<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to _______________________.
Commission file number: 0-15077
SHOREWOOD PACKAGING CORPORATION
(Exact name of registrant as specified in its Charter)
DELAWARE 11-2742734
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
277 PARK AVENUE
NEW YORK, NEW YORK 10172
(Address of principal executive offices)
(212) 371-1500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
DECEMBER 1, 1998 27,267,000
Date Number of Shares
PAGE 1 OF 21
<PAGE> 2
SHOREWOOD PACKAGING CORPORATION
AND SUBSIDIARIES
INDEX PAGE
Part I: Financial Statements
Consolidated Balance Sheets
October 31, 1998 (Unaudited) and
May 2, 1998 (Audited) 3
Consolidated Condensed Statements of Earnings
13 weeks ended October 31, 1998 (Unaudited) and
13 weeks ended November 1, 1997 (Unaudited) 4
Consolidated Condensed Statements of Earnings
26 weeks ended October 31, 1998 (Unaudited) and
26 weeks ended November 1, 1997 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows
26 weeks ended October 31, 1998 (Unaudited) and
26 weeks ended November 1, 1997 (Unaudited) 6
Notes to Consolidated Condensed Financial Statements 7 - 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 18
Part II: Other Information 19
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Form
10-Q/A, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are typically
identified by their inclusion of phrases such as "the Company anticipates," "the
Company believes" and other phrases of similar meaning. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance or achievements of the Company to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others: general economic and business conditions; competition; political
changes in international markets; raw material and other operating costs; costs
of capital equipment; changes in foreign currency exchange rates; changes in
business strategy or expansion plans; the results of continuing environmental
compliance testing and monitoring; quality of management; availability, terms,
and development of capital; fluctuating interest rates; and other factors
referenced in this Form 10-Q/A.
PAGE 2 OF 21
<PAGE> 3
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, MAY 2,
1998 1998
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,662 $ 7,268
Accounts receivable, net 74,151 32,054
Inventories 47,292 46,591
Deferred tax assets 317 317
Refundable income taxes -- 411
Prepaid expenses and other current assets 6,268 9,202
--------- ---------
Total Current Assets 134,690 95,843
Property, Plant and Equipment, net 244,901 200,293
Excess of Cost Over the Fair Value of Net Assets Acquired, net 113,404 18,295
Other Assets 9,119 11,553
--------- ---------
$ 502,114 $ 325,984
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 50,045 $ 33,100
Accrued expenses 23,888 13,887
Income taxes payable 4,134 2,864
Current maturities of long-term debt 20,000 15,000
--------- ---------
Total Current Liabilities 98,067 64,851
Long-Term Debt 258,827 126,437
Other Long-Term Liabilities 1,397 794
Deferred Income Taxes 22,015 21,395
--------- ---------
Total Liabilities 380,306 213,477
--------- ---------
Temporary Equity Relating to Put Options 1,246 2,710
Commitments and Contingencies
Stockholders' Equity:
Series A preferred stock, $10 par value; 50,000 shares
authorized, none issued -- --
Preferred stock, $10 par value; 5,000,000 shares authorized
none issued -- --
Common stock, $.01 par value; 60,000,000 shares authorized;
35,352,873 issued and 27,266,999 outstanding in October and
34,106,974 issued and 27,092,100 outstanding in May 354 341
Additional paid-in capital 70,274 52,448
Retained earnings 135,369 121,976
Cumulative foreign currency translation adjustment (8,808) (4,274)
Treasury stock (8,085,874 and 7,014,874 shares at
cost in August and May) (76,627) (60,694)
--------- ---------
Total Stockholders' Equity 120,562 109,797
--------- ---------
$ 502,114 $ 325,984
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PAGE 3 OF 21
<PAGE> 4
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS
ENDED ENDED
OCTOBER 31, NOVEMBER 1,
1998 1997
<S> <C> <C>
Net Sales $ 145,378 $ 114,828
--------- ---------
Costs and Expenses:
Cost of Sales 110,153 87,427
Selling, General and Administrative 16,440 11,888
--------- ---------
Earnings from Operations 18,785 15,513
Other Income, net 468 147
Interest Expense (3,005) (1,854)
--------- ---------
Earnings Before Provision for Income Taxes and Extraordinary
Item 16,248 13,806
Provision for Income Taxes 6,338 5,246
--------- ---------
Earnings Before Extraordinary Item 9,910 8,560
Extraordinary Item, net of Income Tax Benefit of $177 (277) --
--------- ---------
Net Earnings $ 9,633 $ 8,560
========= =========
EARNINGS PER SHARE INFORMATION:
BASIC
Earnings Before Extraordinary Item $ .37 $ .32
Extraordinary Item (0.01) --
--------- ---------
Net Earnings Per Common Share $ .36 $ .32
========= =========
DILUTED
Earnings Before Extraordinary Item $ .37 $ .31
Extraordinary Item (0.01) --
--------- ---------
Net Earnings Per Common Share $ .36 $ .31
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 26,451 27,132
========= =========
DILUTED 27,112 27,888
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PAGE 4 OF 21
<PAGE> 5
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
OCTOBER 31, NOVEMBER 1,
1998 1997
<S> <C> <C>
Net Sales $ 260,737 $ 215,424
--------- ---------
Costs and Expenses:
Cost of Sales 200,207 165,514
Selling, General and Administrative 28,903 22,912
--------- ---------
Earnings from Operations 31,627 26,998
Other Income, net 859 728
Interest Expense (5,091) (3,905)
--------- ---------
Earnings Before Provision for Income Taxes, Extraordinary Item
and Cumulative Effect of a Change in Accounting Principle 27,395 23,821
Provision for Income Taxes 10,685 9,052
--------- ---------
Earnings Before Extraordinary Item and Cumulative Effect of a
Change in Accounting Principle 16,710 14,769
Extraordinary Item, net of Income Tax Benefit of $177 (277) --
Cumulative Effect on Prior Years Related to the Adoption of
SOP 98-5 Reporting on the Cost of Start-Up Activities (3,040) --
--------- ---------
Net Earnings $ 13,393 $ 14,769
========= =========
EARNINGS PER SHARE INFORMATION:
BASIC
Earnings Before Extraordinary Item and Cumulative Effect of a
Change in Accounting Principle $ .63 $ .54
Extraordinary Item (0.01) --
Cumulative Effect of a Change in Accounting Principle (0.11) --
--------- ---------
Net Earnings Per Common Share $ .51 $ .54
========= =========
DILUTED
Earnings Before Extraordinary Item and Cumulative Effect of a
Change in Accounting Principle $ .62 $ .53
Extraordinary Item (0.01) --
Cumulative Effect of a Change in Accounting Principle (0.12) --
--------- ---------
Net Earnings Per Common Share $ .49 $ .53
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 26,473 27,137
========= =========
DILUTED 27,097 27,791
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PAGE 5 OF 21
<PAGE> 6
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
OCTOBER 31, NOVEMBER 1,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 13,393 $ 14,769
Adjustments to reconcile earnings to net cash flows
provided from operations:
Non-cash cumulative effect of change in
accounting principle 3,040 --
Non-cash extraordinary item, net of tax 277
Depreciation and amortization 10,144 8,660
Deferred income taxes 1,353 3,171
Changes in operating assets and liabilities:
Accounts receivable (22,645) (9,606)
Inventories 4,202 1,163
Prepaid expenses and other current assets 2,023 (2,145)
Other assets 346 (129)
Accounts payable, accrued expenses and other
long term liabilities 7,527 4,099
--------- ---------
Net cash flows provided from operating activities 19,660 19,982
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures (22,052) (36,888)
Business acquisitions, net of cash acquired (120,729) --
--------- ---------
Net cash flows used in investing activities (142,781) (36,888)
--------- ---------
Cash Flows from Financing Activities:
Net proceeds from revolver borrowings 120,699 25,465
Additions to long-term borrowings 100,000 --
Repayments of long-term borrowings (82,728) --
Purchase of treasury stock (15,933) (8,313)
Issuance of common stock 550 776
--------- ---------
Net cash flows provided from financing activities 122,588 17,928
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (73) 45
--------- ---------
Decrease in cash and cash equivalents (606) 1,067
Cash and cash equivalents at beginning of period 7,268 3,153
--------- ---------
Cash and cash equivalents at end of period $ 6,662 $ 4,220
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized amounts $ 6,859 $ 1,925
========= =========
Income taxes paid $ 7,566 $ 5,563
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PAGE 6 OF 21
<PAGE> 7
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position, the
results of operations, and the changes in cash flows at October 31, 1998 and for
all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes included in the
Company's May 2, 1998 Annual Report to Stockholders on Form 10-K as filed with
the Securities and Exchange Commission ("1998 Form 10-K").
The results of operations for the 13 week period and 26 week period ended
October 31, 1998 are not necessarily indicative of the results for the full
year.
2. BUSINESS ACQUISITION
In October 1998, the Company purchased substantially all of the assets and
assumed substantially all of the liabilities of The Queens Group, Inc.
("Queens") for a purchase price of $129.5 million comprised of approximately
$113.7 million in cash including the assumption of debt, and 1.0 million shares
of Company common stock. In addition, the Company incurred expenses associated
with the transaction of approximately $2.5 million. Simultaneously with the
closing of the transaction, the Company repaid all outstanding bank debt of
Queens, approximating $19.0 million. Queens is engaged in the manufacture of
value added printed packaging primarily for the home entertainment industry. The
transaction was financed through a new credit facility as described below.
The acquisition was recorded using the purchase method of accounting and,
accordingly, the results of operations of Queens are included in the
consolidated results of operations of the Company since the date of acquisition.
The purchase price of the acquisition has been allocated to the net assets
acquired based upon the related fair values which is subject to refinement based
upon the receipt of final appraisals and other analyses. The excess of cost over
the fair value of net assets acquired approximated $96.2 million and is being
amortized over 40 years.
The following unaudited pro forma information for the twenty-six weeks ended
October 31, 1998 and November 1, 1997 includes the operations of the Company,
inclusive of the operations of Queens, as if the acquisition had occurred at the
beginning of the respective periods presented. The pro forma gives effect to the
amortization expense associated with the excess of cost over the fair value of
net assets acquired, adjustments related to the fair market value of the assets
and liabilities acquired (which is subject to further refinement), shares issued
in connection with the transaction, interest expense related to financing the
acquisition, and related income tax effects.
PAGE 7 OF 21
<PAGE> 8
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
OCTOBER 31, 1998 NOVEMBER 1, 1997
<S> <C> <C>
Revenues $ 326,240 $296,358
========= ========
Earnings from Operations $ 36,147 $ 33,499
========= ========
Net Earnings Before Extraordinary Items and Cumulative
Effect of a Change in Accounting Principle $ 17,587 $ 16,509
========= ========
Net Earnings Per Share Before Extraordinary Items and
Cumulative Effect of a Change in Accounting Principle
Basic $ .64 $ .59
========= ========
Diluted $ .63 $ .57
========= ========
</TABLE>
3. NEW CREDIT FACILITY AND INTEREST RATE DERIVATIVES
In October 1998, in order to facilitate the acquisition of Queens as described
in Note 2 and other global opportunities which may arise over the next several
years, the Company entered into a new credit agreement with its lending banks to
replace its existing credit facility. The new credit facility provides for up to
$325 million of borrowings and consists of a $100 million term loan to be paid
in equal quarterly installments over five years and a $225 million revolving
credit facility maturing at the end of five years. The revolving credit is
available, in its entirety, without any borrowing base limitation. Borrowings
pursuant to the facility will bear interest at the discretion of the Company, at
either the Bank's prime rate (8.0% at October 31, 1998) or at the LIBOR rate
(three month term of 5.22% at October 31, 1998) plus 62.5 to 125 basis points
based upon financial ratios as defined in the underlying Agreement. Initially,
borrowings bear interest at 125 basis points above the LIBOR rate. Unused
commitment fees will range from 20 to 30 basis points (initially 30 basis points
based upon the same financial ratios).
In connection with the refinancing, the Company recorded a net of tax
extraordinary charge representing the write-off of previously deferred finance
costs incurred in connection with the former credit facility of approximately
$277 thousand.
The Company uses interest rate derivatives to manage its exposure to fluctuating
interest rates. These transactions effectively change a portion of the Company's
interest rate exposure from a floating-rate to a fixed-rate basis. The Company's
interest rate derivatives are generally structured for the Company to pay a
fixed rate and receive a floating rate based on LIBOR, as determined in
three-month intervals (a "Vanilla Swap"). The Company has Vanilla Swap
agreements relating to $150.0 million of borrowings under the credit facility
expiring in the quarter ended January 2001 providing a weighted average LIBOR
rate of 5.044% throughout the period.
In July 1997, the Company entered into a reversion swap agreement relating to
$50.0 million of borrowings under the credit facility. Under the agreement, the
Company pays a fixed rate of 5.73% and receives a floating rate based upon
LIBOR, as determined in three month intervals. This agreement terminates in
April 2002. This transaction effectively changes a portion of the Company's
interest rate exposure from a floating-rate to a fixed-rate basis. After the
first year, however, the fixed rate reverts back to floating for any three month
period during which the LIBOR rate exceeds 6.625%. The rate reverts back to the
fixed rate of 5.73% for any subsequent period for which the LIBOR rate drops
below 6.625%.
PAGE 8 OF 21
<PAGE> 9
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
In October 1997, the Company entered into an intermediate-term interest rate
swap agreement relating to approximately $35.0 million of borrowings under the
credit facility. Under the agreement, the Company pays a fixed rate of 5.74% and
receives a floating rate based on LIBOR, as determined in three-month intervals.
This transaction effectively changes a portion of the Company's interest rate
exposure from a floating-rate to a fixed-rate basis. The agreement began on May
5, 1998 and terminates May 5, 1999. The agreement may be extended at the
discretion of the financial institution for an additional year.
On June 16, 1998, the Financial Accounting Standards Board adopted Statement on
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Adoption of SFAS No. 133 is not required at
this time. The adoption of SFAS 133 is not expected to have a material impact on
the Company's financial statements.
4. INCOME TAXES
The effective income tax rate for the three and six month periods ended October
31, 1998 is 39.0% and was 38.0% for the corresponding prior periods. These rates
reflect a blend of domestic and foreign taxes and are adjusted periodically
based upon the estimated annual effective tax rate and any increase or decrease
in the provision for income taxes is reflected in the period in which the
estimate is changed. The effective income tax rate for the entire fiscal year
ended May 2, 1998 was 37.9%.
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31, 1998 MAY 2, 1998
<S> <C> <C>
Raw materials and supplies $19,671 $17,862
Work in process 10,637 7,833
Finished goods 16,984 20,896
------- -------
$47,292 $46,591
======= =======
</TABLE>
6. COMPREHENSIVE EARNINGS
Effective May 3, 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" which requires that all items that are required to be recognized under
accounting standards as components of other comprehensive income be reported in
the financial statements. The Company's total comprehensive earnings were as
follows:
<TABLE>
<CAPTION>
26 WEEKS ENDED 26 WEEKS ENDED
OCTOBER 31, 1998 NOVEMBER 1, 1997
<S> <C> <C>
Net earnings $ 13,393 $ 14,769
Other comprehensive earnings (losses):
Change in equity due to foreign currency translation adjustment (4,534) (533)
-------- --------
Comprehensive earnings $ 8,859 $ 14,236
======== ========
</TABLE>
PAGE 9 OF 21
<PAGE> 10
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
7. COMMITMENTS AND CONTINGENCIES
a. Treasury Stock
The Company's Board of Directors has authorized the purchase of the Company's
common stock as follows:
<TABLE>
<CAPTION>
DATE OF AUTHORIZATION AUTHORIZED SHARES
<S> <C>
January 1993 3.0 million
December 1995 3.0 million
April 1997 1.86 million
</TABLE>
Shares are authorized for purchase from time to time in the open market, subject
to the terms of the Company's credit facility. As of October 31, 1998,
approximately 1.6 million shares remain authorized for purchase.
b. Temporary Equity Relating to Put Options
The Company periodically sells common equity put options ("put options") on
shares of its common stock which are exerciseable six months from the date of
issuance. At October 31, 1998, 85,000 options were outstanding at strike prices
ranging from $13.86 to $15.22 per share.
Temporary equity relating to put options on the accompanying consolidated
balance sheets represent the amount the Company would be obligated to pay if all
unexpired put options were exercised.
c. China Facility
The Company has completed building a state-of-the-art manufacturing facility in
the city of Guangzhou, China (the "China Facility"), which commenced operations
in the third quarter of fiscal 1999. The facility and related equipment will
require an initial capital investment of approximately $45.0 million, including
working capital, which the Company has financed through the Company's existing
credit facility. Through November 1, 1998, the Company has invested
approximately $34.8 million representing costs associated with the lease of the
related land, construction of the manufacturing facility, purchase of the
necessary machinery and equipment and other expenses associated with the
start-up of the facility. The Company anticipates spending the remaining $10.2
million during the remainder of fiscal 1999 with funds generated from operations
as well as the existing credit facility and the Westvaco transaction described
below.
In connection with the start-up of the facility, the Company incurred and
capitalized certain start-up costs aggregating $3.0 million. On April 3, 1998,
Statement of Position Number 98-5, "Reporting on the Costs of Start-Up
Activities" was issued by the American Institute of Certified Public
Accountants, which requires the expensing of the start-up costs when incurred.
Although adoption is not required until fiscal 2000, the Company adopted this
Statement of Position on the first day of fiscal 1999. Accordingly, the Company
recorded a $3.0 million pre-tax charge in its first quarter of fiscal 1999 as a
cumulative effect of a change in accounting principle. This pre-tax charge has
not been offset by a corresponding tax benefit as these expenses relate to the
China Facility which will enjoy a tax holiday for its first three years of
profitable operation. The Company will not report the tax benefits until
realized. Included in selling, general and administrative expenses on the
consolidated statements of earnings for the three and six months ended October
31, 1998 is $650,000 and $950,000 relating to costs incurred for the China
Facility.
PAGE 10 OF 21
<PAGE> 11
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
On October 28, 1998, the Company entered into a definitive agreement with
Westvaco Corporation to sell to Westvaco a 45% minority interest in its China
Facility. Westvaco is a major producer of paper, paperboard, envelopes,
packaging and specialty chemicals, with manufacturing facilities in the United
States, Brazil and the Czech Republic. The final agreement provides for Westvaco
to pay Shorewood, in cash, 45% of the total costs of the China investment plus
an additional $5 million. Day-to-day management control of the operation will
remain with the Company; however, Shorewood will work closely with Westvaco on
marketing programs and new product development. The gain on the sale will be
recorded upon closing of the transaction, expected to take place before the end
of fiscal 1999.
d. Environmental Matters
On a continuing basis, the Company monitors its compliance with applicable
environmental laws and regulations. As part of this process the Company
cooperates with appropriate governmental authorities to perform any necessary
testing and compliance procedures. The Company is not currently aware of any
environmental compliance matters that it believes will have a material effect on
the consolidated financial statements.
e. 1995 Performance Bonus Plan
In July 1995, the Board of Directors approved the 1995 Performance Bonus Plan
(the "Plan"), applicable to its Chairman of the Board and President (the
"Executive"). Under the Plan, for each of the five fiscal years of the Company
commencing with fiscal year 1996, the Executive will be entitled to a graduated
bonus (the "Performance Bonus") based upon a comparison of the Company's
earnings from operations plus depreciation and amortization (the "Performance
Measure") in that award year with the immediately preceding fiscal year. The
size of the Performance Bonus, if any, is tied to the level of the Company's
performance, as measured by the Performance Measure. The maximum Performance
Bonus payable in respect of any award year under the Plan is $2.0 million. The
Board of Directors and shareholders have approved the extension of the Plan for
an additional three years.
f. New Employment Agreements
Effective May 3, 1998, the Company entered into new five year employment
agreements with the Executive and its Executive Vice President and Chief
Financial Officer ("EVP") providing for annual base salaries of $800 thousand
and $450 thousand, respectively. In connection with his agreement, the Company
paid to the Executive as a signing bonus the aggregate amount of $1 million,
payable in full although earned ratably over his five-year employment period,
provided that the Executive continues to be employed with the Company at the end
of each such year. Simultaneously with the authorization of the employment
agreements by the Board of Directors, the Company granted the Executive and the
EVP options to purchase 250 thousand and 100 thousand shares of stock,
respectively. The options are exerciseable at $13.75 per share (the fair market
value at the date of grant).
g. Related Party Transaction
In the second quarter of fiscal 1999 the Company temporarily advanced $800
thousand to the Executive. The advance bears interest at 6.5% and is due to be
repaid in the third quarter.
PAGE 11 OF 21
<PAGE> 12
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In October 1998, the Company purchased substantially all of the assets and
assumed substantially all of the liabilities of The Queens Group, Inc.
("Queens") for a purchase price of $129.5 million comprised of approximately
$113.7 million in cash including the assumption of debt, and 1.0 million shares
of Company common stock. In addition, the Company incurred expenses associated
with the transaction of approximately $2.5 million. Simultaneously with the
closing of the transaction, the Company repaid all outstanding bank debt of
Queens, approximating $19.0 million. Queens is engaged in the manufacture of
value added printed packaging primarily for the home entertainment industry. The
transaction was financed through a new credit facility as described below.
The acquisition was recorded using the purchase method of accounting and,
accordingly, the results of operations of Queens are included in the
consolidated results of operations of the Company since the date of acquisition.
The purchase price of the acquisition has been allocated to the net assets
acquired based upon the related fair values which is subject to refinement based
upon the receipt of final appraisals and other analyses. The excess of cost over
the fair value of net assets acquired approximated $96.2 million and is being
amortized over 40 years.
The following unaudited pro forma information for the twenty-six weeks ended
October 31, 1998 and November 1, 1997 includes the operations of the Company,
inclusive of the operations of Queens, as if the acquisition had occurred at the
beginning of the respective periods presented. The pro forma gives effect to the
amortization expense associated with the excess of cost over the fair value of
net assets acquired, adjustments related to the fair market value of the assets
and liabilities acquired (which is subject to further refinement), shares issued
in connection with the transaction, interest expense related to financing the
acquisition, and related income tax effects.
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
OCTOBER 31, 1998 NOVEMBER 1, 1997
<S> <C> <C>
Revenues $ 326,240 $296,358
========= ========
Earnings from Operations $ 36,147 $ 33,499
========= ========
Net Earnings Before Extraordinary Items and Cumulative
Effect of a Change in Accounting Principle $ 17,587 $ 16,509
========= ========
Net Earnings Per Share Before Extraordinary Items and
Cumulative Effect of a Change in Accounting Principle
Basic $ .64 $ .59
========= ========
Diluted $ .63 $ .57
========= ========
</TABLE>
PAGE 12 OF 21
<PAGE> 13
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales for the three and six month periods ended October 31, 1998 were $145.4
million and $260.7 million as compared to net sales of $114.8 million and $215.4
million for the corresponding prior periods, an increase of 26.6% and 21.0%,
respectively. Included in the 13 and 26 week periods ended October 31, 1998 are
sales produced by former Queens facilities of $18.3 million. In addition to the
sales increase related to the former Queens facilities, the Company experienced
increases in sales in the home entertainment and the tobacco industries. Based
upon current buying patterns and known increases in awarded market share in the
tobacco industry, the Company anticipates that its growth in sales as compared
to the prior year will continue throughout fiscal 1999.
The Company believes that future sales growth will be generated through
continued penetration of its existing markets, as well as its expansion into
China.
Cost of Sales
Cost of sales as a percentage of sales for the three and six month periods ended
October 31, 1998 were 75.8% and 76.8% as compared to 76.1% and 76.8% for the
corresponding prior periods. The decrease in cost of sales as a percentage of
sales in the quarter is primarily attributable to favorable product mix, and
favorable absorbtion of fixed overhead costs as a result of the higher sales
volume. These decreases were partially offset by increased costs attributable to
the learning curve related to new products and newly installed equipment which
began operating during the last nine months.
The Company remains sensitive to price competitiveness in the markets that it
serves, and in the areas that are targeted for growth and believes that the
installation of state-of-the-art printing and manufacturing equipment (and
related labor and production efficiencies) will enable it to compete
effectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales for the
three and six month periods ended October 31, 1998 were 11.3% and 11.1% as
compared to 10.4% and 10.6% for the corresponding prior periods. Included in
selling, general and administrative expenses in the three and six month periods
of the current year were $650,000 and $950,000, respectively, of costs relating
to the facility in Guangzhou, China (the "China Facility"). Selling, general and
administrative expense as a percentage of sales for the former Queens facilities
are greater than that of existing Shorewood facilities.
Other Income, net
Other income, net, for the three and six month periods ended October 31, 1998
was $468 thousand and $859 thousand, respectively. The net gain for the three
month period includes net foreign exchange gains of $353 thousand and
approximately $115 thousand of investment income. The net gain for the six month
period includes net foreign exchange gains of $848 thousand, and approximately
$223 thousand of investment income, offset by losses on disposal of fixed assets
of $212 thousand.
PAGE 13 OF 21
<PAGE> 14
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Other income, net, for the three and six month periods ended November 1, 1997
was $147 and $728 thousand, respectively. The net gain for the three month
period was primarily due to net foreign exchange gains of $170 thousand and a
loss on the sale of equipment of $25 thousand. The net gain for the six month
period includes a net gain on the sale of equipment of $332 thousand, investment
income of $240 thousand and a net foreign exchange gains of $156 thousand.
The Company's exposure to foreign exchange transaction gains or losses primarily
relate to the Company's Canadian facilities which have U.S. dollar denominated
net assets. The Company believes that fluctuations in foreign exchange rates
will not have a material impact on the operations or liquidity of the Company,
based upon current and historical levels of working capital at the Canadian
facilities. Recently, several Asian currencies experienced weaknesses which had
the impact of reducing some demand for Company products produced in North
America intended for ultimate use in export markets. The Canadian dollar has
also experienced recent weakness against the U.S. dollar. The recent investments
in the China Facility will expose the Company to additional foreign exchange
risks related to the Renminbi ("Rmb"). Should the Canadian dollar or the Rmb
weaken, the Company would experience a reduction in the net worth of the
Company's investments in Canada and China (through the cumulative translation
adjustment account and other comprehensive income). In addition, the translation
of the net operating results for Canada and China (whether losses or profits)
would be reduced. Exposure to foreign exchange transaction gains or losses in
China is expected to be minimal as the Company will make purchases and sales in
both Rmb and the U.S. dollar, and settlement periods on both accounts receivable
and accounts payable are expected to be short.
