<PAGE> 22
as compensation an amount equal to the amount included in the Optionee's gross
income. The deduction generally will be taken in the Company's taxable year in
which the Option is exercised.
The excess of the fair market value of the Common Stock on the date of
exercise of the Option over the exercise price is not an item of "tax
preference" as such term is used in the United States Internal Revenue Code of
1986, as amended (the "Code").
TERMINATION
The Option, to the extent not exercised, terminates upon the expiration of
its five-year term or thirty (30) days after the occurrence of either of the
following events: (i) the approval by the Stockholders of an agreement to merge
or consolidate with or into another corporation (in which the Company is the
non-surviving corporation) or an agreement to sell or otherwise dispose of all
or substantially all of the Company's assets (including a plan of liquidation);
or (ii) R. Timothy O'Donnell ceases to be the beneficial owner of at least 20%
of the capital stock of the Optionee, on a fully diluted basis.
If the Stockholders fail to approve the Option at the Meeting, the Stock
Option Agreement will terminate and the Option granted thereunder will become
void and of no force and effect.
The Board recommends a vote FOR approval of the grant of the Option to
Jefferson Capital Group, Ltd.
APPROVAL OF AMENDMENTS TO 1993 INCENTIVE PROGRAM
The Board has adopted certain amendments to the Company's 1993 Incentive
Program, as amended on May 4, 1995 (the "Program"), subject to the approval by
the Company's Stockholders at the Meeting. The complete text of the Program, as
amended, is attached as Exhibit B to this Proxy Statement and the amendments for
which shareholder approval is being sought are described below. The following
summary of the Program and these amendments are qualified by reference to the
text of the Program.
PROPOSED AMENDMENTS
The following is a summary of the material amendments to the Program for
which shareholder approval is being sought.
Increase in Number of Shares
The Board has amended the Program to increase the number of shares that may
be issued pursuant to benefit awards under the Program from (a) 1,000,000 plus
any Incremental Amount (as defined in the Program) to (b) 1,000,000 plus (i) any
Incremental Amount, plus (ii) the number of shares repurchased by the Company in
the open market and otherwise with an aggregate price no greater than the cash
proceeds received by the Company from the sale of shares under the Program, plus
(iii) any shares surrendered to the Company in payment of the exercise price of
options issued under the Program. However, in no event may the number of shares
issued under the Program exceed 2,000,000 shares.
20
<PAGE> 23
Limitations on Transferability
The Board has amended the Program to eliminate the restrictions on the
transferability of rights granted under the Program. The extent and nature of
such restrictions will henceforth be determined by the Plan Administrator (as
hereinafter defined) on a case-by-case basis, subject to the requirements of
applicable law.
Amendments With Respect to Grants to Outside Directors
The Board has amended the Program to delete the provision which provided
for the automatic grant of non-qualified stock options to directors of the
Company who are neither employees nor officers of the Company or any of its
subsidiaries (the "Outside Directors") pursuant to a "formula plan" (the
"Formula Plan"). The Program now permits discretionary benefit grants to Outside
Directors. The Program has also been amended to provide that award grants to
Outside Directors may be made only by the full Board of Directors of the
Company.
SUMMARY OF PROGRAM
1. Purpose
The purpose of the Program is to attract, retain, motivate, and reward
officers, directors, key executives, employees, consultants and advisors of the
Company and its direct and indirect subsidiaries (the "Eligible Grantees") who
contribute to the management, growth and profitability of the business of the
Company, and to strengthen the mutuality of interests between such individuals
and the Company's stockholders by offering them equity or equity-based
incentives. The number of shares of Common Stock that may be issued pursuant to
Program awards is 1,000,000 plus (i) any Incremental Amount, plus (ii) the
number of shares repurchased by the Company in the open market and otherwise
with an aggregate price no greater than the cash proceeds received by the
Company from the sale of shares under the Program, plus (iii) any shares
surrendered by the Company in payment of the exercise price of options issued
under the Program. However, in no event may the number of shares issued under
the Program exceed 2,000,000 shares, subject to dilution or adjustment in the
event of a merger, recapitalization or the like.
As of August 1, 1996, there were six executive officers, five Outside
Directors and an indeterminate number of other key executives and employees
eligible to participate in the Program. The number of consultants and advisors
of the Company who may be eligible to participate in the Program also is not
currently determinable.
2. Summary
The Program may be administered either by the full Board or by one or more
committees of the Board appointed by the full Board of Directors of the Company
(referred to herein as the "Plan Administrator"); provided, however, that only
the full Board of Directors may grant awards under the Program to Outside
Directors. Under the Program, the Plan Administrator may grant incentive stock
options, non-qualified stock options, stock appreciation rights in tandem with
stock options or freestanding, and restricted stock grants (the "Benefits") to
Eligible Grantees. A summary of the principal characteristics of various types
of Benefits that may be granted under the Program is set forth below.
21
<PAGE> 24
Stock Options
Two types of stock options may be granted under the Program: stock options
intended to qualify for special tax treatment (referred to herein as "Incentive
Stock Options" or "ISOs") under Section 422 of the Code and options not intended
to so qualify (referred to herein as "Non-Qualified Stock Options" or "NQOs").
The option price, term and other conditions of Stock Options awarded under the
Program are determined by the Plan Administrator, subject, in the case of Stock
Options intended to qualify as "Incentive Stock Options", to the requirements of
Section 422 of the Code.
Restored Options
The Program permits the Plan Administrator to grant "Restored Options" to a
participant in the Program. This feature enables a participant who exercises an
option by exchanging (either actually or constructively) previously-acquired
shares of Common Stock to receive a new option, exercisable at the then market
value, for the same number of shares as were exchanged in payment. In addition,
to the extent that shares are withheld by the Company in a stock-for-stock
exercise in satisfaction of a participant's tax obligations, the Company, at its
discretion, may issue a new option equal to the number of shares so withheld
which are exercisable at the then fair market value of a share of Common Stock.
Thus, a participant may make a stock-for-stock exercise without losing the
potential for appreciation in value of the shares surrendered. Restored Options
are exercisable beginning immediately on the date of grant. Except for the
exercise price, a Restored Option has terms substantially similar to the terms
of the original option (including having a term equal to the remaining term of
the original option).
Stock Appreciation Rights
A Stock Appreciation Right is the right to receive an amount equal to the
appreciation, if any, in the fair market value of one share of Common Stock from
the time the Stock Appreciation Right is granted until the time the grantee
elects to receive payment from the Company. Participants who elect to receive
payment of Stock Appreciation Rights shall receive payment in cash, in Common
Stock or in any combination of cash and Common Stock, as determined by the Plan
Administrator. When Stock Appreciation Rights are granted in tandem with an
Incentive Stock Option, the Stock Appreciation Rights must contain such terms
and conditions as are necessary for the related option to qualify as an
Incentive Stock Option. In addition, if Stock Appreciation Rights are granted in
tandem with a stock option, the exercise of the option shall cause a correlative
reduction in the Stock Appreciation Rights standing to the participant's credit
that were granted in tandem with the option; and the payment of Stock
Appreciation Rights shall cause a correlative reduction of the shares under the
option. Unless waived in whole or in part by the Company, Stock Appreciation
Rights may be exercised only while the grantee is employed by the Company.
Restricted Stock
Restricted Stock is Common Stock that is subject to forfeiture until a
period of time has elapsed or certain conditions have been fulfilled, as
determined by the Plan Administrator and set forth in the instrument of grant.
Unless waived in whole or in part by the Plan Administrator, if employment of a
holder of Restricted Stock terminates prior to vesting, all shares of Restricted
Stock held by him or her and still subject to restriction will be forfeited and
reacquired by the Company. Certificates representing shares of Restricted Stock
shall bear a legend referring to the Program, noting the risk of forfeiture of
the shares and stating that
22
<PAGE> 25
such shares are non-transferable until all restrictions have been satisfied and
the legend has been removed. As of the date Restricted Stock is granted, the
grantee shall be entitled to full voting and dividend rights with respect to all
shares of such stock. However, the Plan Administrator may, in its sole
discretion, require that the stock certificates representing such shares of
Restricted Stock be placed into escrow with the Company until vesting.
TERMINATION
The Board may amend the Program at any time. However, the Board may not
amend the Program without Stockholder approval if such amendment (i) would
increase the maximum number of shares in the aggregate which may be sold
pursuant to options intended to qualify as Incentive Stock Options, (ii) would
change the manner of determining the minimum option price of Incentive Stock
Options, other than to change the manner of determining the fair market value of
any shares underlying the options to conform to any applicable provisions of the
Code or regulations thereunder, (iii) would increase the periods during which
Incentive Stock Options may be granted or exercised under the Program, (iv)
would change the employees or class of employees eligible to receive Incentive
Stock Options under the Program, or (v) would violate applicable law. The
Program will terminate on the tenth anniversary of its effective date unless
terminated earlier by the Board or unless extended.
FEDERAL INCOME TAX CONSEQUENCES UNDER THE PROGRAM
The following is a summary of the Federal income tax consequences of the
issuance and exercise of Stock Options under the Program, based upon current
income tax laws, regulations and rulings.
