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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(RULE 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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SHOREWOOD PACKAGING CORPORATION
(Name of Subject Company)
SHOREWOOD PACKAGING CORPORATION
(Name of Person(s) Filing Statement)
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COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
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825229107
(CUSIP Number of Class of Securities)
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ANDREW N. SHORE, ESQ.
VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
SHOREWOOD PACKAGING CORPORATION
277 PARK AVENUE
NEW YORK, NEW YORK 10172
TELEPHONE: (212) 371-1500
(Name, address and telephone number of person authorized to receive
notice and communication on behalf of the person(s) filing statement).
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WITH COPIES TO:
JEFFREY W. TINDELL, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NY 10036-6522
TELEPHONE: (212) 735-3000
FACSIMILE: (212) 735-2000
/ / Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION.
(a) The name of the subject company to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
relates is Shorewood Packaging Corporation, a Delaware corporation
("Shorewood"). The address of the principal executive offices of Shorewood is
277 Park Avenue, New York, New York 10172. The telephone number of the principal
executive offices of Shorewood is (212) 371-1500.
(b) The title of the class of equity securities to which this statement
relates is the common stock, par value $0.01 per share, of Shorewood (the
"Common Stock"), including the associated rights to purchase preferred stock
(the "Rights" and, together with the Common Stock, "Shares") issued pursuant to
the Rights Agreement, dated as of June 12, 1995 (the "Rights Agreement"),
between Shorewood and The Bank of New York, as Rights Agent. As of February 15,
2000, there were 27,375,771 Shares outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
(a) NAME AND ADDRESS. The name, address and telephone number of Shorewood,
which is the person filing the Schedule 14D-9, are set forth in Item 1(a) above.
(b) TENDER OFFER. This Schedule 14D-9 relates to the tender offer by
International Paper-37, Inc., a Delaware corporation ("Purchaser") and a wholly
owned subsidiary of International Paper Company, a New York corporation ("IP"),
disclosed in a Tender Offer Statement on Schedule TO (the "Schedule TO"), dated
February 29, 2000, to purchase all outstanding Shares at a purchase price of
$21.00 per Share, net to the seller in cash, without interest (the "Offer
Price"), upon the terms and subject to the conditions set forth in the Offer to
Purchase dated February 29, 2000 (the "Offer to Purchase") and the related
Letter of Transmittal (which, as may be amended and supplemented from time to
time, together constitute the "IP Offer").
The IP Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of February 16, 2000 (as such agreement may be amended and supplemented
from time to time, the "Merger Agreement"), by and among Shorewood, IP and
Purchaser. The Merger Agreement provides, among other things, that as soon as
practicable after the satisfaction or waiver of the conditions set forth in the
Merger Agreement, in accordance with the relevant provisions of the Delaware
General Corporation Law, as amended (the "DGCL"), Purchaser will be merged with
and into Shorewood (the "Merger"). Following consummation of the Merger,
Shorewood will continue as the surviving corporation (the "Surviving
Corporation") and will be a wholly owned subsidiary of IP. A copy of the Merger
Agreement is filed herewith as Exhibit 3 and is incorporated herein by
reference.
As set forth in the Schedule TO, the principal executive offices of IP and
Purchaser are located at Two Manhattanville Road, Purchase, New York 10577.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Except as set forth in the response to this Item 3 or in Schedule I attached
hereto or as incorporated by reference herein, to the knowledge of Shorewood,
there are no material agreements, arrangements or understandings and no actual
or potential conflicts of interest between Shorewood or its affiliates and
(1) Shorewood's executive officers, directors or affiliates, or (2) IP or
Purchaser, or their respective executive officers, directors or affiliates.
ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF SHOREWOOD
On June 20, 1985, Marc P. Shore, the Chairman and Chief Executive Officer of
Shorewood, and Kenneth M. Rosenblum and Charles Kreussling, both executive
officers of Shorewood, each entered into a non-competition agreement with
Shorewood. Each non-competition agreement was entered into as a result of an
investment by Shorewood International, Inc. in Shorewood and was further to a
stock purchase
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and redemption agreement between Shorewood and each of Messrs. M. Shore,
Rosenblum and Kreussling. The non-competition agreements restrict each of
Messrs. M. Shore, Rosenblum and Kreussling from competing with Shorewood for
five years from the date of their termination of employment with Shorewood;
provided, however, that nothing prevents any of them from owning up to 2% of the
outstanding stock of any corporation whose shares are publicly traded on a
regular basis.
Kamsky Associates, Inc. ("KAI"), of which Virginia A. Kamsky, a member of
the Shorewood Board of Directors (the "Shorewood Board"), is the founder, Chief
Executive Officer, Chairman and principal stockholder, has been advising
Shorewood for approximately three years in connection with the establishment of
a manufacturing facility for paperboard folding carton packages in Guangzhou,
Guandong Province, China (the "China Business"). Pursuant to the terms of a
consulting agreement dated effective January 1, 1996. Shorewood pays KAI a
consulting fee of $25,000 per month. Additionally, under the terms of a Profit
Participation Agreement between KAI and Shorewood (the "Profit Participation
Agreement"), KAI is entitled to receive up to 5% of Shorewood's allocable share
(presently 55%) of any "net profits", as defined in the Profit Participation
Agreement, generated from the operation of the China Business or from any sale
of the China Business or Shorewood's interest in the China Business (the "Profit
Participation"). Transfer of the Profit Participation is subject to a right of
first refusal in favor of Shorewood. KAI may put its Profit Participation rights
to Shorewood at any time after three years from the production of the China
Business' first commercial product at the then fair market value of such
interest, as determined by a mutually agreeable third party appraiser. Under the
terms of the Profit Participation, Shorewood is required to exert its reasonable
best efforts to cause Ms. Kamsky to be elected to the Board of Directors or
other governing body of the operating entity which manages the China Business.
Shorewood engaged Jefferson Capital Group, Ltd. ("Jefferson Capital") to act
as its co-financial advisor in connection with the tender offer by
Sheffield, Inc., a Delaware corporation ("Sheffield") and a wholly owned
subsidiary of Chesapeake Corporation, a Virginia corporation ("Chesapeake"), to
purchase all Shares at a price of $17.25 per Share, which offer expired, without
being extended, on February 18, 2000 (the "Chesapeake Offer"), and Chesapeake's
plan to solicit written consents from the stockholders of Shorewood (the
"Chesapeake Consent Solicitation") and related matters. R. Timothy O'Donnell, a
member of the Shorewood Board, is the President and principal stockholder of
Jefferson Capital. In addition, Jefferson Capital has served as a financial
advisor to Shorewood in connection with other matters. In connection with
Jefferson Capital's role as Shorewood's financial advisor with respect to the
acquisition in October 1998 of Queens Group, Inc. ("Queens") (the "Queens
Transaction"), a leading manufacturer of high quality, value-added packaging for
the music, multimedia and consumer products industries, Shorewood, in
November 1998, paid Jefferson Capital a fee of approximately $1,300,000 and
granted Jefferson Capital, effective as of October 30, 1998, a warrant to
purchase 50,000 Shares at an exercise price of $16 per Share. The warrant was
exercisable in full upon grant and may be exercised by Jefferson Capital for a
period of five years from grant. In connection with Jefferson Capital's role as
a financial advisor to Shorewood with respect to the purchase of a 51% interest
in CD CartonDruck, GmbH ("CD CartonDruck") and the commitment of L5 million to
Shorewood EPC Europe, Ltd. ("EPC") (each, a "Europe Transaction"), Shorewood
entered into a letter agreement, dated October 18, 1999, with Jefferson Capital
pursuant to which Shorewood agreed to compensate Jefferson Capital, as follows:
(i) a retainer fee of $100,000, payable upon execution of such agreement,
(ii) a warrant to purchase 50,000 Shares at an exercise price of $13.50 per
Share that is exercisable in full for a period of five years from the date of
issuance, (iii) $250,000 upon closing of a Europe Transaction, in the case of CD
CartonDruck, and $100,000 upon closing of a Europe Transaction, in the case of
EPC ( 1/2 of the $100,000 retainer fee to be offset against each such additional
cash fee) and (iv) reasonable out-of-pocket expenses (including the reasonable
fees and expenses of Jefferson Capital's counsel) incurred by Jefferson Capital.
Shorewood has also agreed to indemnify Jefferson Capital for certain liabilities
arising in connection with the Europe Transactions, including liabilities under
the federal securities laws.
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Shorewood had also retained Jefferson Capital to act as its co-financial
advisor in connection with Shorewood's proposal to acquire Chesapeake in
October 1999 (the "Jefferson Capital Letter Agreement I"). Pursuant to the terms
of such engagement, Shorewood agreed to pay Jefferson Capital the following
compensation: (i) if an acquisition transaction is consummated, a fee of 0.20%
of Shorewood's total enterprise value and (ii) if an acquisition transaction is
not consummated, but Shorewood receives a break-up fee, a break-up fee equal to
6% of the break-up fee received by Shorewood. The foregoing fees would be
payable upon the occurrence, during the term of the Jefferson Capital Letter
Agreement I or within two years of its termination, of any event specified
above, or upon the occurrence of any event specified above with respect to which
an agreement was executed by Shorewood during the term of the Jefferson Capital
Letter Agreement I or within two years of its termination. The term "acquisition
transaction" in the Jefferson Capital Letter Agreement I means: (i) any merger,
consolidation, reorganization, recapitalization, business combination or other
transaction pursuant to which Chesapeake is acquired by, or combined with
Shorewood, or (ii) the acquisition, directly, by Shorewood, in a single
transaction or a series of transactions, of (A) any of Chesapeake's assets or
operations or (B) any outstanding or newly issued shares of Chesapeake's capital
stock (or securities convertible into or options or other rights to acquire such
capital stock). Under the Jefferson Capital Letter Agreement I, Shorewood has
also agreed to reimburse Jefferson Capital for all reasonable out-of-pocket
expenses (including reasonable fees and disbursements of its counsel and other
consultants and advisors) and to indemnify Jefferson Capital and certain related
parties against certain liabilities, including liabilities under the federal
securities laws, relating to or arising out of Jefferson Capital's engagement by
Shorewood. See Item 5 for additional information on arrangements between
Shorewood and Jefferson Capital.
There is a stock option agreement (the "Option Agreement"), dated April 17,
1997, between Shorewood and Mr. M. Shore, pursuant to which Mr. M. Shore was
granted non-qualified stock options to purchase 225,000 (split-adjusted) Shares
(the "Option Shares") at an exercise price of $12.083 per Share. The exercise
period is ten years from the date of the grant. The Option Agreement provides
that at any time prior to the tenth anniversary of the grant, Mr. M. Shore shall
have the right to have Shorewood prepare and file a registration statement (and
any other necessary documents) with the Securities and Exchange Commission (the
"SEC") to comply with the provisions of the Securities Act of 1933, as amended
(the "Securities Act"), so as to permit a public sale of the Option Shares
(unless to do so would interfere with another material transaction by
Shorewood). Furthermore, if at any time Shorewood proposes to register any
Shares (with some exceptions as detailed in the Option Agreement) under the
Securities Act for sale to the public in an underwritten offering, it will at
each such time give written notice to Mr. M. Shore and, upon Mr. M. Shore's
request within 30 calendar days, Shorewood will use its best efforts to effect
the registration of the Option Shares for which the request was made.
There is a stockholders and registration rights agreement (the "Queens
Stockholders Agreement"), dated October 30, 1998, between Shorewood and
Messrs. Verebay and Kaltman. The Queens Stockholders Agreement relates to the
aggregate of 1,000,000 Shares issued to Messrs. Verebay and Kaltman pursuant to
a purchase and sale agreement with Shorewood. The shares received are
"restricted securities" under the Securities Act and may be resold without
registration only under limited circumstances. There can be no sale, gift or
encumbrance of the shares from the date of the Queens Stockholders Agreement
until the second anniversary of the closing date (the "Restricted Period") other
than with the Shorewood Board's consent or according to the terms of the
agreement. Otherwise, each stockholder shall have full rights as a stockholder,
including voting and dividend rights.
Messrs. Verebay and Kaltman may, at any time after the expiration of the
Restricted Period, give Shorewood a written demand for the registration of the
unregistered securities held by the stockholder which are not eligible for
distribution under Rule 144(k) under the Securities Act or otherwise under
Rule 144. Shorewood shall give written notice to both stockholders under the
Queens Stockholders Agreement and they shall have 30 days to deliver a notice to
Shorewood demanding registration of the securities. Shorewood shall then file,
within 60 days of receipt of the demand, the appropriate documents with the SEC
to effect the registration of the securities. Furthermore, if Shorewood proposes
to register
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securities for its own account, Shorewood shall include in its proposed
registration, all registerable securities held by a stockholder if requested by
the stockholder within ten days of receipt of notice by Shorewood.
The Queens Stockholders Agreement also provides that Messrs. Verebay and
Kaltman may designate one member of the Shorewood Board. Upon the expiration of
Mr. Verebay's term, if either Mr. Verebay or Mr. Kaltman (i) holds at least
400,000 Shares (subject to adjustment for stock splits and like events) and
(ii) is then either employed by Shorewood or subject to a then effective
non-competition restriction, that person will be entitled to be included in
management's slate of nominees for election to the Shorewood Board at the next
meeting. If both of them are so qualified, they shall jointly designate one of
them to so serve. Further, under the terms of the Queens Stockholders Agreement,
for so long as Messrs. Verebay and Kaltman own in the aggregate at least 800,000
Shares (subject to adjustment for stock splits and like events), whichever one
of Messrs. Verebay and Kaltman is not then serving on the Shorewood Board will,
provided he meets certain qualification requirements, be entitled to participate
in Shorewood Board meetings as an observer, subject to certain limitations
regarding confidentiality. These provisions terminate under various
circumstances, including the occurrence of certain types of "capital events" and
"change of control" transactions, as defined in the Queens Stockholders
Agreement.
EMPLOYEE SEVERANCE PLAN
On December 15, 1999, the Shorewood Board, upon the recommendation of the
Compensation and Stock Option Committee of the Shorewood Board (the
"Compensation Committee"), adopted a cash-based employee severance plan. Tier 1
employees comprising Mr. M. Shore and Howard M. Liebman, Shorewood's President
and Chief Financial Officer, as well as 11 Tier 2 employees, including
Mr. Rosenblum, William H. Hogan, Senior Vice President - Finance of Shorewood,
and Andrew N. Shore, Vice President, General Counsel and Secretary of Shorewood,
and 25 Tier 3 employees are eligible to receive severance benefits in the event
of a qualifying termination of their employment on or within two years following
a "change in control" of Shorewood (including the consummation of the IP Offer).
A qualifying termination of employment under the severance plan means (1) a
termination by the employer on or within two years following the date of the
change in control by the employer other than for "cause" (as defined in the
severance plan) or (2) a termination by the employee for "good reason." A
termination for good reason under the severance plan for a Tier 1 employee
includes any reason. A termination for good reason under the severance plan for
a Tier 2 employee means:
- a reduction in the Tier 2 employee's base salary or annual incentive
compensation opportunity in effect immediately prior to the change in
control;
- the assignment to the Tier 2 employee of duties that in the aggregate are
inconsistent with the Tier 2 employee's level of responsibility
immediately before the change in control or any decline in the nature or
status of the Tier 2 employee's responsibilities from those in effect
immediately before the change in control; or
- the relocation of the Tier 2 employee's principal place of employment to a
location more than 50 miles from the employee's principal place of
employment immediately before the change in control.
A termination for good reason under the severance plan for a Tier 3 employee
means:
- a reduction in the Tier 3 employee's base salary or annual incentive
compensation opportunity in effect immediately prior to the change in
control; or
- the relocation of the Tier 3 employee's principal place of employment to a
location more than 50 miles from the employee's principal place of
employment immediately before the change in control.
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A Tier 1, 2 or 3 employee who incurs a qualifying termination of employment
will be entitled to receive a cash lump sum severance payment equal to:
- the sum of his or her annual salary, plus the highest annual bonus
received in the three years immediately preceding the change in control,
plus the value of contributions made by Shorewood to Shorewood's 401(k)
plan on the employee's behalf,
- multiplied by 3, 2 and 1 for a Tier 1 employee, Tier 2 employee or Tier 3
employee, respectively.
In addition, any payment made to a Tier 1 employee will be fully offset by
the amount payable to the employee under his employment agreement upon
termination of employment after a change in control. The cash payments provided
under the severance plan for Tier 1 employees will be made on the First Purchase
Date, as described below.
A Tier 1, 2 or 3 employee who incurs a qualifying termination of employment
will also be provided with welfare and fringe benefits as if such employee had
continued to be employed by Shorewood for 3, 2 and 1 years for a Tier 1
employee, Tier 2 employee and Tier 3 employee, respectively; provided, however,
that, benefit continuation shall cease if the employee obtains employment
providing substantially similar benefits.
Under the severance plan, Shorewood is required, if necessary, to make an
additional "gross-up payment" to any Tier 1 employee to offset fully the effect
of any excise tax imposed on any payments or benefits under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), whether made to such
employee under the severance plan or otherwise. The severance plan supersedes
the provision in the employment agreement of Messrs. M. Shore and Liebman which
reduced any payment thereunder so as to avoid an excess parachute payment and
the resulting excise tax. In addition, Shorewood will reduce any payment made to
a Tier 2 employee if such employee's after tax position is improved by the
reduction of the payment so as to avoid an excess parachute payment and the
resulting excise tax.
In general, Section 4999 of the Code imposes an excise tax on the recipient
of any excess parachute payment equal to 20% of that payment. A parachute
payment is any payment that is contingent on a change in control. Excess
parachute payments consist of the excess of parachute payments over an
individual's average taxable compensation received by him from the employer
during the five taxable years preceding the year in which the change in control
occurs. If the individual has been employed for fewer than five taxable years,
the individual's entire period of employment will be used to calculate the
excess parachute payment.
RABBI TRUST
On December 15, 1999, the Shorewood Board authorized Shorewood to enter into
a "rabbi trust" agreement to fully secure benefits under the severance plan. The
trust agreement provides that Shorewood may contribute to the trust the funds
sufficient to fund the obligations under the severance plan immediately prior to
a change in control.
EQUITY-BASED AWARDS
On December 15, 1999, the Shorewood Board resolved that all equity-based
awards granted to employees, directors and independent contractors of Shorewood
or any subsidiary of Shorewood which are outstanding immediately prior to a
change in control of Shorewood (including the consummation of the IP Offer)
shall become fully vested and, if applicable, exercisable upon a change in
control of Shorewood.
EMPLOYMENT AGREEMENTS WITH IP
In connection with the Merger Agreement, on February 16, 2000, IP and each
of Messrs. M. Shore and Liebman entered into letter agreements, copies of which
are filed as Exhibit 17 and Exhibit 18 hereto, respectively, and are
incorporated herein by reference, providing that the employment agreements
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described below would become automatically effective upon execution by IP and
Shorewood at the time of Purchaser's first purchase of Shares pursuant to the IP
Offer (the "First Purchase Date").
Mr. M. Shore's employment agreement with IP (the "Shore Employment
Agreement") will supersede his current employment agreement with Shorewood,
except that Mr. M. Shore's obligation to repay the unearned portion of the
$1,000,000 signing bonus he received in connection with the execution of his
existing employment agreement will survive if Mr. M. Shore terminates his
employment without "Good Reason" or if he is terminated for "Cause" (each as
defined in the Shore Employment Agreement). The Shore Employment Agreement
provides that Mr. M. Shore will serve as the President of Shorewood, on a
full-time basis, for the period commencing on the First Purchase Date and ending
on December 31, 2004. The Shore Employment Agreement further provides that
Mr. M. Shore shall receive an annual salary of $500,000, an annual bonus, not to
exceed $450,000, based upon target performance objectives established by a
senior officer of IP, a separate guaranteed bonus of $112,000 for the period of
service from the date of the Shore Employment Agreement through December 31,
2000, and a separate guaranteed bonus of $150,000 each subsequent year during
the term of the Shore Employment Agreement. Effective as of the First Purchase
Date, IP shall grant Mr. M. Shore a nonqualified stock option to purchase 20,000
shares of IP common stock at a price per share equal to the fair market value of
such stock on the First Purchase Date. Thereafter Mr. M. Shore shall be eligible
to receive such additional stock option awards as the Board of Directors of IP
may determine from time to time. In addition, on the First Purchase Date,
Mr. M. Shore shall receive that number of shares of common stock of IP having a
fair market value on the First Purchase Date of $1,000,000, which shares shall
be nontransferable and subject to forfeiture until vested. One-fifth of these
restricted shares will vest on December 31, 2000 and on December 31 of each of
the four subsequent years, provided that Mr. M. Shore achieves the target
performance objectives for each such year. Also pursuant to the terms of the
Shore Employment Agreement, for a one-year period following the effective time
of the Merger, Shorewood shall provide Mr. M. Shore with benefits substantially
comparable in the aggregate to the benefits provided to Mr. M. Shore as of
February 16, 2000, the date of the Merger Agreement. Notwithstanding the
agreement to extend Mr. M. Shore's benefits for one year, Shorewood has agreed
to extend Mr. M. Shore's split-dollar life insurance benefit and the automobile
lease allowance and expense reimbursement only until December 31, 2000.
Under the Shore Employment Agreement, Mr. M. Shore is entitled to certain
payments upon termination of his employment. If Mr. M. Shore's employment is
terminated because of his death, or if Shorewood terminates his employment based
on a good faith determination that he has become disabled, the employment
agreement shall terminate without further obligations, except that Shorewood
shall pay to Mr. M. Shore or his legal representative: unpaid base salary
through the date of termination, any unpaid performance or guaranteed bonus for
the prior calendar year, any prorated bonus otherwise payable under the Shore
Employment Agreement for the year of termination, and unpaid accrued vacation
pay (collectively, the "Shore Accrued Obligations"). Likewise, if Shorewood
terminates Mr. M. Shore's employment for "Cause" (as defined in the Shore
Employment Agreement), Shorewood need only pay the Shore Accrued Obligations. If
Shorewood terminates Mr. M. Shore's employment other than for "Cause" or as a
result of his death or disability, or if Mr. M. Shore terminates his employment
with "Good Reason" (as defined in the Shore Employment Agreement), Shorewood
shall pay to Mr. M. Shore the Shore Accrued Obligations, severance pay of not
more than one year of base salary, and the guaranteed bonus for the year his
employment terminates. In addition, the restricted stock options shall vest
immediately and become non-forfeitable, in the event that Mr. M. Shore's
employment is terminated because of his death or disability, or if
Mr. M. Shore terminates his employment with "Good Reason", or if Shorewood
terminates his employment without "Cause".
Under the terms of the Shore Employment Agreement, Mr. M. Shore has agreed
to be bound by certain restrictive covenants that limit his ability to compete
or interfere with Shorewood, including a confidentiality agreement, a
non-solicitation agreement, and an agreement not to compete with Shorewood.
Mr. M. Shore has agreed, during the term of the employment agreement and for a
period of three years from the termination of his employment (other than a
termination by Shorewood without "Cause" or
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by Mr. M. Shore for "Good Reason"), that he will not solicit any employees or
clients of Shorewood or IP or engage in the business of printing or
manufacturing paperboard packaging anywhere in North America.
Mr. M. Shore's letter agreement also includes a provision by which IP will
cause Shorewood to pay, on the First Purchase Date, a lump sum Severance Payment
(as defined in Shorewood's Employee Severance Plan) of $5,699,475.72 and the
Gross-Up Payment (as defined in Shorewood's Employee Severance Plan) which
amounts are the amounts to which he would have been entitled to under
Shorewood's Employee Severance Plan if he had terminated his employment in
connection with the Merger. In addition, Mr. M. Shore's letter agreement
requires that he repay $2,527,316 in outstanding loans, plus accrued interest,
to Shorewood on the First Purchase Date.
Mr. Liebman's employment agreement (the "Liebman Employment Agreement") will
supersede Mr. Liebman's existing employment agreement with Shorewood. The
Liebman Employment Agreement provides that Mr. Liebman will serve as the
Executive Vice-President of Shorewood, on a full-time basis, for the period
commencing on the First Purchase Date and ending on December 31, 2002. The
Liebman Employment Agreement further provides that Mr. Liebman shall receive an
annual salary of $350,000 and an annual bonus, not to exceed $215,000, based
upon target performance objectives established by a senior officer of IP.
Effective as of the date of the First Purchase Date, IP shall grant Mr. Liebman
a nonqualified stock option to purchase 10,000 shares of IP common stock at a
price per share equal to the fair market value of such stock on the First
Purchase Date. Thereafter, Mr. Liebman shall be eligible to receive such
additional stock option awards as the Board of Directors of IP may determine
from time to time. In addition, Mr. Liebman shall receive that number of shares
of common stock of IP, having a fair market value as of the First Purchase Date
of $100,000, which shares shall be nontransferable and subject to forfeiture
until vested. These restricted shares will vest on December 31, 2002, provided
that Mr. Liebman remains employed until that date. Also pursuant to the terms of
the Liebman Employment Agreement, for a one-year period following the effective
date of the Merger, Shorewood shall provide Mr. Liebman with benefits
substantially comparable in the aggregate to the benefits provided to
Mr. Liebman as of February 16, 2000, the date of the Merger Agreement.
Notwithstanding the agreement to extend Mr. Liebman's benefits for one year,
Shorewood has agreed to extend Mr. Liebman's split-dollar life insurance
benefit, the automobile lease allowance and expense reimbursement only until
December 31, 2000. The employment agreement provides, however, that Shorewood
will continue to maintain the rabbi trust established for Mr. Liebman's
retirement, in accordance with its terms, even after the one-year period.
Under the Liebman Employment Agreement, Mr. Liebman is entitled to certain
payments upon termination of his employment. If Mr. Liebman's employment is
terminated because of his death, or if Shorewood terminates his employment based
on a good faith determination that he has become disabled, the employment
agreement shall terminate without further obligations, except that Shorewood
shall pay to Mr. Liebman or his legal representative: unpaid base salary through
the date of termination, any unpaid performance bonus for the prior calendar
year, any prorated bonus otherwise payable under the Liebman Employment
Agreement for the year of termination, and any unpaid accrued vacation pay
(collectively, the "Liebman Accrued Obligations"). Likewise, if Shorewood
terminates Mr. Liebman's employment for "Cause" (as defined in the Liebman
Employment Agreement), Shorewood need only pay the Liebman Accrued Obligations.
If Shorewood terminates Mr. Liebman's employment other than for "Cause" or as a
result of his death or disability, or if Mr. Liebman terminates his employment
with "Good Reason" (as defined in the Liebman Employment Agreement), Shorewood
shall pay to Mr. Liebman: the Liebman Accrued Obligations and severance pay of
not more than one year of base salary. In addition, the restricted stock options
shall vest immediately and become non-forfeitable, in the event that
Mr. Liebman's employment is terminated because of his death or disability, or if
Mr. Liebman terminates his employment with "Good Reason", or if Shorewood
terminates his employment without "Cause".
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Under the terms of the Liebman Employment Agreement, Mr. Liebman has agreed
to be bound by certain restrictive covenants that limit his ability to compete
or interfere with Shorewood, including a confidentiality agreement, a
non-solicitation agreement, and an agreement not to compete with Shorewood.
Mr. Liebman has agreed, during the term of the employment agreement and for a
period of two years from the termination of his employment (other than a
termination by Shorewood without "Cause" or by Mr. Liebman for "Good Reason"),
that he will not solicit any employees or clients of Shorewood or Parent or
engage in the business of printing or manufacturing paperboard packaging
anywhere in North America.
Mr. Liebman's letter agreement also includes a provision by which IP will
cause Shorewood to pay, on the First Purchase Date, a lump sum Severance Payment
(as defined in Shorewood's Employee Severance Plan) of $1,820,499.00 and the
Gross-Up Payment (also as defined in Shorewood's Employee Severance Plan), which
are the amounts he would have been entitled to under Shorwood's Employee
Severance Plan if he had terminated his employment in connection with the
Merger. In addition, Mr. Liebman's letter agreement requires that he repay
$1,262,521 in outstanding loans, plus accrued interest, to Shorewood on the
First Purchase Date.
STOCK OPTIONS
TREATMENT OF OPTIONS AND WARRANTS
Pursuant to the Merger Agreement, Shorewood will take all actions necessary
prior to the initial expiration of the IP Offer so that upon the effective time
of the Merger (the "Effective Time") each outstanding stock option and warrant
to purchase Shares granted under any Shorewood plan or arrangement, whether or
not exercisable or vested shall be cancelled. The Merger Agreement further
provides that Shorewood shall pay to each holder of a cancelled option or
warrant, in consideration for the cancellation of such option or warrant, an
amount in cash equal to the product of (i) the excess, if any, of the Merger
Consideration (as defined in the Merger Agreement) over the per share exercise
price of the option or warrant and (ii) the number of Shares subject to the
option or warrant. Cash payments will be net of any applicable withholding
taxes.
TREATMENT OF STOCK UNITS
Pursuant to the Merger Agreement, Shorewood will take all actions necessary
prior to the initial expiration of the IP Offer so that upon the Effective Time
each outstanding stock unit granted pursuant to Shorewood's Incentive Program
for Canadian Employees shall become vested and cancelled. The Merger Agreement
provides that in consideration of such cancellation, each stock unit holder
shall be entitled to receive the Offer Price in respect of each stock unit held.
The cash payment will be net of any applicable withholding taxes.