Interest Expense
Interest expense for the three and six month periods ended October 31, 1998 was
$3.0 million and $5.1 million as compared to $1.9 million and $3.9 million for
the corresponding prior periods. The increase in interest costs is primarily
attributable to increased borrowings relating to financing the acquisition of
Queens and funding non-cash working capital. Capitalized interest increased from
$463 thousand to $508 thousand for the three month period and from $658 thousand
to $1.0 million for the six month period, primarily related to the Company's
construction of its facility in China. The Company anticipates that the amount
of interest to be capitalized in fiscal 1999 will begin to decrease during the
third quarter of fiscal 1999 as the China Facility commences operations.
The Company uses interest rate derivatives to manage its exposure to fluctuating
interest rates. These transactions effectively change a portion of the Company's
interest rate exposure from a floating-rate to a fixed-rate basis. The Company's
interest rate derivatives are generally structured for the Company to pay a
fixed rate and receive a floating rate based on LIBOR, as determined in
three-month intervals ( a "Vanilla Swap"). The Company has Vanilla Swap
agreements relating to $150.0 million of borrowings under the credit facility
expiring in the quarter ended January 2001 providing a weighted average LIBOR
rate of 5.044% throughout the period.
PAGE 14 OF 21
<PAGE> 15
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
In July 1997, the Company entered into a reversion swap agreement relating to
$50.0 million of borrowings under the credit facility. Under the agreement, the
Company pays a fixed rate of 5.73% and receives a floating rate based upon
LIBOR, as determined in three month intervals. This agreement terminates in
April 2002. This transaction effectively changes a portion of the Company's
interest rate exposure from a floating-rate to a fixed-rate basis. After the
first year, however, the fixed rate reverts back to floating for any three month
period during which the LIBOR rate exceeds 6.625%. The rate reverts back to the
fixed rate of 5.73% for any subsequent period for which the LIBOR rate drops
below 6.625%.
In October 1997, the Company entered into an intermediate-term interest rate
swap agreement relating to approximately $35.0 million of borrowings under the
credit facility. Under the agreement, the Company pays a fixed rate of 5.74% and
receives a floating rate based on LIBOR, as determined in three-month intervals.
This transaction effectively changes a portion of the Company's interest rate
exposure from a floating-rate to a fixed-rate basis. The agreement began on May
5, 1998 and terminates May 5, 1999. The agreement may be extended at the
discretion of the financial institution for an additional year.
On June 16, 1998, the Financial Accounting Standards Board adopted Statement on
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Adoption of SFAS No. 133 is not required at
this time. The adoption of SFAS 133 is not expected to have a material impact on
the Company's financial statements.
The Company has used, and may continue to use, interest rate swaps and caps to
manage its exposure to fluctuating interest rates under its debt agreements.
Income Taxes
The effective income tax rate for the three and six month periods ended October
31, 1998 is 39.0% and was 38.0% for the corresponding prior periods. These rates
reflect a blend of domestic and foreign taxes and are adjusted periodically
based upon the estimated annual effective tax rate, which for the entire fiscal
year ended May 2, 1998 was 37.9%.
The China Facility will enjoy a tax holiday for the first three years of
profitable operations, and thereafter be taxed at lower rates than the Company's
North American operations. Anticipated losses during the early periods of
operation will not result in related tax benefits. Such benefits will be
recognized when realized. The Company anticipates that this situation will
temporarily result in an increase in its effective tax rate in fiscal 1999.
PAGE 15 OF 21
<PAGE> 16
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
China Facility
The Company has completed building a state-of-the-art manufacturing facility in
the city of Guangzhou, China (the "China Facility"), which commenced operations
in the third quarter of fiscal 1999. The facility and related equipment will
require an initial capital investment of approximately $45.0 million, including
working capital, which the Company has financed through the Company's existing
credit facility. Through November 1, 1998, the Company has invested
approximately $34.8 million representing costs associated with the lease of the
related land, construction of the manufacturing facility, purchase of the
necessary machinery and equipment and other expenses associated with the
start-up of the facility. The Company anticipates spending the remaining $10.2
million during the remainder of fiscal 1999 with funds generated from operations
as well as the existing credit facility and the Westvaco transaction described
below.
In connection with the start-up of the facility, the Company incurred and
capitalized certain start-up costs aggregating $3.0 million. On April 3, 1998,
Statement of Position Number 98-5, "Reporting on the Costs of Start-Up
Activities" was issued by the American Institute of Certified Public
Accountants, which requires the expensing of the start-up costs when incurred.
Although adoption is not required until fiscal 2000, the Company adopted this
Statement of Position on the first day of fiscal 1999. Accordingly, the Company
recorded a $3.0 million pre-tax charge in its first quarter of fiscal 1999 as a
cumulative effect of a change in accounting principle. This pre-tax charge has
not been offset by a corresponding tax benefit as these expenses relate to the
China Facility which will enjoy a tax holiday for its first three years of
profitable operation. The Company will not report the tax benefits until
realized. Included in selling, general and administrative expenses on the
consolidated statements of earnings for the three and six months ended October
31, 1998 is $650,000 and $950,000 relating to costs incurred for the China
Facility.
On October 28, 1998, the Company entered into a definitive agreement with
Westvaco Corporation to sell to Westvaco a 45% minority interest in its China
Facility. Westvaco is a major producer of paper, paperboard, envelopes,
packaging and specialty chemicals, with manufacturing facilities in the United
States, Brazil and the Czech Republic. The final agreement provides for Westvaco
to pay Shorewood, in cash, 45% of the total costs of the China investment plus
an additional $5 million. Day-to-day management control of the operation will
remain with the Company; however, Shorewood will work closely with Westvaco on
marketing programs and new product development. The gain on the sale will be
recorded upon closing of the transaction, expected to take place before the end
of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at October 31, 1998 was $6.7 million as compared to
$7.3 million at May 2, 1998, and working capital was $36.6 million as compared
to $31.0 million as of the same dates respectively. The current ratio at October
31, 1998 was 1.4 to one and was 1.5 to one at May 2, 1998. The Company has a
cash management program whereby collection of accounts receivable are used to
retire revolver obligations, and payments of accounts payable and accrued
expenses are funded through the revolving credit facility.
PAGE 16 OF 21
<PAGE> 17
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Cash flow from operating activities for the six months ended October 31, 1998
was $28.2 million before changes in operating assets and liabilities as compared
to $26.6 million for the corresponding prior period. Cash flows from operations
as well as borrowings under the Company's credit facilities were used to support
$22.1 million in capital investments. In addition, the Company purchased
approximately $15.9 million of treasury stock under the Board of Directors
authorized program described below. The Company anticipates that capital
expenditures will approximate $35.0 million for all of fiscal 1999 including the
completion of the China Facility. The Company has committed to building a
state-of-the-art manufacturing facility in the city of Guangzhou, China, which
has been completed in October 1998. The Company expects to report initial
revenues in the third quarter of 1998. The facility and related equipment will
require an initial capital investment of approximately $45.0 million, including
working capital, which the Company continues to finance through the Company's
existing credit facility.
Through October 31, 1998, the Company has invested approximately $34.8 million
representing costs associated with the lease of the related land, construction
of the manufacturing facility, purchase of the necessary machinery and equipment
and other expenses associated with the start-up of the facility. The Company
anticipates spending the remaining $10.2 million during the remainder of fiscal
1999 with funds generated from operations as well as the existing credit
facility.
The Company's Board of Directors has authorized the purchase of the Company's
common stock as follows:
<TABLE>
<CAPTION>
DATE OF AUTHORIZATION AUTHORIZED SHARES
<S> <C>
January 1993 3.0 million
December 1995 3.0 million
April 1997 1.86 million
</TABLE>
Shares are authorized for purchase from time to time in the open market, subject
to the terms of the Company's credit facility. As of October 31, 1998,
approximately 1.6 million shares remain authorized for purchase.
The Board and management of the Company believe the long-term outlook for the
Company to be promising and that the Company's common stock represents an
attractive investment opportunity. The treasury stock purchases will be made
from time to time as market conditions permit.
In October 1998, in order to facilitate the acquisition of Queens as described
in Note 2 and other global opportunities which may arise over the next several
years, the Company entered into a new credit agreement with its lending banks to
replace its existing credit facility. The new credit facility provides for up to
$325 million of borrowings and consists of a $100 million term loan to be paid
in equal quarterly installments over five years and a $225 million revolving
credit facility maturing at the end of five years. The revolving credit is
available, in its entirety, without any borrowing base limitation. Borrowings
pursuant to the facility will bear interest at the discretion of the Company, at
either the Bank's prime rate (8.0% at October 31, 1998) or at the LIBOR rate
(three month term of 5.22% at October 31, 1998) plus 62.5 to 125 basis points
based upon financial ratios as defined in the underlying Agreement. Initially,
borrowings bear interest at 125 basis points above the LIBOR rate. Unused
commitment fees will range from 20 to 30 basis points (initially 30 basis points
based upon the same financial ratios).
PAGE 17 OF 21
<PAGE> 18
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
In connection with the refinancing, the Company recorded a net of tax
extraordinary charge representing the write-off of previously deferred finance
costs incurred in connection with the former credit facility of approximately
$277 thousand.
The loan agreement contains covenants related to levels of debt to cash flow,
current assets to current liabilities, fixed charge coverage, net worth and
investments (including investments in the Company's own common stock), and
restricts the amount of retained earnings available for payment of dividends. At
October 31, 1998, there was approximately $20.7 million of retained earnings
available for the payment of dividends.
The Company expects that cash flow from operations together with the borrowing
capacity under the revolving credit facility will be sufficient to meet the
needs of the business.
RECENT ACCOUNTING PRONOUNCEMENTS
On June 16, 1998, the Financial Accounting Standards Board adopted Statement on
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Adoption of SFAS No. 133 is not required at
this time. The adoption of SFAS 133 is not expected to have a material impact on
the Company's financial statements.
PAGE 18 OF 21
<PAGE> 19
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
Part II
Item 1 LEGAL PROCEEDINGS
Information concerning legal and environmental matters is incorporated
by reference from Part I, Footnotes 5(d) of Notes to Consolidated
Condensed Financial Statements
Item 2 CHANGES IN SECURITIES
None
Item 3 DEFAULTS UPON SENIOR SECURITIES
None
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of Stockholders was held on September 23,
1998 (the "Meeting"). At the Meeting, the Company's stockholders voted
upon the following matters: (i) The election of two directors
comprising the Class III Directors; (ii) the ratification of proposal
to amend the Company's certificate of incorporation to increase the
number of authorized shares of common stock from 40,000,000 to
60,000,000 (iii) the ratification of proposals to amend the Company's
1995 Performance Bonus Plan; and (iv) the ratification of Deloitte &
Touche LLP as the independent auditors of the Company for the fiscal
year ending May 1, 1999.
The Holders of the Company's common stock voted as a single class on
all matters submitted for a vote at the Meeting. The number of votes
cast for, against or withheld, as well as the number of abstentions, as
to each such matter is set forth below:
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
NAME FOR WITHHELD
-----------------------------------------------------------------------
<S> <C> <C>
Marc P. Shore 23,164,278 309,022
-----------------------------------------------------------------------
Howard M. Liebman 23,170,753 302,547
-----------------------------------------------------------------------
</TABLE>
RATIFICATION OF PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES FROM
40,000,000 TO 60,000,000
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
-----------------------------------------------------------------------
<S> <C> <C>
23,196,600 268,278 8,422
-----------------------------------------------------------------------
</TABLE>
RATIFICATION OF PROPOSALS TO AMEND THE COMPANY'S 1995 PERFORMANCE BONUS
PLAN
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
-----------------------------------------------------------------------
<S> <C> <C>
22,347,716 710,012 415,572
-----------------------------------------------------------------------
</TABLE>
RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP
PAGE 19 OF 21
<PAGE> 20
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
-----------------------------------------------------------------------
<S> <C> <C>
23,405,381 6,752 61,167
-----------------------------------------------------------------------
</TABLE>
Item 5 OTHER INFORMATION
None
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.117 -- Purchase and Sale Agreement among SPC (Bermuda) Ltd., SPC
Asia Ltd. and Westvaco Worldwide Distribution SA, dated as of October
16, 1998 in connection with the sale of an interest in the Company's
China Facility.
10.118 -- Second Amended and Restated Credit Agreement dated as of
October 29, 1998, among Shorewood Packaging Corporation, Shorewood
Corporation of Canada Limited, Nationsbank, N.A., Nationsbank
Montgomery Securities, LLC, The Bank of Nova Scotia, The Chase
Manhattan Bank, The Bank of New York, First Union National Bank,
Societe Generale, ABN AMRO Bank N.V. and Fleet Bank, N.A.
10.119 -- Employment Agreement between Shorewood Packaging Corporation
and Leonard Verebay dated as of October 30, 1998
10.120 -- Employment Agreement between Shorewood Packaging Corporation
and Eric Kaltman dated as of October 30, 1998
10.121 -- Stockholders and Registration Rights Agreement between
Shorewood Packaging Corporation, Leonard Verebay and Eric Kaltman dated
as of October 30, 1998
10.122 -- License Agreement dated as of October 30, 1998 between
Shorewood Packaging Corporation and Queens Group, Inc.
(b) Reports on Form 8-K
Form 8-K filed November 16, 1998 related to the acquisition of the
Queens Group, Inc.
PAGE 20 OF 21
<PAGE> 21
SIGNATURES
Pursuant to the regulations of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHOREWOOD PACKAGING CORPORATION
(Registrant)
by: /s/ Howard M. Liebman
------------------------------------
Howard M. Liebman
Executive Vice President and
Chief Financial Officer
Dated: January 14, 1999
PAGE 21 OF 21
<PAGE> 22
EXHIBIT INDEX
-------------
10.117 Purchase and Sale Agreement among SPC (Bermuda) Ltd., SPC
Asia Ltd. and Westvaco Worldwide Distribution SA, dated as of October
16, 1998 in connection with the sale of an interest in the Company's
China Facility.
10.118 Second Amended and Restated Credit Agreement dated as of
October 29, 1998, among Shorewood Packaging Corporation, Shorewood
Corporation of Canada Limited, Nationsbank, N.A., Nationsbank
Montgomery Securities, LLC, The Bank of Nova Scotia, The Chase
Manhattan Bank, The Bank of New York, First Union National Bank,
Societe Generale, ABN AMRO Bank N.V. and Fleet Bank, N.A. (PREVIOUSLY
FILED)
10.119 Employment Agreement between Shorewood Packaging Corporation
and Leonard Verebay dated as of October 30, 1998
10.120 Employment Agreement between Shorewood Packaging Corporation
and Eric Kaltman dated as of October 30, 1998
10.121 Stockholders and Registration Rights Agreement between
Shorewood Packaging Corporation, Leonard Verebay and Eric Kaltman dated
as of October 30, 1998
10.122 License Agreement dated as of October 30, 1998 between
Shorewood Packaging Corporation and Queens Group, Inc.
<PAGE> 1
Exhibit 10-117
PURCHASE AND SALE AGREEMENT
BY AND AMONG
SPC (BERMUDA) LTD.
SPC ASIA, LTD.
AND
WESTVACO WORLDWIDE DISTRIBUTION S.A.
OCTOBER 16, 1998
REDACTED
<PAGE> 2
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT dated as of the 16th day of
October, 1998 by and among SPC (Bermuda) Ltd., a Bermuda corporation and SPC
Asia, Ltd., a Bermuda corporation (together, "SPC"), each of which is a
wholly-owned subsidiary of Shorewood Packaging Corporation., a Delaware
corporation ("Shorewood"), Shorewood, Westvaco Worldwide Distribution S.A., a
Swiss corporation ("Purchaser") and a wholly-owned subsidiary of Westvaco Corp.,
a Delaware corporation ("Westvaco"), and Westvaco.
W I T N E S S E T H:
WHEREAS, Shorewood Asia Ventures, Ltd. is a private company
limited by shares organized under the laws of Bermuda ("Shorewood Asia");
Shorewood Packaging China Ventures Ltd. is a private company limited by shares
organized under the Laws of the Republic of Mauritius ("Shorewood Mauritius");
Shorewood Packaging (GUANGZHOU) Co., Ltd., is a company established in the
People's Republic of China ("Shorewood Guangzhou"); and SPC is the beneficial
and record owner of all of the issued and outstanding equity securities of
Shorewood Asia;
WHEREAS, Shorewood Guangzhou was formed to engage in the
business (the "China Business") of operating and maintaining a manufacturing
facility for paperboard folding carton packaging located in Guangzhou, Guangdong
Province, China (the "Facility"); the Facility is presently under construction,
and is scheduled to become operational in the Fall of 1998;
WHEREAS, on or prior to the Closing Date (as hereinafter
defined), Shorewood expects to cause (i) Shorewood Asia to become the sole
beneficial and record holder of all of the issued and outstanding equity
securities of Shorewood Mauritius and (ii) Shorewood Mauritius to become the
sole beneficial and record holder of all of the issued and outstanding equity
securities of
2
<PAGE> 3
Shorewood Guangzhou (the transaction described in clause (ii) to
be referred to herein as the "Guangzhou Ownership Change" and the transactions
described in clauses (i) and (ii) to be referred to herein jointly as the
"Corporate Restructuring");
WHEREAS, Purchaser wishes to purchase from SPC, and SPC wishes
to sell to Purchaser, that number of shares of capital stock of Shorewood Asia
(the "Shares") which shall, as at the Closing Date, represent in the aggregate
forty-five percent (45%) of the issued and outstanding shares of capital stock
of Shorewood Asia, on the terms and conditions set forth herein;
WHEREAS, Shorewood has advanced or loaned, or has committed to
advance or loan, various monies to Shorewood Guangzhou (such loans to be herein
referenced to as the "Shorewood Loans") which Shorewood expects to document
through a Shareholder's Expense Reimbursement Contract, a Shareholder's Term
Loan Facility Contract and a Shareholder's Revolving Loan Facility Contract,
each in substantially the form previously delivered to Purchaser (each, a "Loan
Document" and, together, the "Loan Documents");
WHEREAS, on or prior to the Closing Date, all rights under the
Loan Documents shall have been assigned to, and all obligations under the Loan
Documents shall have been assumed by, Shorewood Mauritius (said transaction, the
"Assignment and Assumption");
WHEREAS, <REDACTED> and
WHEREAS, the parties hereto have mutually determined and
agreed that the Chinese Authority Approval (as defined herein) is required to
implement the Guangzhou Ownership Change and the <REDACTED>, as described in
this Agreement.
1. PURCHASE AND SALE OF SHARES
1.1 Purchase Price. The purchase price (the "Purchase Price")
to be paid by Purchaser for the Shares is that amount which, as at the Closing
Date, is equal to forty-five percent
3
<PAGE> 4
(45%) of Shorewood's Project Costs (as defined in Section 9) to date plus US $5
Million; but in no event shall the Purchase Price exceed US $25.25 Million. The
Purchase Price shall be paid, and Westvaco shall cause Purchaser to pay the
Purchase Price, to SPC at the Closing in United States Dollars by wire transfer
of immediately available funds to an account(s) designated by Shorewood.
1.2 Additional Payments. (a) At the Closing, the Purchaser
shall, and Westvaco shall cause the Purchaser to, pay to SPC an amount equal to
forty-five percent (45%) of the Shorewood Override Contributions (as defined in
Section 9), if any, in United States Dollars by wire transfer of immediately
available funds to an account or accounts designated by Shorewood.
(b) Purchaser shall have no obligation to reimburse SPC or
Shorewood in respect of amounts loaned or contributed by Shorewood, directly or
indirectly through the other Shorewood Entities, prior to the Closing in
connection with the China Business which are neither Shorewood Override
Contributions nor Shorewood Project Costs.
(c) Notwithstanding anything to the contrary contained in this
Article 1, Purchaser may credit against the amounts otherwise payable by it at
Closing pursuant to this Section 1 an amount equal to forty-five percent (45%)
of the Net Operating Gains (as defined in Section 9), if any, of the Shorewood
China Entities (as defined in Section 3.3).
(d) The amounts to be paid to or credited against the various
parties at Closing shall be based upon the amounts of the Shorewood Project
Costs as of the Closing Date, Shorewood Override Contributions and Net Operating
Gains (Losses) shown in the Officer's Certificate, subject to adjustment after
the Closing pursuant to paragraph (e) below. Shorewood shall deliver to Westvaco
no later than ten (10) business days prior to the Closing a good faith estimate
of the amounts of the Shorewood Project Costs as of the Closing Date, Shorewood
Override Contributions and Net Operating Gains (Losses) which will be shown in
the Officer's
4
<PAGE> 5
Certificate (the "Estimated Officer's Certificate"). The amounts of the
Shorewood Project Costs as of the Closing Date, Shorewood Override Contributions
and Net Operating Gains (Losses) shown in the Officer's Certificate shall be
deemed to be acceptable to and shall become final and binding on the parties,
except to the extent that Westvaco shall have made a specific written objection
thereto as provided in paragraph (e) below.
(e) If Westvaco disagrees with the amounts set forth in the
Officer's Certificate, Westvaco shall notify Shorewood in writing of such
disagreements within thirty (30) days after the Closing Date, which written
notice shall specify the nature of the dispute and shall provide in reasonable
detail the facts or accounting principles upon which such dispute is based.
Thereafter, Westvaco and Shorewood shall use their best efforts to resolve such
disagreement with respect to the Officer's Certificate. If Westvaco and
Shorewood are unable to resolve any disagreement within twenty (20) days after
Shorewood's receipt of such notice of disagreement, then either Westvaco or
Shorewood (the "Submitting Party") may submit such disagreement to a certified
independent public accounting firm that is nationally recognized (the
"Independent Accounting Firm") and mutually agreeable to Westvaco and Shorewood
upon notice thereof (an "Arbitration Notice") to the other party. If Westvaco
and Shorewood cannot agree upon such election within ten (10) business days
after the Submitting Party's Arbitration Notice is received by the other party,
the Independent Accounting Firm shall be selected by lot from among the other
national public accounting firms in the United States, excluding Deloitte &
Touche LLP and PricewaterhouseCoopers LLP and their respective Affiliates. The
Independent Accounting Firm will be instructed to use its best efforts to render
its decision as to all items in dispute within thirty (30) days of submission.
The decision of the Independent Accounting Firm shall be final and binding upon
all parties hereto and the amounts paid by Purchaser at the Closing
5
<PAGE> 6
shall be adjusted, either upward or downward, and thus Purchaser shall either
pay to SPC additional consideration or receive from SPC a refund, in accordance
with any upward or downward adjustment in the amount of the Shorewood Project
Costs as of the Closing Date, Shorewood Override Contributions or Net Operating
Gains (Losses) as determined by the Independent Accounting Firm. Each party
shall bear its own expenses, including expenses of its accountants and attorneys
in connection with the resolution of any such dispute, and the fees and expenses
of the Independent Accounting Firm shall be paid by the parties as determined by
the Independent Accounting Firm.
(f) During the period beginning on the date Shorewood delivers
the Estimated Officer's Certificate to Westvaco and ending on the Closing Date
and during the period of any dispute within the contemplation of Section 1.2(e),
Shorewood shall: (i) provide Westvaco and its authorized representatives with
reasonable access, during normal business hours and upon reasonable prior
written notice, to all relevant books, records (including work papers, schedules
and memoranda), facilities and employees of Shorewood involved in the
preparation of the Estimated Officer's Certificate and the Officer's Certificate
and (ii) cooperate with Westvaco and its authorized representatives, as they may
reasonably request, including the provision on a timely basis of relevant
information used in preparing the Estimated Officer's Certificate and the
Officer's Certificate.
1.3 Instruments of Transfer. At the Closing, SPC shall, and
Shorewood shall cause SPC to, (a) deliver one or more certificates representing
the Shares purchased hereunder registered in the name of the Purchaser and (b)
execute and deliver to Purchaser and Purchaser shall execute and acknowledge
receipt of assignment and assumption documents duly transferring to Purchaser
all of SPC's right, title and interest in and to the Shares, in the form of
Exhibit 1.3 hereto.
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2. CLOSING
2.1 Closing. The closing (the "Closing") of the sale and
purchase of the Shares and the other transactions contemplated hereunder shall
occur as promptly as practicable, but not later than ten (10) business days
following satisfaction or waiver of the conditions set forth in Sections 6 and 7
(the "Closing Date"), at the offices of Bryan Cave LLP, 245 Park Avenue, New
York, New York 10167 at or about 10:00 A.M. local time or at such other time and
place as is agreed to in writing by the parties hereto.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. SPC and Shorewood,
jointly and severally, represent and warrant to the Purchaser as follows:
3.1 Due Formation and Qualification. Each of Shorewood, SPC,
Shorewood Mauritius, Shorewood Asia and Shorewood Guangzhou (together, the
"Shorewood Entities") is an entity duly formed, validly existing and in good
standing under the laws of the jurisdiction of its formation, and, has all
requisite power and authority to own, lease and operate its assets, properties
and business and to conduct its business as now being and as heretofore
conducted.
3.2 Authority to Execute and Perform Documents. Each of SPC
and Shorewood has the full legal right and power and all authority and approval
required to enter into, execute and deliver the "JV Documents" (as hereinafter
defined) and to perform fully its obligations thereunder including, without
limitation, the obligation to convey the Shares to Purchaser, free and clear of
all Liens (as hereinafter defined). The JV Documents have been, or will be at
the Closing, duly executed and delivered by SPC and Shorewood, if it is a party
thereto, and are, or will be when and as executed, the valid and binding
obligation of SPC and Shorewood, if it is a party thereto, enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
from time to time in effect which affect
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creditors' rights generally and by general principles of equity regardless of
whether such enforceability is considered in a proceeding in equity or at law.
The execution and delivery of the JV Documents, the consummation of the
transactions contemplated thereby and the performance by SPC and Shorewood of
each of the JV Documents to which it is a party in accordance with its terms and
conditions will not require the approval, consent of, waiver, order or
authorization of, or registration, declaration or filing with, any foreign,
federal, state, county, local or other governmental or regulatory body or the
approval or consent of any other person except for the Chinese Authority
Approval. Upon delivery of and payment for the Shares herein provided, Purchaser
will acquire good and valid title thereto, free and clear of any Lien.