Incentive Stock Options. Subject to the effect of the Alternative Minimum
Tax, discussed below, an optionee does not recognize income on the grant of an
Incentive Stock Option. If an optionee exercises an Incentive Stock Option in
accordance with the terms of the option and does not dispose of the shares
acquired within two years from the date of the grant of the option nor within
one year from the date of exercise, the optionee will not realize any income by
reason of the exercise, and the Company will be allowed no deduction by reason
of the grant or exercise. The optionee's basis in the shares acquired upon
exercise will be the amount paid upon exercise. Provided the optionee holds the
shares as a capital asset at the time of sale or other disposition of the
shares, his gain or loss, if any, recognized on the sale or other disposition
will be capital gain or loss. The amount of his gain or loss will be the
difference between the amount realized on the disposition of the shares and his
basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise ("Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition, which will equal the excess, if any, of the lesser of (i) the
amount realized on the Early Disposition, or (ii) the fair market value of the
shares on the date of exercise, over the optionee's basis in the shares. The
Company will be entitled to a deduction in an amount equal to such income in the
same year that the income is recognized. The excess, if any, of the amount
realized on the Early Disposition of such shares over the fair market value of
the shares on the date of exercise will be long-term or short-term capital gain,
depending upon the holding period of the shares, provided the optionee holds the
shares as a capital asset at the time of Early Disposition. If an optionee
disposes of such shares for less than his basis in the shares, the difference
between the amount realized and his basis will be a long-term or short-term
capital loss, depending upon the holding period of the shares, provided the
optionee holds the shares as a capital asset at the time of
23
<PAGE> 26
disposition. The excess of the fair market value of the shares at the time the
Incentive Stock Option is exercised over the exercise price for the shares is an
item of tax preference ("Stock Option Preference").
Non-Qualified Stock Options. Non-Qualified Stock Options do not qualify
for the special tax treatment accorded to Incentive Stock Options under the
Code. Although an optionee does not recognize income at the time of the grant of
the option, he recognizes ordinary income upon the exercise of a Non-Qualified
Option in an amount equal to the difference between the fair market value of the
stock on the date of exercise of the option and the amount of cash paid for the
stock. As a result of the optionee's exercise of a Non-Qualified Stock Option,
the Company will be entitled to deduct as compensation an amount equal to the
amount included in the optionee's gross income. The Company's deduction will be
taken in the Company's taxable year in which the option is exercised.
The excess of the fair market value of the stock on the date of exercise of
a Non-Qualified Stock Option over the exercise price is not a Stock Option
Preference.
Taxation of Preference Items. Section 55 of the Code imposes an
Alternative Minimum Tax equal to the excess, if any, of (i) 26% of the
optionee's "alternative minimum taxable income" up to $175,000 ($87,500 in the
case of married taxpayers filing separately) and 28% of "alternative minimum
taxable income" over $175,000 ($87,500 in the case of married taxpayers filing
separately) over (ii) his "regular" federal income tax. Alternative minimum
taxable income is determined by adding the optionee's Stock Option Preference
and any other items of tax preference to the optionee's adjusted gross income
and then subtracting certain allowable deductions and an exemption amount. The
exemption amount is $33,750 for single taxpayers, $45,000 for married taxpayers
filing jointly and $22,500 for married taxpayers filing separately. However,
these exemption amounts are phased out beginning at certain levels of
alternative minimum taxable income.
The foregoing statement is only a general summary of the principal federal
income tax consequences of the exercise and issuance of Stock Options under the
Program and is based on the Company's understanding of present federal tax laws
and regulations. Since tax regulations may change or interpretations may differ,
each optionee should consult his tax advisor regarding the tax consequences
related to participation in the Program.
MARKET VALUE
The shares of Common Stock issuable under the Program may be either
authorized or unissued shares or treasury shares. The market value of the
Company's Common Stock was $15.00 on August 1, 1996.
REASONS FOR AMENDMENTS
The amendment increasing the number of shares that may be issued pursuant
to benefit awards under the Program will enable the Company to continue to use
the Program as an incentive for its employees to promote the long term success
of its business.
The amendment eliminating the Formula Plan arrangement for Outside
Directors and authorizing instead the discretionary grant of award rights to
Outside Directors by the full Board of Directors is intended to streamline and
simplify the administration of the Program. The Program previously contained two
distinct plans, the Formula Plan for Outside Directors and a discretionary plan
for all other Eligible Grantees. The
24
<PAGE> 27
Company maintained the Formula Plan for Outside Directors in order to enable the
administrators of the Plan, heretofore the members of the Compensation
Committee, to participate in the Program without violation of the "disinterested
administration" requirement promulgated under Rule 16b-3 of the Exchange Act.
However, recent changes to this Rule now permit Plan Administrators to receive
discretionary grants under the plans which they administer under one of several
circumstances. Hence, the Board determined to eliminate the Formula Plan all
together. The Program now consists of one discretionary plan for all Eligible
Grantees, including Outside Directors. The Program has also been amended to
provide that discretionary award grants to Outside Directors may only be made by
the full Board.
The amendments eliminating the restrictions on transferability of rights
granted under the Program are designed to give the Plan Administrator greater
discretion to determine what restrictions on transferability, if any, would be
most appropriate under the circumstances, on a case-by-case basis, subject to
the requirements of applicable law.
If the Stockholders fail to approve the amendments to the Program, such
amendments will not become effective.
The Board recommends a vote FOR approval of the amendments to the Program.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, certified public accountants, have been appointed by
the Board of Directors, upon recommendation of the Audit Committee of the Board
of Directors, as independent auditors for the Company to examine and report on
its financial statements for the fiscal year ending May 3, 1997, which
appointment is being submitted to the Stockholders for ratification at the
Meeting. Representatives of Deloitte & Touche LLP are expected to be present at
the Meeting, with the opportunity to make a statement if they desire to do so,
and to be available to respond to appropriate questions. The appointment of the
independent auditors will be ratified if it receives the affirmative vote of the
holders of a majority of shares of the Common Stock of the Company present at
the Meeting, in person or by proxy. Submission of the appointment of the
auditors to the Stockholders for ratification will not limit the authority of
the Board of Directors to appoint another accounting firm to serve as
independent auditors if the present auditors resign or their engagement is
otherwise terminated.
The Board of Directors recommends a vote FOR the appointment of Deloitte &
Touche LLP as independent auditors.
STOCKHOLDERS' PROPOSALS
Any proposal by a Stockholder of the Company intended to be presented at
the 1997 Annual Meeting of Stockholders must be received by the Company at its
principal executive office not later than April 30, 1997 for inclusion in the
Company's proxy statement and form of proxy relating to that meeting. Any such
proposal must also comply with the other requirements of the proxy solicitation
rules of the Securities and Exchange Commission.
25
<PAGE> 28
ANNUAL REPORT
Concurrently with the mailing of these Proxy Materials, the Company is
mailing a copy of its Annual Report to Stockholders for the fiscal year ended
April 27, 1996. Such Annual Report is not to be regarded as proxy solicitation
material.
UPON WRITTEN REQUEST BY A STOCKHOLDER ENTITLED TO VOTE AT THE 1996 ANNUAL
MEETING, THE COMPANY WILL FURNISH THAT PERSON WITHOUT CHARGE WITH A COPY OF THE
FORM 10-K ANNUAL REPORT FOR 1996 WHICH IS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO. If the
person requesting the report was not a Stockholder of Record on September 9,
1996, the request must contain a good faith representation that the person
making the request was a beneficial owner of the Common Stock of the Company at
the close of business on such date. Requests should be addressed to Shorewood
Packaging Corporation, Investor Relations Department, 277 Park Avenue, New York,
New York 10172-0124.
OTHER BUSINESS
Management does not know of any other matters to be brought before the
Meeting except those set forth in the notice thereof. If other business is
properly presented for consideration at the Meeting, it is intended that the
Proxies will be voted by the persons named therein in accordance with their
judgment on such matters.
SOLICITATION AND EXPENSES OF SOLICITATION
Officers and employees of the Company may solicit proxies. Proxies may be
solicited by personal interview, mail, telegraph and telephone. No compensation
will be paid by the Company to any person in connection with the solicitation of
proxies. Brokers, bankers and other nominees will be reimbursed for out-of-
pocket and other reasonable clerical expenses incurred in obtaining instructions
from beneficial owners of the Company's stock. The cost of preparing this Proxy
Statement and all other costs in connection with solicitation of proxies for the
Annual Meeting of Stockholders are being borne by the Company.
Even if you plan to attend the Meeting in person, please sign, date and
return the enclosed Proxy promptly. If you attend the Meeting, your Proxy will
be voided at your request and you can vote in person. A postage-paid
return-addressed envelope is enclosed for your convenience. Your cooperation in
giving this matter your immediate attention and in returning your proxies will
be appreciated.
By order of the Board of Directors,
Andrew Shore
Secretary
September 20, 1996
26
<PAGE> 29
EXHIBIT A
STOCK OPTION AGREEMENT dated as of February 1, 1996 between Shorewood
Packaging Corporation, a Delaware corporation, with its principal office at 277
Park Avenue, New York, New York 10172-0124 (the "Company") and Jefferson Capital
Group, Ltd., a Virginia corporation, with its principal office at One James
Center, Suite 1414, Richmond, Virginia 23219 (the "Optionee").
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its stockholders to grant to the Optionee
an option to purchase 25,000 shares of the common stock, par value $.01 per
share (the "Common Stock"), of the Company in recognition of the Optionee's
services to the Company and as an inducement to perform additional services on
behalf of the Company upon the terms set forth below.
NOW, THEREFORE, the parties agree as follows:
1. GRANT OF OPTION
1.1 The Company grants to the Optionee, on the terms and conditions
hereinafter set forth, an option (the "Option") to purchase 25,000 shares
of Common Stock of the Company (the "Option Shares").
1.2 Optionee understands that the Option is not entitled to special
tax treatment under Section 422 of the Internal Revenue Code as amended to
date and as may be amended from time to time.
1.3 Except as expressly provided herein, the Option Shares are not,
and are not required to be, registered under the Securities Act of 1933, as
amended, (the "Securities Act").