INDEMNIFICATION
The Merger Agreement requires that the certificate of incorporation and
by-laws of the Surviving Corporation contain provisions with respect to
indemnification substantially to the same effect as those set forth in the
certificate of incorporation and the by-laws of Shorewood on the date of the
Merger Agreement, which provisions shall not be amended, modified or otherwise
repealed for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder as of the Effective Time of
individuals who at the Effective Time were directors, officers, employees or
agents of Shorewood, unless such modification is required after the Effective
Time by applicable law.
Additionally, IP agreed in the Merger Agreement to cause the Surviving
Corporation, to the fullest extent permitted under applicable law or under the
Surviving Corporation's certificate of incorporation or by-laws, to indemnify
and hold harmless, each present and former director, officer or employee of
Shorewood or any of its Subsidiaries (collectively, the "Indemnified Parties")
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in
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settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
(i) arising out of or pertaining to the transactions contemplated by the Merger
Agreement or (ii) otherwise with respect to any acts or omissions occurring at
or prior to the Effective Time, to the same extent as provided in Shorewood's
certificate of incorporation or by-laws or any applicable contract or agreement
as in effect on the date hereof, in each case for a period of six years after
the date hereof. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time) and subject
to the specific terms of any indemnification contract, (i) any counsel retained
by the Indemnified Parties for any period after the Effective Time shall be
reasonably satisfactory to the Surviving Corporation, (ii) after the Effective
Time, the Surviving Corporation shall pay the reasonable fees and expenses of
such counsel, promptly after statements therefor are received and (iii) the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that the Surviving Corporation will not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed); and provided, further, that, in the event
that any claim or claims for indemnification are asserted or made within such
six-year period, all rights to indemnification in respect of any such claim or
claims will continue until the disposition of any and all such claims.
The Indemnified Parties as a group may retain only one law firm to represent
them with respect to any single action unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties, in which case each
Indemnified Person with respect to whom such a conflict exists (or group of such
Indemnified Persons who among them have no such conflict) may retain one
separate law firm. In addition, under the Merger Agreement, IP will provide, or
cause the Surviving Corporation to provide, for a period of not less than six
years after the Effective Time, Shorewood's current directors and officers an
insurance and indemnification policy that provides coverage for events occurring
at or prior to the Effective Time (the "D&O Insurance") that is no less
favorable than the existing policy or, if substantially equivalent insurance
coverage is unavailable, the best available coverage; provided, however, that IP
and the Surviving Corporation shall not be required to pay an annual premium for
the D&O Insurance in excess of one and one-half of the annual premium currently
paid by Shorewood for such insurance, but in such case shall purchase as much
such coverage as possible for such amount. The indemnification and insurance
provisions of the Merger Agreement shall survive the consummation of the Merger
at the Effective Time and are intended to benefit Shorewood, the Surviving
Corporation and the Indemnified Parties and are binding on all successors and
assigns of the Surviving Corporation and are enforceable by the Indemnified
Parties.
The foregoing description of the indemnification provided to the directors
and officers of Shorewood pursuant to the Merger Agreement is qualified in its
entirety by reference to the complete text of Section 5.5 of the Merger
Agreement, a copy of which is filed as Exhibit 3 hereto and is incorporated
herein by reference.
Article Sixth of Shorewood's certificate of incorporation, as amended to
date, eliminates directors' personal liability to Shorewood or its shareholders
for monetary damages for breach of fiduciary duty as a director. Such Article
Sixth does not eliminate or limit the liability of a director (i) for any breach
of the director's duty of loyalty to Shorewood or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper personal benefit. A
copy of such Article Sixth is filed as Exhibit 8 hereto and is incorporated
herein by reference.
Article VII of Shorewood's bylaws, as amended to date, requires that
Shorewood indemnify any director or officer of Shorewood or a subsidiary, or any
person serving at the request of Shorewood or a subsidiary as a director,
officer or member of another corporation, partnership, joint venture, trust,
committee or other enterprise or any person who is or was an employee or agent
of Shorewood or a subsidiary, as deemed advisable by the Shorewood Board, to the
full extent permitted by Delaware law or
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any other applicable law. The indemnification and advancement of expenses
permitted by law shall, unless otherwise provided, when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent of Shorewood and inure to the benefit of the heirs, executors and
administrators of such a person. A copy of such Article VII is filed as
Exhibit 9 hereto and is incorporated herein by reference.
CONFIDENTIALITY AGREEMENT
The following is a summary of certain material provisions of the
Confidentiality Agreement, dated as of December 10, 1999, between Shorewood and
IP (the "Confidentiality Agreement"). This summary does not purport to be
complete and is qualified in its entirety by reference to the complete text of
the Confidentiality Agreement, a copy of which is filed as Exhibit 1 hereto and
is incorporated herein by reference. Capitalized terms used and not otherwise
defined below shall have the meanings set forth in the Confidentiality
Agreement.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, IP agreed to keep confidential all nonpublic,
confidential or proprietary information relating to Shorewood which is furnished
to it by Shorewood, subject to certain customary exceptions (the "Confidential
Information"), and to use the Confidential Information solely for the purpose of
evaluating a possible transaction involving Shorewood and IP.
The Confidentiality Agreement provides that, commencing on December 10, 1999
and terminating at the sooner of the date upon which (x) a person acquires,
directly or indirectly, more than two-thirds of the assets of Shorewood or
shares or rights to purchase more than two-thirds of the outstanding voting
power represented by the issued and outstanding capital stock of Shorewood,
(y) a transaction pursuant to which persons who were the beneficial owners of
Shorewood voting securities immediately prior to such transaction cease to
beneficially own more than two-thirds of the voting power of the successor
entity is consummated, or (z) the persons who constitute the Shorewood Board as
of December 10, 1999 (or their nominees or designees) cease to represent more
than a majority of the Shorewood Board (the "Change in Control Date") or at
11:59 p.m., New York City time, on December 10, 2000 (the "Standstill Period"),
unless specifically invited in writing to do so by the Shorewood Board, neither
IP nor any of its affiliates, directors, officers, employees, shareholders,
partners, subsidiaries, affiliates, agents, advisors (including, without
limitation, attorneys, accountants, consultants, bankers, appraisers and
financial advisors), controlling persons, potential financing sources or other
representatives (the "Representatives") will (a) effect or seek, offer or
propose (whether publicly or otherwise) to effect, or cause to participate in or
in any way assist any other person to effect or seek, offer or propose (whether
publicly or otherwise) to effect or participate in (i) any acquisition, directly
or indirectly, by purchase or otherwise, of any securities (or beneficial
ownership thereof), or rights to acquire any securities, of Shorewood or any
subsidiary thereof or any successor to or person in control of Shorewood or any
assets of Shorewood or any subsidiary thereof or any such successor or
controlling person; (ii) any tender or exchange offer, merger, consolidation or
other business combination involving Shorewood or any of its subsidiaries;
(iii) any recapitalization, restructuring, liquidation, dissolution or other
extraordinary transaction with respect to Shorewood or any of its subsidiaries
or any material portion of the business of Shorewood or any of its subsidiaries;
or (iv) any direct or indirect "solicitation" of "proxies" (as such terms are
used in the proxy rules of the SEC) or written consents in lieu of a meeting as
to any voting securities of Shorewood (or seek to advise or influence any person
with respect to the voting of any voting securities of Shorewood); (b) act,
alone or in concert with others, to nominate directors for election at any
meeting of Shorewood's stockholders or to seek to control, replace or influence
the management, Shorewood Board or policies of Shorewood or propose any matter
for submission to a vote of stockholders of Shorewood; (c) make any public
announcements with respect to, or submit a proposal for, an offer of (with or
without conditions) any extraordinary transaction involving Shorewood or any of
its subsidiaries or assets or relating to any of the matters set forth in
subsection (a) above; (d) take any action which might force Shorewood to make a
public announcement regarding any of the matters set forth in (a) above;
(e) form, join or in any way
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participate in a "group" (as defined under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) with respect to any of the foregoing; or
(f) enter into any discussions or arrangements with any third party with respect
to any of the foregoing or advise, assist, encourage, finance or seek to
persuade others to take any action with respect to the foregoing. IP also agreed
that during the Standstill Period it will not request Shorewood (or its
Representatives), directly or indirectly, to amend or waive any provision of the
foregoing paragraph.
Additionally, in consideration of the Confidential Information being
furnished to IP, IP has also agreed that, for a period commencing on
December 10, 1999 and terminating at the sooner of the Change in Control Date or
11:59 p.m., New York City time, on December 10, 2000, neither IP nor any of its
affiliates will, directly or indirectly, solicit for hire or hire as a director,
officer, employee, independent contractor, consultant or advisor any person
employed by Shorewood as of December 10, 1999 in an executive or significant
managerial, financial, sales, marketing, research, development, manufacturing or
technical position with whom IP or IP's affiliates has had contact or who
becomes known to IP in connection with IP's consideration of a transaction with
Shorewood, without obtaining the prior written consent of Shorewood.
Notwithstanding the foregoing, IP or its affiliates are not prohibited from
discussing employment opportunities with, or hiring, any employee of Shorewood
who contacts IP or initiates such discussions with IP or its affiliates without
any direct solicitation pursuant to a general solicitation for employment which
is not specifically directed at employees of Shorewood or any of its
subsidiaries.
IP and Shorewood agreed in the Merger Agreement that, in the event that the
IP Offer is terminated without Purchaser purchasing any Shares, the standstill
and non-solicitation provisions of the Confidentiality Agreement would
terminate.
MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement.
This summary does not purport to be complete and is qualified in its entirety by
reference to the complete text of the Merger Agreement, a copy of which is filed
as Exhibit 3 hereto and is incorporated herein by reference. Capitalized terms
used in the following summary and not otherwise defined in this Schedule 14D-9
have the meanings set forth in the Merger Agreement.
THE IP OFFER. The Merger Agreement contemplates the commencement of the IP
Offer. The obligation of Purchaser to accept for payment and pay for Shares
tendered pursuant to the IP Offer is subject to the satisfaction or waiver of
the Minimum Condition and the other conditions to the IP Offer (the "Offer
Conditions") set forth below in "The Merger Agreement--Conditions to the IP
Offer."
Under the terms of the Merger Agreement, neither IP nor Purchaser may,
without the prior written consent of Shorewood, (i) decrease the Offer Price,
(ii) decrease the number of Shares sought in the IP Offer, (iii) change the form
of consideration payable in the IP Offer, (iv) impose conditions to the IP Offer
in addition to the Offer Conditions, (v) except as provided in the Merger
Agreement or required by any rule, regulation, interpretation or position of the
SEC, change the Expiration Date (as defined in the Merger Agreement), or
(iv) otherwise amend any term of the IP Offer in a manner adverse to the holders
of Shares. In addition, Purchaser may not, without the prior written consent of
Shorewood, waive or amend the Minimum Condition.
Notwithstanding the foregoing, Purchaser may, without the consent of
Shorewood, extend the IP Offer beyond the initial Expiration Date in the
following events: (i) from time to time if, at the initial Expiration Date (or
any subsequent Expiration Date), any of the Offer Conditions (other than the
Minimum Condition) shall not have been satisfied or waived, until such
conditions are satisfied or waived; (ii) for any period required by any rule,
regulation, interpretation or position of the SEC or the staff thereof
applicable to the IP Offer or any period required by applicable law; (iii) if
all the Offer Conditions (other than the Minimum Condition) are satisfied or
waived, but the Minimum Condition has not been satisfied, for one or more
periods not to exceed thirty (30) business days (for all such extensions); or
(iv) if
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all of the Offer Conditions are satisfied or waived but the number of Shares
validly tendered and not withdrawn is less than 90% of the number of then
outstanding Shares on a fully diluted basis, for a period not to exceed twenty
(20) business days (for all such extensions), provided that, in the case of an
extension pursuant to clause (iv), Purchaser must accept and promptly pay for
all securities tendered prior to the date of such extension and otherwise meet
the requirements of Rule 14d-11 under the Exchange Act in connection with each
such extension. Such an extension pursuant to clause (iv) would constitute a
Subsequent Offering Period.
In addition, IP and Purchaser have agreed that Purchaser will from time to
time extend the IP Offer, if requested by Shorewood, (i) if at the initial
Expiration Date (or any subsequent Expiration Date), any of the Offer Conditions
other than (or in addition to) the Minimum Condition shall not have been waived
or satisfied, until (taking into account all such extensions) the earlier of
June 30, 2000 or such earlier date upon which any such condition (other than the
Minimum Condition) shall not be reasonably capable of being satisfied prior to
June 30, 2000; or (ii) if at the initial Expiration Date (or any subsequent
Expiration Date), all of the Offer Conditions other than the Minimum Condition
shall have been waived or satisfied and the Minimum Condition shall not have
been satisfied, until the earlier of ten (10) business days after such
expiration date or June 30, 2000.
CERTAIN CONDITIONS TO THE IP OFFER. Notwithstanding any other provision of
the IP Offer, Purchaser will not be required to accept for payment or, subject
to any applicable rules and regulations of the SEC, including Rule 14e-1(c)
promulgated under the Exchange Act, pay for, and (subject to any such rules or
regulations) may delay the acceptance for payment of or the payment for any
tendered Shares and (except as provided in the Merger Agreement) amend or
terminate the IP Offer if:
1. the Minimum Condition has not been satisfied prior to the expiration of
the IP Offer; or
2. any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), the Competition Act (Canada) (the
"Competition Act"), the Investment Canada Act or any similar legal regime
in any other country applicable to significant operations of IP or any of
its Subsidiaries or Shorewood or any of its Subsidiaries has not expired
or been terminated prior to the expiration of the IP Offer; or
3. at any time on or after the date of the Merger Agreement and before the
expiration of the IP Offer, any of the following conditions exists:
(a) there shall be in effect an injunction or other order, decree,
judgment or ruling by a governmental entity of competent jurisdiction
or a law, rule or regulation shall have been promulgated, or enacted
by a governmental entity of competent jurisdiction which in any such
case (i) restrains or prohibits the making or consummation of the IP
Offer or the consummation of the Merger, or (ii) prohibits or
restricts the ownership or operation by IP (or any of its affiliates
or subsidiaries) of any portion of Shorewood's business or assets or
which would substantially deprive IP and/or its affiliates or
subsidiaries of the benefit of ownership of Shorewood's business or
assets, or compels IP (or any of its affiliates or subsidiaries) to
dispose of or hold separate any portion of Shorewood's business or
assets, or of its business or assets, or which would substantially
deprive IP and/or its affiliates or subsidiaries of the benefit of
ownership of Shorewood's business or assets, or (iii) imposes
material limitations on the ability of Purchaser or IP effectively to
acquire or to hold or to exercise full rights of ownership of the
shares of Common Stock, including, without limitation, the right to
vote shares of Common Stock purchased by Purchaser pursuant to the IP
Offer or acquired by IP in the Merger on all matters properly
presented to the stockholders of Shorewood, or (iv) imposes any
material limitations on the ability of IP and/or its affiliates or
subsidiaries effectively to control in any material respect the
business and operations of Shorewood (other than, prior to the
Effective Time, by reason of there being minority stockholder in
Shorewood); or
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(b) there shall have been instituted, pending or threatened (in writing
or by public announcement) an action by a governmental entity seeking
(i) to restrain or prohibit the making or consummation of the IP
Offer or the consummation of the Merger or (ii) to impose any other
restriction, prohibition or limitation referred to in the foregoing
paragraph; or
(c) the Merger Agreement shall have been terminated by Shorewood or IP in
accordance with its terms; or
(d) IP and Shorewood shall have agreed in writing that Purchaser shall
amend the IP Offer to terminate the IP Offer or postpone the payment
for Shares pursuant thereto; or
(e) the representations and warranties of Shorewood set forth in the
Merger Agreement shall not be true and accurate in all respects as of
the date of consummation of the IP Offer as though made on or as of
such date (except for those representations and warranties that
address matters only as of a particular date or only with respect to
a specific period of time which need only be true and accurate as of
such date or with respect to such period) (in each case without for
this purpose giving effect to qualifications or limitations as to
materiality or the absence of a Company Material Adverse Effect (as
defined below) contained in such representations and warranties, but
reading each such representation and warranty as though the
disclosure letter delivered by Shorewood to IP in connection with the
Merger Agreement (the "Shorewood Disclosure Letter") included
information plainly disclosed in forms, reports and documents filed
with the SEC subsequent to May 2, 1999 and prior to February 16,
2000, the date of the Merger Agreement, except for such failures to
be true and correct as could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, or
Shorewood shall have breached or failed to perform or comply in any
material respect with any obligations, agreement or covenant required
by the Merger Agreement to be performed or complied with by it;
provided, however, that such breach or failure to perform is
incapable of being cured or has not been cured prior to the initial
Expiration Date (or such later date upon with the IP Offer shall
expire); or
(f) Shorewood or Purchaser shall have failed to receive any or all
governmental or third party consents and approvals to consummate the
IP Offer which, if not received, would have a Company Material
Adverse Effect; or
(g) the Shorewood Board shall have modified or amended its recommendation
of the IP Offer in any manner adverse to IP or shall have withdrawn
its recommendation of the IP Offer, or shall have recommended
acceptance of any Acquisition Proposal or shall have resolved to do
any of the foregoing; or
(h) (i) any corporation, entity or "group" (as defined in
Section 13(d)(3) of the Exchange Act) ("person/group"), other than IP
and Purchaser shall have acquired beneficial ownership of more than
21% of the outstanding shares of Common Stock, or shall have been
granted any options or rights, conditional or otherwise, to acquire a
total of more than 21% of the outstanding shares of Common Stock and
which, in each case, does not tender the shares of Common Stock
beneficially owned by it in the IP Offer; (ii) any new group shall
have been formed which beneficially owns more than 15% of the
outstanding shares of Common Stock and which does not tender the
shares of Common Stock beneficially owned by it in the IP Offer; or
(iii) any person/group (other than IP or one or more of its
affiliates) shall have entered into an agreement in principle or
definitive agreement with Shorewood with respect to a tender or
exchange offer for any shares of Common Stock or a merger,
consolidation or other business combination with or involving
Shorewood; or
(i) any change, development, effect or circumstance shall have occurred
or be threatened that is reasonably likely to be a Company Material
Adverse Effect; or
(j) the Rights shall have become exercisable;
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which in the reasonable judgment of IP or Purchaser, in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the IP Offer and/or with such acceptance for payment
or payments.
DIRECTORS. The Merger Agreement provides that promptly following the
purchase of and payment for a number of Shares that satisfies the Minimum
Condition, and from time to time thereafter, Purchaser will be entitled to
designate the number of directors, rounded up to the next whole number, on the
Shorewood Board that equals the product of (i) the total number of directors on
the Shorewood Board (giving effect to the election of any additional directors
by Purchaser) and (ii) the percentage of the number of Shares beneficially owned
by IP and Purchaser (including Shares paid for pursuant to the IP Offer), upon
such acceptance for payment, bears to the total number of Shares outstanding,
and Shorewood has agreed to take all action within its power to cause
Purchaser's designees to be elected or appointed to the Shorewood Board,
including, without limitation, increasing the number of directors, and seeking
and accepting resignations of incumbent directors. At such time, Shorewood will
also use its best efforts to cause individual directors designated by Purchaser
to constitute the number of members, rounded up to the next whole number, on
(i) each committee of the Shorewood Board other than any committee established
to take action under the Merger Agreement and (ii) each board of directors of
each subsidiary of Shorewood, and each committee thereof, that represents the
same percentage as such individuals represent on the Shorewood Board.
Notwithstanding the foregoing, until the Effective Time the Shorewood Board must
have at least two directors who are directors on the date of the Merger
Agreement and who are not officers of Shorewood (the "Continuing Directors").
Shorewood's obligations to appoint Purchaser's designees to the Shorewood Board
is subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder.
Following the election or appointment of Purchaser's designees and until the
Effective Time, the approval of the Continuing Directors is required to
authorize (and such authorization shall constitute the authorization of the
Shorewood Board and no other action on the part of Shorewood, including any
action by any other director of Shorewood, shall be required to authorize) any
termination of the Merger Agreement by Shorewood, any amendment of the Merger
Agreement requiring action by the Shorewood Board, any amendment of the
certificate of incorporation or by-laws of Shorewood, any extension of time for
performance of any obligation or action under the Merger Agreement by IP or
Purchaser, any waiver of compliance with any of the agreements or conditions in
the Merger Agreement for the benefit of Shorewood and any material transaction
with IP, Purchaser or any affiliate thereof.
THE MERGER. The Merger Agreement provides that, following the consummation
of the IP Offer and subject to the terms and conditions thereof, at the
Effective Time, Purchaser will be merged with and into Shorewood and, as a
result of the Merger, the separate corporate existence of Purchaser will cease,
and Shorewood will continue as the Surviving Corporation and a wholly owned
subsidiary of IP.
CONDITIONS TO THE MERGER. The obligation of Purchaser to effect the Merger
is subject to the satisfaction or waiver of the following conditions:
(i) Purchaser shall have completed the purchase of Shares pursuant to the IP
Offer, (ii) the Merger Agreement shall have been adopted by the requisite vote
of the stockholders of Shorewood in accordance with the DGCL, (iii) no order,
statute, rule, regulation, executive order, stay, decree, judgment or injunction
which prohibits or prevents the consummation of the Merger shall have been
entered, enacted, promulgated or enforced by any court or other governmental
entity which prohibits or prevents the consummation of the Merger and which has
not been vacated, dismissed or withdrawn prior to the Effective Time, and
Shorewood and IP have agreed to use all reasonable best efforts to have any of
the foregoing vacated, dismissed or withdrawn by the Effective Time and
(iv) all consents of any governmental entity required for the consummation of
the Merger and the transactions contemplated by the Merger Agreement shall have
been obtained, other than where the failure to obtain such consents will not
have a material adverse effect on the business, assets, condition (financial or
other), liabilities or results of operations of the Surviving Corporation and
its subsidiaries taken as a whole.
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CONVERSION OF SHARES. At the Effective Time and without any action on the
part of the holder thereof, (i) each issued and outstanding Share (other than
Shares that are held by stockholders properly exercising dissenters' rights
under the DGCL and Shares to be cancelled pursuant to clause (iii) below) will
convert into the right to receive the Offer Price in cash payable to the holder
thereof, without interest, upon surrender of the certificate representing such
Share, (ii) each issued and outstanding share of common stock of Purchaser will
be converted into and become one fully paid and non-assessable share of common
stock of the Surviving Corporation, and (iii) each Share issued and held in
Shorewood's treasury immediately before the Effective Time, and each Share held
by IP, Purchaser, any other subsidiary of IP or any subsidiary of Shorewood
immediately before the Effective Time, will be cancelled and retired without
payment of any consideration therefor.
If, during the period between the date of the Merger Agreement and the
Effective Time, any change in the outstanding Shares occurs, including by reason
of any reclassification, recapitalization, stock split or combination, exchange
or readjustment of Shares, or stock dividend thereon with a record date during
such period, the Offer Price and any other amounts payable pursuant to the
Merger Agreement shall be appropriately adjusted.
TREATMENT OF OPTIONS AND STOCK UNITS. Shorewood has agreed to take, prior
to the initial Expiration Date, all actions necessary and appropriate to provide
that at the Effective Time, each outstanding option to purchase Shares or other
similar interest (collectively, the "Options") granted under any of Shorewood's
stock option plans or under any other plan or arrangement (the "Option Plans")
and outstanding warrant to purchase Shares (the "Warrants"), whether or not then
exercisable or vested, shall be cancelled and, in exchange therefor, each holder
of such Option or Warrant shall receive an amount in cash in respect thereof, if
any, equal to the product of (i) the excess, if any, of the Offer Price over the
per share exercise price thereof and (ii) the number of Shares subject thereto
(such payment to be net of applicable withholding taxes). Shorewood has agreed
to take, prior to the initial Expiration Date, all actions necessary and
appropriate to provide that at the Effective Time, each outstanding stock unit
granted pursuant to Shorewood's Incentive Program for Canadian Employees shall
become vested and shall be cancelled, and in exchange therefor, each holder
thereof shall be entitled to receive the Offer Price (such payment to be net of
applicable withholding taxes). Shorewood has agreed to use its reasonable best
efforts to obtain all necessary waivers, consents or releases from holders of
Options, Warrants and stock units and has agreed to take any action as may be
reasonably necessary to give effect to, and to accomplish such transactions.
STOCKHOLDERS' MEETING. Pursuant to the Merger Agreement, if required by
applicable law to consummate the Merger, Shorewood has agreed to duly call, give
notice of, convene and hold a special meeting of its stockholders as soon as
practicable following the date on which Purchaser completes the purchase of
shares of Common Stock pursuant to the IP Offer (the "Offer Completion Date') to
vote on the Merger Agreement. Subject to its fiduciary duties under applicable
law, the Shorewood Board has agreed to include in the proxy statement relating
to the Merger Agreement and the Merger its recommendation that stockholders of
Shorewood vote in favor of the approval and adoption of the Merger Agreement and
the Merger. IP and Purchaser and any of their respective subsidiaries have
agreed to vote, or cause to be voted, all Shares owned by them in favor of the
Merger Agreement at the meeting. If Purchaser acquires at least a majority of
the outstanding Shares in the IP Offer, it will have sufficient voting power to
approve the Merger, even if no other stockholder votes in favor of the Merger.
Shorewood is not required to take the foregoing actions if IP or Purchaser may
consummate the Merger without the vote or approval of Shorewood's stockholders
in accordance with the short-term merger provisions of Section 253 of the DGCL.
REPRESENTATIONS AND WARRANTIES. Pursuant to the Merger Agreement, Shorewood
has made customary representations and warranties to IP and Purchaser with
respect to, among other things:
- its existence, good standing and corporate authority;
- the authorization, validity and effect of agreements;
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- capitalization;
- subsidiaries;
- other interests;
- no conflicts;
- required filings and consents;
- compliance with law;
- SEC filings;
- financial statements and undisclosed liabilities;
- absence of certain changes;
- material contracts;
- litigation;
- taxes;
- employee benefit plans;
- labor and employment matters;
- brokers;
- properties;
- environmental laws;
- related party transactions;
- intellectual property;
- the inapplicability of state takeover laws;
- products liability;
- opinions of financial advisors;
- actions taken to prevent the Rights from becoming exercisable; and
- the accuracy of disclosures in the Schedule 14D-9 and the Offer to
Purchase.
Certain representations and warranties in the Merger Agreement made by
Shorewood are qualified as to "materiality" or "Company Material Adverse
Effect." For purposes of the Merger Agreement and this Schedule 14D-9, the
capitalized term "Company Material Adverse Effect" means a material adverse
effect on (i) the business, properties, operations results of operations or
condition (financial or otherwise) of (x) Shorewood and Shorewood's subsidiaries
taken as a whole or (y), for purposes of the representations and warranties
section only, any one of Shorewood's plants; or (ii) the ability of Shorewood to
perform its obligations under the Merger Agreement; provided, however, none of
the following are deemed, either alone or in combination, to constitute a
"Company Material Adverse Effect": (i) a change in the market price or trading
volume of Common Stock, (ii) any adverse change, event or effect that is caused
by conditions affecting the economy of the United States generally or the
economy of any nation or region in which Shorewood or any of its subsidiaries
conducts business that is material to the business of such entity and its
subsidiaries, taken as a whole, or (iii) Shorewood's disclosure that its
revenues and earnings for its third fiscal quarter ended January 31, 2000 would
be less than previously anticipated.
Pursuant to the Merger Agreement, IP and Purchaser have made customary
representations and warranties to Shorewood with respect to, among other things:
- their existence, good standing and corporate authority;
- the authorization, validity and effect of agreements;
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- no conflict;
- required filings and consents;
- brokers;
- the accuracy of disclosures in the Schedule 14D-9 and the Offer to
Purchase;
- the prior activities of Purchaser; and
- IP's ability to finance the transactions contemplated by the Merger
Agreement.
None of the representations and warranties made by IP and Purchaser in the
Merger Agreement survive the Effective Time and none of Shorewood's
representations and warranties survive the Offer Completion Date.
COVENANTS. The Merger Agreement contains various customary covenants of the
parties. A description of these covenants follows.
INTERIM OPERATIONS. Shorewood has agreed that, during the period from the
date of the Merger Agreement and continuing until the earlier of the termination
of the Merger Agreement or the Offer Completion Date, unless IP shall otherwise
agree in writing or as set forth in Section 5.1 of the Shorewood Disclosure
Letter or as contemplated by the Merger Agreement, it will conduct its business
and cause the businesses of its subsidiaries to be conducted only in the
ordinary course of business and in a manner consistent with past practice; and
use reasonable commercial efforts to preserve substantially intact the business
organization of Shorewood and its subsidiaries, to keep available the services
of the present officers, employees and consultants of Shorewood and its
subsidiaries and to preserve the present relationships of Shorewood and its
subsidiaries with customers, suppliers and other persons with which Shorewood or
any of its subsidiaries has significant business relations.