3.3 Capitalization. As of the Closing Date, (a) SPC will be
the sole record and beneficial holder of all outstanding equity securities of
Shorewood Asia and no class of capital stock other than common shares will be
authorized or outstanding; (b) Shorewood Asia will be the sole record and
beneficial holder of all outstanding equity securities of Shorewood Mauritius
and no class of capital stock other than common shares will be authorized or
outstanding; (c) Shorewood Mauritius will be the sole record and beneficial
holder of all outstanding equity securities of Shorewood Guangzhou; and (d)
there will be as at that time no authorized or outstanding options, warrants,
subscription calls, rights, commitments, conversion rights, plans or other
agreements of any character obligating either SPC, Shorewood Asia, Shorewood
Mauritius or Shorewood Guangzhou (collectively, the "Shorewood China Entities")
to authorize, issue, deliver, sell or redeem any of their respective securities
or other instruments or rights or participations convertible thereto.
3.4 Compliance with Laws. To the best knowledge of SPC and
Shorewood, none of the Shorewood China Entities or Shorewood is in violation of
(i) any applicable order, judgment, injunction, award or decree where such
violation would have a Material Adverse Effect (as
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hereinafter defined) or (ii) any applicable law, ordinance or regulation or
permit or license or any other requirement of any governmental or regulatory
body, court or arbitrator applicable to the China Business where such violation
would have a Material Adverse Effect, <REDACTED>, and other regulatory filings
may be required in connection with the Corporate Restructuring, which filings
have not yet been made.
3.5 No Breach. The execution, delivery and performance of the
JV Documents have not and the consummation of the transactions contemplated
thereby will not (i) violate, conflict with or result in a breach of any of the
provisions of the organizational documents or similar instruments of SPC or
Shorewood, (ii) violate, conflict with or result in the breach of any of the
terms of, result in a material modification of, or otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time or both constitute) a default (by way of substitution, notation or
otherwise) under, any instrument, contract or other agreement to which SPC or
Shorewood is or was a party or by or to which either of them or any of their
assets or properties may be bound or subject, (iii) violate any order, writ,
judgment, injunction, award or decree of any court, arbitrator or governmental
or regulatory body against, or binding upon, SPC or Shorewood or upon the
securities, properties or business of either SPC or Shorewood; or (iv) except
for the matters referenced in the last proviso of Section 3.4, violate any
statute, law or regulation of any jurisdiction as such statute, law or
regulation relates to SPC or Shorewood, the Shares, or, to the best knowledge of
SPC and Shorewood, the China Business.
3.6 Litigation; Actions and Proceedings. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal against or involving
either Shorewood Asia, Shorewood Mauritius or Shorewood Guangzhou; and there are
no outstanding orders, judgments, injunctions, awards or decrees of any
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court, governmental or regulatory body or arbitration tribunal against Shorewood
which would have a material adverse effect on the ability of SPC or Shorewood to
consummate the transactions contemplated hereby. There are no actions, suits or
claims (including construction claims) or legal, administrative or arbitral
proceedings or, to the knowledge of SPC or Shorewood, investigations pending or,
to the knowledge of SPC, threatened in writing against or involving Shorewood,
Shorewood Asia, Shorewood Mauritius or Shorewood Guangzhou or any of their
respective properties or assets, that individually or in the aggregate, could
have a Material Adverse Effect.
3.7 Consents. Except for the Chinese Authority Approval, each
required filing or registration with, or consent, approval or other action of,
any governmental department, commission, board, bureau, agency or
instrumentality has been made, received, or taken, as the case may be, in
connection with the valid execution, delivery and performance of the JV
Documents by SPC and Shorewood.
3.8 Finders and Investment Bankers. None of the Shorewood
Entities, nor any of their respective managers, officers or directors, have
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated
hereby.
3.9 SPC Knowledge. Notwithstanding anything to the contrary
set forth in this Section 3 or elsewhere in this Agreement, the qualification of
any representation, warranty or statement made by or in respect of either SPC or
Shorewood or both SPC and Shorewood, whether set forth in this Section 3 or in
an exhibit or schedule referenced in this Section 3 or anywhere else in this
Agreement by use of the words "to SPC's knowledge", "to Shorewood's knowledge",
"to SPC's best knowledge", "to Shorewood's best knowledge", "known to SPC" or
"known to Shorewood" or words to that effect means that, after reasonable
inquiry with the personnel having supervisory
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responsibility over the matter at hand, no information has come to the knowledge
of either Marc P. Shore, Andrew Shore, Howard Liebman, William Hogan, Bruce
Summerlin, Robert "Bob" Reeves or David Stratton.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser and Westvaco jointly and severally represent and
warrant to SPC and Shorewood as follows:
4.1 Due Organization. Each of Purchaser and Westvaco is an
entity duly formed and validly existing under the laws of its jurisdiction of
incorporation and has full power and lawful authority to own, lease and operate
its assets, properties and business and to carry on its business as now being
and as heretofore conducted.
4.2 Purchase for Investment; Speculative Investment. Purchaser
is purchasing the Shares for its own account, for investment and not for resale
or distribution. Purchaser acknowledges that an investment in the Shares
involves special, speculative and substantial risk because, among other things,
the China Business is at a formative stage, the Facility has not yet commenced
operations and Shorewood Guangzhou presently has no customers or sales or
operating history and the political and economic climate in China remains
uncertain and unpredictable. Purchaser further represents that it has made the
determination to enter into this Agreement based upon its own independent
evaluation and assessment of the present and prospective business prospects of
the China Business and has not relied on, or been induced to enter into this
Agreement on account of, any representation or warranty of any kind, whether
oral or written, express or implied, except for such representations and
warranties of SPC and Shorewood as are specifically set forth in this Agreement
and the other JV Documents.
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4.3 Compliance with Laws. Neither Westvaco nor Purchaser is in
violation of any applicable order, judgment, injunction, award or decree where
such violation would have a material adverse effect on the ability of Purchaser
or Westvaco to consummate the transactions contemplated hereby. Neither Westvaco
nor Purchaser is in violation of any federal, state or local law, ordinance or
regulation or any other requirement of any governmental or regulatory body,
court or arbitrator applicable to its business where such violation would have a
material adverse effect on the ability of Purchaser or Westvaco to consummate
the transactions contemplated hereby.
4.4 No Breach. The execution, delivery and performance of the
JV Documents and the consummation of the transactions contemplated thereby will
not (i) violate, conflict with or result in a breach of any of the provisions of
the certificate of formation or other applicable instrument of the Purchaser or
Westvaco; (ii) violate, conflict with or result in the breach of any of the
terms of, result in a material modification of, or otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time or both constitute) a default (by way of substitution, novation or
otherwise) under, any instrument, contract or other agreement to which Purchaser
or Westvaco is a party or by or to which they or any of their respective assets
or properties may be bound or subject; (iii) violate any order, writ, judgment,
injunction, award or decree of any court, arbitrator or governmental or
regulatory body against, or binding upon, Purchaser or Westvaco; or (iv) violate
any statute, law or regulation of any jurisdiction as such statute, law or
regulation relates to the Purchaser or Westvaco.
4.5 Consents. Each required filing or registration with, or
consent, approval or other action of, any governmental department, commission,
board, bureau, agency or instrumentality has been made, received, or taken, as
the case may be, in connection with the valid execution, delivery and
performance of the JV Documents by Purchaser and Westvaco.
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4.6 Finders and Investment Bankers. Neither Purchaser nor
Westvaco has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby.
5. COVENANTS AND AGREEMENTS. The parties covenant and agree as follows:
5.1 Consent to Jurisdiction and Service of Process. Any legal
action, suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby may be instituted in any state or federal court
located in New York County, State of New York, and each party agrees not to
assert, by way of motion, as a defense, or otherwise, in any such action, suit
or proceeding, any claim that it is not subject personally to the jurisdiction
of such court, that its property is exempt or immune from attachment or
execution, that the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court.
Each party further irrevocably submits to the non-exclusive jurisdiction of any
such court in any such action, suit or proceeding. SPC hereby appoints Andrew
Shore, Esq., General Counsel, Shorewood Packaging Corporation, at its offices at
277 Park Avenue, New York, New York 10172, and Purchaser hereby appoints John W.
Hetherington, Corporate Secretary, Westvaco Corp., Westvaco Building, 299 Park
Avenue, New York, New York 10171 (or at each such person's or entity's office at
such other address as such person or entity hereafter furnishes to the other
parties) as such party's authorized agent to accept and acknowledge on such
party's behalf service of any and all process that may be served in any such
action, suit or proceeding. Any and all service of process and any other notice
in any such action, suit or proceeding shall be effective against any party if
given personally or by registered or certified mail, return receipt requested,
or by any other means of mail that requires a signed receipt, postage prepaid,
mailed to such party as herein provided. Nothing herein contained shall be
deemed
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to affect the right of any party to serve process in any manner permitted
by law or to commence legal proceedings or otherwise proceed against any other
party in any jurisdiction other than New York. Each of the parties hereto hereby
irrevocably waives the right to a jury trial in respect of any proceeding or
claim arising under the JV Documents.
5.2 Public Announcements. Neither Purchaser nor Westvaco nor
any Shorewood Entity shall, without the prior consent of the others, make any
public statement, announcement or release to trade publications or to the press,
or make any statements to any competitor, customer or any third party, with
respect to the JV Documents except to the extent that any party is advised by
its counsel that a public statement is required by law, in which event such
party may make appropriate public disclosure upon prior notice to the other
parties.
5.3 Further Assurances. Each of the parties shall execute such
documents or other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall use its reasonable efforts to fulfill
or obtain the fulfillment of the conditions to Closing.
5.4 Conduct of China Business Before Closing. From the date
hereof until the Closing Date, Shorewood shall, and shall cause each of the
other Shorewood Entities to, (a) operate the China Business in the ordinary
course and (b) refrain from taking any action which would require a material
change or addition to or a deletion from the disclosures of SPC and Shorewood
contained in Section 3. Shorewood shall not, without the prior written consent
of Purchaser, permit or cause any of the Shorewood China Entities to:
(a) except as may be required to effect the Corporate
Restructuring or to comply with any valid and mandatory government regulation,
amend its charter documents or by-laws;
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(b) except for the issuance of securities contemplated by the
Corporate Restructuring, issue stock;
(c) merge, consolidate, liquidate or dissolve;
(d) acquire or make a substantial investment in another
business;
(e) change the number of its directors;
(f) change its independent auditors;
(g) incur indebtedness in excess of US$500,000 in the
aggregate at anytime outstanding, other than purchases on credit in the ordinary
course of business and Shorewood Project Costs and Shorewood Override
Contributions;
(h) enter into transactions with Affiliates, except that
Shorewood or any of its Affiliates may provide services or personnel at cost or
goods or equipment at fair market value to such Shorewood China Entity without
restriction hereunder;
(i) sell a material portion of its assets;
(j) distribute property or cash to the holders of its equity;
or
(k) commence or settle litigation other than in the ordinary
course of business.
In connection with the continued operation of the China
Business between the date hereof and the Closing, Shorewood shall confer in good
faith, as Westvaco may reasonably request, with one or more representatives of
Westvaco designated in writing as Westvaco's representatives with respect to the
China Business. Shorewood agrees to use all reasonable efforts to deliver to
Westvaco true and complete copies of the instruments of formation and other
organizational documents of each of Shorewood China Entities as soon as is
reasonably practicable after the date hereof.
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6. DELIVERIES BY SPC TO PURCHASER AT CLOSING. At the Closing, the
following deliveries shall be made by SPC and Shorewood to Purchaser, and the
following conditions shall be satisfied, in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
by the JV Documents, except to the extent, if any, waived by Purchaser:
6.1 Delivery of Assignment of Shares. SPC shall have delivered
to Purchaser the certificate or certificates representing the Shares and duly
executed assignment and assumption documents in the form of Exhibit 1.3 hereto,
transferring to Purchaser all of SPC's right, title and interest in and to the
Shares. SPC shall have paid, or cause to be paid, all transfer and other taxes
required to be paid in connection with the sale and delivery to Purchaser of the
Shares owned by SPC.
6.2 Stockholders' Agreement. SPC shall have delivered to
Purchaser a duly executed counterpart copy of the Members Agreement of Shorewood
Asia Ventures, Ltd. (the "Stockholders' Agreement") attached hereto as Exhibit
6.2.
6.3 Representations, Warranties and Covenants. The
representations and warranties of SPC and Shorewood contained in the JV
Documents shall be true in all material respects on and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date,
except for representations and warranties specifically relating to a time or
times other than the Closing Date (which shall be true and correct in all
material respects at such time or times). SPC and Shorewood shall have performed
and complied in all material respects with all covenants and agreements required
by the JV Documents to be performed or complied with by SPC and Shorewood on or
prior to the Closing Date. SPC shall have delivered to Purchaser a certificate,
dated
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the Closing Date and signed by each of them, to the foregoing effect and stating
that all conditions to Purchaser's obligations hereunder have been satisfied.
6.4 Transactions Completed; Approval Obtained. (a) The
Assignment and Assumption and the Corporate Restructuring shall have been
completed and (b) the China Authority Approval (as defined below) shall have
been obtained or waived. As used herein, the "China Authority Approval" shall
mean (i) with respect to the Guangzhou Ownership Change, the approval or written
waiver of the Ministry of Foreign Trade and Economic Cooperation of the People's
Republic of China (MOFTEC) or such lesser governmental or regulatory body of the
People's Republic of China or any of its political subdivisions as may be
empowered or authorized under applicable law and regulation then in effect to
grant such approval or waiver <REDACTED>
6.5 CFO Certificate. Shorewood shall have delivered to
Purchaser (i) no later than ten (10) business days prior to the Closing the
Estimated Officer's Certificate; and (ii) at or prior to the Closing the
Officer's Certificate.
7. DELIVERIES BY PURCHASER TO SPC AT CLOSING. At the Closing, the
following deliveries shall be made by Purchaser and Westvaco to SPC, and the
following conditions shall be satisfied, in connection with the execution and
delivery of the JV Documents and the consummation of the transactions
contemplated by the JV Documents, except to the extent, if any, waived by SPC:
7.1 Deliverables. Purchaser shall have delivered to SPC a duly
executed counterpart copy of the Stockholders' Agreement signed by Purchaser.
7.2 Representations and Covenants. The representations and
warranties of Purchaser and Westvaco contained in the JV Documents shall be true
in all material respects on and
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as of the Closing Date with the same force and effect as though made on and as
of the Closing Date, except for representations and warranties specifically
relating to a time or times other than the Closing Date (which shall be true and
correct in all material respects at such time or times). Purchaser and Westvaco
shall have performed and complied in all material respects with all covenants
and agreements required by the JV Documents to be performed or complied with by
them on or prior to the Closing Date. Purchaser shall have delivered to SPC a
certificate, dated the Closing Date and signed by one of its officers, to the
foregoing effect and stating that all conditions to SPC's obligations hereunder
have been satisfied.
7.3 Purchase Price. Purchaser shall have delivered to SPC the
Purchase Price and any other payments required to be made by it in accordance
with Sections 1.1 and 1.2.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; EARLY
TERMINATION; INDEMNIFICATION.
8.1 Survival of Representative and Warranties; Early
Termination. All representations and warranties contained in this Agreement
shall survive for a period of eighteen (18) months after the Closing Date. This
Agreement may be terminated at any time prior to the Closing Date (a) by mutual
agreement of Westvaco and Shorewood, (b) by Westvaco, by written notice to
Shorewood, if the conditions set forth in Section 6, or any of them, are not
complied with or performed or waived on or before the eighteen (18) month
anniversary of the date hereof (through no fault of Westvaco) or (c) by
Shorewood, by written notice to Westvaco, if the conditions set forth in Section
7, or any of them, are not complied with or performed or waived on or before the
eighteen (18) month anniversary of the date hereof (through no fault of
Shorewood).
8.2 Indemnification. (a) Westvaco and Purchaser and their
respective managers, directors, representatives and officers (individually, a
"Westvaco Indemnitee") shall be indemnified
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and held harmless by Shorewood from and against any and all losses, claims,
damages, liabilities, expenses (including reasonable legal fees and expenses),
judgments, fines, settlements and other amounts arising from any and all claims,
demands, actions, suits or proceedings, civil, criminal, administrative or
investigative, in which the Westvaco Indemnitee may be involved, or threatened
to be involved, as a party or otherwise by reason of any breach of any
representation or warranty made by Shorewood and SPC contained in Section 3 of
this Agreement and (b) Shorewood and SPC and each of their respective managers,
directors, representatives and officers (individually, a "Shorewood Indemnitee")
shall be indemnified and held harmless by Westvaco from and against any and all
losses, claims, liabilities, expenses (including reasonable legal fees and
expenses), judgments, fines, settlements and other amounts arising from any and
all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, in which the Shorewood Indemnitee may be
involved or threatened to be involved, as a party or otherwise, by reason of any
breach of any representation or warranty of Westvaco and Purchaser contained in
Section 4 of this Agreement.
9. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the definitions hereinafter ascribed to them:
The term "Affiliate" means, with respect to any
party, any entity or individual that directly or indirectly controls, is
controlled by or is under common control with such entity.
(a) "JV Documents" shall mean (i) this Agreement and
(ii) the Stockholders' Agreement. Any reference to a JV Document with respect to
a party means any JV Document to be executed by such party.
(b) "Lien" shall mean any lien, pledge, mortgage,
security interest, claim, lease, charge, option, right of first refusal,
easement, servitude, transfer restriction under any
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operating or similar agreement, encumbrance, judgment, order, writ, injunction,
award, decree or any other similar restriction or limitation whatsoever.
(c) "Material Adverse Effect" shall mean a material
adverse effect upon the assets, properties, business, operations, or condition
(financial or otherwise) of the China Business taken as a whole.
(d) "Officer's Certificate" means a certificate of
Shorewood executed by the Chief Financial Officer of Shorewood, dated the
Closing Date, certifying as to the amount of the Shorewood Project Costs,
Shorewood Override Contributions, and Net Operating Gains (Losses), and
containing a summary description setting forth in reasonable detail how the
respective amounts were derived.
(e) "Interim Period Working Capital Contributions"
means all sums up to an aggregate amount of $15,000,000 loaned or contributed by
Shorewood, directly or indirectly through the other Shorewood Entities, after
the Shorewood Project Costs have been funded in full and prior to the Closing
Date to fund the working capital requirements of the China Business.
(f) "Net Operating Gains (Losses)" means the combined
EBITDA (earnings (losses) before interest, taxes, depreciation and amortization)
of the Shorewood Chinese Entities for the period commencing on the date hereof
and ending on the Closing Date, as reflected in the audited, to the extent
available, and the unaudited, unconsolidated financial statements of the
Shorewood Chinese Entities for the applicable period or periods, and certified
by the Chief Financial Officer of Shorewood as at the Closing Date in the
Officer's Certificate.
(g) "Shorewood Override Contributions" means all
Interim Period Working Capital Contributions plus all other amounts, if any,
loaned or contributed by Shorewood, directly or indirectly through the other
Shorewood Entities, after the Shorewood Project Costs have
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been funded in full and prior to the Closing Date (i) to fund capital
expenditures of the China Business, up to an aggregate amount of $750,000 per
quarter or (ii) otherwise in connection with the China Business pursuant to a
budget or other instrument or consent jointly approved by Shorewood and
Westvaco.
(h) "Shorewood Project Costs" means all direct and
indirect, hard and soft, costs and expenses up to an aggregate amount of
$45,000,000 paid or incurred by Shorewood and the other Shorewood Entities at
any time in connection with the formation and organization of the Shorewood
China Entities, the acquisition of the land rights underlying the Facility and
the construction, build-out, equipping, roll-out and operation of the Facility,
including, without limitation, fees paid to outside consultants, reasonable
travel expenses, deposits, fees paid to attorneys, due diligence expenses,
capitalized interest, working capital, pre-operational SGA, construction costs,
professional fees, acquisition costs, equipment costs and purchases, personnel
recruitment and training costs, capital improvement work, and governmental fees
and assessments.
10. MISCELLANEOUS.
10. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by confirmed facsimile transmission or sent by
certified, registered or express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, two days after the date of deposit in the
United States mails, as follows:
(i) if to SPC, to:
c/o Shorewood Packaging
277 Park Avenue
New York, New York 10172
Attention: Andrew Shore, Esq., Vice President and
General Counsel
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Facsimile No.: (212) 508-5677
and a copy to:
Bryan Cave LLP
245 Park Avenue
New York, New York 10167-0034
Attention: Peter A. Eisenberg, Esq.
Facsimile No.: (212) 692-1900
(ii) If to Purchaser, to:
Westvaco Corp.
Westvaco Building
299 Park Avenue
New York, NY 10171
Attention: General Counsel
Facsimile No: (212) 318-5026
Any party may by notice given in accordance with this Section
to the other parties designate another address or person for receipt of notices
hereunder.
10.2 Entire Agreement. The JV Documents (including the
schedules) and the collateral agreements executed in connection with the
consummation of the transactions contemplated herein contain the entire
agreement among the parties with respect to the purchase of the Shares and
related transactions, and supersedes all prior agreements, written or oral, with
respect thereto.
10.3 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. The JV Documents may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by the parties or, in the case of a waiver, by the party
waiving compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
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privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity.
10.4 Governing Law. The JV Documents shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State (without giving
effect to conflicts of law principles thereof).
10.5 Binding Effect; No Assignment; No Third Party
Beneficiaries. The JV Documents shall be binding upon and inure to the benefit
of the parties and their respective successors, assigns and legal
representatives. Nothing contained herein is intended or shall be construed as
creating third party beneficiaries to. None of the JV Documents is assignable,
except by operation law or as permitted in accordance with the express terms of
any such document or with the consent of all parties thereto.
10.6 Variations in Pronouns. All pronouns and any variations
thereof refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
10.7 Counterparts. The JV Documents may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
10.8 Exhibits and Schedules The Exhibits and Schedules are a
part of this Agreement as if fully set forth herein. All references herein to
Sections, subsections, clauses, Exhibits and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require.
10.9 Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
23
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10.10 Expenses. Each of the SPC and the Purchaser shall pay
its expenses incident to preparing, entering into and performing the JV
Documents and the transactions contemplated therein, except for an amount equal
to $10,000 constituting the expenses incurred by Shorewood in connection with
the initial draft of the Stockholders' Agreement, which amount shall be treated
for all purposes under the JV Documents as a Shorewood Project Cost.
[INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement as of the date first above written.
SELLER:
SPC (BERMUDA) LTD.
By: S/
--------------------------
Name: Marc Shore
Title: CEO/Pres
SPC ASIA, LTD.
By: S/
--------------------------
Name: Marc Shore
Title: CEO/Pres
SHOREWOOD PACKAGING CORPORATION
By: S/
--------------------------
Name: Marc Shore
Title: CEO/Pres
WESTVACO WORLDWIDE DISTRIBUTION S.A.
By: S/
--------------------------
Name: R.S. Wallinger
Title: Senior Vice President
WESTVACO CORPORATION
By: S/
--------------------------
Name: R.S. Wallinger
Title: Senior Vice President
25
<PAGE> 1
Exhibit 10-119
EMPLOYMENT AGREEMENT
LEONARD VEREBAY
WITH
SHOREWOOD PACKAGING CORPORATION
AGREEMENT made effective as of October 30, 1998, between
Shorewood Packaging Corporation, a Delaware corporation having its principal
executive offices at 277 Park Avenue, New York, N.Y., 10172-0124 (herein called
the "Corporation"), and Leonard Verebay currently residing at 6521 Woodworth
Court, Indianapolis, IN 46237 (herein called the "Executive").
W I T N E S S E T H
The Corporation has acquired the assets of Queens Group, Inc.,
the former employer of the Executive.
The Corporation recognizes that the Executive possesses
extensive knowledge and skill in the business of his former employer and
recognizes that this expertise is essential to an orderly transaction.
This Agreement is intended to provide the Corporation with the
exclusive benefit of the Executive's skill and experience for the term hereof.
Accordingly, the parties desire to and do hereby enter into
this Agreement as of the date first set forth above.
NOW, THEREFORE,
1. EMPLOYMENT
(a) EMPLOYMENT PERIOD. The Corporation agrees to and does hereby
employ the Executive as Executive Vice President of the
Corporation for the period commencing October 30, 1998 and
terminating December 31, 2001, unless earlier terminated
pursuant to Section 6 below (the "Employment Period"), and the
Executive agrees that he shall serve as Executive Vice
President of the Corporation during the Employment Period.
(b) EMPLOYMENT DUTIES. Except as hereinafter provided, the
Executive shall during the Employment Period perform the
executive and administrative duties and functions and shall
have the powers and privileges of an Executive Vice President
of the Corporation, as such duties, functions, powers and
privileges are defined in the By-Laws of the Corporation in
effect on the date hereof and as currently
<PAGE> 2
interpreted, and, to the extent not defined therein, as the
same are customarily performed and exercised by an Executive
Vice President of a publicly owned corporation incorporated in
one of the states of the United States of America. If so
elected, the Executive shall, during the Employment Period,
serve as a member of the Board of Directors (and of the
Executive Committee or any similar committee having powers of
the Board of Directors now in existence or hereafter created)
of the Corporation without any additional compensation for
such services for so long as the Executive is elected to serve
on the Board, the Executive Committee or any similar
committee. As used in this Agreement, the term "Corporation"
includes each Subsidiary of the Corporation. So long as he is
an officer of the Corporation, the Executive agrees to devote
substantially all his business time to the business and
affairs of the Corporation, and to exert his best efforts in
the performance of his duties as an officer, director and
member of any committee of the Board of Directors of the
Corporation to which he may be elected, so as to promote the
profit, benefit and advantage of the business to the
Corporation. Notwithstanding the foregoing, the Corporation
acknowledges that Executive is a stockholder, and serves on
the board of directors, of each of Oliver Trucking Corporation
and Q2 Marketing, Inc. (the "Other Interests") and agrees that
Executive may devote that portion of his business time not
required to be devoted to the business and affairs of the
Corporation as provided above to such Other Interests,
provided that (i) neither such activities nor the time devoted
thereto by Executive interfere with the duties to be performed
by Executive hereunder and (ii) in no event shall Executive
assume an active role in the day-to-day management of Oliver
Trucking Corporation or Q2 Marketing, Inc. As used in this
Agreement, the term "Q2 Marketing, Inc." shall mean Q2
Marketing, Inc. and its successors and assigns.