2. PRICE AND PAYMENT FOR SHARES The purchase price (the "Purchase Price")
for the Option Shares shall be $13 1/2 per share, subject to adjustment as
provided in Section 13 below.
3. PERIOD OF OPTION The period of the Option will be five years from the
date the Option is granted, which date is first written above (the "Period").
The Option will be exercisable, in whole or in part, at any time after the
approval of the Option by the Company's stockholders entitled to vote thereon
and before the expiration of the Period.
4. EXERCISE OF OPTION
4.1 The Option may be exercised only by delivering or transmitting by
registered or certified mail to the Secretary or the Treasurer of the
Company, at the Company's then principal office, a written notice signed by
an authorized officer of the Optionee on the Optionee's behalf specifying
the number of Option Shares that the Optionee has irrevocably elected to
purchase under the Option. Optionee shall pay the Purchase Price in cash or
by delivering shares of Common Stock already owned by it for a minimum of
six (6) months and having a fair market value on the date of exercise equal
to the Purchase Price, or any combination of cash or shares. The Purchase
Price shall be paid not later than thirty (30) days after the date of a
statement from the Company following exercise setting forth the Purchase
Price. If the Optionee fails to pay the Purchase Price within said thirty
(30) day period, the Company shall have the right to take whatever action
it deems appropriate, including, without limitation, voiding the option
exercise. The Company shall not issue or transfer Option Shares upon
exercise of the Option until the Purchase Price is fully paid.
<PAGE> 30
4.2 Upon the exercise of the Option, in whole or in part, the Company
shall promptly issue stock certificates for the shares of Common Stock
purchased and the Optionee shall be deemed to be the holder of the shares
of Common Stock purchased as of the date of issuance of certificates for
such shares to it. The Company may delay issuing certificates representing
Option Shares for a reasonable period of time pending listing of same on
the NASDAQ Stock Market. The Optionee will not be nor deemed to be a holder
of any shares subject to the Option unless and until certificates for such
shares are issued to it under the terms of this Agreement.
4.3 If and when the Option is exercised, the certificates to be issued
evidencing shares of the Company's Common Stock shall bear a legend
substantially as follows:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended
(the "Act"), and may not be transferred in the absence of
an effective registration statement under the Act covering
the shares or of an opinion of counsel to the Corporation
that such transfer will not require registration of such
shares under the Act."
5. TRANSFERABILITY OF OPTION
The Option herein granted shall be assignable and transferable by the
Optionee to R. Timothy O'Donnell ("O'Donnell"), provided that the Optionee shall
notify the Company within five business days of any such transfer or assignment.
The Option shall not be assignable or transferable by the Optionee to any other
individual or entity.
6. TERMINATION; ACCELERATION
All rights of the Optionee in the Option to the extent not exercised shall
terminate at the expiration of the Period or, if sooner, 30 days after the
occurrence of either of the following events: (a) the stockholders of the
Company shall have approved an agreement to merge or consolidate with or into
another corporation (and the Company is not the survivor of such merger or
consolidation) or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of liquidation); or
(b) O'Donnell ceases to be the beneficial owner of at least 20% of the capital
stock of the Optionee, on a fully diluted basis, for any reason, including,
without limitation, O'Donnell's death or the sale or gift of his capital stock.
7. PIGGY-BACK REGISTRATION
Subject to Sections 8 and 12 hereof, if at any time after the date of this
Agreement and prior to the date which is two (2) years after the last Option
exercise hereunder (or, if the Option is never exercised, prior to the
expiration of the Period), the Company proposes to file a registration statement
to register any Common Stock (other than Common Stock issued with respect to any
acquisition or any employee stock option, stock purchase or similar plan) under
the Securities Act for sale to the public in an underwritten offering, it will
at each such time give written notice to the Optionee of its intention to do so
("Notice of Intent") and, upon the written request of the Optionee made within
30 calendar days after the receipt of any such notice (which request must
specify that the Optionee intends to dispose of all of the Option Shares held by
the Optionee on the date the Notice of Intent is received by the Optionee), the
Company will use its best efforts to effect the registration under the
Securities Act of the Option Shares which the Company has been so requested to
register; provided, however, that if the managing underwriter shall certify in
writing that inclusion of all or any of the Option Shares would, in such
managing underwriter's opinion, materially interfere with the proposed
2
<PAGE> 31
distribution and marketing of the Common Stock in respect of which registration
was originally to be effected (such writing to state the basis of such opinion
and the maximum number of shares which may be distributed without such
interference), then the Company may, upon written notice to the Optionee, have
the right to exclude from such registration such number of Option Shares which
it would otherwise be required to register hereunder as is necessary to reduce
the total amount of Common Stock to be so registered to the maximum amount which
can be so marketed.
8. REGISTRATION EXPENSES
The costs and expenses (other than underwriting discounts and commissions)
of all registrations and qualifications under the Securities Act, and of all
other actions the Company is required to take or effect pursuant to this
Agreement shall be paid by the Company (including, without limitation, all
registration and filing fees, printing expenses, fees and expenses of complying
with Blue Sky laws, and fees and disbursements of counsel for the Company and of
independent public accountants; provided, however, that fees and expenses of
complying with Blue Sky laws in those states where Option Shares and no other
securities of the Company covered by the registration statement will be offered
for sale shall be paid by the Optionee).
9. REGISTRATION PROCEDURES
If and whenever the Company is required to effect the registration of any
Option Shares under the Securities Act as provided in this Agreement, the
Company will promptly:
9.1 prepare and file with the Securities and Exchange Commission
("Commission") a registration statement with respect to such Option Shares
and use its best efforts to cause such registration statement to become
effective;
9.2 prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all such Option Shares and other
securities covered by such registration statement until such time as all of
such Option Shares and other securities have been disposed of in accordance
with such registration statement, but in no event for a period of more than
nine months after such registration statement becomes effective;
9.3 furnish to the Optionee such number of copies of such registration
statement and of each such amendment and supplement thereto, such number of
copies of the prospectus included in such registration statement, in
conformity with the requirements of the Securities Act;
9.4 subject to Section 8 hereof, use its best efforts to register or
qualify the Option Shares covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions within the United
States of America (including territories and commonwealths thereof) as the
Optionee shall reasonably request, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified, to
subject itself to taxation in any such jurisdiction.
9.5 The Company may require the Optionee to furnish the Company such
information regarding it and the distribution of such Option Shares as the
Company may from time to time request in writing and as shall be required
by law to effect such registration.
3
<PAGE> 32
10. TERMINATION OF OBLIGATIONS
The obligations of the Company imposed by Section 7 through 9 above shall
cease and terminate, as to any particular Option Shares, when such shares shall
have been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering such securities.
11. AVAILABILITY OF INFORMATION
The Company will cooperate with the Optionee in supplying such information
and documentation as may be necessary for it to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Option Shares.
12. REGISTRATION RIGHTS CONDITION
Notwithstanding any other provision contained herein, the Company shall not
be obligated to comply with any demands for registration of any Option Shares
under the Securities Act if, at the time of such demand by the Optionee:
(i) the Optionee is free to sell such Option Shares in accordance with
Rule 144 promulgated under the Securities Act or any similar rule or
regulation promulgated under the Securities Act; or
(ii) the Company has in effect a registration statement covering the
disposition of such Option Shares.
13. DILUTION OR OTHER ADJUSTMENTS
In the event of any change in the Common Stock subject to the Option
granted by this Agreement through merger, consolidation, reorganization,
recapitalization, stock split, stock dividend, or the issuance to stockholders
of rights to subscribe to stock of the same class, or in the event of any change
in the capital structure or other increase or decrease in the number of issued
shares of Common Stock effected without the receipt of consideration by the
Company, the Board of Directors of the Company shall make such adjustments with
respect to (i) the number of Option Shares, (ii) the Purchase Price, or (iii)
any provision of this Agreement, as it may deem equitable in order to prevent
dilution or enlargement of the Option and the rights granted hereunder.
14. MISCELLANEOUS
14.1 The interpretation of this Agreement by the Board of Directors of
the Company shall be binding on the Optionee.
14.2 The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York
without giving effect to the provisions, principles or policies thereof
relating to choice or conflict of law.
14.3 Any and all notices referred to herein shall be sufficient if
furnished in writing and delivered in person or mailed by certified mail
(return receipt requested ) to the respective parties at their addresses
set forth above or to such other address as either party may from time to
time designate in writing.
4
<PAGE> 33
14.4 As used herein, the masculine gender shall include the feminine
gender. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
14.5 No amendment, change or modification of this document shall be
valid unless in writing and signed by all of the parties hereto.
14.6 No reliance upon or waiver of one or more provisions of this
Agreement shall constitute a waiver of any other provisions hereof.
14.7 All of the terms and provisions contained herein shall inure to
the benefit of and shall be binding upon the parties hereto and their
respective heirs, personal representatives, successors and assigns.
14.8 The captions appearing at the commencement of the sections hereof
are descriptive only and are for convenience of reference. Should there be
any conflict between any such caption and the section at the head of which
it appears, the substantive provisions of such section and not such caption
shall control and govern in the construction of this document.
14.9 This Agreement constitutes the entire understanding and agreement
of the parties with respect to the subject matter of this Agreement, and
any and all prior agreements, understandings or representations are hereby
terminated and canceled in their entirety.
14.10 The Option shall be effective as of February 1, 1996, subject to
approval by the Company's stockholders entitled to vote thereon. If the
Company's stockholders decline to approve the Option at any duly convened
meeting of stockholders at which the Option is submitted for stockholder
approval, then, notwithstanding anything to the contrary herein, this
Agreement shall terminate immediately and cease to be of any force and
effect.