The Merger Agreement provides that, except as contemplated thereby, or as
required by applicable law or rule of any stock exchange or over-the-counter
market, neither Shorewood nor any of its subsidiaries can, during the period
from February 16, 2000, the date of the Merger Agreement, until the earlier of
the termination of the Merger Agreement and the Offer Completion Date, and
except as set forth in Section 5.1 of the Shorewood Disclosure Letter, directly
or indirectly do, or propose to do, any of the following without the prior
written consent of IP:
- Amend or otherwise change its certificate of incorporation or by-laws, or
amend the Rights Agreement or reduce the rights issued thereunder;
- Issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock
of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest)
in Shorewood, any of its subsidiaries or affiliates (except for the
issuance of shares of Common Stock issuable pursuant to Options under the
Option Plans (as defined in the Merger Agreement), which options were
outstanding on the date of the Merger Agreement); provided that the
occurrence of a separation of the Rights under the Rights Agreement, and
the related issuance of shares of Common Stock to Shorewood's stockholders
thereunder shall not be deemed a breach of the Merger Agreement to the
extent that (i) the occurrence of such separation occurred as a result of
an unsolicited acquisition of Common Stock by a third party, and
(ii) such acquisition did not occur as a result of Shorewood breaching its
covenants discussed under "No Solicitation" below;
- Sell, pledge, dispose of or encumber any assets of Shorewood or any of its
subsidiaries (except for (i) sales of inventory in the ordinary course of
business and in a manner consistent with past practice, (ii) dispositions
of obsolete or worthless assets, and (iii) sales of assets not in excess
of $1,000,000 in the aggregate);
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- (i) Declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly-owned subsidiary of
Shorewood may declare and pay a dividend to its parent, (ii) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, (iii) except as required
by the terms of any security as in effect on February 16, 2000, the date
of the Merger Agreement, or as expressly permitted under the Merger
Agreement, amend the terms or change the period of exercisability of,
purchase, repurchase, redeem or otherwise acquire, or permit any
subsidiary to amend the terms or change the period of exercisability of,
purchase, repurchase, redeem or otherwise acquire, any of its securities
or any securities of its subsidiaries, including, without limitation,
shares of Common Stock, or any option, warrant or right, directly or
indirectly, to acquire any such securities, or propose to do any of the
foregoing, or (iv) settle, pay or discharge any claim, suit or other
action brought or threatened against Shorewood with respect to or arising
out of a stockholder equity interest in Shorewood;
- (i) Acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money, except in the
ordinary course of business, or issue any debt securities or assume,
guarantee (other than guarantees of Shorewood's subsidiaries entered into
in the ordinary course of business) or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, make
any loans or advances, except in the ordinary course of business
consistent with past practice; or (iii) commit to make any capital
expenditures or purchases of fixed assets which are, in the aggregate, in
excess of $7,000,000; provided that Shorewood will consult with IP with
respect to any such commitment in excess of $1,000,000; or (iv) enter into
or materially amend any contract, agreement, commitment or arrangement to
effect any of the matters prohibited in this paragraph;
- Except as set forth in the Shorewood Disclosure Letter increase the
compensation or severance payable or to become payable to its directors,
officers or employees, except for increases in salary or wages of
employees of Shorewood or its subsidiaries (who are not directors or
executive officers of Shorewood) in accordance with past practices, or
grant any severance or termination pay (except payments required to be
made under obligations existing on February 16, 2000, the date of the
Merger Agreement, in accordance with the terms of such obligations) to, or
enter into any employment or severance agreement with, any employee of
Shorewood or any of its subsidiaries, except for agreements with new
employees entered into in the ordinary course of business and providing
for annual base and bonus compensation not to exceed $150,000, or
establish, adopt, enter into or amend any collective bargaining agreement,
Plan, trust, fund, policy or arrangement for the benefit of any current or
former directors, officers or employees or any of their beneficiaries,
except, in each case, as may be required by law or as would not result in
a material increase in the cost of maintaining such collective bargaining
agreement, Plan, trust, fund, policy or arrangement;
- Take any action to change accounting policies or procedures (including,
without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable),
except as required by a change in generally accepted accounting principles
or SEC position occurring after February 16, 2000;
- Except in the ordinary course of business, make any tax election or settle
or compromise any material United States federal, state, local or
non-United States tax liability;
- Pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) in
excess of $1,000,000 in the aggregate, other than the payment, discharge
or satisfaction in the ordinary course of business and consistent with
past practice of liabilities reflected or reserved against in the
financial statements contained in Shorewood's SEC filings or incurred in
the ordinary course of business and consistent with past practice; or
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- Take, or agree in writing or otherwise to take, any of the aforementioned
actions, or any action which would make any of the representations or
warranties of Shorewood contained in the Merger Agreement untrue or
incorrect or prevent Shorewood from performing or cause Shorewood not to
perform its covenants under the Merger Agreement.
NO SOLICITATION. In the Merger Agreement, Shorewood has agreed to not,
directly or indirectly, or through any officer, director, employee,
representative or agent of Shorewood or any of its subsidiaries, and to not
permit any such officer, director, employee, representative or agent to, solicit
or encourage the initiation of (including by way of furnishing information) any
inquiries or proposals regarding, or participate in negotiations or discussions
concerning any merger, sale of assets, sale of shares of capital stock
(including without limitation by way of a tender offer) or similar transactions
involving Shorewood or any subsidiaries of Shorewood that if consummated would
constitute an Alternative Transaction (as defined below) (any of the foregoing
inquiries or proposals being referred to herein as an "Acquisition Proposal").
Upon the execution of the Merger Agreement, Shorewood agreed to immediately
cease any discussions or negotiations with any person, entity or group (other
than IP or any of its affiliates or representatives) concerning any such
transaction or any Acquisition Proposal that were continuing on such date and
agreed to seek to have returned to Shorewood any confidential information that
had been provided in any such discussions or negotiations. The foregoing will
not prevent the Shorewood Board from (i) furnishing information to a third
person which has made a bona fide Acquisition Proposal that the Shorewood Board
reasonably determines is likely to lead to a Superior Proposal (as defined
below) not solicited in violation of the Merger Agreement, provided that, with
respect to any person that was not party to a confidentiality agreement with
Shorewood as of the date of the Merger Agreement, such person has executed an
agreement with confidentiality, standstill and other provisions substantially
similar to those then in effect between Shorewood and IP, or (ii) subject to
compliance with the other terms of this provision, considering and negotiating a
bona fide Acquisition Proposal that is a Superior Proposal not solicited in
violation of the Merger Agreement; provided, however, that, as to each of
clauses (i) and (ii), (x) such actions occur at a time prior to the consummation
(or, if the IP Offer is consummated and extended, the initial consummation) of
the IP Offer and (y) the Shorewood Board determines in good faith (based on the
advice of its financial advisor and counsel) that it is required to take such
actions in order to discharge properly its fiduciary duties.
The term "Superior Proposal" is defined in the Merger Agreement to mean any
proposal made by a third person to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, all of the equity securities
of Shorewood entitled to vote generally in the election of directors or all or
substantially all the assets of Shorewood, if, and only if, the Shorewood Board
reasonably determines (after consultation with its financial advisor and
counsel) (i) that the proposed transaction, would be more favorable, from a
financial point of view to its stockholders than the IP Offer and the Merger and
the transactions contemplated by the Merger Agreement taking into account at the
time of determination any changes to the terms of the Merger Agreement which as
of that time had been proposed by IP and (ii) that the person or entity making
such Acquisition Proposal is capable of consummating such Acquisition Proposal
(based upon, among other things, the availability of financing and the degree of
certainty of obtaining financing, the expectation of obtaining required
regulatory approvals and the identity and background of such person).
Shorewood has agreed to notify IP promptly upon receipt of any Acquisition
Proposal, or any modification of or amendment to any Acquisition Proposal, or
any request for nonpublic information relating to Shorewood or any of its
subsidiaries in connection with an Acquisition Proposal or for access to the
properties, books or records of Shorewood or any subsidiary by any person or
entity that informs the Shorewood Board or such subsidiary that it is
considering making, or has made, an Acquisition Proposal. Such notice to IP
shall be made orally and in writing, and shall indicate the identity of the
person making
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the Acquisition Proposal or intending to make an Acquisition Proposal or
requesting non-public information or access to the books and records of
Shorewood, the terms of any such Acquisition Proposal or modification or
amendment to an Acquisition Proposal, and whether Shorewood is providing or
intends to provide the person making the Acquisition Proposal with access to
information concerning Shorewood as provided in this section. Shorewood shall
also promptly notify IP, orally and in writing, if it enters into negotiations
concerning any Acquisition Proposal.
Except as provided in the following sentence, Shorewood has agreed that
neither it nor the Shorewood Board will withdraw or modify in a manner adverse
to IP or Purchaser, or propose to withdraw or modify in a manner adverse to IP
or Purchaser, or fail at IP's request to reaffirm, the approval by the Shorewood
Board of the Merger Agreement, the IP Offer or the Merger or the favorable
recommendation of the Shorewood Board with respect thereto. The foregoing
notwithstanding, in the event that, after Shorewood has received a bona fide
Acquisition Proposal not solicited in violation of the Merger Agreement, the
Shorewood Board determines (based on the advice of its counsel), prior to the
consummation (or, if the IP Offer is consummated and extended, the initial
consummation) of the IP Offer, that it is required to do so in order to
discharge properly its fiduciary duties, the Shorewood Board may (x) withdraw or
modify its approval or recommendation of the Merger Agreement, the IP Offer or
the Merger and disclose to Shorewood's stockholders a position contemplated by
Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act or otherwise make
disclosure to them, or (y) approve or recommend such an Acquisition Proposal
that is a Superior Proposal; provided, however, that in no event may the
Shorewood Board take either such action earlier than the second full business
day following IP's receipt of written notice of the intention of the Shorewood
Board to do so.
Shorewood and the Shorewood Board have agreed not to:
- redeem the Rights under the Rights Agreement, or waive or amend any
provision of the Rights Agreement, in any such case to permit or
facilitate the consummation of any Acquisition Proposal or Alternative
Transaction; or
- enter into any agreement with respect to, or otherwise approve or
recommend to stockholders, or publicly propose to approve or recommend,
any Acquisition Proposal or Alternative Transaction, unless the Merger
Agreement has been terminated in accordance with its terms. In addition,
Shorewood has agreed to not release any third party from the
confidentiality and standstill provisions of any agreement to which
Shorewood is a party.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that the
certificate of incorporation and by-laws of the Surviving Corporation will
contain provisions with respect to indemnification substantially to the same
effect as those set forth in the certificate of incorporation and the by-laws of
Shorewood on February 16, 2000, the date of the Merger Agreement, which
provisions shall not be amended, modified or otherwise repealed for a period of
six (6) years after the Effective Time in any manner that would adversely affect
the rights thereunder as of the Effective Time of individuals who at the
Effective Time were directors, officers, employees or agents of Shorewood,
unless such modification is required after the Effective Time by law.
In addition, IP has agreed to cause the Surviving Corporation, to the
fullest extent permitted under applicable law or under the Surviving
Corporation's certificate of incorporation or by-laws, to indemnify and hold
harmless, each present and former director, officer or employee of Shorewood or
any of its subsidiaries against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
(x) arising out of or pertaining to the transactions contemplated by the Merger
Agreement or (y) otherwise with respect to any acts or omissions occurring at or
prior to the Effective Time, to the same extent as provided in Shorewood's
certificate of incorporation or by-laws or any applicable contract or agreement
as in effect on February 16, 2000, the date of the Merger Agreement, in each
case for a period of six years after February 16, 2000.
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In addition, IP has agreed to provide, or cause the Surviving Corporation to
provide, for a period of not less than six (6) years after the Effective Time,
Shorewood's current directors and officers an insurance and indemnification
policy that provides coverage for events occurring at or prior to the Effective
Time (the "D&O Insurance") that is no less favorable than the policy existing on
the date of the Merger Agreement or, if substantially equivalent insurance
coverage is unavailable, the best available coverage; provided, however, that IP
and the Surviving Corporation will not be required to pay an annual premium for
the D&O Insurance in excess of one and one-half of the annual premium currently
paid by Shorewood for such insurance, but in such case will purchase as much
such coverage as possible for such amount.
The Merger Agreement provides that these indemnification and insurance
provisions will survive the consummation of the Merger at the Effective Time and
are intended to benefit Shorewood, the Surviving Corporation and the Indemnified
Parties and will be binding on all successors and assigns of the Surviving
Corporation and enforceable by the Indemnified Parties.
EMPLOYEE BENEFITS. For the one-year period following the Effective Time, IP
has agreed to provide, or cause the Surviving Corporation and its subsidiaries
and successors to provide, those persons who, immediately prior to the Effective
Time, were employees of Shorewood and its subsidiaries and who continue in such
employment ("Continuing Employees"), with benefits and compensation that are
substantially comparable, in the aggregate, to the compensation and benefits
provided to such employees as of the date of the Merger Agreement; provided,
that such agreement will not restrict IP or the Surviving Corporation from
terminating the employment of any such employees in accordance with applicable
laws and contractual rights, if any, of such employees.
Except with respect to accruals under any defined benefit pension plan, IP
has agreed to, or to cause the Surviving Corporation and its subsidiaries to,
give Continuing Employees full credit for purposes of eligibility, vesting and
determination of the level of benefits under any employee benefit plans or
arrangements maintained by IP, the Surviving Corporation or any subsidiary of IP
or the Surviving Corporation for such Continuing Employees' service with
Shorewood or any subsidiary of Shorewood to the same extent recognized by
Shorewood for similar purposes immediately prior to the Effective Time. IP has
agreed to, or to cause the Surviving Corporation and its subsidiaries to,
(i) waive all limitations as to preexisting conditions, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the Continuing Employees under any welfare plan that such employees may be
eligible to participate in after the Effective Time, other than limitations or
waiting periods that are already in effect with respect to such employees and
that have not been satisfied as of the Effective Time under any welfare plan
maintained for the Continuing Employees immediately prior to the Effective Time,
and (ii) provide each Continuing Employee with credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans that such
employees are eligible to participate in after the Effective Time to the same
extent as if those deductibles or co-payments had been paid under the welfare
plans for which such employees are eligible after the Effective Time.
For purposes of the Plans, the Offer Completion Date will constitute a
"Change in Control" of Shorewood (as such term or similar term is defined in an
applicable Plan). IP has agreed (i) to cause the Surviving Corporation after the
Offer Completion Date to pay all amounts provided under all Plans in accordance
with their terms, and (ii) honor and cause the Surviving Corporation to honor
all rights, privileges and modifications to or with respect to any such Plans
which become effective as a result of such Change in Control.
FINANCIAL INFORMATION. Shorewood has agreed to deliver to IP, as soon as
reasonably practicable, such financial information as IP may request to the
extent such financial information is regularly prepared by Shorewood for the
Shorewood Board or for Shorewood's management.
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TERMINATION; FEES. The Merger Agreement provides that it may be terminated
at any time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of Shorewood:
1. by the mutual written consent of IP and Shorewood; or
2. by either IP or Shorewood, if the initial consummation of the IP Offer does
not occur on or prior to June 30, 2000; provided, however, that the right to
so terminate the Merger Agreement under this clause shall not be available
to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the IP Offer
to be consummated on or prior to such date; or
3. by either IP or Shorewood, if, as the result of the failure of any of the
Offer Conditions, the IP Offer shall have terminated or expired in
accordance with its terms without Purchaser having purchased any Shares
pursuant to the IP Offer; provided, that if the failure to satisfy any of
the Offer Conditions shall be a basis for termination of the Merger
Agreement under any other termination provision a termination pursuant to
this clause shall be deemed a termination under such other provision; or
4. by either IP or Shorewood, if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other
nonappealable final action having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger; or
5. by IP, if, whether or not permitted to do so by the Merger Agreement, the
Shorewood Board or Shorewood shall (x) (i) withdraw, modify or change its
approval or recommendation of the IP Offer, the Merger Agreement or the
Merger in a manner adverse to IP, (ii) approve or recommend to the
stockholders of Shorewood an Acquisition Proposal or Alternative
Transaction; or (iii) approve or recommend that the stockholders of
Shorewood tender their shares in any tender or exchange offer that is an
Alternative Transaction or (y) take any public position or make any
disclosures to Shorewood's stockholders, whether or not permitted pursuant
to the Merger Agreement, which has the effect of any of the foregoing; or
6. by IP or Shorewood, if any representation or warranty of Shorewood or IP,
respectively, set forth in the Merger Agreement shall be untrue when made,
if such failure to be true and correct, individually or in the aggregate, is
reasonably likely to cause the failure of the condition to the IP Offer
discussed under clause 3(e) in this Item 3 under "The Merger
Agreement--Certain Conditions to the IP Offer," provided that, if such
failure is curable prior to the initial Expiration Date (or any subsequent
Expiration Date) by Shorewood or IP, as the case may be, through the
exercise of its reasonable best efforts and for so long as Shorewood or IP,
as the case may be, continues to exercise such reasonable best efforts,
neither IP nor Shorewood, respectively, may terminate the Merger Agreement
under this clause until such initial Expiration Date (or subsequent
Expiration Date); or
7. by IP or Shorewood, if any representation or warranty of Shorewood or IP,
respectively, set forth in the Merger Agreement, shall have become untrue
(without for this purpose giving effect to qualifications of materiality
contained in such representations and warranties) if such failure to be true
and correct, individually or in the aggregate, is reasonably likely to cause
the failure of the condition to the IP Offer discussed under clause 3(e) of
this Item 3 under "The Merger Agreement--Certain Conditions to the IP
Offer," other than by reason of a Terminating Breach (as hereinafter
defined); provided, that if any such failure is curable prior to the initial
Expiration Date (or any subsequent Expiration Date) by Shorewood or IP, as
the case may be, through the exercise of its reasonable best efforts, and
for so long as Shorewood or IP, as the case may be, continues to exercise
such reasonable best efforts, neither IP nor Shorewood, respectively, may
terminate the Merger Agreement under this clause until such initial
Expiration Date (or subsequent Expiration Date); or
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8. by IP or Shorewood, upon a material breach of any covenant or agreement on
the part of Shorewood or IP, respectively, set forth in the Merger Agreement
(a "Terminating Breach"); provided, that except for any breach of
Shorewood's obligations discussed under the heading "No Solicitation" in
this section, if such Terminating Breach is curable prior to the initial
Expiration Date (or any subsequent Expiration Date) by Shorewood or IP, as
the case may be, through the exercise of its reasonable best efforts and for
so long as Shorewood or IP, as the case may be, continues to exercise such
reasonable best efforts, neither IP nor Shorewood, respectively, may
terminate the Merger Agreement under this clause until such date; or
9. by Shorewood, in order to accept a Superior Proposal; provided that (A) the
IP Offer shall not theretofore have been consummated (or, if the IP Offer is
consummated and extended, initially consummated); (B) the Shorewood Board
determines (based on the advice of counsel) that it is required to accept
such proposal in order to discharge properly its fiduciary duties;
(C) Shorewood has given IP two full business days' advance notice of
Shorewood's intention to accept such Superior Proposal; (D) Shorewood shall
have paid the Fee and the Expense Reimbursement (as defined below); and
(E) Shorewood shall have complied in all respects with provisions discussed
under "The Merger Agreement--No Solicitation."
Notwithstanding the foregoing, the right to terminate the Merger Agreement
pursuant to clauses 5, 6, 7, 8 and 9 above shall not be available to IP if
Purchaser or any other affiliate of IP shall have acquired Shares pursuant to
the IP Offer.
As used in the Merger Agreement, "Alternative Transaction" means any of:
- a transaction pursuant to which any person (or group of persons)
(including the stockholders of any party to such transaction) other than
IP or its affiliates (a "Third Party") acquires or would acquire more than
30% of the outstanding shares of any class of equity securities of
Shorewood, whether from Shorewood or pursuant to a tender offer or
exchange offer or otherwise;
- a merger or other business combination involving Shorewood pursuant to
which any Third Party acquires more than 30% of the outstanding equity
securities of Shorewood or the entity surviving such merger or business
combination;
- any transaction pursuant to which any Third Party acquires or would
acquire control of assets (including for this purpose the outstanding
equity securities of subsidiaries of Shorewood and securities of the
entity surviving any merger or business combination including any of
Shorewood's subsidiaries) of Shorewood, or any of its subsidiaries having
a fair market value (as determined by the Shorewood Board in good faith)
equal to more than 30% of the fair market value of all the assets of
Shorewood and its subsidiaries, taken as a whole, immediately prior to
such transaction; or
- any other consolidation, business combination, recapitalization or similar
transaction involving Shorewood or any of Shorewood's subsidiaries that
are "significant" under Regulation S-X at a level of 30% or more, other
than the transactions contemplated by the Merger Agreement; provided,
however, that the term Alternative Transaction shall not include any
acquisition of securities by a broker-dealer in connection with a bona
fide public offering of such securities.
FEES AND EXPENSES. Except as specified below, all fees and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such expenses, whether
or not the Merger is consummated. Shorewood has agreed to pay IP a fee of
$25,000,000 (the "Fee") and to also pay IP $3,000,000 to reimburse IP for its
itemized out-of-pocket expenses in connection with the transactions contemplated
by the Merger Agreement (the "Expense Reimbursement") upon the first to occur of
any of the following events:
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1. the termination of the Merger Agreement by IP or Shorewood pursuant to
clause 2, 3, 6 or 7 above in this Item 3 under "The Merger
Agreement--Termination; Fees"; provided that an Alternative Transaction
shall be publicly announced by Shorewood or any third party within twelve
months following the date of such termination and such transaction shall
at any time thereafter be consummated on substantially the terms
theretofore announced; provided further that if the termination of the
Merger Agreement is pursuant to clause 7 above, such Alternative
Transaction, if all cash, must be no less favorable from a financial
point of view to the stockholders of Shorewood than the transactions
contemplated by the IP Offer and Merger, unless the events giving rise to
the breach underlying such termination relate to the third party with
whom the Alternative Transaction was consummated;
2. the termination of the Merger Agreement by IP pursuant to clause 5 or
8 in this Item 3 under "The Merger Agreement--Termination; Fees"; or
3. the termination of the Merger Agreement by Shorewood pursuant to
clause 9 in this Item 3 under "The Merger Agreement--Termination; Fees."
Shorewood has also agreed to pay to IP the Expense Reimbursement (in which
case such payment shall be credited against any subsequent payment that may
become due to IP under clause 1 in the subsection above) under the following
circumstances: (a) upon the termination of the Merger Agreement by IP pursuant
to clause 3 in this Item 3 under "The Merger Agreement--Termination; Fees" in
the event that the Minimum Condition is not satisfied and (b) upon termination
of the Merger Agreement by IP pursuant to clause 6 in this Item 3 under "The
Merger Agreement--Termination; Fees."
STOCKHOLDERS AGREEMENT
As an inducement to IP to enter into the Merger Agreement with Shorewood,
the Shore Family Partnership, L.P., Mr. M. Shore, the Paul Shore Estate Marital
Trust, Mr. A. Shore, the Paul Shore Marital Trust and Mr. Liebman (each, a
"Principal Stockholder" and, collectively, the "Principal Stockholders"), who in
the aggregate own approximately 17% of the outstanding Shares, have each entered
into a stockholders agreement (the "Stockholders Agreement") with IP and
Purchaser.
The following summary of certain provisions of the Stockholders Agreement, a
copy of which is filed as Exhibit 2 hereto, is qualified in its entirety by
reference to the complete text of the Stockholders Agreement.
Each Principal Stockholder has agreed to tender all of his Shares into the
IP Offer and not to withdraw any Shares so tendered. In addition, each Principal
Stockholder has agreed to enter into such agreements and take such actions as
are necessary to provide that all Options held by such Principal Stockholder are
cashed out in connection with the Merger.
In addition, each Principal Stockholder has agreed not to transfer any or
all of such Principal Stockholder's Shares or any interest therein (except as
contemplated by the Stockholders Agreement), enter into any contract, option or
other agreement or understanding with respect to any transfer of any or all of
his Shares or any interest therein, grant any proxy, power-of-attorney or other
authorization or consent in or with respect to his Shares, deposit his Shares
into a voting trust or enter into a voting arrangement or agreement with respect
to his Shares or take any other action that would in any way restrict, limit or
interfere with his obligations under the Stockholders Agreement.
Each Principal Stockholder has also agreed to vote (or cause to be voted)
his Shares in favor of the Merger, the Merger Agreement and each of the other
transactions contemplated by the Merger Agreement at any meeting of stockholders
of Shorewood called to vote upon the Merger and the Merger Agreement or at any
adjournment thereof or in any other circumstances upon which a vote, consent or
other approval (including by written consent) with respect to the Merger and the
Merger Agreement is
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sought, or initiate a written consent solicitation if requested by IP. Each
Principal Stockholder has also agreed to vote against or refrain from giving any
consent in favor of, and not to tender his Shares into any offer relating to,
(i) any merger agreement or merger (other than the Merger Agreement and the
Merger), consolidation, combination, sale of substantial assets, reorganization,
joint venture, recapitalization, dissolution, liquidation or winding up of or by
Shorewood and (ii) any amendment of Shorewood's certificate of incorporation or
by-laws or other proposal or transaction including any consent solicitation to
remove or elect any directors of Shorewood) involving Shorewood or any of its
subsidiaries which amendment or other proposal or transaction would in any
manner impede, frustrate, prevent or nullify, or result in a breach of any
covenant, representation or warranty or any other obligation or agreement of
Shorewood under or with respect to, the IP Offer, the Merger, the Merger
Agreement or any of the other transactions contemplated by the Merger Agreement.
Each Principal Stockholder has granted to IP an irrevocable proxy with full
power of substitution and resubstitution which shall be deemed coupled with an
interest to vote such Principal Stockholder's Shares as contemplated by this
paragraph.
Each Principal Stockholder has made certain representations and warranties
in the Stockholders Agreement, including with respect to:
- ownership of his or its Shares.
- the authority to enter into and perform his obligations under such
Stockholders Agreement and the absence of required consents and statutory
or contractual conflicts or violations.
- the absence of liens, claims, security interests, proxies, voting trusts
or other arrangements or any other encumbrances on or in respect of his
Shares, except for those disclosed to Purchaser.
- broker's and finder's fees.
- an acknowledgment of IP's reliance upon the Principal Stockholder's
execution of the Stockholders Agreement in entering into, and causing to
enter into, the Merger Agreement.
The Stockholders Agreement and all rights and obligations thereunder
terminate upon the earlier of (a) the date upon which the Merger Agreement is
terminated in accordance with its terms or (b) the date that IP or Purchaser
purchases and pays for the Shares of such Principal Stockholder pursuant to the
terms of the Stockholders Agreement; provided, however, that the termination of
the Stockholders Agreement does not relieve any party of liability for breach of
such agreement prior to its termination.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
RECOMMENDATION OF THE SHOREWOOD BOARD
At a meeting held on February 16, 2000, the Shorewood Board unanimously
(a) determined that the IP Offer, the Merger and the Merger Agreement are
advisable, fair to, and in the best interests of, Shorewood's stockholders,
(b) approved the Merger Agreement and the transactions contemplated thereby,
including the Merger and the IP Offer, and (c) determined to recommend that
Shorewood's stockholders accept the IP Offer and tender their Shares pursuant
thereto and approve and adopt the Merger Agreement.
BACKGROUND
On October 26, 1999, Shorewood delivered a letter to Chesapeake proposing to
acquire all of the outstanding shares of Chesapeake's common stock for $40 per
share in cash.
On November 10, 1999, Chesapeake rejected Shorewood's acquisition proposal
and made a counterproposal to acquire all of Shorewood's common stock for $16.50
per Share in cash.
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On November 18, 1999, Shorewood rejected Chesapeake's proposal to acquire
Shorewood and reiterated its previous proposal to acquire Chesapeake. In
addition, Shorewood issued a press release disclosing that it had made a
proposal to acquire Chesapeake and that it had received a counterproposal from
Chesapeake which Shorewood had rejected.
During the week of November 22, 1999, David Oskin, an executive vice
president of IP, contacted Mr. M. Shore to express an interest in a possible
combination of Shorewood and IP, as an alternative to the offer made by
Chesapeake. Mr. M. Shore returned the telephone call the following week and
expressed a willingness to meet with representatives of IP.
On November 30, 1999, Chesapeake filed a Schedule 13D with the SEC
disclosing that, on November 26, 1999, Chesapeake entered into a stock purchase
agreement (the "Purchase Agreement") to purchase 4,106,440 Shares (the
"Purchased Shares"), or approximately 14.9% of the outstanding Shares, from
clients of Ariel Capital Management, Inc. ("Ariel") for $17.25 per Share. In the
Purchase Agreement, Ariel also agreed that, if Chesapeake commenced a public
tender offer for the Shares at a price that equaled or exceeded $17.25 per
Share, then Ariel would use its best efforts as investment adviser to exercise
its discretionary authority to cause its clients to (i) tender the Purchased
Shares in such tender offer and (ii) execute proxies or written consents in the
form solicited by Chesapeake or any of its affiliates in any proxy or written
consent solicitation commenced in connection with such tender offer.
On December 3, 1999, Chesapeake, through Sheffield, commenced the Chesapeake
Offer. Also at this time, Chesapeake filed a preliminary Consent Solicitation
Statement with the SEC in connection with its intended solicitation of consents
from the stockholders of Shorewood to, among other things, replace the members
of the Shorewood Board with Chesapeake's nominees.
In the Schedule 14D-1 filed by Chesapeake with respect to the Chesapeake
Offer (the "Chesapeake Schedule 14D-1"), Chesapeake indicated that the purpose
of the Chesapeake Offer was to facilitate the acquisition of a majority of the
outstanding Shares as a first step in the acquisition of Shorewood. Chesapeake
also disclosed in the Chesapeake Schedule 14D-1 that it was seeking to enter
into negotiations with Shorewood with respect to a merger with Sheffield (the
"Proposed Chesapeake Merger") which it intended to consummate as soon as
practicable after consummation of the Chesapeake Offer or in lieu of the
Chesapeake Offer. According to the Chesapeake Schedule 14D-1, upon consummation
of the Proposed Chesapeake Merger, each then outstanding Share (other than
Shares held (1) by Sheffield or any other direct or indirect owned subsidiary of
Chesapeake, (2) in Shorewood's treasury, and (3) by stockholders who properly
exercise appraisal rights under the DGCL) would be converted into the right to
receive in cash the price per Share paid by Sheffield pursuant to the Chesapeake
Offer. Chesapeake indicated in the Chesapeake Schedule 14D-1 that it was willing
to enter into negotiations with the Shorewood Board regarding the possibility of
increasing its offer price after appropriate due diligence and access to
Shorewood's business plan.