(c) EMPLOYMENT COMPENSATION. As compensation for the services to
be rendered by the Executive during the Employment Period,
subject to the conditions herein stated, the Corporation
agrees to pay to the Executive all of the following:
(i) BASE SALARY. Beginning October 30, 1998 and until the
expiration of the Employment Period, the Corporation
shall pay to the Executive a base salary (the "Base
Salary") at a minimum rate of $500,000 per year,
payable in weekly or bi-weekly installments as nearly
equal as may be practicable or otherwise in
accordance with the Corporation's customary payroll
practices for its executives generally. Executive's
Base Salary shall be reviewed annually during the
Employment Period and may be increased at the
Corporation's discretion. This Agreement shall not be
deemed abrogated or terminated if the Corporation, in
its discretion, shall determine to increase the
compensation of the Executive for any period of time
or if the Executive shall accept such increase; but,
nothing herein shall be deemed to obligate the
Corporation to make any such increase.
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<PAGE> 3
(ii) BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in any life
insurance, pension, stock, bonus, profit sharing,
accident and health insurance, hospitalization,
vacation or any other plan or benefits afforded by
the Corporation to its executives generally, if and
to the extent that the Executive is eligible to
participate in accordance with the provisions of any
such plan or for such benefits. Nothing herein is
intended, or shall be construed, to require the
Corporation to institute any, or any particular, plan
or benefits. In addition, the Executive shall be
furnished with an automobile lease allowance of
$1,000 per month during the Employment Period plus
reimbursement for reasonable automobile insurance,
maintenance and gasoline expenses.
2. CONSULTING SERVICES.
(a) CONSULTING PERIOD. If the Executive's employment is not
terminated prior to the natural expiration of the Employment
Period pursuant to Section 6 hereof, the Corporation agrees to
engage the Executive as a consultant for the period commencing
on December 31, 2001 and terminating on December 31, 2006,
unless earlier terminated pursuant to Section 6 below (the
"Consulting Period") and the Executive agrees to serve as a
consultant to the Corporation during the Consulting Period.
(b) CONSULTING DUTIES. During the Consulting Period, Executive
shall provide general advisory and strategic services at the
direction of and to the Corporation and perform such other
duties as the Chief Executive Officer of the Corporation shall
from time to time request. Executive shall devote such time,
attention, skill, energy and efforts as may be necessary for
the faithful performance of his consulting obligations
hereunder during the Consulting Period, subject to a maximum
commitment of six (6) business days per year (prorated in
respect of lesser periods), and such consulting obligations
may be rendered by telephone.
(c) CONSULTING FEES. For all services rendered by the Executive
during the Consulting Period, the Corporation shall pay
Executive Ten Thousand Dollars ($10,000) per annum, payable
weekly or biweekly in the Corporation's sole discretion.
Additionally, Executive shall participate in the Corporation's
group family medical insurance plan on the same basis as other
plan participants, if and to the extent the Executive is then
eligible to participate in accordance with the provisions of
such plan, and shall also be furnished with an automobile
lease allowance of $1,000 per month during the Consulting
Period plus reimbursement for reasonable automobile insurance,
maintenance and gasoline expenses.
(d) NATURE OF RELATIONSHIP. The parties hereto acknowledge and
agree that this Agreement, in and of itself, is not intended
to create an employer/employee relationship between the
Corporation and the Executive during the Consulting Period.
During the Consulting Period, Executive shall not, solely as a
result of
3
<PAGE> 4
this Agreement, be considered an employee of the
Corporation and shall not, solely as a result of this
Agreement, be entitled to participate in any plans,
arrangements, or distributions by the Corporation pertaining
to or in connection with any pension, stock, bonus,
profit-sharing or similar benefits for its regular employees
and shall have no right or authority, without the express
written consent of the Corporation, to bind or act on behalf
of the Corporation with respect to any matter whatsoever. The
Executive shall be responsible for all taxes related to his
service as a consultant hereunder.
3. RELOCATION. The Executive shall not be required to relocate his current
place of employment in Indiana. The Executive acknowledges, however,
that significant domestic and international travel may be required as
part of his duties hereunder and the Executive agrees to undertake such
travel as may be reasonably required by the business of the Corporation
from time to time.
4. REIMBURSEMENT FOR EXPENSES. The Executive shall be reimbursed by the
Corporation for all reasonable traveling and other expenses actually
and properly incurred and documented by the Executive in connection
with his duties during the Employment Period and the Consulting Period.
For all such expenses, the Executive shall furnish to the Corporation
statements and vouchers to the reasonable satisfaction of the
Corporation.
5. COMPLETE PAYMENT. The Executive agrees to accept the payments to be
made to him under this Agreement as full and complete compensation for
the services required to be performed by him under this Agreement. Upon
the payment of the amounts provided in this Agreement, the Corporation
shall have no further liability of any kind or nature whatsoever to the
Executive under this Agreement, except such liability, if any, as may
continue under any plan or for the benefits (in accordance with the
express terms hereof) referred to in Sections 1(c)(ii) and 2(c) hereof.
Notwithstanding the foregoing, Executive expressly reserves any rights
he may have at law, equity or otherwise in the event that his
employment or his consulting engagement by the Corporation is
terminated in contravention of this Agreement.
6. EARLY TERMINATION.
(a) TERM. This Agreement shall commence on the date first written
above and shall continue until the eight year anniversary of
such date (the "Term").
(b) TERMINATION. If prior to the expiration of the Term (a) the
Executive fails because of Disability (defined below) to
perform services of the character contemplated by Section 1(b)
above during the Employment Period or the services
contemplated in Section 2(b) above during the Consulting
Period; or (b) if the Corporation's Board of Directors
determines that, during the Employment Period or the
Consulting Period, the Executive has been grossly negligent in
the performance of his duties, has willfully neglected his
duties, has been dishonest with respect to the business of the
Corporation or has been
4
<PAGE> 5
convicted of any misdemeanor relating to the business of the
Corporation or any felony, has willfully disobeyed the
Corporation's rules, instructions or orders or has breached in
any material respect any of his covenants herein contained
(any such conduct, to be referred to as "Objectionable
Conduct"); then, the Corporation may by written "Notice of
Termination" (defined below) specifying the Objectionable
Conduct terminate Executive's employment or consulting
engagement, as the case may be, unless the Objectionable
Conduct is capable of being cured and is cured by the
Executive to the reasonable satisfaction of the Corporation
within twenty (20) days of the Corporation's delivery of the
Notice of Termination. In addition, Executive's employment or
consulting engagement, as the case may be, shall terminate
immediately upon the death of Executive. Further, upon thirty
(30) days written notice to the Corporation, Executive may
terminate his employment or consulting engagement, as the case
may be, at any time within ninety (90) days after the
occurrence of a Capital Transaction (as defined below) or any
Change of Control (as defined below). Upon any termination of
the Executive's employment under this Section 6, the Executive
shall be deemed removed from all positions held by him with
the Corporation, its subsidiaries and affiliates, effective as
of the "Date of Termination" (defined below) and any
termination of the Executive's consulting engagement pursuant
to this Section 6 shall be deemed effective as of the "Date of
Termination." Upon any termination of the Executive's
employment or consulting engagement under this Section 6, the
Executive shall be entitled to receive solely all amounts and
benefits to be paid or provided by the Corporation under
Section 1(c) above, in the case of termination of his
employment, and Section 2(c) above, in the case of termination
of his consulting engagement, up to the Date of Termination.
(c) DEFINITIONS. For purposes of this Agreement:
(i) "Date of Termination" shall mean, (x) in respect of
any termination of Executive's employment or
consulting engagement by reason of death, the date of
death, (y) in respect of any termination of
Executive's employment by reason of Disability,
thirty (30) days after the Notice of Termination is
given to Executive (provided that Executive shall not
have returned to the full performance of his
applicable duties during such thirty (30) day period)
and (z) in respect of any termination of Executive's
employment or consulting engagement by reason of
Objectionable Conduct, immediately upon the
Corporation's delivery of the Notice of Termination
to Executive, unless such Objectionable Conduct is
capable of being cured in which case "Date of
Termination" shall mean twenty (20) days after the
Corporation's delivery of the Notice of Termination
to Executive (provided Executive has not cured the
Objectionable Conduct within such twenty (20) day
period).
(ii) "Disability" shall mean that, as a result of the
Executive's incapacity due to physical or mental
illness, the Executive is unable to substantially
5
<PAGE> 6
perform his duties (as described in Sections 1(b) and
2(b) hereof, as applicable) with the Corporation for
six (6) consecutive months and, within thirty (30)
days after Notice of Termination is given to the
Executive, he has not returned to the substantial
performance of his duties (as described in Sections
1(b) and 2(b) hereof, as applicable). Any question as
to the existence of Disability shall be determined by
a qualified independent physician selected by the
Executive (or, if he is unable to make such
selection, such selection shall be made by any adult
member of the Executive's family) and approved by the
Corporation whose approval shall not be unreasonably
withheld. The written determination of such physician
shall be final and conclusive for purposes of this
Agreement.
(iii) "Notice of Termination" shall mean a notice given by
the Corporation to Executive which shall indicate the
specific basis for termination and shall set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for determination of any payments
due under this Agreement; provided, however, that the
Corporation shall not be entitled to give a Notice of
Termination that it is terminating Executive's
employment after the expiration of six (6) months
following the last to occur of the events
constituting the basis for such termination.
(iv) "Capital Transaction" shall mean with respect to the
Corporation the transaction underlying any of the
following events: (i) the stockholders of the
Corporation approve a merger, consolidation or other
combination of the Corporation with any other
company, other than (1) a merger, consolidation or
other combination which would result in the voting
securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) more than
50% of the combined voting power of the voting
securities of the Corporation or such surviving
entity outstanding immediately after such merger,
consolidation or other combination or (2) a merger or
consolidation effected to implement a
recapitalization of the Corporation (or similar
transaction) in which no "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act")) acquires more than 50% of the combined voting
power of the Corporation's then outstanding
securities; or (ii) the stockholders of the
Corporation approve an agreement for the sale or
disposition by the Corporation of all or
substantially all of the Corporation's assets and
properties to any Person (as defined below) which is
not an Affiliate (as defined below) of the
Corporation; or (iii) the stockholders of the
Corporation approve any compulsory share exchange
pursuant to which the Common Stock is converted into
other securities, cash or property of another Person
which is not an Affiliate of the Corporation or (iv)
the Board of Directors of the Corporation approves
any exchange or
6
<PAGE> 7
tender offer for outstanding Common Stock by any
Person which is not an Affiliate of the Corporation
if, upon consummation of such exchange or tender
offer, the offeror would become the beneficial owner
of fifty percent (50%) or more of the voting stock of
the Corporation.
(v) "Affiliate" shall mean a Person that directly, or
indirectly through one or more intermediaries,
controls, is controlled by, or is under common
control with, the Person referred to, and in this
definition, "control" means the possession, direct or
indirect, of the power to direct or cause the
direction of the management and policies of a Person,
whether through ownership of securities, by contract,
or otherwise.
(vi) "Person" shall mean a corporation, an association, a
limited liability company, a partnership, an
organization, a business, an individual, a
governmental or political subdivision thereof or a
governmental agency.
(vii) "Change in Control" shall mean (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the
Exchange Act) (other than the Corporation, any
trustee or other fiduciary holding securities under
an employee benefit plan of the Corporation, or any
corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the
same proportion as their ownership of stock of the
Corporation), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the
Corporation representing 40% or more of the combined
voting power of the Corporation's then outstanding
securities without the approval of the Board of
Directors of the Corporation; (ii) during any period
of two consecutive years, individuals who at the
beginning of such period constitute the Board, and
any new director whose election by the Board or
nomination for election by the Corporation's
stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of
the period or whose election or nomination for
election was previously so approved cease for any
reason to constitute at least a majority thereof, or
(iii) if Marc Shore, together with his immediate
family members and all Affiliates of Marc Shore
and/or his immediate family members, either
individually or acting as a group, cease to own at
least 15% of the outstanding Common Stock of the
Corporation.
7. EXECUTIVE COVENANTS.
(a) NOTICE OF CREATION. Executive will both during and after the
Employment Period promptly and fully disclose to the
Corporation any and all inventions, discoveries, improvements,
ideas, devices, designs, models, prototypes, processes,
compositions, know-how, information, works (including computer
programs and written and graphics materials), mask works and
data, whether of a business,
7
<PAGE> 8
technical or other nature and whether or not protectable under
U.S. or foreign patent, copyright, trade secret or other law
(collectively, "Works"), that concern or relate directly to
Competitive Activities (as defined in Section 7(d) below) and
that are first conceived, reduced to practice, fixed in a
tangible medium of expression or are otherwise made by
Executive solely or jointly with others during the Employment
Period, whether during regular business hours or otherwise
(the "Intellectual Property"). Notwithstanding the foregoing,
Executive shall have the right to maintain his ownership
interest in and serve on the board of Q2 Marketing, Inc. and,
through Q2 Marketing, Inc., continue his involvement in the
development and licensing of the "Q-Pack" patent and related
trademark, copyright and other related intellectual property
rights (subject in all respects to the provisions of the last
two sentences of Section 1(b) hereof).
(b) OWNERSHIP OF INTELLECTUAL PROPERTY. Upon its respective
conception, reduction to practice, fixation in a tangible of
expression or other making, an item of Intellectual Property
and all worldwide right, title and interest in and to that
Intellectual Property, including all common law, statutory,
treaty and convention rights, including the right to sue for
all past, present and future infringement, shall immediately
become and forever remain the property of the Corporation
without any further act or deed being required and without any
additional consideration from the Corporation to Executive,
and Executive hereby irrevocably assigns to the Corporation,
and the Corporation hereby accepts, all such Intellectual
Property and all such worldwide right, title and interest. The
Executive hereby waives and agrees not to assert any moral
rights or similar rights under the laws of any jurisdiction
with respect to any Intellectual Property. Notwithstanding the
foregoing, Executive shall have the right to maintain his
ownership interest in and serve on the board of Q2 Marketing,
Inc. and, through Q2 Marketing, Inc., continue his involvement
in the development and licensing of the "Q-Pack" patent and
related trademark, copyright and other related intellectual
property rights (subject in all respects to the provisions of
the last two sentences of Section 1(b) hereof).
(c) FURTHER ASSURANCES. Executive will from time to time, both
during and after the Term, upon the request and at the expense
of the Corporation, but without further consideration from the
Corporation, (a) make application through the attorneys for
the Corporation for Letters Patent, utility models, copyright
registrations and other forms of intellectual property
protection for and on the Intellectual Property in the United
States and in countries foreign thereto, (b) cooperate with
the attorneys in the prosecution, maintenance, reissue,
renewal, extension and defense of, and suit upon, all such
applications and resulting Letters Patent, utility models,
copyright registrations and other forms of intellectual
property protection, and (c) do and perform all acts,
including executing documents, believed by the attorneys to be
necessary or desirable in furtherance of the foregoing and for
assigning and perfecting all right, title and interest in and
to the Intellectual Property in the Corporation or its
successors or assigns, including
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<PAGE> 9
executing applications and assignment documents. All decisions
concerning such applications and resulting Letters Patent,
utility models, copyright registrations and other forms of
intellectual property protection, including all decisions
concerning their filing, prosecution, maintenance, reissue,
renewal, extension, defense and suits upon them, shall be
solely those of the Corporation, and Executive shall have no
claim or cause of action against the Corporation arising out
of or concerning any such decisions or the results of those
decisions. Notwithstanding the foregoing, Executive shall have
the right to maintain his ownership interest in and serve on
the board of Q2 Marketing, Inc. and, through Q2 Marketing,
Inc., continue his involvement in the development and
licensing of the "Q-Pack" patent and related trademark,
copyright and other related intellectual property rights
(subject in all respects to the provisions of the last two
sentences of Section 1(b) hereof).
(d) NON-COMPETITION. In order to induce the Corporation to enter
into this Agreement, the Executive hereby expressly covenants
and agrees that he shall not, without the express written
consent of the Corporation, for his own account or jointly
with any other person, for the Term, for any reason (a)
participate in, engage in or be connected in any way with,
directly or indirectly, as a proprietor, contractor, employee,
principal, partner, officer, stockholder, member, advisor,
consultant, agent or licensor (whether paid or unpaid),
Competitive Activities (as defined below) anywhere in the
world in which the Corporation conducts business, (b) directly
or indirectly, own, manage, operate, join, control, loan money
to, invest in, or otherwise participate in, or be connected
with, or become or act as an officer, employee, consultant,
representative or agent of any Competitor (defined below), or
(c) intervene in or interfere with any relationships between
the Corporation and its vendors or customers or prospective
customers or disrupt its customer markets, anywhere in the
world in which the Corporation conducts business.
Notwithstanding the foregoing, the Executive may at any time
own, solely as a passive investor, securities of any entity,
whether or not in competition with the Corporation, if (a)
such securities are publicly traded on a nationally-recognized
stock exchange or on NASDAQ, and (b) the aggregate holdings of
such securities by the Executive and his immediate family do
not exceed one percent (1%) of the voting power or one percent
(1%) of the capital stock of such entity. As used herein,
"Competitive Activities" means the development, sale or
resale, licensing or sublicensing, distribution or
redistribution, or other commercial exploitation, of packaging
products, "Competitor" means any Person whose principal
business consists of Competitive Activities, or any
combination thereof. Notwithstanding the foregoing, nothing
contained in this Section 7(d) shall be deemed to prohibit
Executive from (i) maintaining an ownership interest in,
serving on the board of directors of or participating in the
operations of, Oliver Trucking Corporation, provided that the
business activities of Oliver Trucking Corporation are limited
solely to trucking brokerage and warehousing and other
activities not constituting Competitive Activities, or (ii)
maintaining an ownership interest in or serving on the board
of
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<PAGE> 10
Q2 Marketing, Inc. or, through Q2 Marketing, Inc.,
participating in the development and licensing of, the
"Q-Pack" patent and related trademark, copyright and other
related intellectual property rights; provided, further, that
any such activities described in clauses (i) and (ii) above
are in strict compliance with the last two sentences of
Section 1(b) hereof, or from maintaining an ownership interest
in and conveying or leasing the property located at 620 South
Belmont Avenue, Indianapolis, Indiana.
(e) REASONABLENESS OF RESTRICTIONS. The Executive acknowledges and
agrees that the covenants contained herein with respect to
non-competition are reasonable in scope, geographic
application and duration, in view of the economic bargain
contained herein. The Executive represents and warrants to the
Corporation that, notwithstanding any termination of his
employment or consulting engagement prior to the expiration of
the Term pursuant to Section 6, his experience, background and
skills are such that he is able to obtain consulting projects
on reasonable terms and conditions without violation of the
restrictive covenant contained herein with respect to
non-competition; and that such covenant does not and will not
pose any undue hardship to the Executive.
(f) TANGIBLE THINGS. Executive covenants and agrees that (i) all
tangible things, including confidential memoranda, notes,
notebooks, drawings, lists (including, without limitation,
mailing and customer lists), records and other confidential
documents (and all copies thereof), made or compiled by
Executive during the Employment Period or made available to
Executive concerning the Corporation's business shall be the
property of the Corporation, and (ii) if such tangible things
are in the possession or control of Executive, Executive shall
deliver them to the Corporation promptly following the
Consulting Period or at any other time upon request of the
Corporation.
(g) NO IMPROPER DISCLOSURE. Executive represents and warrants that
Executive has not disclosed, and will not disclose, to the
Corporation any information, whether confidential, proprietary
or otherwise, that the Executive possesses and that Executive
is not legally free to disclose. Executive further agrees to
defend, indemnify and hold harmless the Corporation against
all claims, demands, losses, damages or expenses, including
attorneys' fees, suffered or incurred as a result of any
violation of the representations contained in this clause (g).
(h) NO EMPLOYEE SOLICITATION. The Executive hereby agrees that
during the Term, he shall not, directly or indirectly, for his
own account or jointly with another, or for or on behalf of
any entity, as principal, agent or otherwise, solicit, induce
or hire or in any manner attempt to solicit, induce or hire
any person employed by the Corporation or any of its
affiliates to leave such employment, whether or not such
employment is pursuant to a written contract with the
Corporation or otherwise; provided, however, that Executive
shall not be in breach of this provision unless the person so
solicited or induced is hired by Executive or any of
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<PAGE> 11
his Affiliates or any entity on whose behalf Executive
solicited or induced such person within six (6) months after
the last act constituting such solicitation or inducement but
only if such solicitation or inducement did not include any
future commitment to employ the person so solicited or induced
by Executive or any individual or entity on whose behalf
Executive made such solicitation or inducement.
(i) TRADE SECRETS. Executive acknowledges that Executive's work
for the Corporation is expected to bring Executive into close
contact with various confidential technical and research data,
confidential business data and other information of the
Corporation not readily available to the public. The Executive
expressly covenants and agrees that he will not at any time,
whether during or after the Term, directly or indirectly, on
any basis for any reason, use or permit third parties within
his control, the use of any trade secrets, confidential
information or proprietary information of, or relating to, the
Corporation, or any affiliate of the Corporation (including,
without limitation, data and other information relating to any
of the Corporation's processes, apparatus, products, software,
packages, programs, trends in research, product development
techniques or plans, research and development programs and
plans or any Works and all secrets, customer lists, lists of
employees, sales representatives and their territories,
mailing lists, details of consultant contracts, pricing
policies, operational methods, marketing plans or strategies,
business acquisition plans, new personnel acquisition plans,
designs and design projects and other confidential business
affairs concerning the Corporation and the Corporation's
business), in connection with any activity or business,
whether for his own account or otherwise, and will not divulge
such trade secrets, confidential information or proprietary
information to any person, firm, corporation or other entity
whatsoever. The Executive shall not be prohibited from
divulging information deemed to be trade secret or
confidential or proprietary information of the Corporation:
(i) if and to the extent that disclosure of any such
information is pursuant to appropriate safeguards on
confidentiality and (x) necessary and appropriate in
connection with the submission of bids by the Corporation in
the ordinary course of business or (y) required pursuant to
the Corporation's marketing efforts directed to specific
clients or bona fide prospective clients or the provision of
services to existing clients in the ordinary course of
business or (z) is made to other employees of the Corporation
or independent contractors thereof in the ordinary course of
the Corporation's business, (ii) if the specific item of
information becomes generally available to the public without
violation of this Agreement or any other confidentiality
agreement among the Executive and the Corporation or any other
confidentiality agreement to which the Executive is a party,
or (iii) if such disclosure is compelled by law, in which
event the Executive agrees to give the Corporation prior
written notice of any disclosure to be made pursuant to this
Subsection (iii), and the Executive, at the Corporation's
expense, shall cooperate fully with the Corporation to obtain
protective orders, confidential treatment or other such
protective action as may be available to preserve the
confidentiality of the information required to be disclosed.
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(j) REMEDIES. It is expressly understood and agreed that the
services to be rendered hereunder by the Executive are
special, unique and of extraordinary character, and in the
event of the breach by the Executive of any of the terms and
conditions of this Agreement on his part to be performed
hereunder, or in the event of the breach or threatened breach
by the Executive of the terms and provisions of this Section 7
of this Agreement, then the Corporation shall be entitled, if
it so elects, to institute and prosecute any proceedings in
any court of competent jurisdiction, either in law or equity,
for such relief as it deems appropriate, including without
limiting the generality of the foregoing, any proceedings to
obtain damages for any breach of this Agreement or to enforce
the specific performance thereof by the Executive or to enjoin
the Executive from performing services which are prohibited by
this Agreement for any other person, firm or corporation. If
the Executive violates any provision of this Section 7, the
time period set forth herein with respect to such provision,
if any, shall be extended, until one year after the date of
entry of final judgment enforcing such provision and the time
for appeal has lapsed. If Executive is held by a court of
competent jurisdiction to have breached this Agreement,
Executive shall be liable for any actual and reasonable
attorneys' fees and costs incurred by the Corporation in
enforcing its rights hereunder.
(k) ENFORCEMENT. It is hereby expressly agreed by the Corporation
and the Executive that if any portion of the restrictive
covenants and provisions set forth in this Section 7 is held
to be unreasonable, arbitrary, against public policy or
otherwise unenforceable for any reason, then each such
covenant or provision shall be considered divisible as to
scope, time and geographical area, with each month of a
specified period being deemed a separate period of time and
each county within any geographical area being deemed a
separate geographic area. The parties hereto expressly agree
that notwithstanding their mutual expectation that the
covenants and restrictions contained herein will be
enforceable and enforced, a lesser scope, period of time or
geographic area shall be enforced to the extent that the
covenants contained herein may be unenforceable as written.
The Corporation and the Executive also agree that in the event
that any court of competent jurisdiction determines a portion
of the restrictive covenants contained herein to be
non-enforceable, such determination by such court shall be
deemed to have applicability only within the jurisdiction in
which such court is located and shall not be deemed to be
effective in any other jurisdiction. The existence of any
claim or cause of action by the Executive against the
Corporation, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement
by the Corporation of the restrictive covenants contained in
this Section 7.
(l) COVENANTS NON-EXCLUSIVE. The Executive acknowledges and agrees
that the covenants contained in this Section 7 shall not be
deemed exclusive of any common law rights of the Corporation
in connection with the relationships contemplated hereby; and
that the Corporation shall have any and all rights as
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may be provided by law in connection with the relationships
contemplated hereby. The provisions of this Section 7 shall
survive any expiration of the Term or Executive's employment
or consulting engagement hereunder in accordance with their
respective terms.
8. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement in any circumstance shall not affect the validity or
enforceability of such provision in any other circumstance or the
validity or enforceability of any other provision of this Agreement,
and except to the extent such provision is invalid or unenforceable,
this Agreement shall remain in full force and effect. Any provision in
this Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of
such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof in such jurisdiction, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
9. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered
mail, to his then residence in the case of the Executive (with a copy
to Rubin Baum Levin Constant & Friedman, 30 Rockefeller Plaza, New
York, New York 10112, Attention: Paul A. Gajer) or to its principal
office in the case of the Corporation, and shall be deemed given when
deposited in the United States mails, postage prepaid.
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties and supersedes all prior agreements between the parties with
respect to the subject matter hereof. It may not be changed orally but
only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge
is sought.
11. WAIVER. The waiver by the Corporation of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a
waiver of any subsequent breach by the Executive. The waiver by the
Executive of a breach of any provisions of this Agreement by the
Corporation shall not operate or be construed as a waiver of any
subsequent breach by the Corporation
12. GOVERNING LAW. This Agreement shall be subject to, and governed by, the
laws of the State of New York.
13. CONSENT TO JURISDICTION. The parties hereby each agree that the
non-exclusive forum for resolving any litigation, action or claim by
any party against any other shall be a state or federal court located
in the County of New York, New York, United States, or any federal
court located within the Eastern District of New York or the Southern
District of New York (any of such, a "Designated U.S. Court"). In
addition, the parties each hereby consent to personal jurisdiction and
venue of any Designated U.S. Court with respect to any action brought
by the other party as provided herein.