SHOREWOOD PACKAGING CORPORATION
By: /s/ HOWARD M. LIEBMAN
------------------------------------
Authorized Signatory
JEFFERSON CAPITAL GROUP, LTD.
By: /s/ R. TIMOTHY O'DONNELL
------------------------------------
Authorized Signatory
5
<PAGE> 34
EXHIBIT B
SHOREWOOD PACKAGING CORPORATION
1993 INCENTIVE PROGRAM
AS AMENDED MAY 4, 1995
AND AUGUST 8, 1996
The 1993 Incentive Program, as amended (the "Program") of Shorewood
Packaging Corporation (the "Company") provides for the grant to officers,
directors, key executives, employees, consultants and advisors of the Company
and its direct or indirect subsidiaries of certain rights to acquire shares of
the Company's common stock (the "Common Stock"). The Company believes that this
Program will cause those persons to contribute materially to the growth of the
Company, thereby benefitting its stockholders.
1. ADMINISTRATION.
The Program shall be administered and interpreted either by the full Board
of Directors of the Company or by one or more committees of the Board consisting
of not less than two persons appointed by the full Board of Directors of the
Company (the committee(s) and the full Board of Directors are collectively
referred to herein as the "Plan Administrator"); provided, however, that only
the full Board of Directors may grant awards under the Program to Outside
Directors. The Board of Directors may appoint different Committees to handle
different duties under the Program. The Plan Administrator shall determine the
fair market value of the Common Stock for purposes of the Program in accordance
with the provisions of Section 9(i) hereof. The Plan Administrator's decisions
shall be final and conclusive with respect to the interpretation and
administration of the Program and any Grant made under it.
2. GRANTS.
Grants under the Program shall consist of incentive stock options,
non-qualified stock options, stock appreciation rights in tandem with stock
options or freestanding, restricted stock grants, and Restored Options (any of
the foregoing, in any combination, collectively, "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Program as the Plan Administrator deems
appropriate. The Plan Administrator shall approve the form and provisions of
each Grant. Grants under a particular section of the Program need not be
uniform, and Grants under two or more sections may be combined in one
instrument. Notwithstanding anything contained herein to the contrary, Grants
under the Program to directors of the Company who are neither officers nor
employees of the Company or any of its subsidiaries shall be made by the full
Board of Directors.
3. ELIGIBILITY FOR GRANTS.
Grants may be made to any employee, officer, key executive, director,
professional or administrative employee, consultant or advisor to the Company or
any subsidiary of the Company selected by the Plan Administrator to receive
Grants under the Program ("Grantees"). The Plan Administrator shall determine
the number of shares subject to any particular Grant.
<PAGE> 35
4. SHARES AVAILABLE FOR GRANT.
(a) Shares Subject to Issuance or Transfer. Subject to adjustment as
provided in Section 4(b), the aggregate number of shares of Common Stock (the
"Shares") that may be issued or transferred under the Program is 1,000,000
Shares, plus (i) 10% of any increase (excluding any increase relating to or
arising out of the conversion or exercise of any convertible securities, options
or warrants issued and outstanding as of the date the Program was adopted by the
Board) in the number of shares issued and outstanding over the number of Shares
issued and outstanding on the date the Program was adopted by the Board (the
"Incremental Amount"), plus (ii) the number of Shares repurchased by the Company
in the open market and otherwise with an aggregate price no greater than the
cash proceeds received by the Company from the sale of Shares under the Program,
plus (iii) any Shares surrendered to the Company in payment of the exercise
price of options issued under the Program. The Shares may be authorized but
unissued Shares or treasury Shares. However, no award may be issued that would
bring the total of all outstanding awards under the Program to greater than
2,000,000 shares. The number of Shares available for Grants at any given time
shall be reduced by the aggregate of all Shares previously issued or transferred
plus the aggregate of all Shares which may become subject to issuance or
transfer under then-outstanding and then-currently exercisable Grants. For
purposes of this Section 4, the number of Shares outstanding at any time shall
not include Grants under the Program but shall include Shares issuable under
Substituted Stock Incentives (as defined in Section 9(b) below) assumed by the
Company upon or in connection with an acquisition or a merger with another
corporation.
(b) Recapitalization Adjustment. If any subdivision or combination of
shares of Common Stock or any stock dividend, capital reorganization,
recapitalization, consolidation, or merger in which the Company is the surviving
corporation occurs after the adoption of the Program, the Plan Administrator
shall make such proportional adjustments as it determines appropriate in the
number of shares of Common Stock that may be issued or transferred thereafter
under Section 4(a). The Plan Administrator shall similarly adjust the number of
Shares subject to such stock option and option price in all outstanding Grants
made before the event within 60 days of the event.
5. STOCK OPTIONS.
The Plan Administrator may grant options qualifying as incentive stock
options ("ISOs") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options ("NQOs") not entitled to
special tax treatment under the Code or Restored Options (collectively, "Stock
Options"). The following provisions are applicable to Stock Options:
(a) Exercise of Option. A Grantee may exercise a Stock Option by
delivering a notice of exercise to the Company, either with or without
accompanying payment of the option price. The notice of exercise, once
delivered, shall be irrevocable.
(b) Satisfaction of Option Price. The Grantee shall pay the option price
(the "Option Price") in cash, or with the Plan Administrator's permission, by
delivering shares of Common Stock already owned by the Grantee, held by the
Grantee for a minimum of six (6) months and having a Fair Market Value on the
date of exercise equal to the Option Price, or a combination of cash and Shares.
The Grantee shall pay the Option Price not later than thirty (30) days after the
date of a statement from the Company following exercise setting forth the Option
Price, Fair Market Value of Common Stock on the exercise date, the number of
Shares that
2
<PAGE> 36
may be delivered in payment of the Option Price, and the amount of withholding
tax due, if any. If the Grantee fails to pay the Option Price within the period
and in the manner prescribed in the specific instrument of Grant, the Plan
Administrator shall have the right to take whatever action it deems appropriate,
including voiding the option exercise. The Company shall not issue or transfer
Shares upon exercise of a Stock Option until the Option Price is fully paid. The
Plan Administrator may prescribe such other or different exercise or payment
terms as it may deem appropriate.
(c) Price; Term and Conditions. The exercise price per share, term and
other provisions of stock options granted hereunder shall be specified by the
Grant, as limited, in the case of ISOs, by the provisions of paragraph (d)
below. In addition, the Plan Administrator may prescribe such other conditions
as it may deem appropriate, which conditions shall be specified by the Grant.
(d) Limits on the ISOs. The aggregate Fair Market Value of the stock
covered by ISOs granted under the Program or any other stock option plan of the
Company or any subsidiary or parent of the Company that becomes exercisable for
the first time by any Grantee in any calendar year shall not exceed $100,000.
The aggregate Fair Market Value will be determined at the time of grant. The
period of exercise of an ISO shall not exceed ten (10) years from the date of
Grant (or five (5) years if the Grantee is also a 10% stockholder). The price at
which Common Stock may be purchased by the Grantee under an Incentive Stock
Option shall be the Fair Market Value (or 110% of the Fair Market Value if the
Grantee is a 10% stockholder) of Common Stock on the date of the Grant.
(e) Restored Options. Stock Options granted under the Program may, with
the Plan Administrator's permission, include the right to acquire a restored
option (a "Restored Option"). If a Stock Option grant contains a Restored Option
and if a Grantee pays all or part of the Option Price of the Stock Option with
shares of Common Stock held by the Grantee, then upon exercise of the Stock
Option the Grantee shall be granted a Restored Option to purchase, at the fair
market value as of the date of the grant of the Restored Option, the number of
shares of Common Stock of the Company equal to the sum of the number of whole
shares used by the Grantee in payment of the Option Price and the number of
whole shares, if any, withheld by the Company as payment for withholding taxes.
A Restored Option may be exercised between the date of grant and the date of
expiration, which will be the same as the date of expiration of the Stock Option
to which a Restored Option is related.
6. STOCK APPRECIATION RIGHT.
The Plan Administrator may grant a Stock Appreciation Right ("SAR") either
independently or in conjunction with any Stock Option granted under the Program
either at the time of grant of the option or thereafter. The following
provisions are applicable to each SAR:
(a) Options to Which Right Relates. Each SAR which is issued in
conjunction with a Stock Option shall specify the Stock Option to which the SAR
is related, together with the Option Price and number of option shares subject
to the SAR at the time of its grant.
(b) Requirement of Employment. Each SAR may be exercised only while the
Grantee is in the employment of the Company, provided that the Plan
Administrator may provide for partial or complete exceptions to this requirement
as it deems equitable.
3
<PAGE> 37
(c) Exercise. A Grantee may exercise each SAR in whole or in part by
delivering a notice of exercise to the Company, except that the Plan
Administrator may provide for partial or complete exceptions to this requirement
as it deems equitable.
(d) Payment and Form of Settlement. If a Grantee exercises any SAR which
is issued in conjunction with a Stock Option, the grantee shall receive the
aggregate of the excess of the fair market value of each share of Common Stock
with respect to which the SAR is being exercised over the Option Price of each
such share. Payment, in any event, may be made in cash, Common Stock or a
combination of the two, in the discretion of the Plan Administrator. Fair Market
Value shall be determined as of the date of exercise.
(e) Expiration and Termination. Each SAR shall expire on a date determined
by the Plan Administrator at the time of grant. If a Stock Option is exercised
in whole or in part, any SAR related to the Shares purchased in connection with
such exercise shall terminate immediately.