In connection with the Chesapeake Offer, Chesapeake also filed a preliminary
consent solicitation statement (the "Chesapeake Consent Solicitation Statement")
with the SEC to, among other things, remove the current members of the Shorewood
Board and replace them with Chesapeake's nominees and to repeal each provision
of Shorewood's bylaws or amendments thereto adopted subsequent to November 22,
1999 (which date was later changed by Chesapeake to January 5, 2000).
In addition, on December 3, 1999, Chesapeake and Sheffield commenced a
lawsuit in the Delaware Court of Chancery (the "Court of Chancery") against
Shorewood and each of the members of the Shorewood Board seeking, among other
things, an order (i) declaring that the Shorewood Board breached its fiduciary
duties by adopting certain amendments to Shorewood's By-laws (the "By-law
Amendments"), which amendments, among other things (A) required the affirmative
vote of holders of two-thirds (66 2/3%) of the outstanding Shares for the
stockholders to amend, add to, alter or repeal Shorewood's bylaws or adopt new
bylaws for Shorewood (the "Super Majority By-law"), (B) revised the procedure by
which the
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Shorewood Board fixes a record date for a solicitation of written consents from
Shorewood's stockholders (the "Record Date By-law"), (C) eliminated the ability
of 20% of the stockholders to call a meeting of stockholders, (D) provided that
only the Chairman and the President of Shorewood can call a meeting of the
Shorewood Board, (E) provided that only the Shorewood Board can fill vacancies
on the Shorewood Board between meetings of stockholders, and (F) provided that
directors can be removed from the Shorewood Board only pursuant to
Section 141(k) of the DGCL, (ii) declaring the Super Majority By-law and the
Record Date By-law void, and enjoining the Shorewood Board from implementing the
Super Majority By-law, the Record Date By-law and the By-law Amendments as a
whole, (iii) declaring that failure to redeem the Rights issued pursuant to the
Rights Agreement, or to render the Rights inapplicable to the Chesapeake Offer
and the Proposed Chesapeake Merger, or to approve the Chesapeake Offer and the
Proposed Chesapeake Merger would constitute a breach of the Shorewood Board's
fiduciary duties under Delaware law, (iv) invalidating the Rights or compelling
the Shorewood Board to redeem the Rights or render the Rights inapplicable to
the Chesapeake Offer and the Proposed Chesapeake Merger, (v) declaring that
failure to approve the Chesapeake Offer and the Proposed Chesapeake Merger for
purposes of Section 203 of the DGCL would constitute a breach of the Shorewood
Board's fiduciary duties under Delaware law, (vi) compelling the Shorewood Board
to approve the Chesapeake Offer and the Proposed Chesapeake Merger for purposes
of Section 203 of the DGCL, (vii) enjoining the Shorewood Board from taking any
other actions designed to impede or which have the effect of impeding the
Chesapeake Offer, the Chesapeake Consent Solicitation or the Proposed Chesapeake
Merger and declaring that any such actions would constitute a breach of the
Shorewood Board's fiduciary duties under Delaware law, and (viii) enjoining the
Shorewood Board from taking any other actions to impede, or refuse to recognize
the validity of, the Chesapeake Consent Solicitation Statement. Also on
December 3, 1999, Chesapeake and Sheffield commenced litigation against
Shorewood in the United States District Court for the District of Delaware
seeking, among other things, a declaratory judgment that Chesapeake and
Sheffield have disclosed all information required by, and are otherwise in full
compliance with, the Exchange Act, and any other federal securities laws, rules
or regulations deemed applicable to the Chesapeake Offer and the Chesapeake
Consent Solicitation Statement.
Following the announcement of the Chesapeake Offer, Shorewood received
several unsolicited indications of interest from third parties, including IP,
expressing a potential interest in pursuing a transaction with Shorewood. In
response to the indications of interest from such parties, Shorewood entered
into confidentiality agreements with a number of these parties, including IP on
December 10, 1999. Each of these agreements were substantially similar in form
and each contained customary confidentiality and standstill provisions. In each
case, after the execution of the confidentiality agreement, Shorewood provided
the potentially interested party with a copy of its business plan and
Shorewood's senior management responded to a variety of questions concerning
Shorewood's business and the business plan.
On December 7, 1999, Mr. Oskin, C. Cato Ealy, Vice President-Business
Development and Planning of IP, James Kennedy, an executive of IP, and
representatives of Credit Suisse First Boston Corporation ("Credit Suisse First
Boston"), IP's financial advisor, met with Messrs. M. Shore and O'Donnell at
Shorewood's offices to discuss Shorewood's situation and the possibility of a
transaction involving IP and Shorewood.
On December 11, 1999, representatives of IP and Shorewood discussed
Shorewood's business plan and the possible synergies that would result from a
combination of Shorewood and IP during meetings at IP's offices.
On December 15, 1999, the Shorewood Board held a special meeting at which
the Shorewood Board reviewed the Chesapeake Offer and its terms and conditions
with Shorewood's management and its legal and financial advisors. At such
meeting, Bear, Stearns & Co. Inc. ("Bear Stearns"), one of Shorewood's financial
advisors, presented its financial analysis of the Chesapeake Offer. In addition,
Bear Stearns provided an oral opinion (which was subsequently confirmed in
writing) to the effect that, as of
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December 15, 1999, the consideration offered in the Chesapeake Offer was
inadequate from a financial point of view to Shorewood's stockholders (other
than Chesapeake and its affiliates). The Shorewood Board was informed by
management that several third parties had expressed an unsolicited interest in
pursuing a potential extraordinary transaction involving Shorewood and that
Shorewood had engaged in preliminary discussions in this regard. After lengthy
discussions and presentations from Bear Stearns and Shorewood's legal advisors,
the Shorewood Board unanimously concluded that the Chesapeake Offer was
inadequate and not in the best interests of Shorewood and its stockholders and
recommended that Shorewood's stockholders reject the Chesapeake Offer and not
tender their Shares pursuant to the Chesapeake Offer. Additional information
relating to the Shorewood Board's position with respect to the Chesapeake Offer
is set forth in Shorewood's Schedule 14D-9 with respect to the Chesapeake Offer
which was filed with the SEC on December 16, 1999. Also at this meeting, the
Shorewood Board established the Special Committee, then consisting of Kevin J.
Bannon, Virginia A. Kamsky and William P. Weidner, for the purpose of reviewing
strategic alternatives which may develop and making recommendations thereon to
the full Shorewood Board.
At its December 15, 1999 meeting, the Shorewood Board also instructed
management and its financial advisors to explore potential strategic
alternatives available to Shorewood to enhance stockholder value, including
(i) a sale or issuance of common stock, convertible preferred stock or other
securities of Shorewood to one or more buyers, (ii) a purchase, sale or transfer
of a material amount of assets by Shorewood or any of its subsidiaries, (iii) a
tender or exchange offer for, or open market or privately negotiated purchases
or other acquisition of securities by or of, Shorewood, (iv) a merger or
reorganization involving Shorewood or any of its subsidiaries, (v) a leveraged
recapitalization or stock repurchase, (vi) a material change in the present
capitalization or dividend policy of Shorewood, or (vii) a joint venture or
other strategic alliance involving Shorewood or any of its subsidiaries.
On December 16, 1999, Shorewood filed an answer to Chesapeake's complaint in
the Court of Chancery denying all material allegations of Chesapeake's
complaint. Shorewood also filed a counterclaim seeking, among other things, an
order (i) declaring that Chesapeake is an "interested stockholder" and
"associate" of Shorewood within the meaning of Section 203 of the DGCL,
(ii) declaring that Chesapeake will remain an "interested stockholder" and
"associate" of Shorewood during the entire time period prescribed by
Section 203 of the DGCL, (iii) declaring that the refusal of the Shorewood Board
(as currently constituted or to be constituted in the future within the time
period prescribed by Section 203 of the DGCL) to take any action rendering
Section 203 of the DGCL inapplicable to the Chesapeake Offer and the Proposed
Chesapeake Merger does not constitute a breach of fiduciary duty,
(iv) declaring that the proposals to remove the members of the Shorewood Board
found in Chesapeake's Consent Solicitation (the "Removal Proposals") are invalid
under Section 141 of the DGCL, and (v) temporarily and permanently enjoining the
plaintiffs, their affiliates and all others acting in concert with them, from
taking any action in furtherance of the Removal Proposals.
On December 16, 1999, Shorewood filed an answer and counterclaim to
Chesapeake's complaint in the United States District Court for the District of
Delaware seeking, among other things, an order (i) declaring that Chesapeake's
and Sheffield's Schedule 14D-1 and Schedule 13D are materially false and
misleading, in violation of Section 14(e) of the Exchange Act, and
(ii) preliminarily and permanently enjoining Chesapeake and Sheffield from
proceeding with the Chesapeake Offer in violation of Section 14(e) of the
Exchange Act.
On December 21, 1999, Mr. Oskin met with Mr. M. Shore to discuss a possible
business combination between Shorewood and IP. During their meeting, Mr. M.
Shore informed Mr. Oskin that Shorewood was in the process of reviewing
strategic alternatives to enhance stockholder value. Mr. Oskin then indicated
that IP would consider acquiring Shorewood at a price of $20.00 per Share, a
price which Mr. M. Shore indicated was not, in his view, sufficiently preemptive
to cause Shorewood to suspend its exploration of strategic alternatives. On
December 22 and 23, 1999, Mr. Ealy and Mr. O'Donnell had several further
discussions relating to IP's interest in Shorewood and the methodology used by
IP to reach its indication of
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value. During a December 29, 1999 conference call with representatives of
Shorewood, representatives of IP reiterated the $20.00 per Share indication of
value, which Shorewood again indicated was not sufficiently preemptive.
On January 7, 2000, Greenhill & Co., LLC ("Greenhill") was retained as a
financial advisor by Shorewood to assist the Special Committee in its review of
strategic alternatives to enhance stockholder value.
On January 8, 2000, Mr. Oskin and Mr. M. Shore met and further discussed
IP's previous indication of value with respect to Shorewood. Throughout
January 2000, Shorewood and IP had intermittent conversations to discuss ongoing
developments although there were no revised proposals made during this time
period.
On February 1, 2000, representatives of Greenhill and Mr. M. Shore met with
Mr. Ealy, Mr. Oskin and representatives of Credit Suisse First Boston at IP's
offices. During that meeting, representatives of Greenhill informed IP that the
Shorewood Board would be meeting on February 8 and would be considering
alternatives at such time.
On February 7, 2000, the Court of Chancery issued a memorandum opinion in
the litigation between Shorewood and Chesapeake. The Court of Chancery held that
the Super Majority By-law, which previously had been amended to require only the
affirmative vote of the holders of sixty percent (60%) of the outstanding Shares
for stockholders to amend, add to, alter or repeal Shorewood's by-laws, was an
unreasonable and disproportionate response to the Chesapeake Offer, and entered
injunctive relief against its application. The Court of Chancery also rejected
Shorewood's claims that Delaware law prohibits its stockholders from voting to
eliminate Shorewood's classified board structure and subsequently seating a new
board. In addition, the Court of Chancery ruled that Chesapeake was not the
beneficial owner of certain shares of stock and therefore was not an "interested
stockholder" under Section 203 of the DGCL. See Item 8 under "Certain
Litigation."
During the afternoon of February 8, 2000, Mr. Oskin called representatives
of Greenhill and informed them that IP's valuation of Shorewood had not changed
since December 1999 and that IP was prepared to consider a price of $20.50 per
Share provided that Shorewood would consider a termination fee equal to $1.00
per Share which would be payable to IP if the Merger Agreement was terminated
under certain circumstances. Mr. Oskin informed representatives of Greenhill
that IP was still considering whether it would prefer to pay the consideration
all in cash or part in cash and part in IP common stock. Mr. Oskin informed
Shorewood that, if IP's indication of value was acceptable to Shorewood, IP
would promptly meet with rating agencies to discuss the possibility of an
all-cash offer to acquire Shorewood.
On February 8, 2000, the Shorewood Board held a special meeting and analyzed
and reviewed, with Shorewood's management and Shorewood's legal advisors, among
other things, the consequences for Shorewood of the Court of Chancery's
decision, Shorewood's options for appealing the Court's opinion, the timing of
such appeal and the effect of such an appeal on the Chesapeake Consent
Solicitation. It was the consensus of the Shorewood Board that there was a need
to bring its exploration of strategic alternatives to a prompt conclusion taking
into account (i) the Court of Chancery's opinion, the pendency of the Chesapeake
Offer and the imminent nature of the Chesapeake Consent Solicitation given that
Chesapeake was expected to soon make a request to the Shorewood Board that it
set a record date for the Chesapeake Consent Solicitation, and (ii) the
possibility that, if Chesapeake was successful in acquiring control of the
Shorewood Board, Shorewood could be acquired for $17.25 per Share, a price that
the Shorewood Board had previously determined was inadequate due to, among other
things, its failure to reflect Shorewood's inherent value and its future
prospects. Greenhill reviewed with the Shorewood Board the status of Greenhill's
discussions with third parties in connection with Greenhill's review of
Shorewood's strategic alternatives to enhance stockholder value. Greenhill
informed the Shorewood Board that, based on Greenhill's discussions with IP and
its financial advisor, IP had suggested that it would be
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interested in acquiring Shorewood for $20.50 per Share, but IP had not
determined either the form of consideration that it would propose using or the
structure by which it would propose acquiring Shorewood. Greenhill also informed
the Shorewood Board that IP had indicated that it would not need to conduct any
further due diligence of Shorewood in order to move forward. Greenhill then
informed the Shorewood Board that it had contacted several financial buyers that
had previously shown interest in the packaging industry and that at least one of
these parties had exhibited continuing interest in exploring a transaction with
Shorewood at price levels in excess of Chesapeake's $17.25 offer. Greenhill
advised the Shorewood Board that a transaction with a financial buyer would be
significantly more uncertain than a transaction with a strategic buyer such as
IP due to a financial buyer's need for a substantially longer period to conduct
its due diligence of Shorewood, the need for a financial buyer to secure
financing, the possible requirement that Shorewood continue as a public company
with the the public owning approximately ten percent (10%) of Shorewood's common
stock, and the expected requirement from a financial buyer that certain members
of the Shore family participate in the equity funding relating to any
transaction. No decision was reached by the Shorewood Board at the meeting, but
it was the consensus of the directors that Shorewood's management, together with
Greenhill and Shorewood's legal advisors, should pursue discussions with IP
regarding a transaction and report back to the Shorewood Board once management
was prepared to make a recommendation. Later that day, Chesapeake furnished
Shorewood with a letter requesting that the Shorewood Board set a record date
for the Chesapeake Consent Solicitation.
On February 9, 2000, a representative of Greenhill contacted a
representative of Credit Suisse First Boston to discuss certain conditions and
issues that, in Shorewood's view, would need to be resolved in order for
Shorewood to proceed with a transaction with IP. Representatives of Shorewood,
Credit Suisse First Boston and Greenhill discussed those conditions, which
included Shorewood's request for some improvement in the proposed price per
Share, consideration consisting solely of cash and a reduction in the proposed
termination fee.
On February 11, 2000, Shorewood offered to provide Chesapeake and its
representatives with the same business plan that had been provided to other
potentially interested parties, conditioned upon Chesapeake executing a
confidentiality agreement containing customary standstill provisions (but with a
significantly shorter standstill period than had been obtained from other
potentially interested parties) (the "Chesapeake Confidentiality Agreement").
Prior to such time, Chesapeake had publicly stated on numerous occasions,
including in the Chesapeake Schedule 14D-1, that it was prepared to consider the
possibility of increasing the price per Share contemplated by the Chesapeake
Offer after appropriate due diligence and access to the Shorewood business plan.
On February 12, 2000, Shorewood informed a representative of Chesapeake that
Shorewood was voluntarily withdrawing the standstill provisions from the
Chesapeake Confidentiality Agreement and informed Chesapeake's representative
that a package containing Shorewood's business plan was immediately available
upon execution of the Chesapeake Confidentiality Agreement.
On February 12, 2000, representatives of Shorewood met with representatives
of IP, together with their respective financial and legal advisors, to discuss
the terms of a possible transaction between Shorewood and IP. During this
meeting, IP indicated to Shorewood that, if Shorewood was agreeable to a
termination fee and expense reimbursement totaling $28 million, which would be
payable to IP if the Merger Agreement was terminated under certain
circumstances, IP would increase its previous indication of value of $20.50 per
Share and, subject to the negotiation of the definitive form of the Merger
Agreement and related agreements, including employment and noncompetition
agreements with Messrs. M. Shore and Liebman, IP would be prepared to acquire
all of the outstanding Shares for $21.00 per Share in cash through a tender
offer for all of the Shares followed by a second-step merger of a wholly-owned
subsidiary of IP with and into Shorewood. The next morning, IP's legal counsel
distributed to Shorewood's legal counsel initial drafts of the Merger Agreement
and the Stockholders Agreement.
On February 13, 2000, a representative of Shorewood reiterated to a
representative of Chesapeake that a copy of Shorewood's business plan would made
available to Chesapeake immediately upon its
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execution of the Chesapeake Confidentiality Agreement and that Shorewood was
prepared to make certain members of its management available to answer questions
about the business plan. The Chesapeake representative was informed that the
Shorewood Board would be meeting the next day for an update of recent events and
that the Shorewood Board believed that its process of exploring strategic
alternatives should be brought to a prompt conclusion, particularly in light of
the imminent nature of the Chesapeake Consent Solicitation. Chesapeake did not
avail itself of the opportunity to review Shorewood's business plan or meet with
Shorewood representatives on February 12 or February 13.
During the latter part of the afternoon of February 14, 2000,
representatives of Chesapeake and Shorewood negotiated certain provisions in the
Chesapeake Confidentiality Agreement and such agreement was thereafter executed.
Later that day, a copy of Shorewood's business plan and information concerning
the financial performance of Shorewood for the fiscal quarter ended January 31,
2000 was delivered to Chesapeake's representatives. In response to Shorewood's
offer to Chesapeake to make certain members of Shorewood's management available
to answer any questions that Chesapeake may have about Shorewood's business
plan, Chesapeake indicated that it would like to meet with members of
Shorewood's management but could not do so until the afternoon of February 15,
2000.
On February 14, 2000, the Shorewood Board held a special meeting and
analyzed and reviewed, with Shorewood's management and Shorewood's legal and
financial advisors, among other things, IP's most recent proposal, the status of
Shorewood's efforts to provide Chesapeake with due diligence information and its
efforts to encourage Chesapeake to put forth a revised proposal to acquire
Shorewood. Various strategic, financial and legal considerations concerning a
possible transaction with IP were also discussed. No decision was reached by the
Shorewood Board at the meeting, but it was the consensus of the directors that
Shorewood's management and legal and financial advisors should continue to
negotiate a transaction with IP and that they should continue to encourage
Chesapeake to put forth a revised proposal. The Shorewood Board again discussed
the timing and uncertainty of pursuing a transaction with a financial buyer and
Mr. M. Shore advised the Shorewood Board that he was not interested in
committing his Shares to the equity financing of any such transaction, which was
expected to be a requirement of a financial buyer.
During the evening of February 14, 2000, Shorewood's legal advisors began
negotiating the terms of the Merger Agreement and the Stockholders Agreement
with IP's legal advisors. Such negotiations continued through February 16, 2000
and, by late evening on February 16, 2000, Shorewood and IP agreed upon the form
of a definitive Merger Agreement, and the Principal Stockholders and IP agreed
upon the form of a definitive Stockholders Agreement. During this same time
period, Messrs. M. Shore and Liebman negotiated and reached an agreement with IP
with respect to the terms of their respective employment and non-competition
agreements.
During the afternoon of February 15, 2000, a meeting between Chesapeake and
Shorewood, together with their respective legal and financial advisors, occurred
for approximately two hours. During the course of such meeting, numerous
questions about the business plan were asked and answered. Prior to such
meeting, a representative of Shorewood delivered a letter to representatives of
Chesapeake informing Chesapeake that a meeting of the Shorewood Board was
scheduled to occur at 4:00 p.m., New York City time, on February 16, 2000 and
requesting that Chesapeake provide the Shorewood Board with its best and final
offer to acquire Shorewood prior to that time. In such letter, Chesapeake was
informed that the Shorewood Board may be taking action with respect to another
acquisition proposal which could entail the granting of a termination fee to a
potential acquiror.
During the morning of February 16, 2000, Shorewood received a due diligence
request list from Chesapeake requesting detailed information relating to
Shorewood's business, finances and operations. Chesapeake indicated in the
accompanying cover letter that the requested information would be critical to
its understanding of Shorewood's business and its assessment of value.
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During the latter part of the afternoon of February 16, 2000, the Shorewood
Board held a special meeting to review, with the advice and assistance of
Shorewood's financial and legal advisors, the proposed terms and conditions of
the current draft of the Merger Agreement. Shorewood's legal advisors summarized
for the Shorewood Board the terms of the most recent draft of the Merger
Agreement that had been negotiated by the parties as well as the few remaining
issues that remained to be negotiated by the parties. At such meeting, Greenhill
presented the Shorewood Board and the Special Committee with various valuation
analyses and provided the Shorewood Board with a written opinion to the effect
that, as of the date of the Merger Agreement, the consideration to be received
by Shorewood's stockholders in the IP Offer and the Merger, was fair, from a
financial point of view, to such stockholders. Bear Stearns also presented the
Shorewood Board with various valuation analyses and provided the Shorewood Board
with an oral opinion (which was subsequently confirmed in writing) to the effect
that, as of the date of the Merger Agreement, the consideration to be received
by Shorewood's stockholders (other than IP, Chesapeake, Mr. M. Shore and their
respective affiliates) in the IP Offer and the Merger, was fair, from a
financial point of view, to such stockholders. The Shorewood Board was informed
of the due diligence meeting held the day before with Chesapeake and the
additional information that Chesapeake had requested. The Shorewood Board was
also informed that Chesapeake had elected not to amend or modify its previous
proposal despite being requested by Greenhill that it submit its best and final
proposal and being advised by Greenhill that the Shorewood Board may take final
action at this meeting with respect to another acquisition proposal. Following
the Shorewood Board's review of the final terms of the IP Offer and the Merger,
and taking into account the failure of Chesapeake to modify the price or
conditions of its previous proposal and for the other reasons described below
under "REASONS FOR THE SHOREWOOD BOARD'S RECOMMENDATION; FACTORS CONSIDERED,"
the Shorewood Board, acting unanimously, determined that the Merger Agreement
and the transactions contemplated thereby, including the IP Offer and the
Merger, are advisable, fair to and in the best interests of Shorewood's
stockholders, approved the Merger Agreement and the transactions contemplated
thereby, including the IP Offer and the Merger, authorized the execution and
delivery of the Merger Agreement, recommended that Shorewood's stockholders
accept the IP Offer and tender their Shares pursuant to the IP Offer, and
recommended that Shorewood's stockholders approve the Merger and approve and
adopt the Merger Agreement. The Shorewood Board also approved each of the Merger
Agreement and the Stockholders Agreement for purposes of Section 203 of the
DGCL. In addition, the Shorewood Board approved an amendment to the Rights
Agreement, in order to, among other things, (i) prevent IP or Purchaser from
becoming or being deemed an Acquiring Person (as defined in the Rights
Agreement), and (ii) prevent a Stock Acquisition Date or a Distribution Date
(each as defined in the Rights Agreement) from occurring, in each case, as a
result of (a) the execution of the Merger Agreement or the Stockholders
Agreement, (b) the consummation of the IP Offer, (c) the consummation of the
Merger, (d) the acquisition of beneficial ownership of Shares pursuant to the
Stockholders Agreement, or (e) any of the other transactions contemplated by the
Merger Agreement or the Stockholders Agreement.
During the early evening of February 16, 2000 and following the meeting of
the Shorewood Board, Greenhill received a letter from Chesapeake. In such
letter, Chesapeake indicated that it remained willing to continue negotiating
with the Shorewood Board its $17.25 per Share offer, but gave no specific
indication that it was prepared at such time to modify its proposal, either with
respect to the price contemplated by its offer or the conditions thereto.
Later on the evening of February 16, 2000, Shorewood, IP and Purchaser
executed and delivered the Merger Agreement and IP, Purchaser and the Principal
Stockholders executed and delivered the Stockholders Agreement. In addition,
Messrs. M. Shore and Liebman executed and delivered documentation relating to
their employment with IP following the closing of the IP Offer.
On the morning of February 17, 2000, prior to the opening of trading on The
New York Stock Exchange ("NYSE"), Shorewood and IP issued separate press
releases announcing the execution of the Merger Agreement. A copy of the press
release issued by Shorewood is filed as Exhibit 5 hereto. Later that
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day, Chesapeake issued a press release announcing that it would permit the
Chesapeake Offer for Shorewood to expire at midnight, New York City time, on
February 18, 2000 in accordance with its terms. Chesapeake also announced that
it was withdrawing its request that the Shorewood Board set a record date in
connection with the Chesapeake Consent Solicitation.
On February 25, 2000, Chesapeake filed an amendment to the Chesapeake
Schedule 14D-1 reporting that Chesapeake and Sheffield no longer intend to seek
to acquire control of Shorewood.
On February 29, 2000, IP and Purchaser commenced the IP Offer.
REASONS FOR THE SHOREWOOD BOARD'S RECOMMENDATION; FACTORS CONSIDERED
In approving the Merger Agreement and the other transactions contemplated
thereby, including the IP Offer and the Merger, and recommending that all
holders of Shares accept the IP Offer and tender their Shares pursuant to the IP
Offer, approve the Merger and approve and adopt the Merger Agreement, the
Shorewood Board considered a number of factors including:
1. The historical market prices, price to earnings ratios, EBITDA multiples,
recent trading activity and trading range of the Shares, including the fact
that the Offer Price represents (i) a premium of approximately 22% over
Chesapeake's $17.25 per Share offer, (ii) a premium of approximately 57%
over the $13.375 closing price of the Shares on the NYSE on November 17,
1999, the last full trading day prior to the announcement that Chesapeake
had made a proposal to acquire Shorewood, and (iii) a premium of
approximately 12% over the $18.69 closing price of the Shares on the NYSE on
February 16, 2000, the last full trading day prior to both the meeting of
the Shorewood Board to approve the Merger Agreement and the public
announcement of the execution of the Merger Agreement.
2. The disruptive and adverse effects on Shorewood's business caused by the
Chesapeake Offer and the Chesapeake Consent Solicitation and the uncertainty
of Shorewood continuing as an independent entity.
3. The need to bring Shorewood's review of strategic alternatives to a prompt
conclusion, taking into effect (i) the opinion issued by the Court of
Chancery on February 7, 2000 (see Item 8 under "Certain Litigation"), the
pendency of the Chesapeake Offer and the imminent nature of the Chesapeake
Consent Solicitation given that Chesapeake had made a request to the
Shorewood Board on February 8, 2000 that it set a record date for the
Chesapeake Consent Solicitation, and (ii) the possibility that, if
Chesapeake were successful in acquiring control of the Shorewood Board,
Shorewood could be acquired for $17.25 per Share, a price that the Shorewood
Board had previously determined was inadequate due to, among other things,
its failure to reflect Shorewood's inherent value and its future prospects.
4. The fairness opinion of Greenhill rendered at the meeting of the Shorewood
Board held on February 16, 2000 as well as the valuation analysis performed
by Greenhill and presented at the Shorewood Board Meeting. The full text of
the written opinion dated as of February 16, 2000 of Greenhill, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken, is attached to this Schedule 14D-9 and is filed as Exhibit 6
hereto and is incorporated herein by reference. Holders of Shares are urged
to read such opinion carefully in its entirety.
5. The fairness opinion of Bear Stearns rendered at the meeting of the
Shorewood Board held on February 16, 2000 as well as the valuation analysis
performed by Bear Stearns and presented at the Shorewood Board Meeting. The
full text of the written opinion dated as of February 16, 2000 of Bear
Stearns, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached to this Schedule 14D-9 and
is filed as Exhibit 7 hereto and is incorporated herein by reference.
Holders of Shares are urged to read such opinion carefully in its entirety.
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6. The history of Shorewood's negotiations with IP relating to the terms of the
Merger Agreement.
7. The results of the discussions with certain companies in the paperboard,
packaging and related industries, regarding a possible strategic alliance,
partnership, business combination, acquisition or similar transaction with
Shorewood.
8. The results of the inquiries made by Greenhill to potential financial buyers
regarding a possible leveraged buyout or recapitalization of, or a minority
investment in, Shorewood and the attendant uncertainty of reaching an
agreement with any of such firms given the likely need of each of these
firms (i) to conduct an extensive due diligence review of Shorewood and the
time required for such a review, (ii) to secure financing, and (iii) to
convince certain members of the Shore family to agree to provide a portion
of the equity financing for any transaction with Shorewood sponsored by such
firm.
9. IP's willingness to enter into the Merger Agreement without an extensive due
diligence review of Shorewood.
10. The fact that since Shorewood's announcement on December 16, 1999 that it
would be exploring strategic alternatives to enhance stockholder value, no
other party had presented Shorewood with an acquisition proposal that, taken
as a whole, would be more favorable to Shorewood and its stockholders than
the IP Offer and the Merger or that would be as certain to be consummated
within the same time frame as the IP Offer and the Merger.