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14. SUCCESSORS. The rights and obligations of the Corporation under this
Agreement shall inure to the benefit of and shall be binding upon any
successor of the Corporation or to the business of the Corporation.
Neither this Agreement nor any rights or obligations of the Executive
hereunder shall be transferable or assignable by the Executive;
provided, however, that this Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while
any amounts would still be payable to the Executive hereunder if he had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee or other designee or, if there be no such
designee, to the Executive's estate.
15. WAIVER OF RIGHT TO TRIAL BY JURY. EXECUTIVE HEREBY AGREES NOT TO ELECT
A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY
RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL
NOW OR HEREAFTER EXIST WITH REGARD TO THIS AGREEMENT OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION HEREWITH. THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY
EXECUTIVE, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND
EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE
ACCRUE. THE CORPORATION IS HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
EXECUTIVE.
IN WITNESS WHEREOF, the parties hereto have duly signed this
Agreement in duplicate original as of the 30th of October 1998, effective as of
October 30, 1998.
SHOREWOOD PACKAGING CORPORATION
By:
-----------------------------
Name:
Title:
--------------------------------
Leonard Verebay
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<PAGE> 1
Exhibit 10-120
EMPLOYMENT AGREEMENT
ERIC KALTMAN
WITH
SHOREWOOD PACKAGING CORPORATION
AGREEMENT made effective as of October 30, 1998, between
Shorewood Packaging Corporation, a Delaware corporation having its principal
executive offices at 277 Park Avenue, New York, N.Y., 10172-0124 (herein called
the "Corporation"), and Eric Kaltman currently residing at 8 Coachmans Court,
Old Westbury, NY 11568 (herein called the "Executive").
W I T N E S S E T H
The Corporation has acquired the assets of Queens Group, Inc.,
the former employer of the Executive.
The Corporation recognizes that the Executive possesses
extensive knowledge and skill in the business of his former employer and
recognizes that this expertise is essential to an orderly transaction.
This Agreement is intended to provide the Corporation with the
exclusive benefit of the Executive's skill and experience for the term hereof.
Accordingly, the parties desire to and do hereby enter into
this Agreement as of the date first set forth above.
NOW, THEREFORE,
1. EMPLOYMENT
(a) EMPLOYMENT PERIOD. The Corporation agrees to and does hereby
employ the Executive as Executive Vice President of the
Corporation for the period commencing October 30, 1998 and
terminating December 31, 2001, unless earlier terminated
pursuant to Section 6 below (the "Employment Period"), and the
Executive agrees that he shall serve as Executive Vice
President of the Corporation during the Employment Period.
(b) EMPLOYMENT DUTIES. Except as hereinafter provided, the
Executive shall during the Employment Period perform the
executive and administrative duties and functions and shall
have the powers and privileges of an Executive Vice President
of the Corporation, as such duties, functions, powers and
privileges are defined in the By-Laws of the Corporation in
effect on the date hereof and as currently
<PAGE> 2
interpreted, and, to the extent not defined therein, as the
same are customarily performed and exercised by an Executive
Vice President of a publicly owned corporation incorporated in
one of the states of the United States of America. If so
elected, the Executive shall, during the Employment Period,
serve as a member of the Board of Directors (and of the
Executive Committee or any similar committee having powers of
the Board of Directors now in existence or hereafter created)
of the Corporation without any additional compensation for
such services for so long as the Executive is elected to serve
on the Board, the Executive Committee or any similar
committee. As used in this Agreement, the term "Corporation"
includes each Subsidiary of the Corporation. So long as he is
an officer of the Corporation, the Executive agrees to devote
substantially all his business time to the business and
affairs of the Corporation, and to exert his best efforts in
the performance of his duties as an officer, director and
member of any committee of the Board of Directors of the
Corporation to which he may be elected, so as to promote the
profit, benefit and advantage of the business to the
Corporation. Notwithstanding the foregoing, the Corporation
acknowledges that Executive is a stockholder, and serves on
the board of directors, of each of Oliver Trucking Corporation
and Q2 Marketing, Inc. (the "Other Interests") and agrees that
Executive may devote that portion of his business time not
required to be devoted to the business and affairs of the
Corporation as provided above to such Other Interests,
provided that (i) neither such activities nor the time devoted
thereto by Executive interfere with the duties to be performed
by Executive hereunder and (ii) in no event shall Executive
assume an active role in the day-to-day management of Oliver
Trucking Corporation or Q2 Marketing, Inc. As used in this
Agreement, the term "Q2 Marketing, Inc." shall mean Q2
Marketing, Inc. and its successors and assigns.
(c) EMPLOYMENT COMPENSATION. As compensation for the services to
be rendered by the Executive during the Employment Period,
subject to the conditions herein stated, the Corporation
agrees to pay to the Executive all of the following:
(i) BASE SALARY. Beginning October 30, 1998 and until the
expiration of the Employment Period, the Corporation
shall pay to the Executive a base salary (the "Base
Salary") at a minimum rate of $500,000 per year,
payable in weekly or bi-weekly installments as nearly
equal as may be practicable or otherwise in
accordance with the Corporation's customary payroll
practices for its executives generally. Executive's
Base Salary shall be reviewed annually during the
Employment Period and may be increased at the
Corporation's discretion. This Agreement shall not be
deemed abrogated or terminated if the Corporation, in
its discretion, shall determine to increase the
compensation of the Executive for any period of time
or if the Executive shall accept such increase; but,
nothing herein shall be deemed to obligate the
Corporation to make any such increase.
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<PAGE> 3
(ii) BENEFITS. During the Employment Period, the Executive
shall be entitled to participate in any life
insurance, pension, stock, bonus, profit sharing,
accident and health insurance, hospitalization,
vacation or any other plan or benefits afforded by
the Corporation to its executives generally, if and
to the extent that the Executive is eligible to
participate in accordance with the provisions of any
such plan or for such benefits. Nothing herein is
intended, or shall be construed, to require the
Corporation to institute any, or any particular, plan
or benefits. In addition, the Executive shall be
furnished with an automobile lease allowance of
$1,000 per month during the Employment Period plus
reimbursement for reasonable automobile insurance,
maintenance and gasoline expenses.
2. CONSULTING SERVICES.
(a) CONSULTING PERIOD. If the Executive's employment is not
terminated prior to the natural expiration of the Employment
Period pursuant to Section 6 hereof, the Corporation agrees to
engage the Executive as a consultant for the period commencing
on December 31, 2001 and terminating on December 31, 2006,
unless earlier terminated pursuant to Section 6 below (the
"Consulting Period") and the Executive agrees to serve as a
consultant to the Corporation during the Consulting Period.
(b) CONSULTING DUTIES. During the Consulting Period, Executive
shall provide general advisory and strategic services at the
direction of and to the Corporation and perform such other
duties as the Chief Executive Officer of the Corporation shall
from time to time request. Executive shall devote such time,
attention, skill, energy and efforts as may be necessary for
the faithful performance of his consulting obligations
hereunder during the Consulting Period, subject to a maximum
commitment of six (6) business days per year (prorated in
respect of lesser periods), and such consulting obligations
may be rendered by telephone.
(c) CONSULTING FEES. For all services rendered by the Executive
during the Consulting Period, the Corporation shall pay
Executive Ten Thousand Dollars ($10,000) per annum, payable
weekly or biweekly in the Corporation's sole discretion.
Additionally, Executive shall participate in the Corporation's
group family medical insurance plan on the same basis as other
plan participants, if and to the extent the Executive is then
eligible to participate in accordance with the provisions of
such plan, and shall also be furnished with an automobile
lease allowance of $1,000 per month during the Consulting
Period plus reimbursement for reasonable automobile insurance,
maintenance and gasoline expenses.
(d) NATURE OF RELATIONSHIP. The parties hereto acknowledge and
agree that this Agreement, in and of itself, is not intended
to create an employer/employee relationship between the
Corporation and the Executive during the Consulting Period.
During the Consulting Period, Executive shall not, solely as a
result of
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<PAGE> 4
this Agreement, be considered an employee of the Corporation
and shall not, solely as a result of this Agreement, be
entitled to participate in any plans, arrangements, or
distributions by the Corporation pertaining to or in connection
with any pension, stock, bonus, profit-sharing or similar
benefits for its regular employees and shall have no right or
authority, without the express written consent of the
Corporation, to bind or act on behalf of the Corporation with
respect to any matter whatsoever. The Executive shall be
responsible for all taxes related to his service as a
consultant hereunder.
3. RELOCATION. The Executive shall not be required to relocate his current
place of employment in Indiana. The Executive acknowledges, however,
that significant domestic and international travel may be required as
part of his duties hereunder and the Executive agrees to undertake such
travel as may be reasonably required by the business of the Corporation
from time to time.
4. REIMBURSEMENT FOR EXPENSES. The Executive shall be reimbursed by the
Corporation for all reasonable traveling and other expenses actually
and properly incurred and documented by the Executive in connection
with his duties during the Employment Period and the Consulting Period.
For all such expenses, the Executive shall furnish to the Corporation
statements and vouchers to the reasonable satisfaction of the
Corporation.
5. COMPLETE PAYMENT. The Executive agrees to accept the payments to be
made to him under this Agreement as full and complete compensation for
the services required to be performed by him under this Agreement. Upon
the payment of the amounts provided in this Agreement, the Corporation
shall have no further liability of any kind or nature whatsoever to the
Executive under this Agreement, except such liability, if any, as may
continue under any plan or for the benefits (in accordance with the
express terms hereof) referred to in Sections 1(c)(ii) and 2(c) hereof.
Notwithstanding the foregoing, Executive expressly reserves any rights
he may have at law, equity or otherwise in the event that his
employment or his consulting engagement by the Corporation is
terminated in contravention of this Agreement.
6. EARLY TERMINATION.
(a) TERM. This Agreement shall commence on the date first written
above and shall continue until the eight year anniversary of
such date (the "Term").
(b) TERMINATION. If prior to the expiration of the Term (a) the
Executive fails because of Disability (defined below) to
perform services of the character contemplated by Section 1(b)
above during the Employment Period or the services
contemplated in Section 2(b) above during the Consulting
Period; or (b) if the Corporation's Board of Directors
determines that, during the Employment Period or the
Consulting Period, the Executive has been grossly negligent in
the performance of his duties, has willfully neglected his
duties, has been dishonest with respect to the business of the
Corporation or has been
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<PAGE> 5
convicted of any misdemeanor relating to the business of the
Corporation or any felony, has willfully disobeyed the
Corporation's rules, instructions or orders or has breached in
any material respect any of his covenants herein contained
(any such conduct, to be referred to as "Objectionable
Conduct"); then, the Corporation may by written "Notice of
Termination" (defined below) specifying the Objectionable
Conduct terminate Executive's employment or consulting
engagement, as the case may be, unless the Objectionable
Conduct is capable of being cured and is cured by the
Executive to the reasonable satisfaction of the Corporation
within twenty (20) days of the Corporation's delivery of the
Notice of Termination. In addition, Executive's employment or
consulting engagement, as the case may be, shall terminate
immediately upon the death of Executive. Further, upon thirty
(30) days written notice to the Corporation, Executive may
terminate his employment or consulting engagement, as the case
may be, at any time within ninety (90) days after the
occurrence of a Capital Transaction (as defined below) or any
Change of Control (as defined below). Upon any termination of
the Executive's employment under this Section 6, the Executive
shall be deemed removed from all positions held by him with
the Corporation, its subsidiaries and affiliates, effective as
of the "Date of Termination" (defined below) and any
termination of the Executive's consulting engagement pursuant
to this Section 6 shall be deemed effective as of the "Date of
Termination." Upon any termination of the Executive's
employment or consulting engagement under this Section 6, the
Executive shall be entitled to receive solely all amounts and
benefits to be paid or provided by the Corporation under
Section 1(c) above, in the case of termination of his
employment, and Section 2(c) above, in the case of termination
of his consulting engagement, up to the Date of Termination.
(c) DEFINITIONS. For purposes of this Agreement:
(i) "Date of Termination" shall mean, (x) in respect of
any termination of Executive's employment or
consulting engagement by reason of death, the date of
death, (y) in respect of any termination of
Executive's employment by reason of Disability,
thirty (30) days after the Notice of Termination is
given to Executive (provided that Executive shall not
have returned to the full performance of his
applicable duties during such thirty (30) day period)
and (z) in respect of any termination of Executive's
employment or consulting engagement by reason of
Objectionable Conduct, immediately upon the
Corporation's delivery of the Notice of Termination
to Executive, unless such Objectionable Conduct is
capable of being cured in which case "Date of
Termination" shall mean twenty (20) days after the
Corporation's delivery of the Notice of Termination
to Executive (provided Executive has not cured the
Objectionable Conduct within such twenty (20) day
period).
(ii) "Disability" shall mean that, as a result of the
Executive's incapacity due to physical or mental
illness, the Executive is unable to substantially
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<PAGE> 6
perform his duties (as described in Sections 1(b) and
2(b) hereof, as applicable) with the Corporation for
six (6) consecutive months and, within thirty (30)
days after Notice of Termination is given to the
Executive, he has not returned to the substantial
performance of his duties (as described in Sections
1(b) and 2(b) hereof, as applicable). Any question as
to the existence of Disability shall be determined by
a qualified independent physician selected by the
Executive (or, if he is unable to make such
selection, such selection shall be made by any adult
member of the Executive's family) and approved by the
Corporation whose approval shall not be unreasonably
withheld. The written determination of such physician
shall be final and conclusive for purposes of this
Agreement.
(iii) "Notice of Termination" shall mean a notice given by
the Corporation to Executive which shall indicate the
specific basis for termination and shall set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for determination of any payments
due under this Agreement; provided, however, that the
Corporation shall not be entitled to give a Notice of
Termination that it is terminating Executive's
employment after the expiration of six (6) months
following the last to occur of the events
constituting the basis for such termination.
(iv) "Capital Transaction" shall mean with respect to the
Corporation the transaction underlying any of the
following events: (i) the stockholders of the
Corporation approve a merger, consolidation or other
combination of the Corporation with any other
company, other than (1) a merger, consolidation or
other combination which would result in the voting
securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) more than
50% of the combined voting power of the voting
securities of the Corporation or such surviving
entity outstanding immediately after such merger,
consolidation or other combination or (2) a merger or
consolidation effected to implement a
recapitalization of the Corporation (or similar
transaction) in which no "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act")) acquires more than 50% of the combined voting
power of the Corporation's then outstanding
securities; or (ii) the stockholders of the
Corporation approve an agreement for the sale or
disposition by the Corporation of all or
substantially all of the Corporation's assets and
properties to any Person (as defined below) which is
not an Affiliate (as defined below) of the
Corporation; or (iii) the stockholders of the
Corporation approve any compulsory share exchange
pursuant to which the Common Stock is converted into
other securities, cash or property of another Person
which is not an Affiliate of the Corporation or (iv)
the Board of Directors of the Corporation approves
any exchange or
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<PAGE> 7
tender offer for outstanding Common Stock by any
Person which is not an Affiliate of the Corporation
if, upon consummation of such exchange or tender
offer, the offeror would become the beneficial owner
of fifty percent (50%) or more of the voting stock of
the Corporation.
(v) "Affiliate" shall mean a Person that directly, or
indirectly through one or more intermediaries,
controls, is controlled by, or is under common
control with, the Person referred to, and in this
definition, "control" means the possession, direct or
indirect, of the power to direct or cause the
direction of the management and policies of a Person,
whether through ownership of securities, by contract,
or otherwise.
(vi) "Person" shall mean a corporation, an association, a
limited liability company, a partnership, an
organization, a business, an individual, a
governmental or political subdivision thereof or a
governmental agency.
(vii) "Change in Control" shall mean (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the
Exchange Act) (other than the Corporation, any
trustee or other fiduciary holding securities under
an employee benefit plan of the Corporation, or any
corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the
same proportion as their ownership of stock of the
Corporation), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the
Corporation representing 40% or more of the combined
voting power of the Corporation's then outstanding
securities without the approval of the Board of
Directors of the Corporation; (ii) during any period
of two consecutive years, individuals who at the
beginning of such period constitute the Board, and
any new director whose election by the Board or
nomination for election by the Corporation's
stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of
the period or whose election or nomination for
election was previously so approved cease for any
reason to constitute at least a majority thereof, or
(iii) if Marc Shore, together with his immediate
family members and all Affiliates of Marc Shore
and/or his immediate family members, either
individually or acting as a group, cease to own at
least 15% of the outstanding Common Stock of the
Corporation.
7. EXECUTIVE COVENANTS.
(a) NOTICE OF CREATION. Executive will both during and after the
Employment Period promptly and fully disclose to the
Corporation any and all inventions, discoveries, improvements,
ideas, devices, designs, models, prototypes, processes,
compositions, know-how, information, works (including computer
programs and written and graphics materials), mask works and
data, whether of a business,
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technical or other nature and whether or not protectable under
U.S. or foreign patent, copyright, trade secret or other law
(collectively, "Works"), that concern or relate directly to
Competitive Activities (as defined in Section 7(d) below) and
that are first conceived, reduced to practice, fixed in a
tangible medium of expression or are otherwise made by
Executive solely or jointly with others during the Employment
Period, whether during regular business hours or otherwise
(the "Intellectual Property"). Notwithstanding the foregoing,
Executive shall have the right to maintain his ownership
interest in and serve on the board of Q2 Marketing, Inc. and,
through Q2 Marketing, Inc., continue his involvement in the
development and licensing of the "Q-Pack" patent and related
trademark, copyright and other related intellectual property
rights (subject in all respects to the provisions of the last
two sentences of Section 1(b) hereof).
(b) OWNERSHIP OF INTELLECTUAL PROPERTY. Upon its respective
conception, reduction to practice, fixation in a tangible of
expression or other making, an item of Intellectual Property
and all worldwide right, title and interest in and to that
Intellectual Property, including all common law, statutory,
treaty and convention rights, including the right to sue for
all past, present and future infringement, shall immediately
become and forever remain the property of the Corporation
without any further act or deed being required and without any
additional consideration from the Corporation to Executive,
and Executive hereby irrevocably assigns to the Corporation,
and the Corporation hereby accepts, all such Intellectual
Property and all such worldwide right, title and interest. The
Executive hereby waives and agrees not to assert any moral
rights or similar rights under the laws of any jurisdiction
with respect to any Intellectual Property. Notwithstanding the
foregoing, Executive shall have the right to maintain his
ownership interest in and serve on the board of Q2 Marketing,
Inc. and, through Q2 Marketing, Inc., continue his involvement
in the development and licensing of the "Q-Pack" patent and
related trademark, copyright and other related intellectual
property rights (subject in all respects to the provisions of
the last two sentences of Section 1(b) hereof).
(c) FURTHER ASSURANCES. Executive will from time to time, both
during and after the Term, upon the request and at the expense
of the Corporation, but without further consideration from the
Corporation, (a) make application through the attorneys for
the Corporation for Letters Patent, utility models, copyright
registrations and other forms of intellectual property
protection for and on the Intellectual Property in the United
States and in countries foreign thereto, (b) cooperate with
the attorneys in the prosecution, maintenance, reissue,
renewal, extension and defense of, and suit upon, all such
applications and resulting Letters Patent, utility models,
copyright registrations and other forms of intellectual
property protection, and (c) do and perform all acts,
including executing documents, believed by the attorneys to be
necessary or desirable in furtherance of the foregoing and for
assigning and perfecting all right, title and interest in and
to the Intellectual Property in the Corporation or its
successors or assigns, including
8
<PAGE> 9
executing applications and assignment documents. All decisions
concerning such applications and resulting Letters Patent,
utility models, copyright registrations and other forms of
intellectual property protection, including all decisions
concerning their filing, prosecution, maintenance, reissue,
renewal, extension, defense and suits upon them, shall be
solely those of the Corporation, and Executive shall have no
claim or cause of action against the Corporation arising out
of or concerning any such decisions or the results of those
decisions. Notwithstanding the foregoing, Executive shall have
the right to maintain his ownership interest in and serve on
the board of Q2 Marketing, Inc. and, through Q2 Marketing,
Inc., continue his involvement in the development and
licensing of the "Q-Pack" patent and related trademark,
copyright and other related intellectual property rights
(subject in all respects to the provisions of the last two
sentences of Section 1(b) hereof).
(d) NON-COMPETITION. In order to induce the Corporation to enter
into this Agreement, the Executive hereby expressly covenants
and agrees that he shall not, without the express written
consent of the Corporation, for his own account or jointly
with any other person, for the Term, for any reason (a)
participate in, engage in or be connected in any way with,
directly or indirectly, as a proprietor, contractor, employee,
principal, partner, officer, stockholder, member, advisor,
consultant, agent or licensor (whether paid or unpaid),
Competitive Activities (as defined below) anywhere in the
world in which the Corporation conducts business, (b) directly
or indirectly, own, manage, operate, join, control, loan money
to, invest in, or otherwise participate in, or be connected
with, or become or act as an officer, employee, consultant,
representative or agent of any Competitor (defined below), or
(c) intervene in or interfere with any relationships between
the Corporation and its vendors or customers or prospective
customers or disrupt its customer markets, anywhere in the
world in which the Corporation conducts business.
Notwithstanding the foregoing, the Executive may at any time
own, solely as a passive investor, securities of any entity,
whether or not in competition with the Corporation, if (a)
such securities are publicly traded on a nationally-recognized
stock exchange or on NASDAQ, and (b) the aggregate holdings of
such securities by the Executive and his immediate family do
not exceed one percent (1%) of the voting power or one percent
(1%) of the capital stock of such entity. As used herein,
"Competitive Activities" means the development, sale or
resale, licensing or sublicensing, distribution or
redistribution, or other commercial exploitation, of packaging
products, "Competitor" means any Person whose principal
business consists of Competitive Activities, or any
combination thereof. Notwithstanding the foregoing, nothing
contained in this Section 7(d) shall be deemed to prohibit
Executive from (i) maintaining an ownership interest in,
serving on the board of directors of or participating in the
operations of, Oliver Trucking Corporation, provided that the
business activities of Oliver Trucking Corporation are limited
solely to trucking brokerage and warehousing and other
activities not constituting Competitive Activities, or (ii)
maintaining an ownership interest in or serving on the board
of
9
<PAGE> 10
Q2 Marketing, Inc. or, through Q2 Marketing, Inc.,
participating in the development and licensing of, the
"Q-Pack" patent and related trademark, copyright and other
related intellectual property rights; provided, further, that
any such activities described in clauses (i) and (ii) above
are in strict compliance with the last two sentences of
Section 1(b) hereof, or from maintaining an ownership interest
in and conveying or leasing the property located at 620 South
Belmont Avenue, Indianapolis, Indiana.
(e) REASONABLENESS OF RESTRICTIONS. The Executive acknowledges and
agrees that the covenants contained herein with respect to
non-competition are reasonable in scope, geographic
application and duration, in view of the economic bargain
contained herein. The Executive represents and warrants to the
Corporation that, notwithstanding any termination of his
employment or consulting engagement prior to the expiration of
the Term pursuant to Section 6, his experience, background and
skills are such that he is able to obtain consulting projects
on reasonable terms and conditions without violation of the
restrictive covenant contained herein with respect to
non-competition; and that such covenant does not and will not
pose any undue hardship to the Executive.
(f) TANGIBLE THINGS. Executive covenants and agrees that (i) all
tangible things, including confidential memoranda, notes,
notebooks, drawings, lists (including, without limitation,
mailing and customer lists), records and other confidential
documents (and all copies thereof), made or compiled by
Executive during the Employment Period or made available to
Executive concerning the Corporation's business shall be the
property of the Corporation, and (ii) if such tangible things
are in the possession or control of Executive, Executive shall
deliver them to the Corporation promptly following the
Consulting Period or at any other time upon request of the
Corporation.
(g) NO IMPROPER DISCLOSURE. Executive represents and warrants that
Executive has not disclosed, and will not disclose, to the
Corporation any information, whether confidential, proprietary
or otherwise, that the Executive possesses and that Executive
is not legally free to disclose. Executive further agrees to
defend, indemnify and hold harmless the Corporation against
all claims, demands, losses, damages or expenses, including
attorneys' fees, suffered or incurred as a result of any
violation of the representations contained in this clause (g).
(h) NO EMPLOYEE SOLICITATION. The Executive hereby agrees that
during the Term, he shall not, directly or indirectly, for his
own account or jointly with another, or for or on behalf of
any entity, as principal, agent or otherwise, solicit, induce
or hire or in any manner attempt to solicit, induce or hire
any person employed by the Corporation or any of its
affiliates to leave such employment, whether or not such
employment is pursuant to a written contract with the
Corporation or otherwise; provided, however, that Executive
shall not be in breach of this provision unless the person so
solicited or induced is hired by Executive or any of
10
<PAGE> 11
his Affiliates or any entity on whose behalf Executive
solicited or induced such person within six (6) months after
the last act constituting such solicitation or inducement but
only if such solicitation or inducement did not include any
future commitment to employ the person so solicited or induced
by Executive or any individual or entity on whose behalf
Executive made such solicitation or inducement.
(i) TRADE SECRETS. Executive acknowledges that Executive's work
for the Corporation is expected to bring Executive into close
contact with various confidential technical and research data,
confidential business data and other information of the
Corporation not readily available to the public. The Executive
expressly covenants and agrees that he will not at any time,
whether during or after the Term, directly or indirectly, on
any basis for any reason, use or permit third parties within
his control, the use of any trade secrets, confidential
information or proprietary information of, or relating to, the
Corporation, or any affiliate of the Corporation (including,
without limitation, data and other information relating to any
of the Corporation's processes, apparatus, products, software,
packages, programs, trends in research, product development
techniques or plans, research and development programs and
plans or any Works and all secrets, customer lists, lists of
employees, sales representatives and their territories,
mailing lists, details of consultant contracts, pricing
policies, operational methods, marketing plans or strategies,
business acquisition plans, new personnel acquisition plans,
designs and design projects and other confidential business
affairs concerning the Corporation and the Corporation's
business), in connection with any activity or business,
whether for his own account or otherwise, and will not divulge
such trade secrets, confidential information or proprietary
information to any person, firm, corporation or other entity
whatsoever. The Executive shall not be prohibited from
divulging information deemed to be trade secret or
confidential or proprietary information of the Corporation:
(i) if and to the extent that disclosure of any such
information is pursuant to appropriate safeguards on
confidentiality and (x) necessary and appropriate in
connection with the submission of bids by the Corporation in
the ordinary course of business or (y) required pursuant to
the Corporation's marketing efforts directed to specific
clients or bona fide prospective clients or the provision of
services to existing clients in the ordinary course of
business or (z) is made to other employees of the Corporation
or independent contractors thereof in the ordinary course of
the Corporation's business, (ii) if the specific item of
information becomes generally available to the public without
violation of this Agreement or any other confidentiality
agreement among the Executive and the Corporation or any other
confidentiality agreement to which the Executive is a party,
or (iii) if such disclosure is compelled by law, in which
event the Executive agrees to give the Corporation prior
written notice of any disclosure to be made pursuant to this
Subsection (iii), and the Executive, at the Corporation's
expense, shall cooperate fully with the Corporation to obtain
protective orders, confidential treatment or other such
protective action as may be available to preserve the
confidentiality of the information required to be disclosed.