7. RESTRICTED STOCK GRANTS.
The Plan Administrator may issue or transfer Shares ("Restricted Stock") to
a Grantee under a Restricted Stock Grant. Upon the issuance or transfer, the
Grantee is entitled to vote the Shares and to receive any dividends paid. The
following provisions are applicable to Restricted Stock Grants:
(a) Requirement of Employment. If the Grantee's employment terminates
during the period designated in the Grant as the "Restriction Period", the
Restricted Stock Grant terminates and the shares of Common Stock must be
returned immediately to the Company. However, the Plan Administrator may provide
for partial or complete exceptions to this requirement as it deems equitable.
(b) Restrictions of Transfer and Legend on Stock Certificate. During the
Restriction Period, a Grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the Shares of Restricted Stock except to a Successor
Grantee under Section 9(a). Each certificate for shares issued or transferred
under a Restricted Stock Grant shall contain a legend giving appropriate notice
of the restrictions applicable to the Grant.
(c) Lapse of Restrictions. All restrictions imposed under any Restricted
Stock Grant shall lapse upon the fulfillment of the conditions for vesting set
forth in the instrument of Grant provided that all of the conditions stated in
Sections 7(a) and (b) have been met as of the date of such lapse. The Grantee
shall then be entitled to have the legend removed from the certificate.
8. AMENDMENT AND TERMINATION OF THE PROGRAM.
(a) Amendment. The Board of Directors may amend the Program except that it
may not, with respect to ISOs granted hereunder, (i) increase the maximum number
of Shares in the aggregate which may be sold pursuant to such options granted
hereunder; (ii) change the manner of determining the minimum option prices,
other than to change the manner of determining the fair market value of any
Shares underlying the option to conform to any than applicable provisions of the
Code or regulations thereunder, (iii) increase the periods during which such
options may be granted or exercised or (iv) change the employees or class of
employees eligible to receive such options hereunder. In any event, no
termination, suspension, modification or amendment of the Program may adversely
affect the rights of any Grantee without his consent.
4
<PAGE> 38
(b) Termination of the Program. The Program shall terminate on the tenth
anniversary of its effective date unless terminated earlier by the Board or
unless extended by the Board.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Program that occurs after a Grant is made shall not result in
the termination or amendment of the Grant unless the Grantee consents or unless
the Plan Administrator acts under Section 9(e). The termination of the Program
shall not impair the power and authority of the Plan Administrator with respect
to outstanding Grants. Whether or not the Program has terminated, an outstanding
Grant may be terminated or amended under Section 9(e) or may be amended by
agreement of the Company and the Grantee consistent with the Program.
9. GENERAL PROVISIONS.
(a) Prohibitions Against Transfer. Except as otherwise expressly provided
herein or in the instrument of grant, when a Grantee dies, the personal
representative or other person entitled under a prior Stock Option or a Grant
under the Program to succeed to the rights of the Grantee ("Successor Grantee")
may exercise the rights. A Successor Grantee must furnish proof satisfactory to
the Company of his or her right to receive the Grant under the Grantee's will or
under the applicable laws of descent and distribution.
(b) Substitute Grants. The Plan Administrator may make a Grant (a
"Substitute Grant") to an employee of another corporation who becomes an
Eligible Employee by reason of a corporate merger, consolidation, acquisition of
stock or property, reorganization or liquidation involving the Company in
substitution for a stock option, stock appreciation right, performance award, or
restricted stock grant granted by such corporation ("Substituted Stock
Incentive"). The terms and conditions of the Substitute Grant may vary from the
terms and conditions required by the Program and from those of the Substituted
Stock Incentive. The Plan Administrator shall prescribe the exact provisions of
the Substitute Grant, preserving where possible the provisions of the Substitute
Stock Incentive. The Plan Administrator shall also determine the number of
shares of Common Stock to be taken into account under Section 4.
(c) Subsidiaries. The term "subsidiary" means an affiliated corporation
controlled by the Company directly or indirectly through one or more
intermediaries.
(d) Fractional Shares. Fractional shares shall not be issued or
transferred under a Grant, but the Plan Administrator may pay cash in lieu of a
fraction or round the fraction.
(e) Compliance with Law. The Program, the exercise of Grants, and the
obligations of the Company to issue or transfer shares of Common Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. The Plan Administrator may
revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Plan
Administrator may also adopt rules regarding the withholding of taxes on payment
to Grantees.
(f) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a stockholder of the Company with respect to any Shares covered by a
Grant until the Shares are issued or transferred to the Grantee or Successor
Grantee on the Company's books.
(g) No Right to Employment. The Program and the Grants under it shall not
confer upon any Grantee the right to continue in the employment of the Company
or affect in any way the right of the Company to terminate the employment of a
Grantee at any time.
5
<PAGE> 39
(h) Effective Date of the Program. The Program shall become effective upon
its approval by the Company's stockholders entitled to vote thereon.
(i) Fair Market Value. For the purposes of the Program, the term "Fair
Market Value" means, as of any date, the closing price of a share of Common
Stock of the Company on such date. The closing price shall be (i) if the Common
Stock is then listed or admitted for trading on any national securities exchange
or, if not so listed or admitted for trading, is listed or admitted for trading
on the Nasdaq National Market, the last sale price of the common stock, regular
way, or the mean of the bid and asked prices thereof for any trading day on
which no such sale occurred, in each case as officially reported on the
principal securities exchange on which the common stock is listed or admitted
for trading or on the Nasdaq National Market, as the case may be, or (ii) if not
so listed or admitted for trading on a national securities exchange or the
Nasdaq National Market, the mean between the closing high bid and low asked
quotations for the Common Stock in the over-the-counter market as reported by
Nasdaq, or any similar system for the automated dissemination of securities
prices then in common use, if so quoted, as reported by any member firm of the
New York Stock Exchange selected by the Company; provided, however, that if, by
reason of extended or continuous trading hours on any exchange or in any market
or for any other reason, the time, with respect to any trading day, of the close
of trading for the purpose of determining the "last sale price" or the "closing"
bid and asked prices is not objectively determinable, the time on such trading
day used for the purpose of reporting any compilation of last sale prices or
closing bid and asked prices in The Wall Street Journal shall be the time on
such trading day as of which the "last sale price" or "closing" bid and asked
prices are determined for purposes of this definition. If the Common Stock is
quoted on a national securities or central market system in lieu of a market or
quotation system described above, the closing price shall be determined in the
manner set forth in clause (i) of the preceding sentence if actual transactions
are reported, and in the manner set forth in clause (ii) of the preceding
sentence if bid and asked quotations are reported but actual transactions are
not. If on the date in question, there is no exchange or over-the-counter market
for the Common Stock, the "fair market value" of such Common Stock shall be
determined by the Plan Administrator acting in good faith.
(j) Change in Control. For purposes of the Program, the term "Change of
Control" means: the acquisition, without the approval of the Board, by any
person or entity, other than the Company and certain related entities, of more
than 20% of the outstanding shares of Common Stock through a tender offer,
exchange offer, or otherwise; the liquidation or dissolution of the Company
following a sale or other disposition of all or substantially all of its assets;
a merger or consolidation involving the Company that results in the Company not
being the surviving parent corporation; or a change in the majority of the
members of the Board during any two-year period that is not approved by at least
two-thirds of the members of the Board who were members at the beginning of the
two year period.
(k) Withholding. The Plan Administrator may, in its discretion and subject
to such rules as it may adopt, permit or require a Grantee to satisfy, in whole
or in part, any withholding tax obligation which may arise in connection with
the distribution to him or her of Shares of Common Stock or cash pursuant to the
Program by authorizing the Company to withhold from such distribution cash or
Shares having a Fair Market Value equal to the amount of the withholding tax.
Notwithstanding the foregoing, the Plan Administrator shall require, as a
condition to the distribution of any cash or Shares of Common Stock to any
Reporting Person, that the Company withhold from such distribution cash or
Shares having an aggregate Fair Market Value equal to the amount of the
Grantee's liability for any and all taxes required by law to be withheld.
(l) Program Controls. In the case of any conflict between the terms of
this Program and the terms of any instrument of Grant, the terms of this Program
will control.
6
<PAGE> 40
- --------------------------------------------------------------------------------
/ /
1. The election of all nominees
for directors listed below.
FOR all nominees WITHHOLD AUTHORITY to vote
listed below / / for all nominees listed below / / *EXCEPTIONS / /
Nominees: Melvin L. Braun and Floyd S. Glinert
(INSTRUCTIONS; TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW.)
*Exceptions _________________________________________________________________
2. The approval of a stock option grant to Jefferson Capital Group, Ltd.
FOR / / AGAINST / / ABSTAIN / /
3. The approval of amendments to the Company's 1993 Incentive Program.
FOR / / AGAINST / / ABSTAIN / /
4. The ratification of the selection of Deloitte & Touche LLP as the
independent auditors of the Company for the fiscal year ending May 3, 1997.
FOR / / AGAINST / / ABSTAIN / /
5. In accordance with their best judgment with respect to any other business
that may properly come before the meeting.
Change of address and or Comments, mark here. / /
(Please sign exactly as name appears hereon. Proxies should be dated when
signed. When shares are held by joint tenants, both should sign. When signing
as attorney, as executor, administrator, trustee or guardian, please give full
title as such. Only authorized officers should sign for a corporation. If
shares are registered in more than one name, each joint owner should sign.)
Dated: __________________________________, 1996
_______________________________________________
(Signature)
_______________________________________________
(Signature if held jointly)
Votes must be indicated (x) in Black or Blue ink. / /
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHOREWOOD PACKAGING CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 30, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints MARC P. SHORE and ANDREW SHORE or
either of them, each with full power of substitution, proxies of the
undersigned to vote all shares of Common Stock, par value $.01 per share, of
Shorewood Packaging Corporation (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held on the 30th day of October 1996 at 9:30 a.m. at The Chase Manhattan Bank,
270 Park Avenue, 11th Floor, Room C, New York, New York, and at all
adjournments thereof, as fully and with the same force and effect as the
undersigned might or could do if personally present thereat. Said proxies are
instructed to vote as follows.