11. The fact that Chesapeake was given access to Shorewood's business plan, had
an opportunity to meet with Shorewood's management for the purpose of asking
questions about Shorewood's business and that, afterwards, Chesapeake
declined to revise its offer to acquire Shorewood.
12. The financial condition, results of operations and cash flows of Shorewood,
including the outlook for Shorewood's third fiscal quarter ended
January 31, 2000 which was expected to be below expectations.
13. The current regional, national and international economic climate.
14. That the IP Offer and the Merger provide for a prompt cash tender offer for
all Shares to be followed by a merger for the same consideration, thereby
enabling Shorewood's stockholders, at the earliest possible time, to obtain
the benefits of the transaction in exchange for their Shares.
15. The fact that IP's and Purchaser's obligations under the IP Offer are not
subject to any financing condition, the representations of IP in the Merger
Agreement that it has or will have sufficient funds available to it for
Purchaser to consummate the IP Offer and the Merger, and IP's financial
strength.
16. That limited ability of IP or Purchaser to terminate the IP Offer or the
Merger Agreement.
17. That, pursuant to the Merger Agreement, under certain circumstances,
Purchaser is required to extend the IP Offer up to June 30, 2000 if certain
conditions are not satisfied as of any expiration date.
18. That, pursuant to the Merger Agreement, Shorewood and its representatives
may not (i) furnish to a third party who has submitted an unsolicited
Acquisition Proposal (as defined in the Merger Agreement) (a "Third Party
Acquiror") information concerning Shorewood's business properties or assets,
or (ii) participate in discussions or negotiations with such Third Party
Acquiror concerning an unsolicited Acquisition Proposal, unless in each case
(A) the Shorewood Board reasonably determines, after consultation with its
financial advisor and counsel that such Acquisition Proposal is a superior
proposal to the Transaction (a "Superior Proposal"), and (B) the Shorewood
Board determines in good faith (based on the advice of its financial advisor
and counsel) that it is required to take such actions in order to discharge
properly its fiduciary duties.
19. That, pursuant to the Merger Agreement, the Shorewood Board has the right,
prior to the purchase of Shares pursuant to the IP Offer, to terminate the
Merger Agreement in order to accept a Superior
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Proposal, if (i) the Shorewood Board has determined, based upon the advice
of legal counsel, that it is required to accept such proposal to discharge
properly its fiduciary duties under applicable law, (ii) Shorewood gives IP
two full business days advance notice of Shorewood's intention to accept
such Superior Proposal, and (iii) Shorewood, prior to termination, pays to
IP a $25 million termination fee, plus up to $3 million in itemized
expenses.
20. The aggregate amount of the termination fee and the expense reimbursement
fee, relative to other transactions, and the circumstances under which such
fees would be payable to IP pursuant to the Merger Agreement, taking into
account that (i) IP was only willing to increase its proposal from $20.50
per Share to $21.00 per Share on the express condition that Shorewood agreed
to such a termination fee and expense reimbursement fee upon the terms set
forth in the Merger Agreement; (ii) the terms and conditions of IP's
proposal were superior to any other transaction discussed with third parties
since the commencement of the Chesapeake Offer; (iii) Chesapeake's
unwillingness to increase its offer price of $17.25 per Share after
reviewing Shorewood's business plan and having had the opportunity to ask
Shorewood's management questions about such plan; and (iv) the belief of the
Shorewood Board that the aggregate amount of the termination fee and the
expense reimbursement fee, which amount to approximately $1.00 per Share,
would not be likely to deter potentially interested third parties from
pursuing an acquisition of Shorewood.
21. That, pursuant to the Merger Agreement, IP has agreed that, for a one-year
period following the Effective Time, IP will provide, or cause the Surviving
Corporation and its subsidiaries and successors to provide, those persons
who, immediately prior to the Effective Time, were employees of Shorewood or
its subsidiaries and who continue in such employment following the Effective
Time (``Continuing Employees"), with benefits and compensation that are
substantially comparable, in the aggregate, to the compensation and benefits
provided to such employees as of February 16, 2000, the date of the Merger
Agreement.
22. The other provisions of the Merger Agreement, including the respective
representations, warranties and covenants of the parties.
23. The terms and conditions of the employment agreements to be entered into by
each of Messrs. M. Shore and Liebman with IP.
24. The consents and approvals required to consummate the IP Offer and the
Merger and the favorable prospects for receiving all such consents and
approvals.
25. The reasonable likelihood of the consummation of the transactions
contemplated by the Merger Agreement.
26. The business reputation and capabilities of IP and its management.
27. That, while the IP Offer gives Shorewood's stockholders the opportunity to
realize a premium over the price at which the Shares traded immediately
prior to the public announcement of the execution of the Merger Agreement,
the consummation of the IP Offer and the Merger would eliminate the
opportunity for Shorewood's stockholders to participate in the future growth
and profits of Shorewood.
The foregoing discussion of information and factors considered and given
weight by the Shorewood Board is not intended to be exhaustive, but is believed
to include all of the material factors, both positive and negative, considered
by the Shorewood Board. In view of the variety of factors considered in
connection with its evaluation of the IP Offer and the Merger, the Shorewood
Board did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determinations and recommendations. In addition, individual members of the
Shorewood Board may have given different weights to different factors.
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INTENT TO TENDER
To Shorewood's knowledge after reasonable inquiry, all of Shorewood's
executive officers, directors and affiliates currently intend to either
(i) tender all Shares held of record or beneficially by them pursuant to the IP
Offer, or (ii) vote all Shares held of record or beneficially by them for the
approval and adoption of the Merger Agreement. The foregoing does not include
any Shares over which, or with respect to which, any such executive officer,
director or affiliate acts in a fiduciary or representative capacity or is
subject to the instructions of a third party with respect to such tender.
ITEM 5. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
BEAR STEARNS
Bear Stearns was retained pursuant to the terms of a letter agreement dated
as of December 2, 1999 (the "Bear Stearns Letter Agreement"), initially, to
serve as Shorewood's co-financial advisor with respect to the Chesapeake Offer.
Pursuant to the Bear Stearns Letter Agreement, Shorewood has agreed to pay Bear
Stearns the following compensation:
(a) if Bear Stearns renders any opinion relating to any proposed
"acquisition transaction" or "restructuring" (as such terms are defined
below), a fee of $750,000 for the first such opinion, $500,000 for the
second such opinion and $250,000 for each additional opinion up to a
maximum total of $1,500,000;
(b) if Shorewood has not terminated Bear Stearns' engagement under the Bear
Stearns Letter Agreement prior to February 28, 2000, a fee equal to
$2,500,000 minus any fees paid pursuant to clause (a) above and minus the
aggregate retainer fees (up to a maximum of $500,000) paid to Bear
Stearns under the December 1, 1999 engagement letter pursuant to which
Bear Stearns is acting as financial advisor to Shorewood in connection
with its proposed acquisition of Chesapeake (the "December 1 Retainer
Fee");
(c) if an acquisition transaction is consummated involving the sale of less
than 50% of Shorewood's capital stock, a fee of $1,500,000;
(d) if an acquisition transaction (other than the sale of less than 50% of
Shorewood's capital stock) is consummated, a fee equal to 0.66% of
Shorewood's total enterprise value (against which fee there will be
credited (i) any fees paid to Bear Stearns pursuant to clauses (a),
(b) and (c) above and (ii) the December 1 Retainer Fee); and
(e) if a restructuring is consummated, a fee to be mutually agreed upon by
Shorewood and Bear Stearns.
The foregoing fees will be payable upon the occurrence, during the term of
the Bear Stearns Letter Agreement or within one year of its termination, of any
event specified above, or upon the occurrence of any event specified above with
respect to which an agreement was executed by Shorewood during the term of the
Bear Stearns Letter Agreement or within one year of its termination.
The term "acquisition transaction" in the Bear Stearns Letter Agreement
means: (i) any merger, consolidation, reorganization, recapitalization, business
combination or other transaction pursuant to which Shorewood is acquired by, or
combined with, any person, group, corporation, partnership or other entity, or
(ii) the acquisition, directly or indirectly, by any acquiror of (A) any of
Shorewood's assets or operations or (B) any outstanding or newly issued Shares
(or securities convertible into or options or other rights to acquire such
capital stock). The term "restructuring" in the Bear Stearns Letter Agreement
includes (x) any extraordinary dividend or distribution paid by Shorewood to its
stockholders, (y) a purchase by Shorewood of 25% or more of its Common Stock,
and (z) a sale or spin-off of all or substantially all of the assets of, or 25%
or more of the capital stock of, any subsidiary or division of Shorewood.
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Under the Bear Stearns Letter Agreement, Shorewood has also agreed to
reimburse Bear Stearns for all reasonable out-of-pocket expenses (including
reasonable fees and disbursements of counsel and other consultants and advisors)
and to indemnify Bear Stearns and certain related parties against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of Bear Stearns' engagement.
Bear Stearns has provided investment banking services to Shorewood from time
to time in the past for which it has received customary compensation.
JEFFERSON CAPITAL
Jefferson Capital was retained pursuant to the terms of a letter agreement
dated as of December 14, 1999 (the "Jefferson Capital Letter Agreement II"),
initially, to serve as Shorewood's co-financial advisor with respect to the
Chesapeake Offer. Pursuant to the Jefferson Capital Letter Agreement II,
Shorewood has agreed to pay Jefferson Capital the following compensation:
- if an acquisition transaction is consummated involving the sale of less
than 50% of Shorewood's capital stock, a fee of $546,000; and
- if an acquisition transaction (other than the sale of less than 50% of
Shorewood's capital stock) is consummated, a fee equal to 0.24% of
Shorewood's total enterprise value.
The foregoing fees will be payable upon the occurrence, during the term of
the Jefferson Capital Letter Agreement II or within one year of its termination,
of any event specified above, or upon the occurrence of any event specified
above with respect to which an agreement was executed by Shorewood during the
term of the Jefferson Capital Letter Agreement II or within one year of its
termination.
The term "acquisition transaction" in the Jefferson Capital Letter Agreement
II means: (i) any merger, consolidation, reorganization, recapitalization,
business combination or other transaction pursuant to which Shorewood is
acquired by, or combined with any person, group, corporation, partnership or
other entity, or (ii) the acquisition, directly, by any acquiror of (A) any of
Shorewood's assets or operations or (B) any outstanding or newly issued Shares
(or securities convertible into or options or other rights to acquire such
capital stock). The term "restructuring" in the Jefferson Capital Letter
Agreement includes (x) any extraordinary dividend or distribution paid by
Shorewood to its stockholders, (y) a purchase by Shorewood of 25% or more of its
Common Stock, and (z) a sale or spin-off of all or substantially all of the
assets of, or 25% or more of the capital stock of, any subsidiary or division of
Shorewood.
Under the Jefferson Capital Letter Agreement II, Shorewood has also agreed
to reimburse Jefferson Capital for all reasonable out-of-pocket expenses
(including reasonable fees and disbursements of counsel and other consultants
and advisors) and to indemnify Jefferson Capital and certain related parties
against certain liabilities, including liabilities under the federal securities
laws, relating to or arising out of Jefferson Capital's engagement by Shorewood.
Shorewood did not request that Jefferson Capital render an opinion in
connection with either the IP Offer or the Chesapeake Offer and, consequently,
no opinions were rendered by Jefferson Capital.
Jefferson Capital has provided investment banking services to Shorewood from
time to time in the past for which it has received customary compensation.
GREENHILL
Greenhill was retained by Shorewood, pursuant to the terms of a letter
agreement dated as of January 7, 2000 (the "Greenhill Letter Agreement"), to
assist the Special Strategic Committee of Directors (the "Special Committee") in
its review of strategic alternatives to enhance stockholder value.
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Pursuant to the Greenhill Letter Agreement, Shorewood has agreed to pay
Greenhill the following compensation:
- an advisory fee of $200,000, payable in cash in two equal monthly
installments of $100,000, the first of which was payable upon the
execution of the Greenhill Letter Agreement; and
- a transaction fee (the "Transaction Fee") determined in accordance with
the schedule set forth below. The Transaction Fee is calculated by
multiplying the Standard Transaction Fee Percentage (as hereinafter
defined) by the Transaction Value (as hereinafter defined) and then that
product by 80% (to reflect the fact that Shorewood has already engaged
other financial advisors). Twenty-five percent of the Transaction Fee is
payable in cash upon announcement of a binding acquisition agreement, and
the remainder is payable in cash promptly upon consummation of Transaction
(as hereinafter defined) if, during the term of the Greenhill Letter
Agreement or within twelve months following termination thereof, a
Transaction is consummated or a definitive agreement is entered into that
subsequently results in a Transaction.
The term "Transaction" in the Greenhill Letter Agreement means, whether in
one or a series of transactions, the sale or other transfer, directly or
indirectly, of all or a significant portion of the assets of Shorewood, or any
other extraordinary corporate transaction involving Shorewood, whether by way of
a merger or consolidation, reorganization, recapitalization or restructuring,
tender or exchange offer, negotiated purchase, leveraged buyout, minority
investment or partnership, collaborative venture or otherwise.
TRANSACTION FEE SCHEDULE
<TABLE>
<CAPTION>
TRANSACTION VALUE STANDARD TRANSACTION
(IN THOUSANDS) FEE PERCENTAGE STANDARD TRANSACTION FEE
- ----------------- -------------------- ------------------------
<S> <C> <C>
$100,000 (or lower).............................. 1.20% $ 1,200,000 (or lower)
$200,000......................................... 1.00% $ 2,000,000
$500,000......................................... 0.70% $ 3,500,000
$750,000......................................... 0.60% $ 4,500,000
$1,000,000....................................... 0.50% $ 5,000,000
$2,000,000....................................... 0.40% $ 8,000,000
$5,000,000....................................... 0.30% $15,000,000
$10,000,000 (or higher).......................... 0.20% $20,000,000 (or higher)
</TABLE>
For purposes of calculating a Transaction Fee, "Transaction Value" equals
the total proceeds and other consideration paid or to be paid in connection with
a Transaction (which consideration shall be deemed to include amounts in escrow,
payments made in installments and contingent payments), including, without
limitation: (i) cash, (ii) notes, securities and other property,
(iii) liabilities (other than accounts payable or other working capital),
including all debt, pension liabilities and guarantees, assumed, (iv) payments
made in installment, and (v) contingent payments (whether or not related to
future earnings or operations).
Under the Greenhill Letter Agreement, Shorewood has also agreed to reimburse
Greenhill for all reasonable out-of-pocket expenses (including reasonable fees
and disbursements of its counsel and other consultants and advisors) and to
indemnify Greenhill and certain related parties against certain liabilities,
including liabilities under the federal securities laws, relating to or arising
out of Greenhill's engagement by Shorewood.
SARD VERBINNEN
Shorewood has also retained Sard Verbinnen & Co. ("Sard Verbinnen") as its
public relations advisor in connection with the Chesapeake Offer, the Chesapeake
Consent Solicitation, the IP Offer and related matters. Shorewood will pay Sard
Verbinnen reasonable and customary fees for its services, reimburse it for its
reasonable out-of-pocket expenses and provide customary indemnities.
Except as disclosed herein, neither Shorewood nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the IP Offer.
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ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions in Shares have been effected during the past 60 days by
Shorewood or any subsidiary of Shorewood or, to the best of Shorewood's
knowledge, by any executive officer, director or affiliate of Shorewood.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) Except as indicated in Items 3 and 4 above, no negotiations are being
undertaken or are underway by Shorewood in response to the IP Offer which relate
to a tender offer or other acquisition of Shorewood's securities by Shorewood,
any subsidiary of Shorewood or any other person.
(b) Except as indicated in Items 3 and 4 above, no negotiations are being
undertaken or are underway by Shorewood in response to the IP Offer which relate
to, or would result in, (i) an extraordinary transaction, such as a merger,
reorganization or liquidation, involving Shorewood or any subsidiary of
Shorewood, (ii) a purchase, sale or transfer of a material amount of assets by
Shorewood or any subsidiary of Shorewood, or (iii) any material change in the
present dividend rate or policy, or indebtedness or capitalization of Shorewood.
(c) Except as indicated in Items 3 and 4 above, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the IP Offer that relate to or would result in one or more of the matters
referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION.
DGCL 203
Section 203 of the DGCL purports to regulate certain business combinations
of a corporation organized under Delaware law, such as Shorewood, with a
stockholder beneficially owning 15% or more of the outstanding voting stock of
such corporation (an "Interested Stockholder"). Section 203 provides, in
relevant part, that the corporation shall not engage in any business combination
for a period of three years following the date such stockholder first becomes an
Interested Stockholder unless (i) prior to the date the stockholder first
becomes an Interested Stockholder, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an Interested Stockholder, (ii) upon becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, or (iii) on or subsequent to the date the stockholder becomes an
Interested Stockholder, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock which is
not owned by the Interested Stockholder. The Shorewood Board has approved
(i) the Merger Agreement and the transactions contemplated thereby, including
the IP Offer and the Merger and (ii) the Stockholders Agreement and the
transactions contemplated thereby. Accordingly, Section 203 of the DGCL is
inapplicable to (i) the Merger Agreement and the transactions contemplated
thereby, including the IP Offer and the Merger, and (ii) the Stockholders
Agreement and the transactions contemplated thereby.
DGCL 253
Under Section 253 of the DGCL, if Purchaser acquires, pursuant to the IP
Offer or otherwise, at least 90% of the outstanding Shares, Purchaser will be
able to effect the Merger after consummation of the IP Offer without a meeting
of Shorewood's stockholders. However, if Purchaser does not acquire at least 90%
of the outstanding Shares pursuant to the IP Offer or otherwise, a meeting of
Shorewood's stockholders will be required under the DGCL to effect the Merger.
SECTION 14(F) INFORMATION STATEMENT
The Information Statement attached as Schedule I hereto is being furnished
in connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Shorewood Board other than
at a meeting of Shorewood's stockholders.
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ANTITRUST--UNITED STATES
Under the HSR Act, and the rules that have been promulgated thereunder by
the Federal Trade Commission (the "FTC"), certain acquisition transactions may
not be consummated unless certain information has been furnished to the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. The acquisition of Shares by Purchaser pursuant to the IP Offer is
subject to such requirements.
Under the provisions of the HSR Act applicable to the IP Offer, the purchase
of Shares under the IP Offer may not be consummated until the expiration of a
15-calendar day waiting period following the filing by IP of a Notification and
Report Form with respect to the IP Offer. Shorewood and Purchaser filed their
respective Notification and Report Forms with respect to the IP Offer and the
Merger with the Antitrust Division and the FTC on February 25 and February 22,
2000, respectively. As a result, the waiting period applicable to the purchase
of Shares pursuant to the IP Offer is scheduled to expire at 11:59 p.m., New
York City time, on March 7, 2000. The Antitrust Division or the FTC may extend
the waiting periods of such filing by requesting additional information or
documentary material relevant to the acquisition. If such a request is made, the
waiting period will be extended until 11:59 P.M., New York City time, on the
tenth day after IP has substantially complied with such request. Thereafter,
such waiting periods can be extended only by court order or consent. Although
Shorewood is required to file certain information and documentary material with
the Antitrust Division and the FTC in connection with the IP Offer, neither
Shorewood's failure to make such filings nor a request to Shorewood from the
Antitrust Division for additional information or documentary material will
extend the waiting period. However, if the Antitrust Division or the FTC raises
substantive issues in connection with a proposed transaction, the parties
frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing these issues and may agree to delay
consummation of the transaction while such negotiations continue.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the acquisition of shares by
Purchaser pursuant to the IP offer. At any time before or after the consummation
of any such transactions, the Antitrust Division or the FTC could,
notwithstanding termination of the waiting period, take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the purchase of Shares pursuant to the IP Offer or
seeking divestiture of Shares so acquired or divestiture of substantial assets
of IP or Shorewood or any of their respective subsidiaries. State attorneys
general may also bring legal actions under the antitrust laws, and private
parties may bring such actions under certain circumstances. While Shorewood does
not believe that the acquisition of Shares by Purchaser will violate the
antitrust laws, there can be no assurance that a challenge to the IP Offer on
antitrust grounds will not be made, or if such a challenge is made, what the
result will be.
NON-U.S. REGULATORY APPROVALS
COMPETITION ACT (CANADA). The merger provisions of the Competition Act
permit the Commissioner of Competition appointed under such Act (the
"Commissioner"), to apply to the Competition Tribunal (the "Tribunal") to seek
relief in respect of a merger which prevents or lessens, or is likely to prevent
or lessen, competition substantially. The relief that may be ordered by the
Tribunal includes, in the case of a completed merger, ordering a dissolution of
the merger or a disposition of assets or shares, and in the case of a proposed
merger, prohibiting completion of the transaction.
The Competition Act also requires parties to certain proposed mergers which
exceed specified size thresholds to provide the Commissioner with prior notice
of and information relating to the transaction and the parties thereto, and to
await the expiration of the prescribed waiting period, prior to completing the
transaction. In lieu of, or in addition to, filing a prescribed notification
form, which can be either short-form or long-form, and awaiting the expiration
of the prescribed waiting period, a party to a proposed merger may apply to the
Commissioner for an advance ruling certificate ("ARC") or some other form of
comfort letter, which may be issued by the Commissioner if he is satisfied that
he would not have sufficient
40
<PAGE>
grounds on which to apply to the Tribunal for an order under the merger
provisions in respect of the transaction. Shorewood has been advised by
Purchaser that it will be filing a short-form pre-merger notification with the
Commissioner and applying for an ARC or some other form of comfort letter, as
deemed appropriate.
INVESTMENT CANADA ACT. The Investment Canada Act is Canada's statute of
general application governing the acquisition of control of Canadian businesses
by non-Canadians. An investment governed by the Investment Canada Act is either
notifiable or reviewable. A notifiable investment is simply one for which the
acquiror must provide a two-page notice to the Investment Review Division of
Industry Canada ("Investment Canada") at any time prior to the closing of the
investment or within thirty (30) days thereafter.
A reviewable investment is one for which the acquiror must submit an
application for review with prescribed information to Investment Canada. With
certain limited exceptions relating to the type of business carried on by the
target company, an acquisition of a Canadian business by a non-Canadian that
qualifies as a "WTO investor" for purposes of the Investment Canada Act is
reviewable if the value of the assets acquired is equal to or greater than Cdn
$184 million as set forth in the audited financial statements of the target
company for its most recently completed fiscal period.
Before a reviewable investment may be completed, the Minister of the federal
Cabinet responsible for Investment Canada (the "Minister") must determine that
the investment is likely to be of "net benefit to Canada."
The Minister has an initial 45-day period to make his determination from the
date of receipt by the Investment Review Division of a completed application for
review. The Minister may, at his discretion, extend this initial 45-day period
for a further thirty (30) days by giving notice to the prospective acquiror. Any
further extensions require the consent of the acquiror. If at the end of the
75-day period the Minister is not satisfied that the investment is likely to be
of net benefit to Canada, he must send a notice to that effect to the
prospective acquiror, and the acquiror has thirty (30) days to make
representations and submit undertakings to the Minister in an attempt to change
his decision.
Purchaser has advised Shorewood that it does not believe that an application
for review will be necessary and that it believes that all that will be required
is the filing of a notice thirty (30) days following the closing of the
investment.
OTHER COUNTRIES. Certain other countries have regulatory requirements that
may be applicable to the IP Offer and/or the Merger. The parties are in the
process of determining whether and to what extent such requirements are
applicable and, if so, what impact such requirements would have on the timing of
the IP Offer and/or the Merger.
APPRAISAL RIGHTS
No appraisal rights are available to holders of Shares in connection with
the IP Offer. However, if the Merger is consummated, holders of Shares may have
certain rights under Section 262 of the DGCL to dissent and demand appraisal of,
and payment in cash for the fair value of, their Shares. Such rights, if the
statutory procedures are complied with, could lead to a judicial determination
of the fair value (excluding any element of value arising from accomplishment or
expectation of the Merger) required to be paid in cash to such dissenting
holders for their Shares. Any such judicial determination of the fair value of
Shares could be based upon considerations in addition to the applicable offer
price and the market value of Shares, including asset values and the investment
value of Shares. The value so determined could be more or less than the Offer
Price.
If any holder of Shares who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses his or her right to
appraisal, as provided in the DGCL, each of the Shares of such holder will be
converted into the Offer Price in accordance with the Merger Agreement. A
stockholder may withdraw his or her demand for appraisal by delivery to
Purchaser of a written withdrawal of his or her demand for appraisal and
acceptance of the Merger.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
41
<PAGE>
RIGHTS AGREEMENT
On May 4, 1995, the Shorewood Board authorized and declared a dividend
distribution of one Right with respect to each outstanding share of Common Stock
to stockholders of record at the close of business on June 14, 1995. Each Right
entitles the registered holder to purchase from Shorewood a unit consisting of
one one-hundredth of a share of Series B Junior Participating Preferred Stock
("Preferred Stock"), par value $10.00 per share, at a purchase price of $17.00
per unit, subject to adjustment.
Initially, the Rights attached to all Common Stock certificates representing
shares then outstanding, and no separate Rights Certificates were distributed.
The Rights would separate from the Shares and a "Distribution Date" would occur
upon the earlier of (i) 10 business days following a public announcement that a
person or group of affiliated or associated persons (an "Acquiring Person") have
acquired beneficial ownership of 25% or more of the outstanding shares of Common
Stock or (ii) 10 business days (or such later date as may be determined by the
Shorewood Board) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer that would result in the beneficial
ownership by a person or a group of 25% or more of the outstanding shares of
Common Stock.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on June 14, 2005, unless earlier redeemed by Shorewood
as described below.
Shares of Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be entitled to
an aggregate dividend of 100 times the dividend declared per share of Common
Stock. In the event of liquidation, the holders of the shares of Preferred Stock
will be entitled to a minimum preferential liquidation payment of $100 per share
but will be entitled to an aggregate payment of 100 times the payment made per
share of Common Stock. Each share of Preferred Stock will have 100 votes, voting
together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Preferred Stock will be entitled to receive 100 times
the amount received per share of Common Stock. These rights are protected by
customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a share of
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.
In the event that Shorewood is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, in lieu of Preferred Stock, a number of shares of Common Stock of
the acquiring company at a fraction of the then-current market price for such
shares. In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, proper provision shall be made so that each
holder of a Right, other than Rights beneficially owned by the Acquiring Person
(which will thereafter be void), will thereafter have the right to receive upon
exercise, in lieu of Preferred Stock, a number of shares of Common Stock at a
fraction of the then-current market price for one share of Common Stock.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Shares, the Shorewood Board may exchange the Rights (other than Rights owned by
such person or group which will have become void), in whole or in part, at an
exchange ratio of one share of Common Stock, or one one-hundredth of a share of
Preferred Stock (or of a share of a class or series of Shorewood's preferred
stock having equivalent rights, preferences and privileges), per Right, subject
to adjustment.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 25% or more of the outstanding
Common Stock, the Shorewood Board may
42
<PAGE>
redeem the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"). The redemption of the Rights may be made effective at such
time on such basis with such conditions as the Shorewood Board in its sole
discretion may establish. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Shorewood Board without the
consent of the holders of the Rights, including an amendment to lower certain
thresholds described above to not less than the greater of (i) any percentage
greater than the largest percentage of voting power of Shorewood then known to
be beneficially owned by any person or group of affiliated or associated person
(excluding certain persons affiliated with Shorewood), other than a person
holding voting power of Shorewood in excess of the then-existing thresholds
pursuant to the written permission of the Shorewood Board, and (ii) 10%, except
that from and after such time as any person or group of affiliated or associated
persons becomes an Acquiring Person no such amendment may adversely affect the
interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Shorewood, including, without limitation, the right to vote
or to receive dividends.
The Shorewood Board approved and adopted the Rights Agreement to assure that
all of Shorewood's stockholders receive fair and equal treatment in the event of
any proposed takeover of Shorewood and to guard against partial tender offers,
open market accumulations and other abusive tactics to gain control of Shorewood
without paying all stockholders a control premium. The Rights will cause
substantial dilution to a person or group that acquires 50% or more of shares of
Common Stock on terms not approved by the Shorewood Board. The Rights should not
interfere with any merger or other business combination approved by the
Shorewood Board at any time prior to the first date that a person or group has
become an Acquiring Person.
On February 16, 2000, in connection with the execution and delivery of the
Merger Agreement, the Shorewood Board approved an amendment to the Rights
Agreement in order to, among other things, (i) prevent IP or Purchaser from
becoming or being deemed an Acquiring Person, and (ii) prevent a Stock
Acquisition Date (as defined in the Rights Agreement) or a Distribution Date
from occurring, in each case, as a result of (a) the execution of the Merger
Agreement or the Stockholders Agreement, (b) the public or other announcement of
the Merger, (c) the public or other announcement of the IP Offer, (d) the
commencement of the IP Offer, (e) the consummation of the IP Offer, (f) the
consummation of the Merger, (g) the acquisition of beneficial ownership of
Shares pursuant to the Stockholders Agreement, or (h) the consummation of any of
the other transactions contemplated by the Merger Agreement or the Stockholders
Agreement. To the extent that any notice of such amendment is required by the
terms of the Rights Agreement to be given to Shorewood's stockholders, the
foregoing description of such amendment shall be deemed to constitute such
notice.