11
<PAGE> 12
(j) REMEDIES. It is expressly understood and agreed that the
services to be rendered hereunder by the Executive are
special, unique and of extraordinary character, and in the
event of the breach by the Executive of any of the terms and
conditions of this Agreement on his part to be performed
hereunder, or in the event of the breach or threatened breach
by the Executive of the terms and provisions of this Section 7
of this Agreement, then the Corporation shall be entitled, if
it so elects, to institute and prosecute any proceedings in
any court of competent jurisdiction, either in law or equity,
for such relief as it deems appropriate, including without
limiting the generality of the foregoing, any proceedings to
obtain damages for any breach of this Agreement or to enforce
the specific performance thereof by the Executive or to enjoin
the Executive from performing services which are prohibited by
this Agreement for any other person, firm or corporation. If
the Executive violates any provision of this Section 7, the
time period set forth herein with respect to such provision,
if any, shall be extended, until one year after the date of
entry of final judgment enforcing such provision and the time
for appeal has lapsed. If Executive is held by a court of
competent jurisdiction to have breached this Agreement,
Executive shall be liable for any actual and reasonable
attorneys' fees and costs incurred by the Corporation in
enforcing its rights hereunder.
(k) ENFORCEMENT. It is hereby expressly agreed by the Corporation
and the Executive that if any portion of the restrictive
covenants and provisions set forth in this Section 7 is held
to be unreasonable, arbitrary, against public policy or
otherwise unenforceable for any reason, then each such
covenant or provision shall be considered divisible as to
scope, time and geographical area, with each month of a
specified period being deemed a separate period of time and
each county within any geographical area being deemed a
separate geographic area. The parties hereto expressly agree
that notwithstanding their mutual expectation that the
covenants and restrictions contained herein will be
enforceable and enforced, a lesser scope, period of time or
geographic area shall be enforced to the extent that the
covenants contained herein may be unenforceable as written.
The Corporation and the Executive also agree that in the event
that any court of competent jurisdiction determines a portion
of the restrictive covenants contained herein to be
non-enforceable, such determination by such court shall be
deemed to have applicability only within the jurisdiction in
which such court is located and shall not be deemed to be
effective in any other jurisdiction. The existence of any
claim or cause of action by the Executive against the
Corporation, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement
by the Corporation of the restrictive covenants contained in
this Section 7.
(l) COVENANTS NON-EXCLUSIVE. The Executive acknowledges and agrees
that the covenants contained in this Section 7 shall not be
deemed exclusive of any common law rights of the Corporation
in connection with the relationships contemplated hereby; and
that the Corporation shall have any and all rights as
12
<PAGE> 13
may be provided by law in connection with the relationships
contemplated hereby. The provisions of this Section 7 shall
survive any expiration of the Term or Executive's employment
or consulting engagement hereunder in accordance with their
respective terms.
8. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement in any circumstance shall not affect the validity or
enforceability of such provision in any other circumstance or the
validity or enforceability of any other provision of this Agreement,
and except to the extent such provision is invalid or unenforceable,
this Agreement shall remain in full force and effect. Any provision in
this Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of
such prohibition or unenforceability without invalidating or affecting
the remaining provisions hereof in such jurisdiction, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
9. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered
mail, to his then residence in the case of the Executive (with a copy
to Rubin Baum Levin Constant & Friedman, 30 Rockefeller Plaza, New
York, New York 10112, Attention: Paul A. Gajer) or to its principal
office in the case of the Corporation, and shall be deemed given when
deposited in the United States mails, postage prepaid.
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties and supersedes all prior agreements between the parties with
respect to the subject matter hereof. It may not be changed orally but
only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge
is sought.
11. WAIVER. The waiver by the Corporation of a breach of any provision of
this Agreement by the Executive shall not operate or be construed as a
waiver of any subsequent breach by the Executive. The waiver by the
Executive of a breach of any provisions of this Agreement by the
Corporation shall not operate or be construed as a waiver of any
subsequent breach by the Corporation
12. GOVERNING LAW. This Agreement shall be subject to, and governed by, the
laws of the State of New York.
13. CONSENT TO JURISDICTION. The parties hereby each agree that the
non-exclusive forum for resolving any litigation, action or claim by
any party against any other shall be a state or federal court located
in the County of New York, New York, United States, or any federal
court located within the Eastern District of New York or the Southern
District of New York (any of such, a "Designated U.S. Court"). In
addition, the parties each hereby consent to personal jurisdiction and
venue of any Designated U.S. Court with respect to any action brought
by the other party as provided herein.
13
<PAGE> 14
14. SUCCESSORS. The rights and obligations of the Corporation under this
Agreement shall inure to the benefit of and shall be binding upon any
successor of the Corporation or to the business of the Corporation.
Neither this Agreement nor any rights or obligations of the Executive
hereunder shall be transferable or assignable by the Executive;
provided, however, that this Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while
any amounts would still be payable to the Executive hereunder if he had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee or other designee or, if there be no such
designee, to the Executive's estate.
15. WAIVER OF RIGHT TO TRIAL BY JURY. EXECUTIVE HEREBY AGREES NOT TO ELECT
A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY
RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL
NOW OR HEREAFTER EXIST WITH REGARD TO THIS AGREEMENT OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION HEREWITH. THIS
WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY
EXECUTIVE, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND
EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE
ACCRUE. THE CORPORATION IS HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
EXECUTIVE.
IN WITNESS WHEREOF, the parties hereto have duly signed this
Agreement in duplicate original as of the 30th of October 1998, effective as of
October 30, 1998.
SHOREWOOD PACKAGING CORPORATION
By: _____________________________
Name:
Title:
--------------------------------
Eric Kaltman
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<PAGE> 1
Exhibit 10-121
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated
as of October 30, 1998, by and among the signatories listed on the signature
page of this Agreement (each, a "Stockholder" and, collectively, the
"Stockholders"), and Shorewood Packaging Corporation, a Delaware corporation
(the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of a Purchase and Sale Agreement (the
"Purchase Agreement") dated October 30, 1998 among the Company and the Sellers,
the Company is issuing to the Stockholders an aggregate of 1,000,000 shares (the
"Shares"), of the Company's common stock, par value $.01 per share (the "Common
Stock"); and
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Purchase Agreement that the Stockholders and
the Company enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is hereby agreed as follows:
ARTICLE I. INVESTMENT UNDERTAKINGS OF STOCKHOLDERS
In consideration of the Stockholders' receipt of the Shares under the
Purchase Agreement, each Stockholder hereby represents, warrants and covenants
with the Company as follows:
Section 1.1 No Third Party Interest. No other person or entity has any
direct or indirect beneficial interest in the Shares to be received by such
Stockholder under the Purchase Agreement.
Section 1.2 Unregistered Securities. Such Stockholder understands and
agrees that (i) the Shares are "restricted securities" under the Securities Act
of 1933, as amended (the "Securities Act"), because they are being acquired from
the Company in a transaction not involving a public offering, and that, under
such laws and applicable regulations, such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection, each Stockholder represents that he or she is familiar with and
understands the resale limitations imposed upon him or her by Rule 144 under the
Securities Act.
Section 1.3 Purchase for Investment, etc. That: (i) he or she is
acquiring the Shares for his or her own account for investment only and not with
a view to, or for sale in connection with, a distribution within the meaning of
the Securities Act; (ii) he or she has no present intention of selling or
otherwise disposing of any portion of the Shares being acquired by such
Stockholder; (iii) he or she is familiar with the financial condition, product
lines and present and prospective business affairs and prospects of the Company;
(iv) he or she, or his or her
<PAGE> 2
representatives or agents, has had access to all information regarding the
Company and its present and prospective business, assets, liabilities and
financial condition and the backgrounds of the principals of the Company as he
or she has deemed material to making the decision to acquire the Shares and has
been afforded the opportunity to ask questions of and receive answers from the
Company's senior management concerning present and prospective business
prospects of the Company; (v) he or she has fully considered this information in
valuing the Company and assessing the merits of the transactions contemplated by
this Agreement and the Purchase Agreement; (vi) he or she recognizes that an
investment in the Shares involves special, speculative and substantial risk
because, among other things, the Company may pursue risky business strategies,
the Shares are subject to significant legal and contractual restrictions upon
resale and, in any case, there may be not a future market for resale of the
Shares; (vii) he or she is able to fend for himself or herself in the
transactions contemplated by this Agreement and the Purchase Agreement, and is,
on his or her own or through his or her professional advisors, knowledgeable in
business and financial matters; specifically, he or she is a senior level
executive in the packaging industry with intimate knowledge of the economic
condition and competitive factors affecting the industry and thus is uniquely
capable of evaluating and has evaluated the affairs and prospectus of the
Company and the merits of an investment in the Shares; (viii) he or she has made
the determination to enter into this Agreement and the Purchase Agreement based
upon his or her own independent evaluation and assessment of the value of the
Company and its present and prospective business prospects and has not relied
on, or been induced to enter into this Agreement or the Purchase Agreement on
account of, any representation or warranty of any kind or nature, whether oral
or written, express or implied, except for such representations and warranties
of the Company as are specifically set forth in the Purchase Agreement; (ix) he
or she is financially capable of bearing a total loss of his or her investment
in the Shares; and (x) at no time was he or she presented with or solicited by
any publicly issued or circulated newspaper, magazine, mail, radio or television
or any other form of general advertising or solicitation in connection with the
acquisition of the Shares.
Section 1.4 Residency. For purposes of the application of state
securities laws, that he or she is a resident of the state set forth in such
Stockholder's address on the signature page hereto.
Section 1.5 No Governmental Approval. Such Stockholder understands that
no government agency has passed upon such Shares or made any finding or
determination as to the fairness of the investment or any recommendation or
endorsement of such Shares.
ARTICLE II. RESTRICTIONS ON TRANSFER
Section 2.1 Restrictions on Transfer. Each of the Stockholders hereby
covenants to the Company and agrees that, from the date hereof until the second
anniversary of the Closing Date (the "Restricted Period"), he or she will not
transfer, sell, assign, hypothecate, encumber, pledge, grant a security interest
in, dispose of or otherwise alienate for consideration, by gift or otherwise,
any of the Shares, other than according to the terms of this Agreement or with
the prior consent of the Board of Directors of the Company. Any transfer of
Shares in violation of this Section 2.1, whether voluntary or involuntary, shall
be void and of no force and effect and shall transfer no right, title, or
interest in
<PAGE> 3
or to those Shares to the purported transferee, buyer, assignee, pledgee, or
encumbrance holder of such Shares.
Section 2.2 Exceptions to Restrictions on Transfer. (a) The
restrictions on transfers of the Shares provided for in Section 2.1 shall not
prohibit the transfer by any Stockholder of any or all of the Shares owned by
such Stockholder (i) to any person by his or her last will and testament duly
admitted to probate, or pursuant to applicable laws of intestacy, (ii) to the
parents, spouse, siblings, nieces or nephews of the Stockholder or his or her
spouse or a trust for the benefit of any or all of such persons, (iii) to one or
more of his or her lineal descendants or their respective spouses or to a
trustee or guardian for the benefit of such lineal descendant(s) or his or her
spouse, (iv) into a trust for the benefit of such Stockholder and the members of
his or her immediate family, (v) to any affiliate of such Stockholder directly
or indirectly wholly-owned and controlled by him or her or (vi) to any other
Stockholder; provided, however, that in all cases, the Shares so transferred
will continue to be subject to all of the terms, covenants and conditions of
this Agreement (other than Article IV) except that the provisions of this
Article II shall not apply to such Shares if the Restricted Period has expired
or if the provisions of this Article II have terminated pursuant to Section 5.1
hereof.
(b) In each such case, the Stockholder will, prior to or
simultaneously with the transfer, inform the transferee of, and make available a
copy of, this Agreement. Acceptance by the transferee of the Shares being
transferred shall be deemed an agreement by the transferee to be bound by all of
the terms, covenants and provisions of this Agreement to the same extent as if
an initial signatory hereto (other than Article IV). Additionally, the
Stockholder shall cause the transferee to execute and deliver an instrument
agreeing to be bound by this Agreement. Unless and until the transferee delivers
the instrument, the Company shall have the right to withhold the distribution of
any dividends or distributions in respect of the transferred Shares to such
transferee and to pay the same to the transferor of such Shares in full and
complete satisfaction of the Company's obligation to pay or otherwise make such
dividends or distributions. For purposes of this Agreement, any assignee or
transferee of Shares pursuant to this Section 2.2 shall thereafter be deemed a
"Stockholder" for all purposes of this Agreement (other than Article IV).
Section 2.3 Agreement Available for Inspection. An original copy of
this Agreement duly executed by the Company and each Stockholder shall be
delivered to the Secretary of the Company and maintained by the Secretary at the
principal office of the Company available for inspection by any authorized
person requesting to see it.
Section 2.4 Legend on Shares. Each certificate representing Shares
shall bear the following legends:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAW, AND NO
INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN
EFFECTIVE
<PAGE> 4
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (ii) THIS CORPORATION RECEIVES AN OPINION OF LEGAL
COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO
THIS CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION, OR (iii) THIS CORPORATION OTHERWISE SATISFIES
ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
ADDITIONALLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE PROVISIONS OF A STOCKHOLDERS AND
REGISTRATION RIGHTS AGREEMENT, DATED ____, 1998, BY AND
BETWEEN THIS CORPORATION, THE HOLDER HEREOF AND CERTAIN OTHER
PARTIES RESTRICTING THE TRANSFER THEREOF. A COPY OF SAID
AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL OFFICE OF THE
CORPORATION.
The second legend set forth above shall be removed and the
Company shall issue a certificate without such legend to the holder of the
Shares to which it is stamped upon (i) the expiration of the Restricted Period,
or (ii) the termination of this Agreement or the provisions of this Article II
pursuant to Section 5.1 hereof.
Section 2.5 Rights as a Shareholder. Except as set forth in Section
2.1, each Stockholder shall have full rights as a shareholder of the Company
with respect to the Shares owned of record by him or her including, without
limitation, the right to vote such Shares and the right to receive dividends and
non-cash distributions with respect to such Shares.
Section 2.6 Adjustments to Number of Shares. This Article II shall
apply to the Shares and to any stock or other securities issued on account
thereof, i.e., as a result of a stock split or stock dividend, and to any stock
or other securities into which such Shares shall have hereafter been changed,
converted or exchanged, unless such securities have been received as the result
of a Capital Transaction (as defined in Section 5.1 hereof).
ARTICLE III. REGISTRATION RIGHTS
Section 3.1 Certain Definitions. As used in this Article III, the
following initially capitalized terms shall have the following meanings:
Person: A corporation, an association, a limited liability company, a
partnership, an organization, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.
<PAGE> 5
Registrable Securities: The Shares and any stock or other securities
into which such Shares shall have hereafter been changed, converted or exchanged
and all securities issued on account thereof, i.e., as a result of a stock split
or stock dividend, which are held by the Stockholders; provided, however, that
any such securities shall cease to be Registrable Securities with respect to a
proposed offer or sale thereof (i) when a registration statement with respect to
the sale of such securities shall have become effective under the Securities Act
and such securities shall have been disposed of in accordance with the plan of
distribution set forth in such registration statement, or (ii) to the extent
that such securities, in the opinion of counsel to the Company, are permitted to
be distributed pursuant to Rule 144(k) or otherwise pursuant to Rule 144 without
regard to any volume limitation (or if the volume limitation would permit
distribution and sale of all securities of the Company held by a Stockholder and
all other Persons with whom sales of the securities of the Company would be
aggregated under Rule 144 in a single three-month period).
Registration Expenses: All expenses incident to the Company's and the
Stockholders' performance of or compliance with this Article III, including
without limitation all registration and filing fees, including fees with respect
to filings required to be made with the National Association of Securities
Dealers, Inc., fees and expenses of compliance with securities or blue sky laws,
costs of preparing registration statements, prospectuses and supplements
thereto, including, without limitation, all word processing, duplicating and
printing expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company and of the Company's independent
certified public accountants (including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance); provided
however, that Registration Expenses shall not include (i) any underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities; (ii) any fees of legal counsel for the sellers of Registrable
Securities; or (iii) any transfer taxes applicable to the sale of Registrable
Securities.
Rule 144: Rule 144 promulgated under the Securities Act, or any
successor rule to similar effect.
SEC: The United States Securities and Exchange Commission.
Termination Date: The date the Stockholders no longer hold any
Registrable Securities.
Section 3.2 Mandatory Registration.
(a) At any time following the expiration or termination of the
Restricted Period and prior to the Termination Date (the "Registration Rights
Period"), upon written demand (a "Demand") for registration by the holders of a
minimum of 50% of the Registrable Securities, the Company shall promptly give
written notice ("Notice of Demand") of the Demand to each Person who then holds
Registrable Securities. Each recipient of a Notice of Demand may, for a period
of thirty (30) days after the giving of the Notice of Demand, deliver to the
Company a notice (a "Response Demand") demanding registration of the Registrable
Securities held by such recipient.
(b) In the event of a Demand pursuant to Section 3.2(a), the
Company shall prepare and file with the SEC as soon as commercially practicable,
but in no event later than sixty (60) days after the date on which the Demand is
received, a Registration Statement on Form S-3 or
<PAGE> 6
equivalent form with respect to all Registrable Securities for which demand for
registration has been made pursuant to a Demand or Response Demand and shall
comply with the further registration procedures described in Section 3.4 below.
(c) The Company may include in the registration pursuant to
this Section 3.2 securities issued in connection with any acquisition not
otherwise registered on an S-4 Registration Statement.
(d) Notwithstanding anything contained in this Section 3.2,
the Company shall not be required to prepare and file a registration statement
in accordance with this Section 3.2 more than once.
Section 3.3 Incidental Registration.
(a) Right to Include the Registrable Securities. If the
Company, at any time before the Termination Date, proposes to register
securities for sale for its own account under the Securities Act by registration
on Forms S-1, S-2 or S-3 or any successor or similar form(s) (but excluding
registrations on Forms S-4 or S-8 or any successor or similar forms), the
Company will give at least ten (10) business days written notice each such time
to the Stockholders of its intention to do so. Upon the written request of a
Stockholder holding Registrable Securities (specifying the intended method of
disposition of the Registrable Securities and exercisable by each Stockholder
only twice before the Termination Date), made within 10 business days after the
receipt of any such notice, the Company will include in its proposed
registration all Registrable Securities held by such Stockholder on the same
terms and conditions as the securities of other stockholders participating in
such registration will be included, subject to the priorities set forth in
Section 3.3(b) below, if any. If the Company thereafter determines for any
reason not to register or to delay registration of the Company's offering of its
securities, the Company may, at its election, give written notice of such
determination to the Stockholders who chose to participate in such registration
and, thereupon, (i) in the case of a determination not to register, shall be
relieved of the obligation to register such Registrable Securities in connection
with such registration (but not from any obligation of the Company to pay the
Registration Expenses in connection therewith or to register Registrable
Securities in the future), and (ii) in the case of a determination to delay
registration, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registration of such other securities. The
Company will pay all Registration Expenses in connection with the registration
of Registrable Securities requested pursuant to this Section 3.3. All other cost
and expenses incurred by the Stockholders in connection with such registration
will be borne by the Stockholders on the basis of the percentage that the
Registrable Securities which are being offered by each of them bears to the
total number of Registrable Securities sought to be registered in such
negotiation.
(b) Priority in Incidental Registration Rights. If the
managing underwriter(s) in connection with a registration advise(s) the Company
(and the other stockholders participating therein) in writing that in their good
faith opinion such offering would be adversely affected by the inclusion therein
of the total number of Registrable Securities, the Company shall include in such
registration: (1) first, all securities the Company proposes to sell for its own
account (the "Company Securities"), and (2) second, the securities requested to
be registered by stockholders of the Company
<PAGE> 7
(including, without limitation, the Stockholders) entitled to participate in the
registration, drawn from them pro rata based on the number each has requested to
be included in such registration.
(c) Limitations; Exceptions. The Company shall not be required
to effect any registration of Registrable Securities under this Section 3.3
incidental to the registration of any of the securities in connection with
mergers, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock option or other employee benefit plans.
(d) Number of Incidental Registrations; Effective Registration
Statement. Each Stockholder may exercise his right to incidental registration
under this Section 3.3 only twice before the Termination Date; provided, that no
Stockholder may exercise his right to incidental registration under this Section
3.3 with respect to less than the lesser of: (x) 10,000 shares of Common Stock
(or Registrable Securities having a total market value of less than $100,000 if
the Registrable Securities are of any class other than Common Stock), (y) 25% of
the total number of shares of Registrable Securities then held by all
Stockholders and (z) 50% of the total number of shares of Registrable Securities
then held by such Stockholder. Any registration requested pursuant to Section
3.2 or this Section 3.3 shall not be deemed to have been effected and will not
be considered one of the registrations which may be requested by Stockholders
(i) unless a registration statement with respect thereto has become effective,
(ii) if, after it has become effective, it does not remain effective and
available to Stockholders for resale for a period of at least ninety (90) days
(unless the Registrable Securities registered thereunder have been sold or
disposed of prior to the expiration of such 90-day period) or such registration
is interfered with by any stop order, injunction or other order or requirement
of the SEC or other governmental agency or court for any reason and has not
thereafter become effective, or (iii) if, after it has become effective,
Stockholders receive notice from the Company of the happening of any event of
the kind described in Section 3.4(e)(ii), (iii) or (iv) or Section 3.4(g)
hereof, and are forced to discontinue disposition of Registrable Securities
pursuant to Section 3.5(b) hereof, prior to the expiration of a resale period of
at least ninety (90) days (unless the Registrable Securities registered
thereunder have been sold or disposed of prior to the expiration of such 90-day
period).
Section 3.4 Registration Procedures. Subject to the other terms and
conditions hereof whenever any Stockholder has issued a Demand or a Response
Demand pursuant to Section 3.2 above or has requested an incidental registration
pursuant to Section 3.3 above, the Company shall, as soon as reasonably
possible:
(a) Use its reasonable best efforts to cause the applicable
registration statements to become effective within any applicable time frames
prescribed herein;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statements and the prospectus(es) used in
connection therewith, which prospectus(es) are to be filed pursuant to Rule 424
under the Securities Act, as may be necessary to keep such registration
statements effective for a period of ninety (90) days or until such securities,
in the opinion of counsel to the Company, are permitted to be distributed
pursuant to Rule 144(k) or otherwise pursuant to Rule 144 without regard to any
volume limitation (or if the volume limitation would permit distribution and
sale of all securities of the Company held by a Stockholder in a single
three-
<PAGE> 8
month period) and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statements
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statements or supplements to such
prospectuses. In the event sales of Registrable Securities of the Stockholders
are suspended as provided in Section 3.5(b), the 90-day period during which a
registration statement must be kept effective shall be extended for the total
number of days during which sales are suspended;
(c) Furnish to the Stockholders without charge, such number of
copies of such registration statements, each amendment and supplement thereto,
the prospectus(es) included in such registration statements, and such other
documents as the Stockholders may reasonably request in order to facilitate the
disposition of the Registrable Securities (the Company consents to the use of
such prospectuses or any amendment or supplement thereto by the Stockholders in
connection with the offering and sale of the Registrable Securities covered by
such prospectuses or any amendment or supplement thereto); and furnish to the
Stockholders, without charge, at least one conformed copy of the registration
statement or statements and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(d) Use its reasonable efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as the Stockholders reasonably request and do any and all other
acts and things which may be reasonably necessary or advisable to (i) keep such
registration or qualification effective during the period such registration
statement is required to be kept effective and (ii) enable the Stockholders to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by the Stockholders;
(e) Notify the Stockholders, promptly, and if requested,
confirm such advice in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and, with respect to a
registration statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC for amendments or supplements to a
registration statement or related prospectus or for additional information,
(iii) of the existence of material information that has not been disclosed to
the public and included in the registration statement if it is necessary to
amend the registration statement or the prospectus included in such registration
statement, and, at the request of the Stockholders, the Company will, as soon as
reasonably practicable, prepare a supplement or amendment to such registration
statement or prospectus so that such registration statement or prospectus will
not contain any untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in light of the
circumstances then existing (provided, that in the case of a shelf registration
on Form S-3 or equivalent form the foregoing shall not obligate the Company to
disclose any fact or circumstance earlier than it would have been disclosed by
the Company in the ordinary course of business absent this Agreement or any
similar obligation or to amend to the registration statement during any time
when the Company's officers and directors are prohibited from buying or selling
the Company's Common Stock pursuant to the Company's insider trading policy),
and (iv) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
<PAGE> 9
(f) Cause all such Registrable Securities to be listed on each
securities exchange and inter-dealer quotation system on which similar
securities issued by the Company are then listed and pay all fees and expenses
in connection therewith; and
(g) Advise the Stockholders promptly after the Company shall
have received notice or obtained knowledge of (i) the issuance of any stop order
by the SEC suspending the effectiveness of such registration statements or the
initiation or threatening of any proceeding for such purposes and will use its
reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued, or (ii) the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purposes and will
promptly use its reasonable efforts to prevent such suspension or have such
suspension lifted if it should be effected.
Section 3.5 The Stockholders' Covenants.