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS INDICATED, IT WILL BE VOTED FOR ALL OF THE ABOVE PROPOSALS.
SHOREWOOD PACKAGING CORPORATION
P.O. BOX 11344
NEW YORK, N.Y. 10203-0344
- --------------------------------------------------------------------------------
<PAGE> 41
STOCK OPTION AGREEMENT dated as of February 1, 1996 between Shorewood
Packaging Corporation, a Delaware corporation, with its principal office at 277
Park Avenue, New York, New York 10172-0124 (the "Company") and Jefferson Capital
Group, Ltd., a Virginia corporation, with its principal office at One James
Center, Suite 1414, Richmond, Virginia 23219 (the "Optionee").
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its stockholders to grant to the Optionee
an option to purchase 25,000 shares of the common stock, par value $.01 per
share (the "Common Stock"), of the Company in recognition of the Optionee's
services to the Company and as an inducement to perform additional services on
behalf of the Company upon the terms set forth below.
NOW, THEREFORE, the parties agree as follows:
1. GRANT OF OPTION
1.1 The Company grants to the Optionee, on the terms and conditions
hereinafter set forth, an option (the "Option") to purchase 25,000 shares
of Common Stock of the Company (the "Option Shares").
1.2 Optionee understands that the Option is not entitled to special
tax treatment under Section 422 of the Internal Revenue Code as amended to
date and as may be amended from time to time.
1.3 Except as expressly provided herein, the Option Shares are not,
and are not required to be, registered under the Securities Act of 1933, as
amended, (the "Securities Act").
2. PRICE AND PAYMENT FOR SHARES The purchase price (the "Purchase Price")
for the Option Shares shall be $13 1/2 per share, subject to adjustment as
provided in Section 13 below.
3. PERIOD OF OPTION The period of the Option will be five years from the
date the Option is granted, which date is first written above (the "Period").
The Option will be exercisable, in whole or in part, at any time after the
approval of the Option by the Company's stockholders entitled to vote thereon
and before the expiration of the Period.
4. EXERCISE OF OPTION
4.1 The Option may be exercised only by delivering or transmitting by
registered or certified mail to the Secretary or the Treasurer of the
Company, at the Company's then principal office, a written notice signed by
an authorized officer of the Optionee on the Optionee's behalf specifying
the number of Option Shares that the Optionee has irrevocably elected to
purchase under the Option. Optionee shall pay the Purchase Price in cash or
by delivering shares of Common Stock already owned by it for a minimum of
six (6) months and having a fair market value on the date of exercise equal
to the Purchase Price, or any combination of cash or shares. The Purchase
Price shall be paid not later than thirty (30) days after the date of a
statement from the Company following exercise setting forth the Purchase
Price. If the Optionee fails to pay the Purchase Price within said thirty
(30) day period, the Company shall have the right to take whatever action
it deems appropriate, including, without limitation, voiding the option
exercise. The Company shall not issue or transfer Option Shares upon
exercise of the Option until the Purchase Price is fully paid.
<PAGE> 42
4.2 Upon the exercise of the Option, in whole or in part, the Company
shall promptly issue stock certificates for the shares of Common Stock
purchased and the Optionee shall be deemed to be the holder of the shares
of Common Stock purchased as of the date of issuance of certificates for
such shares to it. The Company may delay issuing certificates representing
Option Shares for a reasonable period of time pending listing of same on
the NASDAQ Stock Market. The Optionee will not be nor deemed to be a holder
of any shares subject to the Option unless and until certificates for such
shares are issued to it under the terms of this Agreement.
4.3 If and when the Option is exercised, the certificates to be issued
evidencing shares of the Company's Common Stock shall bear a legend
substantially as follows:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended
(the "Act"), and may not be transferred in the absence of
an effective registration statement under the Act covering
the shares or of an opinion of counsel to the Corporation
that such transfer will not require registration of such
shares under the Act."
5. TRANSFERABILITY OF OPTION
The Option herein granted shall be assignable and transferable by the
Optionee to R. Timothy O'Donnell ("O'Donnell"), provided that the Optionee shall
notify the Company within five business days of any such transfer or assignment.
The Option shall not be assignable or transferable by the Optionee to any other
individual or entity.
6. TERMINATION; ACCELERATION
All rights of the Optionee in the Option to the extent not exercised shall
terminate at the expiration of the Period or, if sooner, 30 days after the
occurrence of either of the following events: (a) the stockholders of the
Company shall have approved an agreement to merge or consolidate with or into
another corporation (and the Company is not the survivor of such merger or
consolidation) or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of liquidation); or
(b) O'Donnell ceases to be the beneficial owner of at least 20% of the capital
stock of the Optionee, on a fully diluted basis, for any reason, including,
without limitation, O'Donnell's death or the sale or gift of his capital stock.
7. PIGGY-BACK REGISTRATION
Subject to Sections 8 and 12 hereof, if at any time after the date of this
Agreement and prior to the date which is two (2) years after the last Option
exercise hereunder (or, if the Option is never exercised, prior to the
expiration of the Period), the Company proposes to file a registration statement
to register any Common Stock (other than Common Stock issued with respect to any
acquisition or any employee stock option, stock purchase or similar plan) under
the Securities Act for sale to the public in an underwritten offering, it will
at each such time give written notice to the Optionee of its intention to do so
("Notice of Intent") and, upon the written request of the Optionee made within
30 calendar days after the receipt of any such notice (which request must
specify that the Optionee intends to dispose of all of the Option Shares held by
the Optionee on the date the Notice of Intent is received by the Optionee), the
Company will use its best efforts to effect the registration under the
Securities Act of the Option Shares which the Company has been so requested to
register; provided, however, that if the managing underwriter shall certify in
writing that inclusion of all or any of the Option Shares would, in such
managing underwriter's opinion, materially interfere with the proposed
2
<PAGE> 43
distribution and marketing of the Common Stock in respect of which registration
was originally to be effected (such writing to state the basis of such opinion
and the maximum number of shares which may be distributed without such
interference), then the Company may, upon written notice to the Optionee, have
the right to exclude from such registration such number of Option Shares which
it would otherwise be required to register hereunder as is necessary to reduce
the total amount of Common Stock to be so registered to the maximum amount which
can be so marketed.
8. REGISTRATION EXPENSES
The costs and expenses (other than underwriting discounts and commissions)
of all registrations and qualifications under the Securities Act, and of all
other actions the Company is required to take or effect pursuant to this
Agreement shall be paid by the Company (including, without limitation, all
registration and filing fees, printing expenses, fees and expenses of complying
with Blue Sky laws, and fees and disbursements of counsel for the Company and of
independent public accountants; provided, however, that fees and expenses of
complying with Blue Sky laws in those states where Option Shares and no other
securities of the Company covered by the registration statement will be offered
for sale shall be paid by the Optionee).
9. REGISTRATION PROCEDURES
If and whenever the Company is required to effect the registration of any
Option Shares under the Securities Act as provided in this Agreement, the
Company will promptly:
9.1 prepare and file with the Securities and Exchange Commission
("Commission") a registration statement with respect to such Option Shares
and use its best efforts to cause such registration statement to become
effective;
9.2 prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all such Option Shares and other
securities covered by such registration statement until such time as all of
such Option Shares and other securities have been disposed of in accordance
with such registration statement, but in no event for a period of more than
nine months after such registration statement becomes effective;
9.3 furnish to the Optionee such number of copies of such registration
statement and of each such amendment and supplement thereto, such number of
copies of the prospectus included in such registration statement, in
conformity with the requirements of the Securities Act;
9.4 subject to Section 8 hereof, use its best efforts to register or
qualify the Option Shares covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions within the United
States of America (including territories and commonwealths thereof) as the
Optionee shall reasonably request, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified, to
subject itself to taxation in any such jurisdiction.
9.5 The Company may require the Optionee to furnish the Company such
information regarding it and the distribution of such Option Shares as the
Company may from time to time request in writing and as shall be required
by law to effect such registration.
3
<PAGE> 44
10. TERMINATION OF OBLIGATIONS
The obligations of the Company imposed by Section 7 through 9 above shall
cease and terminate, as to any particular Option Shares, when such shares shall
have been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering such securities.
11. AVAILABILITY OF INFORMATION
The Company will cooperate with the Optionee in supplying such information
and documentation as may be necessary for it to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Option Shares.
12. REGISTRATION RIGHTS CONDITION
Notwithstanding any other provision contained herein, the Company shall not
be obligated to comply with any demands for registration of any Option Shares
under the Securities Act if, at the time of such demand by the Optionee:
(i) the Optionee is free to sell such Option Shares in accordance with
Rule 144 promulgated under the Securities Act or any similar rule or
regulation promulgated under the Securities Act; or
(ii) the Company has in effect a registration statement covering the
disposition of such Option Shares.
13. DILUTION OR OTHER ADJUSTMENTS
In the event of any change in the Common Stock subject to the Option
granted by this Agreement through merger, consolidation, reorganization,
recapitalization, stock split, stock dividend, or the issuance to stockholders
of rights to subscribe to stock of the same class, or in the event of any change
in the capital structure or other increase or decrease in the number of issued
shares of Common Stock effected without the receipt of consideration by the
Company, the Board of Directors of the Company shall make such adjustments with
respect to (i) the number of Option Shares, (ii) the Purchase Price, or (iii)
any provision of this Agreement, as it may deem equitable in order to prevent
dilution or enlargement of the Option and the rights granted hereunder.