CERTAIN LITIGATION
On December 3, 1999, Chesapeake and Sheffield commenced a lawsuit in the
Court of Chancery against Shorewood and each of the members of the Shorewood
Board seeking, among other things, an order (i) declaring that the Shorewood
Board breached its fiduciary duties by adopting the By-law Amendments, which
amendments, among other things (A) require the affirmative vote of holders of
two-thirds (66 2/3%) of the outstanding shares of Common Stock for the
stockholders to amend, add to, alter or repeal Shorewood's By-laws or adopt the
Super Majority By-law, (B) revise the procedure by which the Shorewood Board
fixes a record date for a solicitation of written consents from Shorewood's
stockholders pursuant to the Record Date By-law, (C) eliminate the ability of
20% of the stockholders to call a meeting of stockholders, (D) provide that only
the Chairman and the President of Shorewood can call a meeting of the Shorewood
Board, (E) provide that only the Shorewood Board can fill vacancies on the
Shorewood Board between meetings of stockholders, and (F) provide that directors
can be removed
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<PAGE>
from the Shorewood Board only pursuant to Section 141(k) of the DGCL,
(ii) declaring the Super Majority By-law and the Record Date By-law void, and
enjoining the Shorewood Board from implementing the Super Majority By-law, the
Record Date By-law and the By-law Amendments as a whole, (iii) declaring that
failure to redeem the Rights issued pursuant to the Rights Agreement, or to
render the Rights inapplicable to the Chesapeake Offer and the Proposed
Chesapeake Merger or to approve the Chesapeake Offer and the Proposed Chesapeake
Merger would constitute a breach of the Shorewood Board's fiduciary duties under
Delaware law, (iv) invalidating the Rights or compelling the Shorewood Board to
redeem the Rights or render the Rights inapplicable to the Chesapeake Offer and
the Proposed Chesapeake Merger, (v) declaring that failure to approve the
Chesapeake Offer and the Proposed Chesapeake Merger for purposes of Section 203
of the DGCL would constitute a breach of the Shorewood Board's fiduciary duties
under Delaware law, (vi) compelling the Shorewood Board to approve the
Chesapeake Offer and the Proposed Chesapeake Merger for purposes of Section 203
of the DGCL, (vii) enjoining the Shorewood Board from taking any other actions
designed to impede or which have the effect of impeding the Chesapeake Offer,
the Chesapeake Consent Solicitation or the Proposed Chesapeake Merger and
declaring that any such actions would constitute a breach of the Shorewood
Board's fiduciary duties under Delaware law, and (viii) enjoining the Shorewood
Board from taking any other actions to impede, or refuse to recognize the
validity of, the Chesapeake Consent Solicitation Statement.
In addition, on December 3, 1999, Chesapeake and Sheffield commenced
litigation against Shorewood in the United States District Court for the
District of Delaware seeking, among other things, a declaratory judgment that
Chesapeake and Sheffield have disclosed all information required by, and are
otherwise in full compliance with, the Exchange Act, and any other federal
securities laws, rules or regulations deemed applicable to the Chesapeake Offer
and the Chesapeake Consent Solicitation Statement.
On December 16, 1999, Shorewood filed an answer to Chesapeake's complaint in
the Court of Chancery denying all material allegations of Chesapeake's
complaint. Shorewood also filed a counterclaim seeking, among other things, an
order (i) declaring that Chesapeake is an "interested stockholder" and
"associate" of Shorewood within the meaning of Section 203 of the DGCL,
(ii) declaring that Chesapeake will remain an "interested stockholder" and
"associate" of Shorewood during the entire time period prescribed by
Section 203 of the DGCL, (iii) declaring that the refusal of the Shorewood Board
(as currently constituted or to be constituted in the future within the time
period prescribed by Section 203 of the DGCL) to take any action rendering
Section 203 of the DGCL inapplicable to the Chesapeake Offer and the Proposed
Chesapeake Merger does not constitute a breach of fiduciary duty,
(iv) declaring the Removal Proposals are invalid under Section 141 of the DGCL,
and (v) temporarily and permanently enjoining the plaintiffs, their affiliates
and all others acting in concert with them, from taking any action in
furtherance of the Removal Proposals.
On December 16, 1999, Shorewood filed an answer and counterclaim to
Chesapeake's complaint in the United States District Court for the District of
Delaware seeking, among other things, an order (i) declaring that Chesapeake's
and Sheffield's Schedule 14D-1 and Schedule 13D are materially false and
misleading, in violation of Section 14(e) of the Exchange Act, and
(ii) preliminarily and permanently enjoining Chesapeake and Sheffield from
proceeding with the Chesapeake Offer in violation of Section 14(e) of the
Exchange Act.
On January 5, 2000, Chesapeake and Sheffield filed an answer to Shorewood's
counterclaim in the Court of Chancery denying all material allegations of
Shorewood's counterclaim. On January 7, 2000, Chesapeake and Sheffield filed an
answer to Shorewood's counterclaim in the United States District Court for the
District of Delaware denying all material allegations of Shorewood's
counterclaim.
On January 5, 2000, the Shorewood Board approved an amendment of the Super
Majority By-law to require the affirmative vote of the holders of sixty percent
(60%) of the outstanding Shares for stockholders to amend, add to, alter or
repeal the Shorewood's bylaws (the "Amended Super Majority By-law").
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On January 11, 13 and 14, 2000, a trial was held in the Court of Chancery on
certain issues, including whether (i) the Shorewood Board breached its fiduciary
duties to Shorewood's stockholders under Delaware law by adopting the Amended
Super Majority By-law; (ii) the Amended Super Majority By-law is ultra vires and
void; (iii) Shorewood, its directors, officers, employees and agents should be
enjoined from relying on, implementing, applying or enforcing the Amended Super
Majority By-law; (iv) Chesapeake is an interested stockholders under
Section 203 of the DGCL and (v) the Removal Proposals violate Section 141 of the
DGCL.
On February 7, 2000, the Court of Chancery issued a memorandum opinion in
the litigation between Shorewood and Chesapeake. The Court of Chancery held that
the Super Majority By-law, which previously had been amended to require only the
affirmative vote of the holders of sixty percent (60%) of the outstanding Shares
for stockholders to amend, add to, alter or repeal Shorewood's bylaws, was an
unreasonable and disproportionate response to the Chesapeake Offer, and entered
injunctive relief against its application. The Court of Chancery also rejected
Shorewood's claims that Delaware law prohibits its stockholders from voting to
eliminate Shorewood's classified board structure and subsequently seating a new
board. In addition, the Court of Chancery ruled that Chesapeake was not the
beneficial owner of certain shares of stock and therefore was not an "interested
stockholder" under Section 203 of the DGCL. Specifically, the Court of Chancery
found as a factual matter that Chesapeake had entered into an agreement for the
purpose of "incenting" Shorewood's largest institutional stockholder to vote and
tender all of its shares (over 20%), that this agreement created a "substantial
economic incentive," but that the agreement did not constitute an agreement,
arrangement or understanding for the purpose of acquiring, voting or disposing
of shares under Section 203 of the DGCL because the incentives did not cause the
stockholder to vote or tender "in lockstep" with the bidder "in almost all
likely circumstances." Shorewood has appealed the Court of Chancery's ruling to
the Delaware Supreme Court.
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<PAGE>
ITEM 9. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
1. Confidentiality Agreement, dated December 10, 1999, between
Shorewood Packaging Corporation and International Paper
Company.
2. Stockholders Agreement, dated as of February 16, 2000, by
and among International Paper Company, International
Paper-37, Inc., Shore Family Partnership, L.P., Marc P.
Shore, Paul Shore Estate Marital Trust, Andrew N. Shore,
Paul Shore Marital Trust and Howard M. Liebman.
3. Agreement and Plan of Merger, dated as of February 16, 2000,
by and among International Paper Company, International
Paper-37, Inc. and Shorewood Packaging Corporation.
4. Letter to Stockholders from Marc P. Shore dated February 29,
2000.*
5. Press Release issued by Shorewood Packaging Corporation on
February 17, 2000.
6. Opinion of Greenhill & Co., L.L.C. dated as of February 16,
2000.*
7. Opinion of Bear, Stearns & Co. Inc. dated as of February 16,
2000.*
8. Article Sixth of Shorewood Packaging Corporation's
Certificate of Incorporation, as amended to date.
9. Article VII of Shorewood Packaging Corporation's By-laws, as
amended to date.
10. Shorewood Packaging Corporation 1995 Performance Bonus Plan.
11. Shorewood Packaging Corporation 1993 Incentive Program, as
amended on May 4, 1995.
12. Amended and Restated Employment Agreement effective as of
May 3, 1998 between Shorewood Packaging Corporation and
Howard M. Liebman.
13. Amended and Restated Employment Agreement effective as of
May 3, 1998 between Shorewood Packaging Corporation and Marc
P. Shore.
14. Shorewood Packaging Corporation Employee Non-Qualified Stock
Option Agreement between Shorewood Packaging Corporation and
Marc P. Shore dated as of April 17, 1997.
15. Employment Agreement between Shorewood Packaging Corporation
and Leonard J. Verebay dated as of October 30, 1998.
16. Employment Agreement between Shorewood Packaging Corporation
and Eric Kaltman dated as of October 30, 1998.
17. Letter Agreement between Marc P. Shore and International
Paper Company dated as of February 16, 2000 and Exhibit A
Form of Employment Agreement.
18. Letter Agreement between Howard M. Liebman and International
Paper Company dated as of February 16, 2000 and Exhibit A
Form of Employment Agreement.
19. Consulting Agreement dated January 1, 1996 between Shorewood
Packaging Corporation and Kamsky Associates, Inc.
20. Shorewood Packaging Corporation Non-Qualified Stock Option
Agreement dated as of October 30, 1998 between Shorewood and
Jefferson Capital Group, Ltd.
21. Form of Trust Agreement.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
22. Shorewood Packaging Corporation Employee Severance Plan.
23. Stockholders and Registration Rights Agreement dated, as of
October 30, 1998, by and among Shorewood Packaging
Corporation, Leonard J. Verebay and Eric Kaltman.
</TABLE>
- ------------------------
* Included in the copy of the Schedule 14D-9 mailed to Shorewood's
stockholders.
47
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
By: /s/ ANDREW N. SHORE
-----------------------------------------
Name: Andrew N. Shore
Title: Vice President, General Counsel and
Secretary
</TABLE>
Dated: February 29, 2000.
48
<PAGE>
SCHEDULE I
SHOREWOOD PACKAGING CORPORATION
277 PARK AVENUE
NEW YORK, NEW YORK 10172
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
GENERAL
This information statement (the "Information Statement") is being mailed on
or about February 29, 2000 as part of the Solicitation/Recommendation Statement
on Schedule 14D-9 (the "Schedule 14D-9") to holders of record of shares of
common stock, par value $0.01 per share (the "Shares"), of Shorewood Packaging
Corporation ("Shorewood"). You are receiving this Information Statement in
connection with the possible election of persons designated by International
Paper-37, Inc., a Delaware corporation ("Purchaser") and a direct wholly owned
subsidiary of International Paper Company, a New York corporation ("IP"), to a
majority of the seats on the Board of Directors of Shorewood (the "Shorewood
Board") other than at a meeting of the stockholders of Shorewood. Such election
would occur pursuant to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of February 16, 2000, by and among Shorewood, IP and
Purchaser. The Merger Agreement is more fully described under Item 3 of the
Schedule 14D-9, of which this Schedule I is a part. Capitalized terms used and
not defined in this Schedule I have the meanings assigned to them in the
Schedule 14D-9.
Pursuant to the Merger Agreement, (i) Purchaser will commence a cash tender
offer (the "IP Offer") for all Shares, including the associated preferred share
purchase rights (the "Rights"), of Shorewood at a price of $21.00 per Share, net
to the seller in cash, without interest, and (ii) Purchaser will be merged with
and into Shorewood (the "Merger"). As a result of the IP Offer and the Merger,
Shorewood will become a direct, wholly owned subsidiary of IP. Hereinafter,
references to Shares shall include the associated Rights.
The Merger Agreement provides that, promptly after the purchase of a
majority of the outstanding Shares pursuant to the IP Offer, IP shall be
entitled to designate such number of directors to the Shorewood Board (the
"Purchaser Designees") as will give IP representation proportional to its
ownership interest. The Merger Agreement requires Shorewood to take such action
as IP may request to cause the Purchaser Designees to be elected to the
Shorewood Board under the circumstances described therein.
If the Merger Agreement is terminated or if Purchaser does not accept Shares
tendered for payment, then Purchaser will not have any right to designate
directors for election to the Shorewood Board.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
promulgated thereunder. You are urged to read this Information Statement
carefully. You are not, however, required to take any action.
The information contained in this Information Statement concerning IP and
Purchaser has been furnished to Shorewood by IP. Shorewood assumes no
responsibility for the accuracy or completeness of such information.
THE PURCHASER DESIGNEES
The Merger Agreement provides that promptly upon the purchase of and the
payment by Purchaser for a number of Shares that satisfies the Minimum Condition
(as defined in the Merger Agreement), and from time to time thereafter,
Purchaser shall be entitled to designate the number of directors, rounded up to
the next whole number, on the Shorewood Board that equals the product of
(i) the total number of directors on the Shorewood Board (giving effect to the
election of any additional directors by Purchaser)
S-1
<PAGE>
and (ii) the percentage that the number of Shares beneficially owned by IP and
Purchaser (including Shares paid for pursuant to the IP Offer), upon such
acceptance for payment, bears to the total number of Shares outstanding, and
Shorewood shall take all action within its power to cause Purchaser's designees
to be elected or appointed to the Shorewood Board, including, without
limitation, increasing the number of directors, and seeking and accepting
resignations of incumbent directors. At such time, Shorewood will also use its
best efforts to cause individual directors designated by Purchaser to constitute
the number of members, rounded up to the next whole number, on (i) each
committee of the Shorewood Board other than any committee established to take
action under the Merger Agreement and (ii) each board of directors of each
subsidiary of Shorewood, and each committee thereof, that represents the same
percentage as such individuals represent on the Shorewood Board. Notwithstanding
the foregoing, until the Effective Time the Shorewood Board must have at least
two directors who are directors on the date of the Merger Agreement and who are
not officers of Shorewood (the "Continuing Directors").
Shorewood's obligations to appoint Purchaser's designees to the Shorewood
Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. Shorewood has agreed to promptly take all such actions,
as Section 14(f) and Rule 14f-1 require, in order to fulfill its obligations
under the Merger Agreement to cause the Purchaser Designees to be elected to the
Shorewood Board. Purchaser has supplied to Shorewood in writing information with
respect to itself and its nominees, officers, directors and affiliates required
by Section 14(f) and Rule 14f-1.
Following the election or appointment of Purchaser's Designees and until the
Effective Time, the approval of the Continuing Directors is required to
authorize any termination of the Merger Agreement by Shorewood, any amendment of
the Merger Agreement requiring action by the Shorewood Board, any amendment of
the certificate of incorporation or bylaws of Shorewood, any extension of time
for performance of any obligation or action under the Merger Agreement by IP or
Purchaser, any waiver of compliance with any of the agreements or conditions in
the Merger Agreement for the benefit of Shorewood and any material transaction
with IP, Purchaser or any affiliate thereof.
Pursuant to the provisions of the Merger Agreement described in the
Schedule 14D-9, Purchaser may designate from among the persons identified below
the Purchaser Designees. It is expected that the Purchaser Designees will assume
office promptly upon the payment by Purchaser, pursuant to the IP Offer, for a
number of Shares that satisfies the Minimum Condition, which Shorewood expects
will be promptly thereafter, and that they will thereafter constitute at least a
majority of the Shorewood Board. Purchaser has informed Shorewood that each of
the Purchaser Designees has consented to act as a director, if so designated.
Set forth in the table below are the name and principal occupation or
employment and five year employment history for each of the persons who may be
designated by Purchaser as the Purchaser Designees.
S-2
<PAGE>
DIRECTOR DESIGNEES OF INTERNATIONAL PAPER-37, INC.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ---- ------------------------------------------------------------
<S> <C>
James W. Guedry............. Director and President of International Paper-37, Inc. since
August 3, 1999. He is Vice President, Secretary and
Associate General Counsel of IP and has served in such
position since 1993.
James Melican............... Executive Vice President-Legal and External Affairs of IP.
He assumed his current position in 1991.
David Oskin................. Executive Vice President-Consumer Packaging of IP since
1995, and was CEO and Managing Director of Carter Holt
Harvey Limited of New Zealand from 1992 to 1995.
Cato Ealy................... Vice President-Business Development and Planning of IP since
June 1996. Before that he was director of corporate
development from the time he joined IP in 1993.
John Faraci................. Senior Vice President and Chief Financial Officer since
1999. Prior thereto he was Chief Executive Officer and
Managing Director of Carter Holt Harvey since 1995.
Tobin Treichel.............. Vice President-Tax of IP from 1996 to the present. Before
that he was director of accounting from 1993 to 1995.
</TABLE>
Purchaser has informed Shorewood that each of the individuals listed above
has consented to act as a director, if so designated. If necessary, Purchaser
may choose additional or other Purchaser Designees, subject to the requirements
of Rule 14f-1.
Based solely on the information set forth in the Offer to Purchase, none of
the Purchaser Designees (i) is currently a director of, or holds any position
with, Shorewood, (ii) has a familial relationship with any directors or
executive officers of Shorewood, or (iii) to the best knowledge of IP,
beneficially owns any securities (or any rights to acquire such securities) of
Shorewood. Shorewood has been advised by IP that, to the best of IP's knowledge,
none of the Purchaser Designees has been involved in any transactions with
Shorewood or any of its directors, officers or affiliates which are required to
be disclosed pursuant to the rules and regulations of the SEC, except as may be
disclosed herein.
CERTAIN INFORMATION CONCERNING SHOREWOOD
The Shares constitute the only class of voting securities of Shorewood. The
holders of common stock are entitled to one vote per Share. As of February 15,
2000, there were 27,375,771 Shares (including restricted stock) issued and
outstanding and 5,196,966 Shares subject to outstanding options and warrants.
Currently, the Shorewood Board consists of nine members. The Shorewood Board is
divided into three classes and each director serves a term of three years and
until his successor is duly elected and qualified or until his earlier death,
resignation or removal.
S-3
<PAGE>
INFORMATION ABOUT THE SHOREWOOD BOARD
The names of the current members of the Shorewood Board, their ages and
certain biographical information about each of them are set forth below.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
- ---- -------- --------------
<S> <C> <C>
Marc P. Shore............................................. 45 1982
Howard M. Liebman......................................... 57 1996
Sharon R. Fairley......................................... 39 1999
Leonard J. Verebay........................................ 56 1999
William P. Weidner........................................ 54 1993
R. Timothy O'Donnell...................................... 44 1991
Kevin J. Bannon........................................... 47 1992
Andrew N. Shore........................................... 47 1999
Virginia A. Kamsky........................................ 46 1999
</TABLE>
MARC P. SHORE
Marc P. Shore was elected Chairman of the Shorewood Board and Chief
Executive Officer of Shorewood in January 1996 following the passing of his
father, Paul B. Shore, the founder of Shorewood. He served as the President of
Shorewood from October 1991 until the election of Howard M. Liebman as President
in June 1999. Mr. M. Shore has been employed by Shorewood in various executive
capacities since 1982.
HOWARD M. LIEBMAN
Howard M. Liebman joined Shorewood as Executive Vice President and Chief
Financial Officer in June 1994. He was elected as a director of Shorewood in
January 1996, and was elected as President of Shorewood in June 1999.
Mr. Liebman is a Certified Public Accountant.
SHARON R. FAIRLEY
Sharon R. Fairley has been employed by Pharmacia & Upjohn, Inc. since 1998
as Director of Direct to Consumer Communications with responsibility for
consumer promotion of pharmaceutical products on a global basis. Prior to
joining Pharmacia & Upjohn, Inc., Ms. Fairley was Senior Vice President of the
Senior Network, Inc. overseeing Shorewood's consumer goods marketing consulting
practice. She served in that capacity from June 1995 to August 1998. From
February 1993 through June 1995, Ms. Fairley was senior vice president at the
D'Arcy Masius Benton & Bowles advertising agency.
LEONARD J. VEREBAY
Leonard J. Verebay joined Shorewood as Executive Vice President in
October 1998 following the Queens Transaction. He was elected as a Class III
Director in February 1999. Mr. Verebay served as the President of Queens, a
manufacturer of value added packaging for the music, multimedia and consumer
product industries, at the time of its acquisition by Shorewood. Mr. Verebay had
held such positions since 1979. Mr. Verebay was elected to the Shorewood Board
pursuant to a right granted to Messrs. Leonard J. Verebay and Eric Kaltman under
a certain Stockholders' and Registration Rights Agreement dated October 30, 1998
(the "Queens Stockholder's Agreement") to designate one member of the Shorewood
Board. Upon the expiration of Mr. Verebay's term, if either Mr. Verebay or
Mr. Kaltman (i) holds at least 400,000 Shares (subject to adjustment for stock
splits and like events) and (ii) is then either employed by Shorewood or subject
to a then effective non-competition restriction, that person will be entitled to
be included in management's slate of nominees for election to the Shorewood
Board at the next meeting. If both of them are so qualified, they shall jointly
designate one of them to so serve. Further, under the terms
S-4
<PAGE>
of the Queens Stockholder's Agreement, for so long as Messrs. Verebay and
Kaltman own in the aggregate at least 800,000 Shares (subject to adjustment for
stock splits and like events), whichever one of Messrs. Verebay and Kaltman is
not then serving on the Shorewood Board will, provided he meets certain
qualification requirements, be entitled to participate in the Shorewood Board
meetings as an observer, subject to certain limitations regarding
confidentiality. These provisions terminate under various circumstances,
including the occurrence of certain types of capital events and "change of
control" transactions, as defined in the Queens Stockholder's Agreement.
WILLIAM P. WEIDNER
William P. Weidner is the President and Chief Operating Officer of Las Vegas
Sands, Inc., a developer of hotel and casino properties based in Las Vegas,
Nevada. He assumed that position in December 1995. From 1985 until
December 1995, he served as the President and Chief Operating Officer of Pratt
Hotel Corporation, a worldwide operator and developer of casino and resort
properties. He also served as the President of Hollywood Casino-Aurora, Inc., an
operator of river boat casinos, from 1992 until December 1995.
R. TIMOTHY O'DONNELL
R. Timothy O'Donnell is the President of Jefferson Capital, an investment
banking firm located in Richmond, Virginia. He has served in that capacity since
August 1989. Previously he served as First Vice President in charge of Leisure
and Entertainment Corporate Finance at PaineWebber. He is on the Board of
Directors of Global Trade Technologies, MicroMass Communications Inc., The
Hobart West Group and The University of Virginia's Health Medical Services
Board.
KEVIN J. BANNON
Kevin J. Bannon is an Executive Vice President and Chief Investment Officer
of the Asset Management Sector of The Bank of New York. From April 1979 to the
present date, Mr. Bannon has held various management positions with The Bank of
New York. He is a Chartered Financial Analyst.
ANDREW N. SHORE
Andrew N. Shore joined Shorewood as General Counsel in June 1996. Mr. A.
Shore was elected Secretary of Shorewood in August 1996 and was appointed a Vice
President of Shorewood in November 1996. Prior to joining Shorewood, Mr. A.
Shore practiced law in Los Angeles, California, concentrating in the areas of
real estate finance and commercial law. For a period of two years prior to
joining Shorewood, Mr. A. Shore provided legal services to Shorewood. Prior to
engaging in private law practice, Mr. A. Shore served as general counsel of
DeAnza Group, Inc., a real estate investment firm. Andrew N. Shore is the
brother of Marc P. Shore, Shorewood's Chief Executive Officer and Chairman of
the Shorewood Board.
VIRGINIA A. KAMSKY
Virginia A. Kamsky is the Founder, Chief Executive Officer and Chairman of
Kamsky Associates, Inc. ("KAI"), a consulting firm, with offices in both the
United States and Beijing, China, which provides advisory services to corporate
clients in connection with commercial dealings in China and the Far East. She
has served in those capacities since 1980. Ms. Kamsky serves on the Board of
Directors and Compensation Committee of Sealed Air Corporation.
S-5
<PAGE>
SHOREWOOD BOARD MEETINGS AND COMMITTEES
During the fiscal year ended May 1, 1999 ("fiscal year 1999"), the Shorewood
Board held five meetings, two of which were held by telephone conference call,
and the Compensation and Stock Option Committee (the "Compensation Committee")
held one meeting. In July 1999, the Audit Committee held a meeting in respect of
fiscal year 1999. During fiscal year 1999, each of the directors attended at
least 75% of the aggregate of (1) the total number of meetings of the Shorewood
Board (held during the period that such director served) and (2) the total
number of meetings held by all committees of the Shorewood Board on which such
director served (during the period that he served). Shorewood's directors
discharge their responsibilities throughout the year, not only at the Shorewood
Board's and committee meetings, but also through personal meetings and other
communications, including telephone contacts with the Chairman and others.
Shorewood has an Executive Committee which is currently composed of Marc P.
Shore, Howard M. Liebman and Kevin J. Bannon. The Executive Committee has the
responsibility, between meetings of the Shorewood Board, to take all actions
with respect to the management of Shorewood's business that require action by
the Shorewood Board, except for certain specified matters that by law must be
approved by the entire Shorewood Board. The Executive Committee also coordinates
and implements financial and other policies and reviews the status of all
operational activities.
In addition, Shorewood has an Audit Committee which is currently composed of
William P. Weidner, R. Timothy O'Donnell and Virginia A. Kamsky, each of whom is
not an officer or employee of Shorewood or its subsidiaries. The Audit Committee
has the responsibility of recommending Shorewood's outside auditors, reviewing
the scope and results of audits, and examining procedures for ensuring
compliance with Shorewood's policies on conflicts of interest.
The Compensation Committee currently consists of William P. Weidner, Kevin
J. Bannon and R. Timothy O'Donnell. In addition, during fiscal year 1999, Melvin
L. Braun served as an alternate member with respect to any matter in connection
with which a regular member was by statute or regulation deemed not to be
disinterested. No member or alternate member of the Compensation Committee is a
current or former officer or employee of Shorewood or any of its subsidiaries.
The Compensation Committee works closely with the Shorewood Board in
establishing and implementing Shorewood's compensation policies and practices.
Additionally, it administers Shorewood's bonus and other compensation programs
and Shorewood's Incentive Programs under which employees of Shorewood are
eligible to receive stock options, restricted stock and other benefits.
Shorewood has a Special Strategic Committee of Directors (the "Special
Committee") which is currently composed of William P. Weidner and Kevin J.
Bannon. The Special Committee has the responsibility of reviewing strategic
alternatives available to Shorewood and making recommendations thereon to the
Shorewood Board.
Shorewood does not have a nominating committee.
DIRECTOR COMPENSATION
During the fiscal year ended May 1, 1999, each director who was not an
officer or an employee of Shorewood (an "Outside Director") received a
director's fee of $8,000 per annum plus $2,000 for attendance at each meeting of
the Shorewood Board and $1,000 for attendance at each meeting of a committee of
the Shorewood Board, ordinarily excluding Shorewood Board or committee meetings
held by telephone conference call. All directors of Shorewood are also
reimbursed for expenses. Under the 1993 Incentive Program (the "1993 Program"),
as amended in fiscal year 1997, the full Shorewood Board, in its discretion, is
authorized to grant to each Outside Director options to purchase Shares, at
option prices equal to the fair market value of Common Stock on the date of
grant. In June 1999, each Outside Director received an option to purchase 4,000
Shares pursuant to the 1993 Program on account of services in 1999.
S-6
<PAGE>
The vesting of the options and certain other terms of the options are determined
by the full Shorewood Board in its discretion. Typically, the terms of the
options provide that the options are exercisable in full immediately upon the
death of the grantee or retirement from the Shorewood Board by reason of
disability or upon a "change of control" of Shorewood (as defined in the 1993
Program). Any unexercised options shall terminate upon the expiration of ten
years from the date of grant or, if sooner, two years after the termination of a
director for any reason other than cause. If a director is removed for cause,
all director options immediately terminate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Weidner, Bannon and
O'Donnell. During fiscal year 1999, Melvin L. Braun served as an alternate
member of the Compensation Committee. No member of Shorewood's Compensation
Committee is a current or former officer or employee of Shorewood or any of its
subsidiaries. There are no compensation committee interlocks between Shorewood
and any other entities involving any of the executive officers or directors of
such other entities.
Jefferson Capital, of which Mr. O'Donnell is the President and a principal
stockholder, has served as an investment advisor to Shorewood on various
matters, including, but not limited to, the Chesapeake Offer and the IP Offer.
Additional information concerning Jefferson Capital and its relationship with
Shorewood is set forth in Items 3 and 5 of the Schedule 14D-9 of which this
Information Statement forms a part.
The Bank of New York, of which Mr. Bannon is an Executive Vice President, is
a participant in Shorewood's lending syndicate. The aggregate amount of The Bank
of New York's participation in Shorewood's outstanding borrowings pursuant to
credit facilities as at the end of fiscal year 1999 was approximately
$25,039,500. The Bank of New York also acts as Shorewood's transfer agent.
CERTAIN TRANSACTIONS
On June 20, 1985, Messrs. M. Shore, Rosenblum and Kreussling each entered
into a non-competition agreement with Shorewood. Each non-competition agreement
was entered into as a result of an investment by Shorewood International, Inc.
in Shorewood and was further to a stock purchase and redemption agreement
between Shorewood and each of Messrs. M. Shore, Rosenblum and Kreussling. The
non-competition agreements restrict each of Messrs. M. Shore, Rosenblum and
Kreussling from competing with Shorewood for five years from the date of their
termination of employment with Shorewood; provided that, however, nothing
prevents any of them from owning up to 2% of the outstanding stock of any
corporation whose shares are publicly traded on a regular basis.