(a) Each Stockholder shall furnish to the Company in writing
such information relating to him as the Company may reasonably request in
writing in connection with the preparation of registration statements pursuant
to this Agreement, and each Stockholder agrees to notify the Company as promptly
as practicable of any inaccuracy or change in information he has previously
furnished to the Company or of the happening of any event, in either case as a
result of which any prospectus relating to such registrations contains an untrue
statement of a material fact regarding the Stockholder or the distribution of
such Registrable Securities or omits to state any material fact regarding the
Stockholder or the distribution of such Registrable Securities required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and to promptly furnish to the Company
any additional information required to correct and update any previously
furnished information or required such that such prospectus shall not contain,
with respect to the Stockholder or the distribution of such Registrable
Securities, an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
(b) Each Stockholder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3.4(e)(ii), (iii) or (iv) or Section 3.4(g) hereof, the Stockholders will
forthwith discontinue disposition of such Registrable Securities covered by such
registration statement or prospectus until the Stockholders' receipt of the
copies of the supplemented or amended prospectus relating to such registration
statement or prospectus, or until it is advised in writing by the Company that
the use of the applicable prospectus may be resumed, and has received copies of
any additional or supplemental filings which are incorporated by reference in
such prospectus, and, if so directed by the Company, the Stockholders will
deliver to the Company all copies, other than permanent file copies then in the
Stockholders' possession, of the prospectus covering the Registrable Securities
current at the time of receipt of such notice.
Section 3.8 Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Stockholders and their
respective counsel and accountants such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
<PAGE> 10
independent public accountants who have certified its financial statements as
shall be necessary to conduct a reasonable investigation within the meaning of
the Securities Act.
Section 3.7 Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any Registrable Securities under the Securities Act, the Company
will, and hereby does, indemnify and hold harmless, to the fullest extent
permitted by law, each Stockholder against any and all judgments, fines,
penalties, charges, costs, amounts paid in settlement, losses, claims, damages,
liabilities, expenses, or attorney fees, joint or several, incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not the Stockholder is or may be
a party thereto ("Indemnified Damages"), to which such Stockholder may become
subject under the Securities Act or any other statute or common law, insofar as
any such Indemnified Damages arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement relating to the sale of such securities or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under blue sky or other securities laws of
jurisdictions in which the Registrable Securities are offered ("Blue Sky
Filing"), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in the final prospectus (as amended or supplemented if
the Company shall have filed with the SEC any amendment thereof or supplement
thereto) if used within the period during which the Company is required to keep
the registration statement to which such prospectus relates current, or the
omission or alleged omission to state therein (if so used) a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the
indemnification agreement contained herein shall not apply to such Indemnified
Damages to any Stockholder arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission or alleged omission,
if such statement or omission: (i) was made in reliance upon and in conformity
with written information furnished to the Company by the Stockholder for use in
connection with preparation of the registration statement, any prospectus
contained in the registration statement, any such amendment or supplement
thereto or any Blue Sky Filing; or (ii) was included in a registration
statement, prospectus contained therein or any amendment or supplement thereto,
and prior to the use thereof, the Company had given notice to the Stockholder of
the happening of one or more events of the kind described in Section 3.4(e)(ii),
(iii) or (iv) or Section 3.4(g) hereof. Furthermore, the indemnification
agreement contained herein shall not apply to any Indemnified Damages to any
Stockholder arising out of, or based upon, the Stockholder's or any of his
representatives', failure to deliver a prospectus, including any amendments or
supplements thereto, in connection with any sale thereunder in accordance with
the rules and regulations of the SEC (provided that the Stockholder had notice
of any such amendment or supplement and received a copy of such amendment or
supplement in accordance with the terms of this Agreement).
<PAGE> 11
(b) Indemnification by the Stockholders. Each Stockholder
will, if Registrable Securities are included in the securities to which such
registration is being effected, indemnify and hold harmless (in the same manner
and to the same extent as set forth in subdivision (a) of this Section 3.7) the
Company, its officers and directors and each officer of the Company and each
other Person, if any, who controls the Company within the meaning of the
Securities Act with respect to any untrue statement or alleged untrue statement
in, or omission or alleged omission from, such registration statement, any
prospectus contained therein, or any amendment or supplement thereto, if such
statement or omission (i) arises from information relating to any Stockholder
and was made in reliance upon written information any Stockholder furnished to
the Company for use in the preparation of such registration statement,
prospectus, amendment or supplement on Blue Sky Filing, or (ii) was included in
a registration statement, prospectus contained therein or any amendment or
supplement thereto, and prior to the use thereof, the Company had given notice
to the Stockholders of the happening of one or more events of the kind described
in Section 3.4(e)(ii), (iii) or (iv) or Section 3.4(g) hereof. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling Person
and shall survive the transfer of such securities by the Stockholders. The
Stockholders' indemnity as described in this Section 3.7(b) shall be limited to
the dollar amount of the proceeds of the Registrable Securities actually sold by
each Stockholder pursuant to such registration statement.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 3.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 3.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, the indemnifying
party shall be entitled to participate in and, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. If the indemnifying party does not
assume such defense, the indemnified party shall keep the indemnifying party
apprised as to the status of the defense; provided, however, that the failure to
keep the indemnifying party so informed shall not affect the obligations of the
indemnifying party hereunder. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected
<PAGE> 12
without its written consent, provided, however, that the indemnifying party
shall not unreasonably withhold, delay or condition its consent. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the indemnified party
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made.
(d) Indemnification Payments. The indemnification required by
this Section 3.7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.
(e) Contribution. If the indemnification provided for in this
Section 3.7 shall for any reason be held by a court to be unavailable to an
indemnified party under subparagraph (a) or (b) hereof in respect of any
Indemnified Damages, then, in lieu of the amount paid or payable under
subparagraph (a) or (b) hereof, the indemnified party and the indemnifying party
under subparagraph (a) or (b) hereof shall contribute to the aggregate
Indemnified Damages, in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party with respect
to the statements or omissions which resulted in such Indemnified Damages, as
well as any other relevant equitable considerations. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The obligations of the Stockholders
to contribute as provided in this subparagraph (e) shall be in proportion to the
relative value of his Registrable Securities covered by such registration
statement in relation to all securities covered by such registration statement.
In addition, no Person shall be obligated to contribute hereunder any amounts in
payment for any settlement of any action or claim effected without such Person's
consent, which consent shall not be unreasonably withheld.
(f) Other Rights; Liabilities. The indemnity agreements
contained herein shall be in addition to (i) any cause of action or similar
right of the indemnified party against the indemnifying party or others, and
(ii) any liabilities the indemnifying party may be subject to pursuant to the
law.
ARTICLE IV. BOARD REPRESENTATION
The Stockholders, collectively, shall have the right to
designate either Leonard Verebay or Eric Kaltman, as they may choose, for
election to the Company's board of directors by such board at the closing of the
transactions contemplated by the Purchase Agreement, to serve until the next
annual meeting of the stockholders of the Company. Thereafter, if any one of
Leonard Verebay or Eric Kaltman (i) holds at least 400,000 shares of Common
Stock (which threshold number of shares shall automatically be adjusted from
time to time to reflect increases, decreases or exchanges in, or the
distribution of additional or different securities in respect of, the Common
Stock as a result of any recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other similar transaction) and (ii) is
either an employee of the Company or is subject to the noncompetition covenants
of Article VII of the Purchase
<PAGE> 13
Agreement or Section 7 of the Employment Agreement of even date herewith between
him and the Company ((i) and (ii) above, the "Board Qualifications"), the
Company agrees to cause such Stockholder to be included in management's slate of
nominees for election at each annual meeting of the stockholders of the Company
at the expiration of his term, for so long as such Stockholder meets the Board
Qualifications. If, however, both Leonard Verebay and Eric Kaltman meet the
Board Qualifications, the Stockholders shall choose one of them to be nominated
for election to the Company's Board of Directors and the Company agrees to cause
such Stockholder so chosen to be included in management's slate of nominees for
election at each annual meeting of the stockholders of the Company at the
expiration of his term, for so long as such Stockholder meets the Board
Qualifications. Further, for so long as the Stockholders collectively own in the
aggregate not less than 800,000 shares of Common Stock (which threshold number
of shares shall automatically be adjusted from time to time to reflect
increases, decreases or exchanges in, or the distribution of additional or
different securities in respect of, the Common Stock as a result of any
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction), the Company agrees to cause whichever of
Leonard Verebay and Eric Kaltman is not a member of the Company's Board of
Directors to be invited to attend meetings of the Company's Board of Directors
as an observer (so long as he is either an employee of the Company or is subject
to the noncompetition covenants of Article VII of the Purchase Agreement or
Section 7 of the Employment Agreement of even date herewith between him and the
Company), unless the Board of Directors of the Company determines as to any
particular meeting or meetings that considerations of confidentiality make such
attendance inappropriate.
ARTICLE V. MISCELLANEOUS
Section 5.1 Termination. This Agreement shall terminate in the event of
the bankruptcy or insolvency of the Company. The provisions of solely Articles
II and IV of this Agreement shall terminate upon the occurrence of a Capital
Transaction (as defined below) or upon any Change in Control (as defined below).
Upon any termination of this Agreement or Articles II and IV as provided above,
the Company shall, if a Stockholder so requests, remove from each certificate
representing shares of Common Stock then owned by the Stockholder any legend
which refers to this Agreement and/or any of the restrictions on transfer
contained herein. For purposes of this Section 5 .1, "Capital Transaction"
means, with respect to the Company the transaction underlying any of the
following events: (i) the stockholders of the Company approve a merger,
consolidation or other combination of the Company with any other company, other
than (1) a merger, consolidation or other combination which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger, consolidation or other combination or
(2) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or (ii) the stockholders of the Company
approve an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets and properties to any
<PAGE> 14
Person (as defined in Article III hereof) which is not an Affiliate (as defined
below) of the Company; or (iii) the stockholders of the Company approve any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property of another Person which is not an Affiliate
of the Company or (iv) the Board of Directors of the Company approves any
exchange or tender offer for outstanding Common Stock by any Person which is not
an Affiliate of the Company if, upon consummation of such exchange or tender
offer, the offeror would become the beneficial owner of fifty percent (50%) or
more of the voting stock of the Company. For purposes of this Section 5.1,
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Person referred to, and in this definition, "control" means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of securities, by
contract, or otherwise. For purposes of this Section 5.1, "Change in Control"
means (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportion as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
40% or more of the combined voting power of the Company's then outstanding
securities without the approval of the Board of Directors of the Company; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board, and any new director whose election by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved cease for any reason to
constitute at least a majority thereof, or (iii) if Marc Shore, together with
his immediate family members and all Affiliates of Marc Shore and/or his
immediate family members, either individually or acting as a group, cease to own
at least 15% of the outstanding Common Stock of the Company.
Section 5.2 Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns. The Company may not assign
its obligations hereunder except that the Company shall at any time upon notice
to the Stockholders assign all or a portion of its rights and duties hereunder
(to the extent the same have not terminated pursuant to Section 5.1 above) to
(i) an entity which results from any merger, consolidation or other
reorganization to which the Company is the non-surviving party or (ii) a buyer
of all or substantially all of the Company's assets, provided that, with respect
to Article III above, the assignee or its parent is publicly traded and the
assignee or its parent shall agree in writing to fully and faithfully perform
all of the Company's obligations hereunder. Without the prior written consent of
the Company, no Stockholder may assign his rights hereunder or otherwise provide
to any third party the benefits granted to such Stockholder hereunder.
Section 5.3 Severability. If any term or provision of this Agreement is
held by a court of competent jurisdiction to be invalid, void, or unenforceable,
the remainder of the terms and provisions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
<PAGE> 15
alternative means to achieve the same or substantially the same result as that
contemplated by such term or provision.
Section 5.4 Further Assurances. Subject to the specific terms of this
Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
Section 5.5 Waivers, Etc. No failure or delay on the part of either
party hereto (or the intended third party beneficiaries referred to herein) in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement nor
consent to any departure therefrom shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
Section 5.6 Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof. The
section headings contained in this Agreement are solely for the purpose of
reference, and shall not in any way affect the meaning or interpretation of this
Agreement.
Section 5.7 Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original but all of which together shall be one and the same
instrument.
Section 5.8 Notices. All notices, consents, demands, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by electronic facsimile equipment, provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
If to the Company: Shorewood Packaging Corporation
277 Park Avenue
New York, New York 10172
Attention: Andrew Shore, Vice
President, General Counsel
Facsimile No.: (212) 508-5677
With a copy to: Bryan Cave LLP
245 Park Avenue
New York, New York 10167-0034
Attention: Peter A. Eisenberg, Esq.
Facsimile No.: (212) 692-1900
<PAGE> 16
If to the Stockholders: at the respective addresses set
forth on the signature page hereto
With a copy to: Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: ________________________
Facsimile No.: (212) 698-7825
Section 5.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws.
Section 5.10 Amendments. This Agreement may be amended only by a
written agreement signed by the Company and the Stockholders.
Section 5.11 Blue-Penciling. If any court determines that any provision
of this agreement regarding restrictions on transfer or other restrictive
covenants, or any part thereof, is invalid or unenforceable, such court shall
have the power to reduce the duration or scope of such provision, as the case
may be, and, in its reduced form, such provision shall then be enforceable
IN WITNESS WHEREOF, the Company and the Stockholders have caused this
Agreement to be duly executed as of the date first above written.
SHOREWOOD PACKAGING CORPORATION
By: ___________________________________
Name:
Title:
STOCKHOLDERS:
_______________________________________
Name:
Residential Address:
_______________________________________
Name:
Residential Address:
<PAGE> 1
Exhibit 10-122
L I C E N S E
THIS AGREEMENT made as of the 30th day of October 1998, by and between
QUEENS GROUP, INC., 52-35 Barnett Avenue, Long Island City, NY 11104
(hereinafter referred to as "Queens") and SHOREWOOD PACKAGING CORPORATION, 277
Park Avenue, New York, New York 10172-0124 (hereinafter referred to as
"Licensee").
W I T N E S S E T H:
WHEREAS, Queens has developed a packaging system known as the "Q-PACK",
which is covered by the claims of U.S. Patent No. 5,284,242, U.S. Patent No.
5,377,827, U.S. Patent No. 5,462,159, U.S. Patent No. 5,551,559, U.S. Patent No.
DES 393,394, U.S. Patent Application Serial No. 29/041,663 and U.S. Patent No.
DES 395,190 and certain foreign patents and applications listed on Exhibit A
attached hereto, and involve other Know-How (as defined further herein) of
Queens including but not limited to designs, drawings, manufacturing machinery
specifications, technical specifications, prints and other documentation and
information relating to the Patent Rights (as further defined herein) and
Know-How; and
WHEREAS, Queens is the sole owner of U.S. Trademark Registration Nos.
1,962,227 and 1,918,817 for the marks Q-PACK and Q-PACK (Stylized); and
WHEREAS, Licensee is desirous of obtaining a license for the
manufacture and sale of the Licensed Product (as further defined herein) under
the Patent Rights, Know-How and Trademark Rights (as defined further herein);
and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of Queens and Licensee as herein contained, Queens and Licensee hereby mutually
agree as follows:
<PAGE> 2
ARTICLE 1
DEFINITIONS
The following terms shall have the meanings set forth below when used
in this Agreement:
1.1 "Queens" - Queens Group, Inc. which will be changing its name to Q2
Marketing, Inc. and any subsidiary and affiliated companies controlled by Queens
or by the shareholders of Queens or any successor or assignee of Queens or its
shareholders.
1.2 "Licensee" - Shorewood Packaging Corporation and any subsidiary,
joint ventures, affiliated and associated companies controlled and/or operated
by Licensee in the Territory.
1.3 "Know-How" shall mean any technical information owned by Queens and
contained in and/or including drawings, specifications, designs, engineering,
developments, machinery and/or tangible materials (e.g., dimensions, materials,
and processes) and any Improvements thereon pertaining to the Licensed Product
or the manufacture or assembly thereof or to the manufacture or assembly of the
equipment, machinery, molds or components used to manufacture or assemble the
Licensed Product, and which is hereby acknowledged by Licensee as the
proprietary information of Queens.
1.4 "Licensed Products" shall mean any package (including by way of
example and not by way of limitation, any media storage disc) disclosed and/or
covered in or by any of the Patent Rights including by way of example and not by
way of limitation the package manufactured and sold by Queens under the
Trademark Rights.
1.5 "Printed Labels" - the printed panel components of the Licensed
Product.
1.6 "Definitive Agreement" - shall mean the agreement between Queens
and Licensee dated October 30, 1998, pursuant to which Licensee shall acquire
substantially all of the assets of Queens except for inter alia the Patent
Rights and Trademark Rights which are the subject of this Agreement.
1.7 "Improvement(s)" shall include, but not be limited to, (i) any
alteration of the manufacture, structure, or assembly of the Licensed Product;
or (ii) any alteration of the Licensed Product, either or both of which
results(s) (without limitation by reason of
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specification) in any or all of the following during the term of this Agreement:
1.7.1 reduces production cost, or
1.7.2 improves reliability, or
1.7.3 secures different or more desirable appearance or
operating characteristics, or
1.7.4 increases service life, or
1.7.5 improves efficiency of assembly;
whether or not such alteration is patented or patentable and which is developed
by Queens or Licensee.
1.8 "Trademark Rights" shall mean United States Trademark Application
Nos. 424,165 and 428,362, filed by Queens, with respect to its trademarks
"Q-PACK" and Q-PACK (STYLIZED), respectively, and any other Trademark(s) for the
Licensed Product that issue to Queens within the Territory or are otherwise
commercially used by Queens as its trademark for the Licensed Product during the
Term.
1.9 "Term" shall be perpetual, except as otherwise limited pursuant to
Section 10.2 hereof.
1.10 "Territory" shall mean worldwide.
1.11 "Effective Date" shall be the date of the Closing of the
Definitive Agreement.
1.12 "Patent Rights" shall mean U.S. Patent No. 5,284,242, U.S. Patent
No. 5,377,827, U.S. Patent No. 5,462,159, U.S. Patent No. 5,551,559, U.S. Patent
No. DES 393,394, U.S. Patent Application Serial No. 29/041,663 and U.S. Patent
No. DES 395,190, certain foreign patents and applications listed on Exhibit A
attached hereto and any other patents issued and patent applications filed
within the Territory, including corresponding foreign patents to, by or on
behalf of Queens at any time covering the design, method of manufacture, use of,
or assembly into a package, including by way of example, and not by way of
limitation any media storage container, or Improvements. Should any other Patent
Rights within the scope of this Agreement issue during the Term of this
Agreement or any renewals thereof, Queens shall provide notice of such fact to
Licensee, including the identification of such patent.
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1.13 "Vendor(s)" shall mean any third party who manufactures or
assembles the Licensed Products or any part thereof for Licensee, or the
equipment, machinery or molds or components therefor used to manufacture
Licensed Products.
1.14 "North America" shall mean the United States, Canada and Mexico
and their respective territories and possessions and all nations comprising the
West Indies.
1.15 "Affiliate" means any person who, directly or indirectly,
controls, is controlled by, or is under common control with Queens, Licensee or
DIVX. Ownership or control shall include ownership or control of 20% or more of
voting securities or partnership interests.
ARTICLE 2
GRANT OF LICENSE AND RIGHT TO
MANUFACTURE, USE AND SELL UNDER QUEENS PATENT RIGHTS
2.1 Except as otherwise set forth in this Section 2.1, Queens hereby
grants to Licensee the perpetual, exclusive non-transferable, indivisible right
and license, as to all parties including Queens, under Queens' Patent Rights and
Know-How, to manufacture, have manufactured, assemble, have assembled, import,
export, use, offer for sale, sell the Licensed Product at locations owned and/or
operated by Licensee, Vendors or Licensee's customers.
Notwithstanding the foregoing, Queens expressly retains the
right to license to others the right to manufacture, use and sell the Licensed
Product as hereinafter set forth:
A. To license Digital Video Express L.P. ("DIVX"), a
Delaware limited partnership located at 570 Herndon Parkway, Herndon, Virginia
20170, or its Affiliates, successors, assigns, designees or sub-licensees to
manufacture, use and sell the Licensed Product solely in connection with the
manufacture, assembly, sale or distribution of DIVX' products, provided however,
that before entering into any agreement with DIVX, Queens shall use its best
efforts to cause DIVX to make use of Licensee's services to fulfill all DIVX
Printed Labels requirements if Licensee has suitable manufacturing facilities
which can service DIVX in a commercially reasonable manner and which facilities
are willing and able to provide such services on a basis that is competitive (as
to capacity, price, quality and delivery); and
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B. To license any other entity to manufacture, use
and sell the Licensed Product in North America which agrees to allow Licensee to
fulfill all of its Printed Labels requirements, provided the Licensee will offer
such other entity prices for Printed Labels at no more than 25% of gross profit
on Licensee's full factory cost. If Licensee does not offer such prices to such
entity, Queens may license such entity to manufacture, use and sell the Licensed
Product in North America without requiring it to have its Printed Label
requirements fulfilled by Licensee.
C. After the second annual anniversary of the
Effective Date, to license any party to manufacture, use and sell the Licensed
Product in any nation outside of North America in which Licensee does not then
own or control a direct or indirect interest of more than 20% in an operational
Q-PACK manufacturing facility. (For purposes of this Agreement, if Licensee
shall own or control such an interest in any facility within the European Union
(excluding the U.K. and the Republic of Ireland), such facility shall be deemed
to service all of the nations on the European Continent that comprise the
European Union, excluding the U.K. and the Republic of Ireland, and Licensee's
exclusive license under this Agreement shall then cover all the nations of the
European Union, excluding the U.K. and the Republic of Ireland so long as
Licensee shall continue to own or control such interest, and provided that
Licensee shall be capable of servicing the nation or nations in which it
maintains such exclusive license; and, if Licensee shall own or control such an
interest in any facility in either the U.K. or the Republic or Ireland, such
facility shall be deemed to service both the U.K. and the Republic of Ireland,
and Licensee's exclusive license under this Agreement shall then cover both the
U.K. and the Republic of Ireland so long as Licensee shall continue to own or
control such interest, and provided that Licensee shall be capable of servicing
the nation or nations in which it maintains such exclusive license).
In any of those portions of the Territory in which Licensee's license
shall not be an exclusive one pursuant to the aforesaid enumerated exceptions,
Licensee shall continue to have a perpetual non-exclusive License.
2.2 Except as specifically provided in this Section 2.2 or elsewhere in
this Agreement, under no circumstances may Licensee grant any third-party any
rights or interests in the License or any sub-licensee. However, Licensee shall
have the right to authorize one or
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more Vendors approved by Queens, whose approval shall not be unreasonably
withheld or delayed. Licensee shall notify Queens in writing of the name and
address and the experience and qualifications of any such Vendor. Any proposed
agreement between a Vendor and Licensee must be in writing, with a copy to
Queens, in a form acceptable to Queens, but such acceptance shall not be
unreasonably withheld or delayed if the proposed agreement contains all of the
provisions applicable to Vendors that are reasonably required by this License,
including a provision permitting Queens to require Licensee to terminate such
agreement if the Vendor violates any of its material provisions. Notwithstanding
the foregoing, Licensee may authorize Vendors to manufacture and/or assemble the
Licensed Product on Licensee's behalf without obtaining the approval of Queens
or complying with the other procedures outlined in this Section 2.2 provided
that Licensee shall be responsible for each such Vendor's compliance with the
applicable terms of this Agreement.
2.3 The exclusive right and license granted by Queens to Licensee in
paragraph 2.1, above, shall not include the right to sell the Licensed Product
to any person or entity which Licensee knows, at the time of such sale, intends
to sell or have sales made of the Licensed Product that would violate any of the
terms of this Agreement.
2.4 Any Improvements shall be deemed to be included in the grant to
Licensee hereunder and Licensee hereby acknowledges that any Improvements are
the sole and exclusive property of Queens.
2.5 Licensee accepts from Queens the grant of the rights and license as
described herein above, subject to all of the terms and conditions of this
Agreement.
ARTICLE 3
GRANT OF LICENSE TO PURCHASE, MANUFACTURE,
USE AND SELL UNDER APPLICABLE
CONVEYANCE OF KNOW-HOW
3.1 In connection only with the right to purchase or manufacture or
have manufactured the machinery to assemble the Licensed Product, or to
manufacture, have manufactured, assemble, have assembled, import, export, use,
offer for sale and sell the Licensed Product within the Territory as granted
herein, and under no other circumstances, Queens hereby
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grants to Licensee the non-exclusive right and license to use the Know-How and
to enter into agreements with Vendors approved by Queens, which approval shall
not be unreasonably withheld or delayed and which approval shall not be required
for Vendors who merely manufacture and/or assemble the Licensed Product for
Licensee. Queens hereby represents and warrants that all items of Know-How
necessary or useful to the full exercise of the rights granted to Licensee under
this Agreement have been or simultaneously with the execution of this Agreement
are being, to the extent they exist in tangible form, delivered to Licensee, or
will be otherwise available as needed. Queens shall make and deliver to Licensee
copies and similarly sufficient English-language descriptions of any Know-How
hereafter made as required by or useful to Licensee after the creation of such
Know-How.
3.2 Conveyance of Know-How. Queens shall furnish to Licensee, from time
to time as required by or useful to Licensee for the manufacture, assembly or
sale of the Licensed Product under the terms hereof, the Know-How pertaining to
the Licensed Product. Licensee agrees to use such Know-How for the limited
purpose only of manufacturing, assembling or selling the Licensed Product
according to the terms of this Agreement, and not for any other purpose.
3.3 Licensee hereby accepts from Queens the grant of the rights and
license as described herein above, subject to all of the terms and conditions of
this Agreement.
3.4 Queens represents to Licensee that it will not grant any license of
the Know-How to any other party that does not have a license to the Patent
Rights from Queens.
ARTICLE 4
GRANT OF LICENSE UNDER
APPLICABLE QUEENS TRADEMARK RIGHTS
4.1 Queens hereby grants to Licensee the non-exclusive right and
license under its Trademark Rights, to use the Q-PACK name and trademark in
connection only with the manufacture, assembly, advertising, promotion, import,
export, offer for sale or sale of the Licensed Product within the Territory, as
granted herein, and not for any other purpose.
4.2 Licensee hereby accepts from Queens the grant of the rights and
license as described herein above, subject to all of the terms and conditions of
this Agreement.
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<PAGE> 8
ARTICLE 5
TITLE TO THE PATENT RIGHTS, KNOW-HOW,
IMPROVEMENTS AND TRADEMARK RIGHTS
5.1 Licensee recognizes Queens' title to the Patent Rights, Know-How,
Improvements, and Trademark Rights and agrees that it shall not at any time do
or suffer to be done any act or thing or undertake any action anywhere that in
any manner infringes or impairs the validity, scope or title of Queens in the
Patent Rights, Know-How, Improvements, or Trademark Rights during the term
hereof and thereafter. It is understood that Licensee shall not acquire and
shall not claim any title to the Patent Rights, Know-How, Improvements, or
Trademark Rights adverse to Queens by virtue of this License Agreement or
otherwise, it being the intention of the parties that all utilization of the
Patent Rights, Know-How, Improvements, and Trademark Rights by Licensee shall at
all times inure to the exclusive benefit of Queens. Licensee agrees that it
shall not represent in any manner that it has any title or right, to the
ownership or use of any of the Patent Rights, except as set forth in this
Agreement.