14. MISCELLANEOUS
14.1 The interpretation of this Agreement by the Board of Directors of
the Company shall be binding on the Optionee.
14.2 The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York
without giving effect to the provisions, principles or policies thereof
relating to choice or conflict of law.
14.3 Any and all notices referred to herein shall be sufficient if
furnished in writing and delivered in person or mailed by certified mail
(return receipt requested ) to the respective parties at their addresses
set forth above or to such other address as either party may from time to
time designate in writing.
4
<PAGE> 45
14.4 As used herein, the masculine gender shall include the feminine
gender. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
14.5 No amendment, change or modification of this document shall be
valid unless in writing and signed by all of the parties hereto.
14.6 No reliance upon or waiver of one or more provisions of this
Agreement shall constitute a waiver of any other provisions hereof.
14.7 All of the terms and provisions contained herein shall inure to
the benefit of and shall be binding upon the parties hereto and their
respective heirs, personal representatives, successors and assigns.
14.8 The captions appearing at the commencement of the sections hereof
are descriptive only and are for convenience of reference. Should there be
any conflict between any such caption and the section at the head of which
it appears, the substantive provisions of such section and not such caption
shall control and govern in the construction of this document.
14.9 This Agreement constitutes the entire understanding and agreement
of the parties with respect to the subject matter of this Agreement, and
any and all prior agreements, understandings or representations are hereby
terminated and canceled in their entirety.
14.10 The Option shall be effective as of February 1, 1996, subject to
approval by the Company's stockholders entitled to vote thereon. If the
Company's stockholders decline to approve the Option at any duly convened
meeting of stockholders at which the Option is submitted for stockholder
approval, then, notwithstanding anything to the contrary herein, this
Agreement shall terminate immediately and cease to be of any force and
effect.
SHOREWOOD PACKAGING CORPORATION
By: /s/ HOWARD M. LIEBMAN
------------------------------------
Authorized Signatory
JEFFERSON CAPITAL GROUP, LTD.
By: /s/ R. TIMOTHY O'DONNELL
------------------------------------
Authorized Signatory
5
<PAGE> 46
SHOREWOOD PACKAGING CORPORATION
1993 INCENTIVE PROGRAM
AS AMENDED MAY 4, 1995
AND AUGUST 8, 1996
The 1993 Incentive Program, as amended (the "Program") of Shorewood
Packaging Corporation (the "Company") provides for the grant to officers,
directors, key executives, employees, consultants and advisors of the Company
and its direct or indirect subsidiaries of certain rights to acquire shares of
the Company's common stock (the "Common Stock"). The Company believes that this
Program will cause those persons to contribute materially to the growth of the
Company, thereby benefitting its stockholders.
1. ADMINISTRATION.
The Program shall be administered and interpreted either by the full Board
of Directors of the Company or by one or more committees of the Board consisting
of not less than two persons appointed by the full Board of Directors of the
Company (the committee(s) and the full Board of Directors are collectively
referred to herein as the "Plan Administrator"); provided, however, that only
the full Board of Directors may grant awards under the Program to Outside
Directors. The Board of Directors may appoint different Committees to handle
different duties under the Program. The Plan Administrator shall determine the
fair market value of the Common Stock for purposes of the Program in accordance
with the provisions of Section 9(i) hereof. The Plan Administrator's decisions
shall be final and conclusive with respect to the interpretation and
administration of the Program and any Grant made under it.
2. GRANTS.
Grants under the Program shall consist of incentive stock options,
non-qualified stock options, stock appreciation rights in tandem with stock
options or freestanding, restricted stock grants, and Restored Options (any of
the foregoing, in any combination, collectively, "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Program as the Plan Administrator deems
appropriate. The Plan Administrator shall approve the form and provisions of
each Grant. Grants under a particular section of the Program need not be
uniform, and Grants under two or more sections may be combined in one
instrument. Notwithstanding anything contained herein to the contrary, Grants
under the Program to directors of the Company who are neither officers nor
employees of the Company or any of its subsidiaries shall be made by the full
Board of Directors.
3. ELIGIBILITY FOR GRANTS.
Grants may be made to any employee, officer, key executive, director,
professional or administrative employee, consultant or advisor to the Company or
any subsidiary of the Company selected by the Plan Administrator to receive
Grants under the Program ("Grantees"). The Plan Administrator shall determine
the number of shares subject to any particular Grant.
<PAGE> 47
4. SHARES AVAILABLE FOR GRANT.
(a) Shares Subject to Issuance or Transfer. Subject to adjustment as
provided in Section 4(b), the aggregate number of shares of Common Stock (the
"Shares") that may be issued or transferred under the Program is 1,000,000
Shares, plus (i) 10% of any increase (excluding any increase relating to or
arising out of the conversion or exercise of any convertible securities, options
or warrants issued and outstanding as of the date the Program was adopted by the
Board) in the number of shares issued and outstanding over the number of Shares
issued and outstanding on the date the Program was adopted by the Board (the
"Incremental Amount"), plus (ii) the number of Shares repurchased by the Company
in the open market and otherwise with an aggregate price no greater than the
cash proceeds received by the Company from the sale of Shares under the Program,
plus (iii) any Shares surrendered to the Company in payment of the exercise
price of options issued under the Program. The Shares may be authorized but
unissued Shares or treasury Shares. However, no award may be issued that would
bring the total of all outstanding awards under the Program to greater than
2,000,000 shares. The number of Shares available for Grants at any given time
shall be reduced by the aggregate of all Shares previously issued or transferred
plus the aggregate of all Shares which may become subject to issuance or
transfer under then-outstanding and then-currently exercisable Grants. For
purposes of this Section 4, the number of Shares outstanding at any time shall
not include Grants under the Program but shall include Shares issuable under
Substituted Stock Incentives (as defined in Section 9(b) below) assumed by the
Company upon or in connection with an acquisition or a merger with another
corporation.
(b) Recapitalization Adjustment. If any subdivision or combination of
shares of Common Stock or any stock dividend, capital reorganization,
recapitalization, consolidation, or merger in which the Company is the surviving
corporation occurs after the adoption of the Program, the Plan Administrator
shall make such proportional adjustments as it determines appropriate in the
number of shares of Common Stock that may be issued or transferred thereafter
under Section 4(a). The Plan Administrator shall similarly adjust the number of
Shares subject to such stock option and option price in all outstanding Grants
made before the event within 60 days of the event.
5. STOCK OPTIONS.
The Plan Administrator may grant options qualifying as incentive stock
options ("ISOs") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options ("NQOs") not entitled to
special tax treatment under the Code or Restored Options (collectively, "Stock
Options"). The following provisions are applicable to Stock Options:
(a) Exercise of Option. A Grantee may exercise a Stock Option by
delivering a notice of exercise to the Company, either with or without
accompanying payment of the option price. The notice of exercise, once
delivered, shall be irrevocable.
(b) Satisfaction of Option Price. The Grantee shall pay the option price
(the "Option Price") in cash, or with the Plan Administrator's permission, by
delivering shares of Common Stock already owned by the Grantee, held by the
Grantee for a minimum of six (6) months and having a Fair Market Value on the
date of exercise equal to the Option Price, or a combination of cash and Shares.
The Grantee shall pay the Option Price not later than thirty (30) days after the
date of a statement from the Company following exercise setting forth the Option
Price, Fair Market Value of Common Stock on the exercise date, the number of
Shares that
2
<PAGE> 48
may be delivered in payment of the Option Price, and the amount of withholding
tax due, if any. If the Grantee fails to pay the Option Price within the period
and in the manner prescribed in the specific instrument of Grant, the Plan
Administrator shall have the right to take whatever action it deems appropriate,
including voiding the option exercise. The Company shall not issue or transfer
Shares upon exercise of a Stock Option until the Option Price is fully paid. The
Plan Administrator may prescribe such other or different exercise or payment
terms as it may deem appropriate.
(c) Price; Term and Conditions. The exercise price per share, term and
other provisions of stock options granted hereunder shall be specified by the
Grant, as limited, in the case of ISOs, by the provisions of paragraph (d)
below. In addition, the Plan Administrator may prescribe such other conditions
as it may deem appropriate, which conditions shall be specified by the Grant.
(d) Limits on the ISOs. The aggregate Fair Market Value of the stock
covered by ISOs granted under the Program or any other stock option plan of the
Company or any subsidiary or parent of the Company that becomes exercisable for
the first time by any Grantee in any calendar year shall not exceed $100,000.
The aggregate Fair Market Value will be determined at the time of grant. The
period of exercise of an ISO shall not exceed ten (10) years from the date of
Grant (or five (5) years if the Grantee is also a 10% stockholder). The price at
which Common Stock may be purchased by the Grantee under an Incentive Stock
Option shall be the Fair Market Value (or 110% of the Fair Market Value if the
Grantee is a 10% stockholder) of Common Stock on the date of the Grant.
(e) Restored Options. Stock Options granted under the Program may, with
the Plan Administrator's permission, include the right to acquire a restored
option (a "Restored Option"). If a Stock Option grant contains a Restored Option
and if a Grantee pays all or part of the Option Price of the Stock Option with
shares of Common Stock held by the Grantee, then upon exercise of the Stock
Option the Grantee shall be granted a Restored Option to purchase, at the fair
market value as of the date of the grant of the Restored Option, the number of
shares of Common Stock of the Company equal to the sum of the number of whole
shares used by the Grantee in payment of the Option Price and the number of
whole shares, if any, withheld by the Company as payment for withholding taxes.
A Restored Option may be exercised between the date of grant and the date of
expiration, which will be the same as the date of expiration of the Stock Option
to which a Restored Option is related.