In May 1995, Shorewood loaned $2.0 million to Mr. M. Shore. The loan is due
on May 4, 2000 and bears interest payable quarterly at the Applicable Federal
Rate, as defined, adjusted monthly. Mandatory prepayments of the loan are
required if Mr. M. Shore's compensation exceeds certain specified thresholds.
The Compensation Committee waived the required prepayment for 1999. The
aggregate principal amount outstanding under this loan as at the end of fiscal
year 1999 was $2.0 million.
There is a stock option agreement (the "Option Agreement"), dated April 17,
1997, between Shorewood and Mr. M. Shore, pursuant to which Mr. M. Shore was
granted non-qualified stock options to purchase 225,000 Shares (the "Option
Shares") at an exercise price of $12.08 per Share. The exercise period is ten
years from the date of the grant. The Option Agreement provides that at any time
prior to the tenth anniversary of the grant, Mr. M. Shore shall have the right
to have Shorewood prepare and file a registration statement (and any other
necessary documents) with the SEC to comply with the provisions of the
Securities Act, so as to permit a public sale of the Option Shares (unless to do
so would interfere with another material transaction by Shorewood). Furthermore,
if at any time Shorewood proposes to register any Shares (with some exceptions
as detailed in the Option Agreement) under the Securities Act for sale to the
public in an underwritten offering, it will at each such time give written
notice to Mr. M. Shore and,
S-7
<PAGE>
upon Mr. M. Shore's request within 30 calendar days, Shorewood will use its best
efforts to effect the registration of the Option Shares for which the request
was made.
In May 1997, Shorewood guaranteed a portion of an $8.5 million loan made by
The Chase Manhattan Bank to Mr. M. Shore in connection with his purchase of
certain real estate. As a result of provisions in the related agreement and
payments made by Mr. M. Shore, the guaranty was terminated in September 1998.
Bryan Shore Resnick, the sister of Mr. M. Shore and Mr. A. Shore, is a
travel agent with Reliable Travel, a travel agency which provides travel
services to Shorewood. Based upon information provided to Shorewood by Reliable
Travel, in fiscal year 1999, Reliable Travel earned approximately $182,500 in
commissions, of which approximately $89,500 was paid to Bryan Shore Resnick.
Such commissions were earned in the ordinary course of business and, to the best
knowledge of Shorewood, the services performed were at terms no less favorable
to Shorewood than had the services been provided by an unrelated third party.
In April 1998, Shorewood loaned $630,000 to Mr. Liebman in connection with
his purchase of a new residence. The loan is evidenced by a note which is
secured by a first priority mortgage on the property. Shorewood's interest in
the mortgage is insured by a title insurance company. The loan bears interest at
the rate of 6.5% per annum. Interest is payable annually on August 1 of each
year commencing August 1, 1999. The final payment of principal and interest is
due August 1, 2013. In addition, Shorewood may accelerate repayment of the loan
in the event Mr. Liebman sells the property prior to maturity or ceases to be
employed by Shorewood. The aggregate principal amount outstanding under this
loan as at the end of fiscal year 1999 was $630,000.
Effective June 23, 1999, Shorewood loaned $341,145 to Mr. Liebman in
connection with his exercise of stock options to purchase 29,241 Shares.
Mr. Liebman paid the equivalent of $358,857 with Shares already owned by him as
the purchase price for 30,759 Shares. Effective July 26, 1999, Shorewood loaned
an additional $316,376 to Mr. Liebman in connection with his exercise of stock
options to purchase 26,736 Shares. Both loans bear interest at the rate of 6.5%
per annum, commencing as of the respective effective dates of the loans. The
principal amounts of and accrued interest on the loans are due and payable
October 2, 2000. The loans are collateralized by a pledge of 55,977 Shares.
Effective July 26, 1999 Shorewood loaned $527,316 to Mr. M. Shore in
connection with his exercise of stock options to purchase 44,562 Shares. The
loan bears interest at the rate of 6.5% per annum, commencing as of the
effective date of the loan. The principal amount of and accrued interest on the
loan is due and payable October 2, 2000. The loan is collateralized by a pledge
of 44,562 Shares. During fiscal year 2000, Shorewood advanced to Mr. M. Shore
approximately $2.6 million. These advances were repaid in December 1999,
including interest at an annual rate of 6.71%.
The Queens Stockholder's Agreement relates to the aggregate of 1,000,000
Shares issued to Messrs. Verebay and Kaltman pursuant to a purchase and sale
agreement with Shorewood. The shares received are "restricted securities" under
the Securities Act and may be resold without registration only under limited
circumstances. There can be no sale, gift or encumbrance of the shares from the
date of the Queens Stockholder's Agreement until the second anniversary of the
closing date (the "Restricted Period") other than with the Shorewood Board's
consent or according to the terms of the agreement. Otherwise, each stockholder
shall have full rights as a stockholder, including voting and dividend rights.
Messrs. Verebay and Kaltman may, at any time after the expiration of the
Restricted Period, give Shorewood a written demand for the registration of the
unregistered securities held by the stockholder which are not eligible for
distribution under Securities Act Rule 144(k) or otherwise under Rule 144.
Shorewood shall give written notice to both stockholders under the Queens
Stockholder's Agreement and they shall have 30 days to deliver a notice to
Shorewood demanding registration of the securities. Shorewood shall then file,
within 60 days of receipt of the demand, the appropriate documents with the SEC
to effect the registration of the securities. Furthermore, if Shorewood proposes
to register securities
S-8
<PAGE>
for its own account, Shorewood shall include in its proposed registration, all
register able securities held by a stockholder if requested by the stockholder
within ten days of receipt of notice by Shorewood.
The Queens Stockholder's Agreement also provides that Messrs. Verebay and
Kaltman may designate one member of the Shorewood Board. Upon the expiration of
Mr. Verebay's term, if either Mr. Verebay or Mr. Kaltman (i) holds at least
400,000 Shares (subject to adjustment for stock splits and like events) and
(ii) is then either employed by Shorewood or subject to a then effective
non-competition restriction, that person will be entitled to be included in
management's slate of nominees for election to the Shorewood Board at the next
meeting. If both of them are so qualified, they shall jointly designate one of
them to so serve. Further, under the terms of the Queens Stockholder's
Agreement, for so long as Messrs. Verebay and Kaltman own in the aggregate at
least 800,000 Shares (subject to adjustment for stock splits and like events),
whichever one of Messrs. Verebay and Kaltman is not then serving on the
Shorewood Board will, provided he meets certain qualification requirements, be
entitled to participate in Shorewood Board meetings as an observer, subject to
certain limitations regarding confidentiality. These provisions terminate under
various circumstances, including the occurrence of certain types of "capital
events" and "change of control" transactions, as defined in the Queens
Stockholder's Agreement.
EXECUTIVE OFFICERS OF SHOREWOOD
The names of the executive officers who are not also directors of Shorewood,
their ages and certain information about them are set forth below:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS AND
NAME AGE WITH SHOREWOOD EMPLOYMENT DURING PAST 5 YEARS
- ---- -------- ---------------------------------- --------------------------------
<S> <C> <C> <C>
Charles Kreussling............. 70 Executive Vice President-- Mr. Kreussling has been employed
Manufacturing by Shorewood since its inception
in 1966 and has been an
Executive Vice President of
Shorewood since 1979.
Mr. Kreussling is responsible
for Shorewood's overall
manufacturing and plant
administration.
Kenneth M. Rosenblum........... 56 Senior Vice President-- Mr. Rosenblum joined Shorewood
Sales, Home Entertainment in 1969 as an account executive
for the music industry. From
1970 until 1993, Mr. Rosenblum
served as Vice President--Sales
of Shorewood. In 1993, he was
promoted to Senior Vice
President --Sales, Home
Entertainment, and he is
presently responsible for the
video and computer software
markets. Mr. Rosenblum became an
executive officer in 1988.
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS AND
NAME AGE WITH SHOREWOOD EMPLOYMENT DURING PAST 5 YEARS
- ---- -------- ---------------------------------- --------------------------------
<S> <C> <C> <C>
William H. Hogan............... 40 Senior Vice President-- Mr. Hogan joined Shorewood as
Finance Corporate Controller in June
1995. He was elected Vice
President -- Finance of
Shorewood in October 1996 and
was promoted to Senior Vice
President--Finance of Shorewood
in June 1999. Mr. Hogan, a
Certified Public Accountant, was
a senior manager with the
accounting firm of Grant
Thornton, LLP, from 1994 to
1995. From 1981 until 1994,
Mr. Hogan was employed by the
accounting firm of Deloitte &
Touche LLP, where he was
actively involved in servicing
Shorewood. He was a senior
manager with Deloitte &
Touche LLP from 1989 until 1994.
Eric Kaltman................... 56 Executive Vice President Mr. Kaltman joined Shorewood as
Executive Vice President in
October 1998 following the
closing of the Queens
Transaction. Mr. Kaltman was
serving as Vice President and
Chief Executive Officer of
Queens at the time of its
acquisition by Shorewood. He
held various managerial
positions at Queens for more
than five years.
</TABLE>
S-10
<PAGE>
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS
According to information furnished to Shorewood as of December 10, 1999, the
directors of Shorewood, Shorewood's "named executive officers" (the "Named
Executive Officers") within the meaning of Item 402(a)(3) of Regulation S-K, and
all directors and executive officers as a group, beneficially owned shares of
Common Stock of Shorewood as set forth below. Beneficial ownership has been
determined for purposes herein in accordance with Rule 13d-3 of the Exchange Act
under which a person is deemed to be the beneficial owner of securities if such
person has or shares voting power or investment power in respect of such
securities or has the right to acquire beneficial ownership within 60 days of
December 10, 1999.
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
NUMBER OF COMMON OUTSTANDING COMMON
NAME SHARES AND SHARE EQUIVALENTS SHARES
- ---- ---------------------------- -------------------------
<S> <C> <C>
Marc P. Shore(1)............................ 4,750,485 17.38%
Leonard J. Verebay(2)....................... 500,180 1.83%
Charles Kreussling(3)....................... 322,377 1.18%
R. Timothy O'Donnell(4)..................... 326,118 1.19%
Howard M. Liebman(5)........................ 233,269 (6)
Kenneth M. Rosenblum(7)..................... 124,629 (6)
William P. Weidner(8)....................... 57,000 (6)
Kevin J. Bannon(9).......................... 33,000 (6)
Virginia A. Kamsky.......................... 4,500 (6)
Andrew N. Shore(10)......................... 169,052 (6)
William H. Hogan(11)........................ 30,500 (6)
Sharon R. Fairley........................... 0 (6)
All directors and executive officers as a
group (12 persons)(12)(13)................ 6,551,110 23.88%
</TABLE>
- ------------------------------
(1) See "Security Ownership of Other Beneficial Owners--Footnote (1)."
(2) Includes 500,000 Shares held in grantor retained annuity trust. Under the
terms of the Queens Stockholder's Agreement, these Shares are subject to
contractual restrictions on transfer until October 30, 2000, with limited
exceptions for certain types of inter-family, estate planning and affiliate
transactions. These restrictions terminate in various circumstances,
including the occurrence of certain types of capital events and "change of
control" transaction.
(3) Includes 90,000 Shares owned by Charles Kreussling's wife, as to which
Mr. Kreussling disclaims beneficial ownership. The table does not include
750 Shares owned by one of Mr. Kreussling's adult children who shares the
same household.
(4) Includes: (i) 450 Shares owned by Mr. O'Donnell's wife as custodian for
their three minor children; (ii) 22,231 Shares owned by Jefferson Capital
(of which Mr. O'Donnell is the President and a principal stockholder);
(iii) 87,500 Shares which could be acquired on or within 60 days after
December 10, 1999 upon the exercise of warrants granted to Jefferson Capital
and (iv) 18,000 Shares which could be acquired on or within 60 days after
December 10, 1999 upon the exercise of director options granted to
Mr. O'Donnell under Shorewood's Incentive Plans.
(5) Includes: (i) 67,432 Shares which could be acquired on or within sixty
(60) days after December 10, 1999 upon the exercise of stock options granted
under Shorewood's Incentive Plans; (ii) 79,101 shares of restricted stock
awarded under Shorewood's Long-Term Incentive Program ("LTIP"), all of which
are subject to forfeiture and (iii) 55,977 Shares that are held by Shorewood
as collateral for a $657,521 loan in connection with the exercise of
options.
(6) Less than 1% of the outstanding Shares.
(7) Includes: (i) 35,347 Shares which could be acquired on or within sixty
(60) days after December 10, 1999 upon the exercise of stock options granted
under Shorewood's Incentive Plans; and (ii) 5,178 shares of restricted stock
awarded under the LTIP, all of which are subject to forfeiture.
S-11
<PAGE>
(8) Includes: (i) 18,000 Shares which could be acquired on or within sixty
(60) days after December 10, 1999 upon the exercise of director options
granted under Shorewood's Incentive Plans and (ii) 39,000 Shares owned by
William P. Weidner's wife, as to which Mr. Weidner disclaims beneficial
ownership.
(9) Includes 18,000 Shares which could be acquired on or within sixty (60) days
after December 10, 1999 upon the exercise of director options granted under
Shorewood's Incentive Plans.
(10) Includes: (i) 5,000 Shares which could be acquired on or within sixty
(60) days after December 10, 1999 upon exercise of stock options granted
under Shorewood's Incentive Plans; (ii) 6,000 shares of restricted stock
awarded under the LTIP, all of which are subject to forfeiture; and
(iii) 650 Shares owned by Andrew N. Shore's wife, as to which Mr. Shore
disclaims beneficial ownership.
(11) Includes: (i) 9,000 shares of restricted stock awarded under the LTIP, all
of which are subject to forfeiture and (ii) 21,500 Shares which could be
acquired on or within sixty (60) days after December 10, 1999 upon the
exercise of director options granted under Shorewood's Incentive Plans.
(12) The total number of directors and executive officers of Shorewood includes
two executive officers who were not included in the above table.
(13) Includes 695,181 Shares subject to stock options or warrants which could be
acquired on or within sixty (60) days after December 10, 1999 and 184,929
shares of restricted stock awarded pursuant to the LTIP, all of which are
subject to forfeiture. Does not include Shares held by Messrs. Melvin L.
Braun and Floyd G. Glinert, who, until recently, were directors of
Shorewood. Where more than one person is deemed to be a beneficial owner of
any particular Shares, such Shares have been counted toward the total listed
only once.
SECURITY OWNERSHIP OF OTHER BENEFICIAL OWNERS
The following table sets forth information with respect to the persons known
to Shorewood to beneficially own more than five percent (5%) of the Shares, as
of December 10, 1999:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS
- ------------------- -------------------- -------------------
<S> <C> <C>
Marc P. Shore(1)......................................... 4,750,485 17.38%
c/o Shorewood Packaging Corporation
277 Park Avenue
New York, New York 10172-0124
Ariel Capital Management, Inc.(2)........................ 5,615,882 20.54%
307 North Michigan Avenue
Chicago, Illinois 60601
Chesapeake Corporation(3)................................ 4,106,440 15.02%
1021 East Cary Street
Richmond, Virginia 23218-2350
Brinson Partners, Inc.(4)................................ 1,548,722 5.66%
209 South LaSalle
Chicago, Illinois 60604-1295
T. Rowe Price Associates, Inc.(5)........................ 1,421,500 5.20%
100 E. Pratt Street
Baltimore, Maryland 21202
</TABLE>
- ------------------------------
(1) Marc P. Shore is the Chairman and Chief Executive Officer of Shorewood.
Shares reflected include: (1) 1,007,687 Shares owned outright by Marc P.
Shore, of which (a) 85,650 Shares are restricted shares awarded pursuant to
the LTIP and are subject to forfeiture and (b) 44,562 Shares are held by
Shorewood as collateral for a $527,316 loan in connection with the exercise
of options; (2) 348,478 Shares which could be acquired on or within sixty
(60) days after December 10, 1999 upon the exercise of stock options granted
under Shorewood's incentive and stock option plans (collectively, the
"Incentive Plans"); (3) 586,062 Shares held by a marital trust created under
the will of Paul B. Shore for the benefit of his wife (the "Marital Trust")
(see discussion below); (4) 2,700,000 Shares held by the Shore Family
Partnership, L.P., a California limited partnership (the "Family
Partnership") (see discussion below); and (5) 108,258 Shares held by a
marital trust created for the benefit of the wife of Paul B. Shore.
S-12
<PAGE>
The Marital Trusts are testamentary trusts for the benefit of Paul B. Shore's
wife created under the terms of his will. By the terms of the will, Marc P.
Shore has sole voting power with respect to all Shares owned by the Marital
Trust. Dispositive power over these Shares is shared with the co-trustees.
The Marital Trust also held 3,900 Shares as of December 1, 1999. Marc P.
Shore disclaims beneficial ownership with respect to 3,900 of such Shares.
The Family Partnership is an investment partnership for the benefit of Marc
P. Shore and the other children of Paul B. Shore and Ellen Shore. The Family
Partnership terminates on January 1, 2030, subject to earlier termination by
operation of law or under the terms of the Limited Partnership Agreement. By
virtue of his control over the Shore Family LLC, which is the sole general
partner of the Family Partnership, Marc P. Shore has effective
decision-making power with respect to all Shares owned by the Family
Partnership. The Family Partnership owned 2,700,000 Shares as of
December 10, 1999. Marc P. Shore disclaims beneficial ownership as to
2,459,970 of such Shares.
(2) Represents Shares held by investment advisory clients of Ariel. On
November 26, 1999, Chesapeake entered into the Purchase Agreement with Ariel
pursuant to which Chesapeake agreed to purchase 4,106,440 shares of Common
Stock or approximately 14.9% of Shorewood's outstanding Shares, at a
purchase price of $17.25 per share. Pursuant to the Purchase Agreement,
Ariel agreed to use its best efforts to exercise its discretionary authority
to cause its clients (i) to tender the Purchased Shares in the Chesapeake
Offer and (ii) to execute written consents in the form solicited by
Chesapeake in the Chesapeake Consent Solicitation. This information is based
solely upon the contents of filings made pursuant to Section 13 of the
Exchange Act by Ariel.
(3) See (2) above. This information is based solely upon the contents of filings
made pursuant to Section 13 of the Exchange Act by Chesapeake.
(4) Represents Shares held in managed discretionary accounts for advisory
clients which are advised by Brinson Partners, Inc. and/or its parent, UBS
AG, Inc. This information is based solely upon the contents of filings made
pursuant to Section 13 of the Exchange Act by Brinson Partners, Inc.
(5) Represents Shares held in managed discretionary accounts for advisory
clients which are advised by T. Rowe Price Associates, Inc. This information
is based solely upon the contents of filings made pursuant to Section 13 of
the Exchange Act by T. Rowe Price Associates, Inc.
On February 16, 2000, IP and Purchaser entered into a Stockholders Agreement
(the "Stockholders Agreement") with Mr. M. Shore, Mr. A. Shore, Shore Family
Partnership L.P., Paul Shore Estate Marital Trust, Paul Shore Marital Trust and
Mr. Liebman (collectively, the "Principal Stockholders"). The Principal
Stockholders hold, in the aggregate, 4,652,145 Shares or approximately 17.0% of
the issued and outstanding Shares. Pursuant to the Stockholders Agreement, the
Principal Stockholders have agreed to, among other things, vote their Shares in
favor of the approval and adoption of the Merger Agreement and against any
competing transaction. The Principal Stockholders have also granted to IP an
irrevocable proxy to vote their Shares. Accordingly, IP and Purchaser may be
deemed to beneficially hold 4,652,145 Shares or approximately 17.0% of the
issued and outstanding Shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Shorewood's executive officers
and directors, and persons who own more than ten percent of the Common Stock of
Shorewood to file reports of ownership and changes in ownership with the SEC and
the exchange on which the Common Stock is listed for trading. Executive
officers, directors and more than ten percent stockholders are required by
regulations promulgated under the Exchange Act to furnish Shorewood with copies
of all Section 16(a) reports filed. Based solely on Shorewood's review of copies
of the Section 16(a) reports filed for the fiscal year 1999, Shorewood believes
that all reporting requirements applicable to its executive officers, directors,
and more than ten percent stockholders were complied with for the fiscal year
1999, except that (i) Jefferson Capital, of which Mr. O'Donnell, a member of the
Shorewood Board, is the President and a principal stockholder, failed to timely
file a report in respect of the grant by Shorewood to Jefferson Capital of a
warrant to purchase 50,000 Shares in October 1998, (ii) Mr. M. Shore failed to
timely file a report in respect of distributions by the Estate of Paul B. Shore
(the "Estate") under Paul B. Shore's will of an aggregate of 11,700 Shares in
December 1998, and (iii) Mr. A. Shore failed to timely file a report in respect
of the transfer of 650 Shares by the Estate to Mr. A. Shore's wife in
December 1998.
S-13
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
concerning the compensation of the Named Executive Officers for each of the
three fiscal years during the period ended May 1, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION(1) COMPENSATION AWARDS
---------------------- -----------------------
RESTRICTED OPTIONS TO
STOCK PURCHASE ALL OTHER
AWARDS SHARES (4) COMPENSATIONS(5)
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (3) (#) ($)
- --------------------------- ----------- ---------- --------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Marc P. Shore.................... Fiscal 1999 800,000 1,093,000 825,000 350,000 149,625
Chairman of the Board, Fiscal 1998 800,000 302,000 -- -- 149,125(6)
Chief Executive Officer Fiscal 1997 815,385 450,000(2) -- 269,565 155,520(6)
Howard M. Liebman................ Fiscal 1999 450,000 150,000 481,250 150,000 107,875(7)(8)
Executive Vice President, Fiscal 1998 325,000 100,000 497,490 -- 214,970(7)(8)
Chief Financial Officer Fiscal 1997 331,250 100,000 -- 26,737 142,043(7)(8)
and Director
Floyd S. Glinert**............... Fiscal 1999 299,988 -- -- -- 4,950
Executive Vice Fiscal 1998 299,988 -- -- -- 5,950
President--Marketing Fiscal 1997 305,757 -- -- -- 16,938
and Director
Charles Kreussling............... Fiscal 1999 250,000 125,000 -- -- 19,090
Executive Vice Fiscal 1998 250,000 125,000 -- -- 15,964
President--Manufacturing Fiscal 1997 215,385 125,000 -- -- 18,449
Kenneth M. Rosenblum............. Fiscal 1999 175,692 100,000 -- 40,000 6,072
Senior Vice President--Sales Fiscal 1998 163,366 125,000 -- -- 6,179
Fiscal 1997 154,903 100,000 -- 43,507 5,895
</TABLE>
- ------------------------
* 1997 was a 53-week year.
** Mr. Glinert resigned as an Executive Officer of Shorewood effective at the
end of fiscal year 1999.
(1) The aggregate amount of perquisites and other personal benefits for each of
the Named Executive Officers did not equal or exceed the lesser of either
$50,000 or 10% of the total of such individual's base salary and bonus, as
reported herein for the applicable fiscal years, and is not reflected in the
table.
(2) In fiscal 1997, Mr. M. Shore received a $450,000 bonus. Mr. Shore was
entitled to receive a cash bonus in excess of $1.2 million in fiscal 1997
under a bonus plan of Shorewood (the "Bonus Plan") (see "Employment and
Consulting Agreements"); however, Mr. M. Shore waived such bonus and
accepted the $450,000 bonus.
(3) Represents the dollar value on the date of grant of shares of restricted
stock awarded by the Compensation Committee to the named recipients under
the LTIP. The value of the restricted shares reported in this column was
calculated by multiplying the closing market price of the Common Stock as
reported on the New York Stock Exchange (the "NYSE") on the date of grant by
the number of restricted shares, without any adjustment for forfeiture or
termination contingencies. The restricted stock awards identified in this
column consist of the following stock grants: (i) 30,000 Shares to
Mr. Liebman on October 30, 1997, (ii) 35,000 Shares to Mr. Liebman on
June 8, 1998 and (iii) 60,000 Shares to Mr. M. Shore on June 8, 1998. These
awards are subject to three or four year vesting requirements based on the
performance of Shorewood's Common Stock or, alternatively, an eight year
employment vesting requirement. Under the terms of the awards, if the
grantee's employment terminates prior to vesting, there restricted shares
awarded to him will be forfeited. During the vesting period, the grantee may
not dispose of, but may vote, the restricted shares and is entitled to
receive any dividends paid on such shares.
In addition, in July 1994 the Compensation Committee awarded restricted
stock to certain executives pursuant to the LTIP. Set forth below are the
number and value of the aggregate restricted share holdings of each Named
Executive Officer as of May 1,
S-14
<PAGE>
1999. Values were calculated by multiplying the closing price of the Shares
as reported on the NYSE on April 30, 1999 (the last trading day in the
fiscal year ended May 1, 1999) by the respective number of Shares.
<TABLE>
<CAPTION>
NAMED EXECUTIVE OFFICER SHARES(#) VALUE($)
- ----------------------- --------- ---------
<S> <C> <C>
Marc P. Shore............................................... 85,650 1,691,588
Howard M. Liebman........................................... 79,101 1,562,245
Kenneth M. Rosenblum........................................ 5,178 102,266
</TABLE>
(4) Stock options are granted under the terms and provisions of Shorewood's
Incentive Plans.
(5) Amounts reported under this column include the dollar value of the
following:
<TABLE>
<CAPTION>
CONTRIBUTIONS TO
VALUE OF LIFE 401(K) EMPLOYEE
INSURANCE SAVINGS PLAN
PREMIUMS (A) (B)
NAME YEAR ($) ($)
- ---- ----------- ------------- ----------------
<S> <C> <C> <C>
Marc P. Shore............................................... Fiscal 1999 14,120 6,500
Fiscal 1998 15,170 6,500
Fiscal 1997 19,070 8,395
Howard M. Liebman........................................... Fiscal 1999 12,121 6,975
Fiscal 1998 13,501 4,371
Fiscal 1997 13,281 8,449
Floyd S. Glinert............................................ Fiscal 1999 -- 4,950
Fiscal 1998 -- 5,950
Fiscal 1997 10,538 6,400
Charles Kreussling.......................................... Fiscal 1999 14,965 4,125
Fiscal 1998 12,214 3,750
Fiscal 1997 11,841 6,608
Kenneth M. Rosenblum........................................ Fiscal 1999 -- 6,072
Fiscal 1998 1,800 4,379
Fiscal 1997 1,800 4,095
</TABLE>
- ------------------------------
(a) Reflects life-insurance premiums paid by Shorewood on behalf of the
Named Executive Officer.
(b) Reflects contributions to Shorewood's tax-qualified 401(k) Employee
Savings Plan that covers all employees who have completed 1,000 hours of
service and one year of employment.
(6) Includes (i) $122,367 paid in fiscal 1999, $120,817 paid in fiscal 1998 and
$121,417 paid in fiscal 1997, which represent Shorewood's share of premiums
paid in the respective years under a Split Dollar Life Insurance Arrangement
for the benefit of Mr. M. Shore whereby Shorewood will generally recover in
full its share of the premiums upon the cancellation, or purchase by Mr. M.
Shore, of the life insurance policy or the payment of death benefits under
the life insurance policy and (ii) $6,638 paid in fiscal 1999, $6,638 paid
in fiscal 1998 and in fiscal 1997, which represent disability premiums paid
by Shorewood in the respective years on behalf of Mr. M. Shore.
(7) Includes ($1,585) lost in fiscal 1999, $108,114 earned in fiscal 1998, and
$30,959 earned in fiscal 1997 by a trust established by Shorewood for
Mr. Liebman's benefit, pursuant to which income earned on the trust
principal is accumulated for payment to Mr. Liebman upon his retirement from
Shorewood. For a description of the trust, see "Employment and Consulting
Agreements."
(8) Includes $90,364 paid in fiscal 1999, $88,984 paid in fiscal 1998 and
$89,354 paid in fiscal 1997, which represent Shorewood's share of premiums
paid in the respective years under a Split Dollar Life Insurance Arrangement
for the benefit of Mr. Liebman whereby Shorewood will generally recover in
full its share of the premiums upon the cancellation, or purchase by
Mr. Liebman, of the life insurance policy or the payment of death benefits
under the life insurance policy.
OPTION GRANTS TABLE
The following table provides certain summary information concerning
individual grants of stock options made to Named Executive Officers during the
fiscal year ended May 1, 1999 under Shorewood's
S-15
<PAGE>
Incentive Plans. Except as set forth in the table below, during fiscal year
1999, Shorewood did not grant any stock options under Shorewood's Incentive
Plans to any of the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
------------------------------------------------------ ASSUMED RATES OF STOCK
NUMBER OF PERCENT OF TOTAL PRICE APPRECIATION FOR
SHARE OPTIONS GRANTED OPTION TERM (1)
UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
GRANT (#) FISCAL YEAR (%) PRICE ($) DATE 5%($) 10%($)
---------- ---------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Marc P. Shore.............. 350,000 42.4% 13.75 6/08/08 3,026,555 7,669,886
Howard M. Liebman.......... 150,000 18.2% 13.75 6/08/08 1,297,095 3,287,094
Kenneth M. Rosenblum....... 40,000 4.8% 13.75 6/08/08 345,892 876,558
</TABLE>
- ------------------------------
(1) Amounts represent hypothetical gains that could be achieved from the
exercise of the respective stock options and the subsequent sale of the
Shares underlying such options if the options were exercised at the end of
the option terms. The gains are based upon assumed rates of stock price
appreciation of 5% and 10% compounded annually from the date the respective
options were granted. The rates of appreciation are mandated by the rules of
the Exchange Act and do not represent Shorewood's estimate or projection of
the future Share price.