5.2 Cooperation with Queens Group to File Patent Applications. Licensee
acknowledges that only Queens Group may file and prosecute patent applications
on the Licensed Products. Licensee will cooperate with Queens Group in
connection with any such filings, and the expenses of preparing and prosecuting
such applications shall be borne solely by Queens Group.
ARTICLE 6
QUALITY SUPERVISION
6.1 In the manufacture, assembly and sale of the Licensed Product,
Licensee shall itself and shall require its Vendors to maintain standards of
commercially acceptable quality, which standards shall be no more exacting than
those imposed by Queens on each of its other licensees in connection with the
Licensed Product based solely on the quality of the finished Licensed Product,
and Licensee shall also comply and cause its Vendors to comply with all
governmental labeling laws or regulations. Licensee specifically undertakes to
indemnify,
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defend and to hold Queens harmless from any and all claims, suits, damages,
costs, expenses, losses or liabilities it may suffer or incur including
reasonable attorneys' fees, as a result of Licensee's failure or any failure of
its Vendors, to comply with such standards, laws or regulations.
ARTICLE 7
MARKING AND LABELING
Licensee shall conspicuously mark in the frame on the outside of each
Licensed Product, the legend "Q-PACK(TM)" U.S. Patent No. 5,377,827" or any
other reasonable patent or trademark notice required by Queens from time to
time.
ARTICLE 8
COMPENSATION
8.1 For the Patent Rights, Know-How, and Trademark Rights licensed
herein, Licensee shall pay Queens at the address designated by Queens, a royalty
in United States currency in an amount set forth in Schedule B attached hereto.
The royalty shall be paid to Queens within thirty (30) days after the close of
each calendar quarter and such payment shall be accompanied by a statement
setting forth the number of units of Licensed Product billed and paid for during
each such calendar quarter or portion thereof, the address of each location
where assembled and a computation of the royalty due as supported by a reading
of the counter installed on the assembly machine and review of appropriate
documentation. Within thirty (30) days after the close of each calendar year,
Licensee shall provide Queens with a statement, certified by the Chief Financial
Officer of Licensee detailing the number of units of Licensed Product billed and
paid for and the royalty computations for the calendar year just ended. Licensee
shall maintain accurate and complete books and records with respect to such
royalties and Queens shall have the right at its own expense to audit such books
and records during reasonable business hours upon at least five (5) business
days' advance notice but not more than twice a year and not for any calendar
year expiring more than three (3) years before such audit. The expenses of any
such examination shall be borne by Queens unless such examination
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indicates any underpayment of Royalties in an amount of three (3%) percent or
more, in which event, Licensee shall reimburse Queens for the actual costs and
expenses incurred by Queens in connection with such examination, including,
without limitation, travel, hotel and food costs. The statements required to be
furnished by Licensee to Queens pursuant to this Section shall be furnished by
Licensee to Queens whether or not there have been any Licensed Products
manufactured during the period of which such statements are furnished.
8.2 Notwithstanding anything to the contrary hereinabove set forth, in
order to maintain the exclusive License arrangement with Queens in any nation
outside of North America, beginning on the second anniversary of the Effective
Date Licensee shall pay Queens minimum Royalties for each calendar year during
the Term of this license for each nation in which Licensee has been granted such
an exclusive license hereunder, in the amounts set forth on Schedule B attached
hereto in respect to such location. In the event that Licensee shall fail to pay
Queens such minimum royalties and such failure is not cured within 30 days after
Licensee receives notice of termination from Queens, Licensee's exclusive
License shall thereafter become non-exclusive for any such location. Notice of
termination of such exclusive for Licensee's failure to meet the required
minimum royalty payments may be given by Queens at any time thirty days or more
after the beginning of the calendar year following the calendar year when such
minimum royalty has not been paid. For purposes of this Section 8.2, the term
"nation" does not include any nation in North America; and the European Union,
exclusive of the U.K. and the Republic of Ireland shall be deemed to be one
nation; and the U.K. and the Republic of Ireland shall be deemed one nation.
8.3 Notwithstanding the provisions of Article 8.1, Queens shall waive
the royalty due with respect to (and there shall be no royalty accruing, payable
or owing for) each unit of Licensed Product which Licensee manufactures and
assembles at facilities owned or used by Licensee in North America and delivered
to customers in North America only. Licensee agrees that royalties shall be paid
to Queens by Licensee based on Licensed Products manufactured or assembled at
the facilities of Licensee's customers, unless such customers of Licensee are
obligated to pay such royalties pursuant to a license agreement between such
customer and Queens.
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8.4 Notwithstanding anything to the contrary set forth herein, for the
convenience of the parties hereto, all royalties with respect to the license
granted herein shall cease to accrue and be payable or owing immediately upon
the expiration of the last to expire of the Patent Rights.
8.5 If Queens grants to any other party a license of one or more of the
Patent Rights, Trademark Rights or Know-How upon more favorable royalty rates
than those specified herein, Queens shall give prompt written notice thereof to
Licensee. If Licensee so elects, it shall automatically become entitled to such
more favorable royalty rates.
ARTICLE 9
CONFIDENTIALITY OBLIGATIONS OF THE PARTIES
9.1 Licensee shall receive and retain the Know-How and Improvements
received pursuant to this Agreement in confidence and shall not publish or
disclose the same to any third party (other than Vendors and third parties who
manufacture, assemble or sell the Licensed Product on behalf of Licensee)
without the prior written consent of Queens, except as may reasonably be
required to use the Know-How or Improvements as contemplated hereby and except
as may be required by any court of competent jurisdiction or governmental
authority after all of Queens' rights to appeal or contest have either been
exhausted or waived, or in the circumstance where the Know-How or Improvements
have come into the public domain through no fault of Licensee or where Licensee
obtained the Know-How or Improvement from a third party that has no obligation
of confidentiality with respect thereto.
9.2 Queens shall receive and retain certain information labeled as
"confidential" from Licensee in connection with the requirements and acts
contemplated in this Agreement and shall not publish or disclose the same to any
third party without the prior written consent of Licensee, except as may be
required by any court of competent jurisdiction or governmental authority after
all of Licensee's rights to appeal or contest have either been exhausted or
waived, or in the circumstances where the confidential information has come into
the public domain through no fault of Queens.
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ARTICLE 10
TERM OF AGREEMENT AND TERMINATION
10.1 Term of Agreement:
The Term of this Agreement, except as otherwise provided in Section
10.2, shall be perpetual.
10.2 Early Termination:
This Agreement shall terminate prior to the expiration of its existing
Term whenever any of the following events occur:
10.2.1 At the option of the aggrieved party, if any material breach of
this Agreement is not cured by the breaching party and the breaching party has
not commenced and is not diligently pursuing corrective action, within thirty
(30) days after the receipt of written notice of the breach from the aggrieved
party.
10.2.2 At the option of Queens, if the Licensee enters bankruptcy,
insolvency, receivership, assignment for the benefit of creditors, corporate
reorganization or becomes insolvent, in any case, as a result of its inability
to pay its debts as they mature.
10.2.3 If Licensee shall knowingly supply Licensed Products to
bootleggers or counterfeiters. Notice from Queens giving Licensee a reasonably
specific notice of circumstances, identifying any such bootleggers or
counterfeiters, shall constitute knowledge of Licensee for the purposes hereof.
10.2.4 Queens shall have the right of first refusal to purchase any
molds, tools and machinery for making Licensed Products owned or used by
Licensee during the Term of this Agreement, and Licensee shall be prohibited
from selling any of such molds, tools and machinery to any party not licensed or
authorized by Queens.
ARTICLE 11
CONSEQUENCES OF EARLY TERMINATION
11.1 In the event of an early termination under paragraph 10 above,
Licensee
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shall cease exercising its rights granted hereunder and shall promptly return,
at its own expense, all tangible materials, forms, designs, engineering
drawings, embodiments and/or recordations of Know-How and Improvements to
Queens.
11.2 Early termination shall not affect the right of Queens to any sums
due it immediately prior to the date of early termination. Any such payments
owed Queens immediately prior to the date of early termination shall be paid
within thirty (30) business days after the date of early termination.
11.3 Except for a termination by Queens under Section 10.2.1. hereof,
early termination shall not affect the right of Licensee for a period of 180
days after the date of termination to take all action necessary to fulfill all
existing orders for units of Licensed Products, to take delivery of all units of
Licensed Products manufactured or assembled on behalf of Licensee or third
parties to sell or have sales made of any unit of Licensed Product on hand on
the date of such early termination and to complete or have completed any units
of Licensed Product in the process of manufacture on the date of such early
termination and thereafter sell the same or arrange for their sale by a party
approved in advance by Queens, which approval shall not be unreasonably withheld
or delayed, provided, however, that Licensee shall make the payments required by
Article 8 hereof for such units of Licensed Product.
ARTICLE 12
ENFORCEMENT
12.1 Protection of Patents, Trademarks, Know-How and Improvements:
If it comes to the attention of Licensee that any rights licensed to it
hereunder have been or might be infringed, it shall report the same to Queens.
12.1.1 Indemnification: Confidentiality. In the event that
Licensee shall become aware of any infringement by any third party of any of the
Patent Rights, Trademark Rights, or any act of unfair competition by any third
party relative to the Patent Rights or Trademark Rights, it shall promptly
notify Queens of such infringement. Following receipt of such notice, if Queens
is of the opinion that any such infringement or unfair competition exists
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and that it is commercially reasonable to prosecute the same, then Queens may,
at its expense and election, institute suit against such infringer or competitor
or take such other actions as Queens determines appropriate to protect the
Patent Rights or Trademark Rights and Licensee shall provide reasonable
cooperation to Queens respecting any such suit or action (including any action
to enjoin such infringement or acts). In connection therewith, Licensee shall,
if requested by Queens, join with Queens as a party to any suit or action
brought by Queens for such purpose. Queens shall bear all expenses connected
with the foregoing, except that if Licensee desires to retain its own counsel,
it shall do so at its own cost and expense. Licensee agrees that Queens shall
have the sole power to take legal action or other action before any court or
governmental authority with respect to infringement action or other action
before any court or governmental authority with respect to infringement or to
the protection of any of the Patent Rights or Trademark Rights. Licensee further
agrees that Queens shall have no obligation under this Agreement to prosecute
infringers and that Queens' opinion as to whether such action is taken shall be
in Queens' sole discretion and accepted as final by Licensee. Any recovery as a
result of any infringement action pursuant to this Section 12.1.1 shall belong
to Queens.
12.1.2 Within ten (10) working days of Licensee giving notice
under Clause 12.1, Queens shall notify Licensee in writing whether it wishes to
undertake proceedings against the infringer, and in which event it shall
undertake such proceedings at its own cost and expense and carry through such
infringement proceedings with reasonable speed. If Queens shall notify Licensee
that it does not wish to undertake infringement proceedings in respect of any
infringement notified to it, Licensee shall be free forthwith to undertake
proceedings against any infringer of any of the rights licensed hereunder at its
own cost and expense and any damages or costs recovered by Licensee hereunder
against such infringer shall be damages or costs of Licensee and Licensee shall
not be obliged to pay any portion thereof to Queens. In addition, Queens agrees
to provide reasonable cooperation to Licensee, provided that Licensee shall
reimburse Queens for its out-of-pocket expenses.
12.2 Licensee or Queens, as applicable, shall notify the other party of
any claim made or action commenced by any person, company, or governmental
agency in the Territory against either party relating to Patent Rights,
Know-How, Improvements or Trademark
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Rights that are the subject hereof, as herein defined. Queens may at its own
option defend all such claims or actions relating to its Patent Rights,
Trademark Rights or its Improvements at its own expense. Queens shall indemnify
Licensee and its vendors and customers and hold them harmless (including
reasonable attorneys' fees) from and against any and all liability, lawsuits,
claims or damages resulting from claims alleging that the manufacture, assembly,
use, offer for sale or sale of the Licensed Product, infringes or otherwise
violates the patent or trade secret rights of third parties or, to the extent
the Licensed Product bears the and trademark included the Trademark Rights that
such trademark infringes the trademark rights of third parties. In addition,
each party agrees to provide reasonable cooperation to the other, as applicable,
provided that Queens shall reimburse Licensee for its out-of-pocket expenses. In
the event that, as a result of a claim made prior to the second anniversary of
the date of this Agreement, Licensee is prevented from manufacturing or
distributing the Licensed Product due to such claims or actions described above,
Queens shall make commercially reasonable efforts to either (i) procure for
Licensee, at no additional cost to Licensee, the right to continue to
manufacture and distribute the Licensed Product or (ii) provide a functional and
aesthetically equivalent replacement for the Licensed Product reasonably
acceptable to Licensee.
12.3 Enforcement Costs:
The parties agree that, in the event of litigation between the parties
to this Agreement, the unsuccessful party shall pay and discharge all reasonable
costs, attorneys' fees and expenses (including but not limited to, the cost of
litigation) that may be incurred by the successful party (i) in enforcing this
Agreement or (ii) in defending against the enforcing party.
ARTICLE 13
INDEMNIFICATION FOR PRODUCT LIABILITY
13.1 Queens shall notify Licensee of any claim made or litigation
commenced by any person, company, or governmental agency against Queens relating
to any alleged defects in the Licensed Product assembled or manufactured by
Licensee pursuant to this Agreement. Licensee shall defend such claim or action
at its own expense and shall defend and indemnify Queens and hold it harmless
from and against any and all liability, lawsuits, claims, losses or
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damages (including reasonable attorneys' fees) resulting from such claims or
actions; provided, however, that Licensee shall have no obligation hereunder,
and shall be indemnified and held harmless and defended pursuant to Section
13.2, if such alleged defects are due to the fact that Licensed Product was
manufactured in accordance with the specifications provided by Queens pursuant
to this Agreement. In addition, Queens agrees to provide reasonable cooperation
to Licensee, provided that Licensee shall reimburse Queens for its out-of-pocket
expenses.
13.2 Licensee shall notify Queens of any claims made or commenced by
any person, company, or governmental agency against Licensee arising out of any
alleged defects in the Licensed Product assembled or manufactured by Licensee in
accordance with the specifications provided by Queens pursuant to this
Agreement. Queens shall defend such claim or action at its own expense and shall
defend and indemnify Licensee and hold it harmless from and against any and all
liability, lawsuits, claims, losses or damages (including reasonable attorneys'
fees) resulting from any such claims or actions. In addition, Licensee agrees to
provide reasonable cooperation to Queens, provided that Queens shall reimburse
Licensee for its out-of-pocket expenses.
13.3 Each party (the "Insured Party") agrees that in connection with
its obligations hereunder, it will obtain, at its own expense, product liability
insurance from a Best's A rated Class 10 insurance company which is qualified to
do business in the State of New York, providing adequate protection (at least in
the amount of $1,000,000 per occurrence/$3,000,000 in the aggregate) for the
Insured Party as well as for the other party (the "Protected Party") against any
claims, suits, loss or damage arising out of any alleged defects in the Licensed
Products. As proof of such insurance, a certificate of insurance naming the
Protected Party as an additional insured party will be submitted to the
Protected Party by the Insured Party for prior approval before any Licensed
Product is distributed or sold. Any proposed material change in the certificate
of insurance shall be submitted to the Protected Party for its prior approval,
and the Protected Party shall be entitled to a notice of cancellation to be
given by the insurance carrier 30 days prior to cancellation. The Protected
Party shall be entitled to a copy of the then prevailing certificate of
insurance which shall be furnished to the Protected Party by the Insured Party
at no cost to the Protected Party. Such insurance coverage may be obtained by
the Insured
16
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Party in conjunction with a policy which covers goods other than the Licensed
Product.
ARTICLE 14
REPRESENTATIONS AND WARRANTIES
14.1 Queens Representations. Queens hereby represents and warrants to
Licensee as follows:
14.1.1 Queens is a corporation duly formed, validly existing
and in good standing under the laws of the State of New York and has all
requisite power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by Queens and
approved by all necessary action on the part of Queens. No consent of any
governmental authority or other third party is necessary to consummate the
transactions contemplated hereby.
14.1.2 Queens is the owner of the entire right, title and
interest in and to the Patent Rights, the Trademark Rights, the Know-How and the
Improvements free and clear of all liens, claims and encumbrances of others and
has the sole right to grant Licensee the rights granted herein; Queens has
obtained and currently holds all rights necessary to grant the licenses and
rights granted herein relating to the Licensed Products, Patent Rights,
Trademark Rights, Know-How and Improvements.
14.1.3 Queens has the sole and exclusive right to enter into
this Agreement and there are no outstanding assignments, grants, licenses,
encumbrances, obligations or agreements, whether written, oral or implied, which
are inconsistent with this Agreement.
14.1.4 Queens is unaware of any right of any third parry which
has been or would be violated or infringed by the use of the Patent Rights,
Trademark Rights, Know-How, Improvements or the manufacture, assembly, use,
import, export, offer for sale, sale, or distribution of the Licensed Products
hereunder, or any pending or threatened claim that such activities would violate
or infringe the rights of any third party; Queens has delivered to Licensee all
information in Queens' possession or available to it regarding parents,
inventor's
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certificates, design models, utility models, and the like relevant to the
Know-How, Improvements, Patent Rights, Trademark Rights and the Licensed
Products.
14.1.5 Queens does not know of any circumstances, and has nor
taken, and during the term of Agreement will not take, any actions, inconsistent
with the Terms or purposes of This Agreement or which have or would infringe
upon or lessen any of the rights of Licensee hereunder.
14.2 License Representations. Licensee hereby represents and warranties
to Queens that Licensee is a corporation duly formed, validly existing and in
good standing under The laws of the State of Delaware and has all requisite
power and authority to enter into this Agreement, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly authorized executed and delivered by Licensee and approved by all
necessary action on the part of Licensee. No consent of any governmental
authority or other third party is necessary to consummate The Transactions
contemplated hereby.
ARTICLE 15
MISCELLANEOUS
15.1 Governing Law and Jurisdiction:
This Agreement shall be governed, construed, and interpreted under and
in accordance with the laws of the State of New York, United States of America,
which laws shall prevail in the event of any conflict of law. The parties agree
to subject themselves to the jurisdiction and venue of the federal and state
courts of the State of New York located in the borough of Manhattan in the city
of New York for the resolution of any disputes that may arise with respect to
this Agreement.
15.2 Force Majeure:
If the performance of any obligation hereunder is prevented or delayed,
in whole or in part, by reason of an act of God or the consequence thereof
affecting hereto or the license
18
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granted hereunder, such act of God to include, but not limited to, fire, flood,
typhoon, earthquake, or by reason of riots, terrorism, wars, hostilities,
governmental restrictions, trade embargoes, strikes, lockouts or labor disputes,
unavailability of transportation, or any other cause of that nature beyond the
control of either party, then the affected party shall continue to perform as
far as reasonably possible at that time and shall perform the unfulfilled
portion thereof within a reasonable time after the removal of the cause
preventing or delaying its performance.
15.3 Independence of Parties:
15.3.1 Nothing in this Agreement shall be construed as
creating a partnership or a joint venture, or making either of the parties an
agent or employee of the other party, but in all of its operations hereunder
each party shall be an independent contractor and will, in connection with its
duties hereunder, comply with all applicable laws, rules and regulations of any
governmental agency having jurisdiction over the subject matter hereof.
15.4 Entire Agreement:
15.4.1 This written agreement contains the entire
understanding between the parties with respect to the subject matter herein
contained and supersedes all prior agreements, if any, between the parties on
such subject matter, except for the terms thereof.
15.4.2 No modification, renewal, extension, or waiver of this
Agreement or any of its provisions shall be binding unless in writing and
executed by each of the parties hereto.
15.5 Waiver:
Failure or delay on the part of either party hereto to exercise any
right, power, or privilege hereunder shall not operate as a waiver thereof, nor
shall any single or partial exercise of any right, power, or privilege preclude
any other or further exercise thereof.
15.6 Severability:
The invalidity of any provision hereof shall not affect the validity of
any other
19
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provision. In the event that any provision hereof shall be held to be invalid by
a court or other tribunal of competent jurisdiction, the parties hereto shall
endeavor to agree on a new provision of comparable economic effect.
15.7 Headings:
Article and paragraph headings are used for convenience only and shall
not affect the meaning or construction of any provision hereof.
15.8 Assignability:
This Agreement or any of the rights or obligations hereunder (i) may
not be assigned or transferred by Licensee except to Licensee's Affiliates
without the prior written consent of Queens, except in connection with a sale of
all or substantially all of the assets of Licensee in which event no consent
shall be required, and (ii) shall not inure to the benefit of any trustee in
bankruptcy, receiver, or successor of Licensee, whether by operation of law or
otherwise, except as provided in clause (i) above. For purposes hereof, a change
of control of Licensee shall not be deemed an assignment of this Agreement or
the rights granted hereby.
15.9 Registration Fees:
Queens undertakes at all times during the term of this Agreement to pay
and discharge all registration and maintenance fees for the Trademark Rights
licensed hereunder and any registrations for any of the Patent Rights. If Queens
does not pay any fees or file any papers needed to keep and maintain the Patent
Rights and Trademark Rights in force or to renew or extend the same, Licensee
shall have the right, but not the obligation, to do so in the name of Queens,
and Queens hereby appoints Licensee as its agent for such purpose. Queens shall
reimburse Licensee for all costs (including attorney's fees) incurred by
Licensee in connection therewith. Queens shall within 60 days after the
Effective Date make all filings and pay all fees necessary to record the change
of its name to "Q2 Marketing, Inc." in all applicable governmental offices in
connection with each patent and application therefor included in the Patent
Rights and each trademark included in the Trademark Rights.
15.10 Notices and Payments:
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15.10.0.1 All notices and payments and other communications
required to be made hereunder to either party shall be made in writing and shall
be delivered personally or by registered or certified mail (postage prepaid and
return receipt requested), or by telecopier facsimile at the address set forth
below, or to such other address as may be designated from time to time by notice
in the like manner. Notices shall be deemed given when hand-delivered, five days
after being mailed, or when transmitted by telecopier facsimile.
Notice to Licensee should be addressed to:
Shorewood Packaging Corporation
277 Park Avenue
New York, New York 10172
Attn: VP - General Counsel
with a copy to:
Bryan Cave LLP
245 Park Avenue
New York, New York 10167
Attn: Peter A. Eisenberg
Notice to Queens should be addressed to:
Chief Executive Officer or General Manager
Q2 Marketing, Inc.
52-35 Barnett Avenue
Long Island City, New York 1104
with a copy to:
Matthew L. Lifflander, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
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IN WITNESS WHEREOF, each of the parties hereto by their respective duly
authorized representatives has hereto set its hand and seal on the date
indicated below.
QUEENS GROUP, INC.
By:
Date:
SHOREWOOD PACKAGING CORPORATION
By:
Date:
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TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS.........................................................2
1.1.........................................................................2
1.2.........................................................................2
1.3.........................................................................2
1.4.........................................................................2
1.5.........................................................................2
1.6.........................................................................2
1.7.........................................................................2
1.8.........................................................................3
1.9.........................................................................3
1.10........................................................................3
1.11........................................................................3
1.12........................................................................3
1.13........................................................................4
1.14........................................................................4
1.15........................................................................4
ARTICLE 2 GRANT OF LICENSE AND RIGHT TO MANUFACTURE, USE AND SELL UNDER
QUEENS PATENT RIGHTS...........................................................4
2.1.........................................................................4
2.2.........................................................................5
2.3.........................................................................6
2.4.........................................................................6
2.5.........................................................................6
ARTICLE 3 GRANT OF LICENSE TO PURCHASE, MANUFACTURE, USE AND SELL UNDER
APPLICABLE CONVEYANCE OF KNOW-HOW..............................................6
3.1.........................................................................6
3.2.........................................................................7
3.3.........................................................................7
3.4.........................................................................7
ARTICLE 4 GRANT OF LICENSE UNDER APPLICABLE QUEENS TRADEMARK RIGHTS...........7
4.1.........................................................................7
4.2.........................................................................7
ARTICLE 5 TITLE TO THE PATENT RIGHTS, KNOW-HOW,IMPROVEMENTS AND
TRADEMARK RIGHTS...............................................................8
5.1.........................................................................8
5.2.........................................................................8
ARTICLE 6 QUALITY SUPERVISION.................................................8
6.1.........................................................................8
ARTICLE 7 MARKING AND LABELING................................................9
ARTICLE 8 COMPENSATION........................................................9
8.1.........................................................................9
8.2........................................................................10
8.3........................................................................10
8.4........................................................................11
8.5........................................................................11
ARTICLE 9 CONFIDENTIALITY OBLIGATIONS OF THE PARTIES.........................11
9.1........................................................................11
9.2........................................................................11
ARTICLE 10 TERM OF AGREEMENT AND TERMINATION.................................12
10.1 Term of Agreement.....................................................12
10.2 Early Termination:....................................................12
ARTICLE 11 CONSEQUENCES OF EARLY TERMINATION.................................12
11.1.......................................................................12
<PAGE> 24
11.2.......................................................................13
11.3.......................................................................13
ARTICLE 12 ENFORCEMENT......................................................13
12.1 Protection of Patents, Trademarks, Know-How and Improvements.........13
12.2.......................................................................14
12.3 Enforcement Costs....................................................15
ARTICLE 13 INDEMNIFICATION FOR PRODUCT LIABILITY.............................15
13.1.......................................................................15
13.2.......................................................................16
13.3.......................................................................16
ARTICLE 14 REPRESENTATIONS AND WARRANTIES....................................17
14.1 Queens Representations................................................17
14.1.1...................................................................17
14.2 License Representations...............................................18
ARTICLE 15 MISCELLANEOUS.....................................................18
15.1 Governing Law and Jurisdiction:......................................18
15.2 Force Majeure:.......................................................18
15.3 Independence of Parties..............................................19
15.4 Entire Agreement.....................................................19
15.5 Waiver...............................................................19
15.6 Severability.........................................................19
15.7 Headings.............................................................20
15.8 Assignability........................................................20
15.9 Registration Fees....................................................20
15.10 Notices and Payments.................................................20
<PAGE> 25
EXHIBIT E
L I C E N S E
BETWEEN
QUEENS GROUP, INC.
AND
SHOREWOOD PACKAGING CORPORATION
OCTOBER 30, 1998