6. STOCK APPRECIATION RIGHT.
The Plan Administrator may grant a Stock Appreciation Right ("SAR") either
independently or in conjunction with any Stock Option granted under the Program
either at the time of grant of the option or thereafter. The following
provisions are applicable to each SAR:
(a) Options to Which Right Relates. Each SAR which is issued in
conjunction with a Stock Option shall specify the Stock Option to which the SAR
is related, together with the Option Price and number of option shares subject
to the SAR at the time of its grant.
(b) Requirement of Employment. Each SAR may be exercised only while the
Grantee is in the employment of the Company, provided that the Plan
Administrator may provide for partial or complete exceptions to this requirement
as it deems equitable.
3
<PAGE> 49
(c) Exercise. A Grantee may exercise each SAR in whole or in part by
delivering a notice of exercise to the Company, except that the Plan
Administrator may provide for partial or complete exceptions to this requirement
as it deems equitable.
(d) Payment and Form of Settlement. If a Grantee exercises any SAR which
is issued in conjunction with a Stock Option, the grantee shall receive the
aggregate of the excess of the fair market value of each share of Common Stock
with respect to which the SAR is being exercised over the Option Price of each
such share. Payment, in any event, may be made in cash, Common Stock or a
combination of the two, in the discretion of the Plan Administrator. Fair Market
Value shall be determined as of the date of exercise.
(e) Expiration and Termination. Each SAR shall expire on a date determined
by the Plan Administrator at the time of grant. If a Stock Option is exercised
in whole or in part, any SAR related to the Shares purchased in connection with
such exercise shall terminate immediately.
7. RESTRICTED STOCK GRANTS.
The Plan Administrator may issue or transfer Shares ("Restricted Stock") to
a Grantee under a Restricted Stock Grant. Upon the issuance or transfer, the
Grantee is entitled to vote the Shares and to receive any dividends paid. The
following provisions are applicable to Restricted Stock Grants:
(a) Requirement of Employment. If the Grantee's employment terminates
during the period designated in the Grant as the "Restriction Period", the
Restricted Stock Grant terminates and the shares of Common Stock must be
returned immediately to the Company. However, the Plan Administrator may provide
for partial or complete exceptions to this requirement as it deems equitable.
(b) Restrictions of Transfer and Legend on Stock Certificate. During the
Restriction Period, a Grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the Shares of Restricted Stock except to a Successor
Grantee under Section 9(a). Each certificate for shares issued or transferred
under a Restricted Stock Grant shall contain a legend giving appropriate notice
of the restrictions applicable to the Grant.
(c) Lapse of Restrictions. All restrictions imposed under any Restricted
Stock Grant shall lapse upon the fulfillment of the conditions for vesting set
forth in the instrument of Grant provided that all of the conditions stated in
Sections 7(a) and (b) have been met as of the date of such lapse. The Grantee
shall then be entitled to have the legend removed from the certificate.
8. AMENDMENT AND TERMINATION OF THE PROGRAM.
(a) Amendment. The Board of Directors may amend the Program except that it
may not, with respect to ISOs granted hereunder, (i) increase the maximum number
of Shares in the aggregate which may be sold pursuant to such options granted
hereunder; (ii) change the manner of determining the minimum option prices,
other than to change the manner of determining the fair market value of any
Shares underlying the option to conform to any than applicable provisions of the
Code or regulations thereunder, (iii) increase the periods during which such
options may be granted or exercised or (iv) change the employees or class of
employees eligible to receive such options hereunder. In any event, no
termination, suspension, modification or amendment of the Program may adversely
affect the rights of any Grantee without his consent.
4
<PAGE> 50
(b) Termination of the Program. The Program shall terminate on the tenth
anniversary of its effective date unless terminated earlier by the Board or
unless extended by the Board.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Program that occurs after a Grant is made shall not result in
the termination or amendment of the Grant unless the Grantee consents or unless
the Plan Administrator acts under Section 9(e). The termination of the Program
shall not impair the power and authority of the Plan Administrator with respect
to outstanding Grants. Whether or not the Program has terminated, an outstanding
Grant may be terminated or amended under Section 9(e) or may be amended by
agreement of the Company and the Grantee consistent with the Program.
9. GENERAL PROVISIONS.
(a) Prohibitions Against Transfer. Except as otherwise expressly provided
herein or in the instrument of grant, when a Grantee dies, the personal
representative or other person entitled under a prior Stock Option or a Grant
under the Program to succeed to the rights of the Grantee ("Successor Grantee")
may exercise the rights. A Successor Grantee must furnish proof satisfactory to
the Company of his or her right to receive the Grant under the Grantee's will or
under the applicable laws of descent and distribution.
(b) Substitute Grants. The Plan Administrator may make a Grant (a
"Substitute Grant") to an employee of another corporation who becomes an
Eligible Employee by reason of a corporate merger, consolidation, acquisition of
stock or property, reorganization or liquidation involving the Company in
substitution for a stock option, stock appreciation right, performance award, or
restricted stock grant granted by such corporation ("Substituted Stock
Incentive"). The terms and conditions of the Substitute Grant may vary from the
terms and conditions required by the Program and from those of the Substituted
Stock Incentive. The Plan Administrator shall prescribe the exact provisions of
the Substitute Grant, preserving where possible the provisions of the Substitute
Stock Incentive. The Plan Administrator shall also determine the number of
shares of Common Stock to be taken into account under Section 4.
(c) Subsidiaries. The term "subsidiary" means an affiliated corporation
controlled by the Company directly or indirectly through one or more
intermediaries.
(d) Fractional Shares. Fractional shares shall not be issued or
transferred under a Grant, but the Plan Administrator may pay cash in lieu of a
fraction or round the fraction.
(e) Compliance with Law. The Program, the exercise of Grants, and the
obligations of the Company to issue or transfer shares of Common Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. The Plan Administrator may
revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Plan
Administrator may also adopt rules regarding the withholding of taxes on payment
to Grantees.
(f) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a stockholder of the Company with respect to any Shares covered by a
Grant until the Shares are issued or transferred to the Grantee or Successor
Grantee on the Company's books.
(g) No Right to Employment. The Program and the Grants under it shall not
confer upon any Grantee the right to continue in the employment of the Company
or affect in any way the right of the Company to terminate the employment of a
Grantee at any time.
5
<PAGE> 51
(h) Effective Date of the Program. The Program shall become effective upon
its approval by the Company's stockholders entitled to vote thereon.
(i) Fair Market Value. For the purposes of the Program, the term "Fair
Market Value" means, as of any date, the closing price of a share of Common
Stock of the Company on such date. The closing price shall be (i) if the Common
Stock is then listed or admitted for trading on any national securities exchange
or, if not so listed or admitted for trading, is listed or admitted for trading
on the Nasdaq National Market, the last sale price of the common stock, regular
way, or the mean of the bid and asked prices thereof for any trading day on
which no such sale occurred, in each case as officially reported on the
principal securities exchange on which the common stock is listed or admitted
for trading or on the Nasdaq National Market, as the case may be, or (ii) if not
so listed or admitted for trading on a national securities exchange or the
Nasdaq National Market, the mean between the closing high bid and low asked
quotations for the Common Stock in the over-the-counter market as reported by
Nasdaq, or any similar system for the automated dissemination of securities
prices then in common use, if so quoted, as reported by any member firm of the
New York Stock Exchange selected by the Company; provided, however, that if, by
reason of extended or continuous trading hours on any exchange or in any market
or for any other reason, the time, with respect to any trading day, of the close
of trading for the purpose of determining the "last sale price" or the "closing"
bid and asked prices is not objectively determinable, the time on such trading
day used for the purpose of reporting any compilation of last sale prices or
closing bid and asked prices in The Wall Street Journal shall be the time on
such trading day as of which the "last sale price" or "closing" bid and asked
prices are determined for purposes of this definition. If the Common Stock is
quoted on a national securities or central market system in lieu of a market or
quotation system described above, the closing price shall be determined in the
manner set forth in clause (i) of the preceding sentence if actual transactions
are reported, and in the manner set forth in clause (ii) of the preceding
sentence if bid and asked quotations are reported but actual transactions are
not. If on the date in question, there is no exchange or over-the-counter market
for the Common Stock, the "fair market value" of such Common Stock shall be
determined by the Plan Administrator acting in good faith.
(j) Change in Control. For purposes of the Program, the term "Change of
Control" means: the acquisition, without the approval of the Board, by any
person or entity, other than the Company and certain related entities, of more
than 20% of the outstanding shares of Common Stock through a tender offer,
exchange offer, or otherwise; the liquidation or dissolution of the Company
following a sale or other disposition of all or substantially all of its assets;
a merger or consolidation involving the Company that results in the Company not
being the surviving parent corporation; or a change in the majority of the
members of the Board during any two-year period that is not approved by at least
two-thirds of the members of the Board who were members at the beginning of the
two year period.
(k) Withholding. The Plan Administrator may, in its discretion and subject
to such rules as it may adopt, permit or require a Grantee to satisfy, in whole
or in part, any withholding tax obligation which may arise in connection with
the distribution to him or her of Shares of Common Stock or cash pursuant to the
Program by authorizing the Company to withhold from such distribution cash or
Shares having a Fair Market Value equal to the amount of the withholding tax.
Notwithstanding the foregoing, the Plan Administrator shall require, as a
condition to the distribution of any cash or Shares of Common Stock to any
Reporting Person, that the Company withhold from such distribution cash or
Shares having an aggregate Fair Market Value equal to the amount of the
Grantee's liability for any and all taxes required by law to be withheld.
(l) Program Controls. In the case of any conflict between the terms of
this Program and the terms of any instrument of Grant, the terms of this Program
will control.
6