(2) The stock options reported were awarded pursuant to the 1993 Program at
exercise prices equal to the fair market value of the Shares on the date of
grant. The options vest in specified installments over a five-year period
after the grant date and terminate ten years after the grant date, subject
to early termination in the event of death or termination of the optionee's
employment for any reason. Payment for options exercised may be in cash or
Shares, the fair market value of which is determined under the 1993 Program.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides certain summary information concerning stock
option exercises during the fiscal year ended May 1, 1999 by the Named Executive
Officers and the value of unexercised stock options held by the Named Executive
Officers as of May 1, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL YEAR "IN THE MONEY" OPTIONS AT
SHARES END (1)(#) FISCAL YEAR END (2)($)
ACQUIRED ON VALUE --------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Marc P. Shore............. -- -- 331,953 376,739 2,626,682 2,330,996
Howard M. Liebman......... -- -- 124,168 166,042 1,025,973 1,038,585
Floyd S. Glinert.......... -- -- -0- -0- -0- -0-
Charles Kreussling -- -- -0- -0- -0- -0-
Kenneth M. Rosenblum...... 10,856 87,271 18,560 66,104 162,801 468,009
</TABLE>
- ------------------------------
(1) Represents the aggregate number of stock options held as of May 1, 1999
which could and could not be exercised on that date pursuant to the terms of
the stock option agreements related thereto and the Incentive Plans.
(2) Values were calculated by multiplying (i) the respective number of shares by
(ii) the closing market price of the Shares as reported on the NYSE on
April 30, 1999 (the last trading day of the fiscal year ended May 1, 1999)
less the exercise price per share, without any adjustment for any
termination or vesting contingencies.
S-16
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERALL POLICY
Shorewood's executive compensation program is designed to be closely linked
to corporate performance and the total return to stockholders over the
long-term. To that end, Shorewood has developed an overall compensation strategy
and specific compensation plans which tie executive compensation to Shorewood's
success in meeting specified objectives and to appreciation in Shorewood's stock
price. The overall objectives are to attract and retain the best possible
executive talent, motivate key executives to achieve the goals inherent in
Shorewood's business strategy, link executive and stockholder interests through
participation in the LTIP and provide a compensation package that recognizes
individual contributions as well as overall business results.
Each year the Compensation Committee conducts a review of Shorewood's
executive compensation program. The review includes a comparison of Shorewood's
executive compensation, corporate performance, stock price appreciation and
total return to stockholders with a peer group of public corporations that
represent Shorewood's direct competitors for executive talent. The annual
compensation reviews permit an ongoing evaluation of the link between
Shorewood's performance and its executive compensation in the context of the
compensation programs of other companies. The peer group presently utilized by
the Compensation Committee is the Peer Group. See "Stock Performance Graph."
The Compensation Committee approves the compensation of executive officers
of Shorewood, including the individuals whose compensation is detailed in this
Proxy Statement. In reviewing the individual performance of the executive
officers of Shorewood whose compensation is detailed in this Proxy Statement,
the Compensation Committee takes into account the views of Mr. M. Shore, the
Chairman and Chief Executive Officer of Shorewood, and the other members of the
Shorewood Board.
The key elements of Shorewood's executive compensation during the last
fiscal year consisted of base salary, an annual bonus and grants of stock
options and restricted stock under the LTIP. The Compensation Committee's
policies with respect to each of these elements, are discussed below. In
addition, while the elements of compensation described below are considered
separately, the Compensation Committee takes into account the full compensation
package afforded by Shorewood to each individual.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION PLANS
It is the policy of the Compensation Committee to have the executive
compensation plans of Shorewood treated as fully tax deductible under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
whenever, in the judgment of the Committee, to do so would be consistent with
the business objectives of those plans. All compensation paid during fiscal year
1999 was, in fact, fully tax deductible. The Compensation Committee, however,
has granted awards which may not be fully tax deductible, and reserves the right
to grant future compensation awards in such amounts as it may deem appropriate
in the exercise of its business judgement, notwithstanding whether those awards
are fully tax deductible.
BASE SALARIES AND ANNUAL BONUSES
Base salaries and annual bonuses for executive officers are determined by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for executive
talent, including a comparison of base salaries for comparable positions at
other companies in the Peer Group. Annual salary adjustments and bonuses, if
any, are determined by evaluating the performance of Shorewood and of each
executive officer, and by taking into account added responsibilities. The
Compensation Committee, where appropriate, also considers non-financial
performance measures. These include increases in market share, manufacturing
efficiency gains, improvements in product quality and improvements in relations
with customers, suppliers and employees. These factors are afforded
S-17
<PAGE>
varying levels of significance by the Committee depending upon the
circumstances. All final determinations are subjective.
In establishing the annual base salary of Mr. M. Shore, the Committee also
took into account a comparison of base salaries of chief executive officers of
the Peer Group, Shorewood's results of operations, the performance of
Shorewood's Common Stock and the subjective assessment by the members of the
Committee of Mr. M. Shore's individual performance.
The Committee has established, with the approval of the Shorewood Board and
the Stockholders, a performance Bonus Plan for the benefit of Mr. M. Shore,
which is effective through fiscal year 2003. The Bonus Plan provides for the
grant of graduated performance bonuses, up to $2.0 million per annum, to
Mr. M. Shore based upon yearly comparisons of Shorewood's earnings from
operations plus depreciation and amortization. Bonuses pursuant to the Bonus
Plan are payable only if certain pre-established thresholds are met. The Bonus
Plan is based solely upon the performance criteria described above.
Mr. M. Shore earned a bonus in the amount of $1,093,000 in respect of fiscal
year 1999 under the Bonus Plan. See "Executive Compensation--Summary
Compensation Table." Pursuant to the new five year employment agreement which
Shorewood and Mr. M. Shore entered into on June 8, 1998, Mr. M. Shore was
granted a signing bonus in the aggregate amount of $1,000,000, payable
immediately in full but earned ratably over his five year employment period,
provided that Mr. M. Shore continues to be employed with Shorewood at the end of
each such year. The full amount of the signing bonus was paid to Mr. M. Shore in
fiscal year 1999. Because Mr. M. Shore was employed with Shorewood at the end of
the first year of his employment term, the ratable portion of the signing bonus
for the first year has been earned. See "Employment and Consulting Agreements."
The Committee may also grant, and has in the past granted, Mr. M. Shore
discretionary bonuses outside of the Bonus Plan and his employment agreement.
LONG TERM INCENTIVE PLANS
Pursuant to the 1993 Program, approved by the Stockholders in 1993, the
Committee adopted the LTIP which allows various types of awards keyed to
corporate performance, including stock options (focus on absolute growth in
stockholder value) and restricted shares (focus on relative growth in
stockholder value), subject to performance-based contingencies, which are made
available in amounts which the Committee determines to be competitive based on
the competitive market analyses described above.
STOCK OPTIONS
Under the LTIP and Shorewood's other Incentive Plans, stock options are
periodically granted to Shorewood's employees, including executive officers. The
Compensation Committee sets guidelines for the size of the stock option awards
based on similar factors, including competitive compensation data, as are used
to determine base salaries and bonuses, if any. In the event of poor corporate
performance, the Compensation Committee can elect not to award stock options.
Final determinations are subjective.
Stock options are designed to align the interests of executives with those
of the stockholders. Stock options are granted with an exercise price equal to
the market price of the Common Stock on the date of grant and generally vest in
increments over a period of four or five years. This approach is designed to
incentivize the creation of stockholder value over the long term since the full
benefit of the compensation package cannot be realized by the option recipients
unless stock price appreciation occurs over a number of years.
S-18
<PAGE>
PERFORMANCE BASED RESTRICTED STOCK
Under the LTIP, awards of restricted stock are made preceding a three-year
or four-year performance period. The Committee, together with Shorewood's Chief
Executive Officer, determine the size of the awards based on the same
competitive compensation data as are used to determine base salaries and
bonuses. Final determinations are subjective. At the end of the three-year or
four-year performance period, some or all of the shares of restricted stock may
vest depending upon Shorewood's relative stockholder growth compared to that of
the peer group over the same period. The peer group for grants of restricted
stock through fiscal year 1998 consisted of the same companies that make up the
Peer Group for the stock performance graph. The peer group for grants of
restricted stock in fiscal year 1999 consists both of the companies that make up
the Peer Group for the stock performance graph plus certain other public
companies. The Committee chose to expand the peer group for grants of restricted
stock in order to have reference to a wider pool of companies including certain
companies not directly competitive with Shorewood. The Committee believes that
the expanded peer group for such purposes is more meaningful and instructive.
See "Stock Performance Graph." Shares that do not vest, due to relative
stockholder performance, will vest at the end of eight years assuming continued
employment. Initial grants of restricted stock were made during fiscal year
1995, of which the first performance based vesting opportunity arose in
April 1997 and the remaining shares are due to vest in April 2002. Additional
grants of restricted stock were made during fiscal years 1998 and 1999 to
certain key employees and executives. See "Executive Compensation--Summary
Compensation Table--Footnote (3)."
In connection with the extension of Mr. M. Shore's employment agreement for
a period of five years, and in order to adequately incentivize Mr. M. Shore for
the duration of the employment term extension, the Committee granted Mr. M.
Shore 60,000 restricted Shares and stock options to acquire 350,000 Shares.
BONUS PLAN
In July 1995, the Shorewood Board approved the Bonus Plan, applicable to
Mr. M. Shore in his capacity as Shorewood's Chief Executive Officer. Under the
Bonus Plan, for each fiscal year of Shorewood through fiscal year 2003, Mr. M.
Shore will be entitled to a graduated bonus (the "Performance Bonus") based upon
a comparison of Shorewood'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 Shorewood's performance, as measured by the Performance Measure. The
maximum Performance Bonus payable in respect of any award year under the Bonus
Plan is $2.0 million. No bonus was payable under the terms of the Bonus Plan for
1996. For fiscal 1997, a bonus of approximately $1.2 million would have been
earned, had Mr. M. Shore not voluntarily agreed to accept $450,000. For fiscal
1998, a bonus of $302,000 was earned by Mr. M. Shore. For fiscal 1999, a bonus
of approximately $1.1 million was earned by Mr. M. Shore.
EMPLOYMENT AND CONSULTING AGREEMENTS WITH SHOREWOOD
The following is a summary of certain employment and consulting agreements
to which Shorewood is a party. Such summary does not include any of the
arrangements entered into by Messrs. M. Shore and Liebman in connection with
IP's acquisition of Shorewood pursuant to the IP Offer and the Merger. For a
discussion of these arrangements, see Item 3 under "Arrangements with Executive
Officers, Directors or Affiliates of Shorewood" in the Schedule 14D-9 of which
this Information Statement forms a part.
MARC P. SHORE
Mr. M. Shore and Shorewood entered into a new five-year employment
agreement, effective as of May 3, 1998. The agreement granted Mr. M. Shore a
signing bonus in the aggregate amount of $1.0 million, payable immediately in
full but earned ratably over his five-year employment period, provided that
Mr. M. Shore continues to be employed with Shorewood at the end of each such
year. If a "change in control" of Shorewood, as defined in the agreement, occurs
at any time during the last two years of the agreement, the term of the
agreement will be automatically extended for an additional two years. If
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<PAGE>
Mr. M. Shore's employment is terminated by Shorewood or Mr. M. Shore within two
years after the occurrence of a "change in control" of Shorewood, as defined in
the agreement, Mr. M. Shore would be entitled to a lump sum payment equal to
2.99 times his average annual compensation during the five calendar years
preceding the year of the change in control. The agreement grants Mr. M. Shore
an annual base salary of $800,000 per annum, subject to periodic increases at
the discretion of the Shorewood Board. Mr. M. Shore's annual base salary is
currently $800,000. Mr. M. Shore is also entitled to participate in the Bonus
Plan, effective until 2003, pursuant to which he is eligible to receive
performance bonuses of up to $2.0 million per covered year if certain
pre-established thresholds are met. Mr. M. Shore earned a bonus of $1,093,000
under the Bonus Plan on account of fiscal year 1999. See "Executive
Compensation--Summary Compensation Table" and "Report of the Compensation
Committee." The agreement also authorizes Shorewood to grant Mr. M. Shore
discretionary bonuses outside of the scope of the Bonus Plan. The agreement
requires Shorewood to maintain term life insurance on the life of Mr. M. Shore
and to carry supplemental disability insurance for his benefit. Simultaneously
with the authorization of Mr. M. Shore's employment agreement by the Shorewood
Board, Shorewood granted to Mr. M. Shore 60,000 shares of restricted stock and
options to acquire 350,000 Shares.
HOWARD M. LIEBMAN
Mr. Liebman and Shorewood entered into a new five-year employment agreement,
effective as of May 3, 1998. If a "change in control" of Shorewood, as defined
in the agreement, occurs at any time during the last two years of the agreement,
the term of the agreement will be automatically extended for an additional two
years. Pursuant to the employment agreement, Mr. Liebman is entitled to receive
an annual base salary of $450,000, subject to periodic increases at the
discretion of the Shorewood Board. Mr. Liebman's annual base salary is currently
$450,000. The agreement provides that if Mr. Liebman's employment is terminated
by Shorewood or Mr. Liebman within two years after the occurrence of a "change
in control" of Shorewood, as defined in the agreement, Mr. Liebman would be
entitled to receive a lump sum payment equal to 2.99 times his average annual
compensation during the five calendar years preceding the year of the change of
control. Simultaneously with the authorization of Mr. Liebman's employment
agreement by the Shorewood Board, Shorewood granted to Mr. Liebman 35,000 shares
of restricted stock and options to purchase 150,000 Shares. Shorewood has also
established a trust, pursuant to which income earned on the trust principal fund
of $300,000 is accumulated for payment to Mr. Liebman upon his retirement from
Shorewood, with the principal fund then being returned to Shorewood. However,
the assets of the trust are subject to claims of creditors of Shorewood in the
event of its insolvency. The trust declined in value by $1,585 in fiscal year
1999.
LEONARD J. VEREBAY
In connection with the Queens Transaction, Leonard J. Verebay entered into a
three-year employment agreement with Shorewood, expiring on December 31, 2001.
The Agreement provides for a five-year consulting period following the
expiration of the initial employment term. Under the agreement, Mr. Verebay is
to be employed by Shorewood as an Executive Vice President at a salary of
$500,000 per annum, subject to annual increases at the discretion of the
Shorewood Board. Mr. Verebay is also entitled to participate, to the extent
eligible, in Shorewood sponsored benefit plans to the same extent as similarly
situated executives. During any consultancy period, Mr. Verebay would be
entitled to receive a fee of $10,000 per annum and an automobile allowance as
well as participation, to the extent eligible, in Shorewood's group family
medical insurance plan. The agreement contains customary confidentiality,
work-for-hire and non-competition covenants applicable for the duration of all
applicable employment and consultancy periods. The agreement is subject to early
termination by Shorewood in the case of the death or disability of Mr. Verebay
or if he engages in certain types of "objectionable conduct" specified in the
agreement. Mr. Verebay may terminate the agreement upon the occurrence of
certain types of capital events and "change of control" transactions specified
in the agreement.
S-20
<PAGE>
ERIC KALTMAN
In connection with the Queens Transaction, Eric Kaltman entered into a
three-year employment agreement with Shorewood to be employed as an Executive
Vice President of Shorewood, which agreement is substantially identical to the
agreement between Shorewood and Mr. Verebay, as described above.
VIRGINIA A. KAMSKY
KAI, of which Virginia A. Kamsky, a member of the Shorewood Board, is the
founder, chief executive officer, chairman and principal stockholder, has been
advising Shorewood for approximately three years in connection with the
establishment of a manufacturing facility for paperboard folding carton packages
in Guangzhou, Guandong Province, China (the "China Business"), pursuant to the
terms of a consulting agreement dated effective January 1, 1996. Shorewood pays
KAI a consulting fee of $25,000 per month. Additionally, under the terms of a
Profit Participation Agreement between KAI and Shorewood, KAI is entitled to
receive up to 5% of Shorewood's allocable share (presently 55%) of any "net
profits"--as defined in the agreement--generated from the operation of the China
Business or from any sale of the China Business or Shorewood's interest in the
China Business (the "Profit Participation"). Transfer of the Profit
Participation is subject to a right of first refusal in favor of Shorewood. KAI
may put its Profit Participation rights to Shorewood at any time after three
years from the production of the China Business' first commercial product at the
then fair market value of such interest, as determined by a mutually agreeable
third party appraiser. Under the terms of the Profit Participation, Shorewood is
required to exert its reasonable best efforts to cause Ms. Kamsky to be elected
to the Board of Directors or other governing body of the operating entity which
manages the China Business.
R. TIMOTHY O'DONNELL
From time to time, Jefferson Capital serves as a compensated financial
advisor to Shorewood in connection with various matters. Jefferson Capital is
presently serving as a co-financial advisor to Shorewood in connection with the
Chesapeake Offer. R. Timothy O'Donnell, a member of the Shorewood Board, is the
President and principal stockholder of Jefferson Capital. Additional information
concerning Jefferson Capital and its relationship with Shorewood is set forth in
Items 3 and 5 of the Schedule 14D-9.
EMPLOYEE SEVERANCE PLAN
On December 15, 1999, the Shorewood Board, upon the recommendation of the
Compensation Committee, adopted a cash-based employee severance plan. Tier 1
employees comprising Messrs. M. Shore and Liebman, as well as eleven (11)
Tier 2 employees, including Messrs. Rosenblum, Hogan and A. Shore, and twenty
six (26) Tier 3 employees are eligible to receive severance benefits in the
event of a qualifying termination of their employment on or within two years
following a "change in control" of Shorewood (including the consummation of the
IP Offer).
A qualifying termination of employment under the severance plan means (1) a
termination by the employer on or within two years following the date of the
change in control by the employer other than for "cause" (as defined in the
severance plan) or (2) a termination by the employee for "good reason". A
termination for good reason under the severance plan for a Tier 1 employee
includes any reason. A termination for good reason under the severance plan for
a Tier 2 employee means:
- a reduction in the Tier 2 employee's base salary or annual incentive
compensation opportunity in effect immediately prior to the change in
control;
- the assignment to the Tier 2 employee of duties that in the aggregate are
inconsistent with the Tier 2 employee's level of responsibility
immediately before the change in control or any decline in the nature or
status of the Tier 2 employee's responsibilities from those in effect
immediately before the change in control; or
- the relocation of the Tier 2 employee's principal place of employment to a
location more than 50 miles from the employee's principal place of
employment immediately before the change in control.
S-21
<PAGE>
A termination for good reason under the severance plan for a Tier 3 employee
means:
- a reduction in the Tier 3 employee's base salary or annual incentive
compensation opportunity in effect immediately prior to the change in
control; or
- the relocation of the Tier 3 employee's principal place of employment to a
location more than 50 miles from the employee's principal place of
employment immediately before the change in control.
A Tier 1, 2 or 3 employee who incurs a qualifying termination of employment
will be entitled to receive a cash lump sum severance payment equal to:
- the sum of his or her annual salary, plus the highest annual bonus
received in the three years immediately preceding the change in control,
plus the value of contributions made by Shorewood to Shorewood's 401(k)
plan on the employee's behalf,
- multiplied by 3, 2, and 1 for a Tier 1 employee, Tier 2 employee or Tier 3
employee, respectively.
In addition, any payment made to a Tier 1 employee will be fully offset by
the amount payable to the employee under his employment agreement upon
termination of employment after a change in control. The cash payments provided
under the severance plan for Tier 1 employees will be made on the First Purchase
Date, as described below.
A Tier 1, 2 or 3 employee who incurs a qualifying termination of employment
will also be provided with welfare and fringe benefits as if such employee had
continued to be employed by Shorewood for 3, 2 and 1 years for a Tier 1
employee, Tier 2 employee and Tier 3 employee, respectively; provided that,
however, benefit continuation shall cease if the employee obtains employment
providing substantially similar benefits.
Under the severance plan, Shorewood is required, if necessary, to make an
additional "gross-up payment" to any Tier 1 employee to offset fully the effect
of any excise tax imposed on any payments or benefits under Section 4999 of the
Code, whether made to such employee under the severance plan or otherwise. The
severance plan supersedes the provision in the employment agreement of
Messrs. M. Shore and Liebman which reduced any payment thereunder so as to avoid
an excess parachute payment and the resulting excise tax. In addition, Shorewood
will reduce any payment made to a Tier 2 employee if such employee's after tax
position is improved by the reduction of the payment so as to avoid an excess
parachute payment and the resulting excise tax.
In general, Section 4999 of the Code imposes an excise tax on the recipient
of any excess parachute payment equal to 20% of that payment. A parachute
payment is any payment that is contingent on a change in control. Excess
parachute payments consist of the excess of parachute payments over an
individual's average taxable compensation received by him from the employer
during the five taxable years preceding the year in which the change in control
occurs. If the individual has been employed for fewer than five taxable years,
the individual's entire period of employment will be used to calculate the
excess parachute payment.
RABBI TRUST
On December 15, 1999, the Shorewood Board authorized Shorewood to enter into
a "rabbi trust" agreement to fully secure benefits under the severance plan. The
trust agreement provides that Shorewood may contribute to the trust the funds
sufficient to fund the obligations under the severance plan immediately prior to
a change in control.
EQUITY-BASED AWARDS
On December 15, 1999, the Shorewood Board resolved that all equity-based
awards granted to employees, directors and independent contractors of Shorewood
or any subsidiary of Shorewood which are outstanding immediately prior to a
change in control of Shorewood (including the consummation of the IP Offer)
shall become fully vested and, if applicable, exercisable upon a change in
control of Shorewood.
S-22
<PAGE>
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
Shorewood's cumulative stockholder return on the Shares for the last five fiscal
years with the cumulative return during the same period of (i) the Russell 2000
Index and (ii) a peer group selected by the Compensation Committee consisting
of: R.R. Donnelley & Sons Co., IP, Gibraltar Packaging Group, Graphic Industries
(and Wallace Computer Services Inc. as successor to Graphic Industries as a
result of its acquisition of Graphic Industries on February 13, 1998), Sonoco
Products, Co., Union Camp Corporation and Westvaco Corporation (the "Peer
Group"). Shorewood has a 52-53 week fiscal year ending on the Saturday closest
to April 30th of each fiscal year. Accordingly, for purposes of the line graph,
Shorewood has selected as the "measurement period" the period beginning on
May 1, 1994 and ending on May 1, 1999. Cumulative total returns are calculated
assuming that $100 was invested on May 1, 1994 in each of the Shares, the
Russell 2000 Index and the Peer Group, and that all dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG SHOREWOOD PACKAGING CORPORATION, RUSSELL 2000 INDEX
AND SELECTED PEER GROUP
INDEXED RETURNS FOR THE FIVE-YEAR PERIOD ENDED MAY 1, 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Shorewood Packaging Corporation 100 108.62 118.96 131.02 178.86 204.29
Russell 2000 Index 100 107.21 142.58 142.65 200.83 180
Peer Group 100 123.62 134.78 139.83 179.27 177.14
</TABLE>
<TABLE>
COMPANY NAME/INDEX 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Shorewood Packaging Corporation 100.00 108.62 118.96 131.02 178.86 204.29
Russell 2000 Index 100.00 107.21 142.58 142.65 200.83 180.00
Peer Group Index 100.00 123.62 134.78 139.83 179.27 177.14
</TABLE>
S-23
<PAGE>
Exhibit 1
[SHOREWOOD PACKAGING CORPORATION LETTERHEAD]
December 10, 1999
C. Cato Ealy
Vice President Business Development and Planning
International Paper
Two Manhattanville Road
Purchase, New York 10577-2196
Dear Mr. Ealy:
In connection with your evaluation of a negotiated
transaction (the "Transaction") with Shorewood Packaging Corporation
("Shorewood") or any of its subsidiaries or affiliates, Shorewood and its
Representatives (as defined below), upon your execution and delivery of this
letter agreement, may determine (such determination being in Shorewood's sole
discretion) to make available to you and your Representatives certain
information concerning Shorewood and Shorewood's subsidiaries' business,
financial condition, prospects, operations, assets, properties and
liabilities. All such information (whether written or oral) relating,
directing or indirectly, to Shorewood or its subsidiaries furnished,
delivered or disclosed by Shorewood or its Representatives, on or after the
date hereof (whether prepared by Shorewood, its Representatives or otherwise
and regardless of the manner in which it is furnished) and all notes,
analyses, compilations, extracts, forecasts, studies, interpretations or
other documents prepared by you or your Representatives in connection with
your or their review of, or your interest in, a Transaction which contain,
reflect or are based, in whole or in part, upon any such information, is
hereinafter referred to in this letter agreement as "Evaluation Material." As
a condition to, and in consideration of, Evaluation Material being furnished
to you and your Representatives, you agree to treat such Evaluation Material
in accordance with the provisions of this letter agreement, and to take or
abstain from taking certain other actions as hereinafter set forth. As used
in this letter agreement, the term "Representatives" means, as to any person,
such person's affiliates and its and their directors, officers, employees,
shareholders, partners, subsidiaries, affiliates, agents, advisors
(including, without limitation, attorneys, accountants, consultants, bankers,
appraisers and financial advisors), controlling persons, potential financing
sources or other representatives. The term "person" as used in this letter
agreement shall be broadly interpreted to include any corporation, limited
liability company, partnership, group, individual or other entity (including
the media).
<PAGE>
C. Cato Ealy
December 10, 1999
Page 2
The term "Evaluation Material" does not include, however,
information which (a) is or becomes generally available to the public other
than as a result of a disclosure by you or your Representatives, (b) was
available to you on a non-confidential basis prior to its disclosure by
Shorewood or its Representatives, provided that the source of such information
was not known by you to be bound by a confidentiality agreement or other
contractual, legal or fiduciary obligation of confidentiality to Shorewood or
any other party with respect to such information, or (c) is or becomes available
to you on a non-confidential basis from a source other than Shorewood or any of
its Representatives, provided that the source of such information was not known
by you to be bound by a confidentiality agreement or other contractual, legal or
fiduciary obligation of confidentiality to Shorewood or any other party with
respect to such information.
You hereby agree that you and your Representatives (a) will
not use any Evaluation Material other than in connection with your evaluation
of a Transaction, (b) will keep the Evaluation Material confidential, and (c)
will not disclose or reveal any Evaluation Material to any person in any
manner whatsoever without Shorewood's prior written consent, except as may be
required by applicable law, subject to the provisions set forth below.
Notwithstanding the foregoing clause (c), you may disclose Evaluation
Material to your Representatives who are actively and directly participating
in your evaluation of a Transaction and who need to know such information for
the sole purposes of evaluating or negotiating or otherwise in connection
with a Transaction; PROVIDED, HOWEVER, such Representatives are informed by
you of the confidential nature of the Evaluation Material and such
Representatives agree to comply with the terms of this letter agreement
applicable to such Representatives. You shall be responsible for the breach
of this letter agreement by your Representatives (including those who,
subsequent to the first date of disclosure of Evaluation Material to such
Representative(s), cease to be Representative(s)), and you agree, at your
sole expense, to take all reasonable measures (including, but not limited to,
court proceedings) to restrain your Representatives from prohibited or
unauthorized disclosure or use of the Evaluation Material.
In the event that you or any of your Representatives are
requested pursuant to, or required by, applicable law or by legal process (by
oral questions, interrogatories, requests for information or documents in legal
proceedings, subpoena, civil investigative demand or other similar process or
by applicable state, rule or regulation or by governmental regulatory
authorities or otherwise) to disclose any Evaluation Material, you agree to
provide Shorewood with prompt written notice of any such request or requirement
and a copy of such request so that Shorewood may seek
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<PAGE>
C. Cato Ealy
December 10, 1999
Page 3
a protective order or other appropriate remedy and/or may consult with you
with respect to taking steps to resist or narrow the scope of such request
or, in Shorewood's sole discretion, waive compliance, in whole or in part,
with the provisions of this letter agreement. If, in the absence of a
protective order or other remedy or a waiver by Shorewood of compliance with
the terms of this letter agreement, you or any of your Representatives are
nonetheless, required to disclose Evaluation Material, pursuant to applicable
law, you or your Representatives will disclose only that portion of the
Evaluation Material as to which you are advised by such counsel is required
to be disclosed (and as to which you provide a certification to Shorewood to
that effect).
At any time upon your decision not to proceed with a
Transaction, you will promptly inform Shorewood of such decision. In such event
or any time upon the request of Shorewood or any of its Representatives for any
reason, you will promptly deliver to Shorewood all Evaluation Material furnished
to you or your Representatives or otherwise in your or your Representatives'
possession and destroy all copies, reproductions, summaries, extracts or
compilations thereof or based thereon and all other Evaluation Material prepared
by you or your Representatives shall be destroyed and no copy thereof shall be
retained. Any destruction of Evaluation Material pursuant to this paragraph
shall be certified to Shorewood in writing by an authorized officer.
Notwithstanding the return or destruction of the Evaluation Material, you and
your Representatives will continue to be bound by their respective obligations
of confidentiality and other obligations hereunder (including with respect to
any oral Evaluation Material).
You understand and acknowledge that neither Shorewood nor any
of Shorewood's Representatives (and none of their respective officers,
directors, employees, agents, controlling persons) makes any express or implied
representation or warranty as to the accuracy or completeness or the Evaluation
Material. You agree that, except as may otherwise be provided in a definitive
agreement between the par-
3
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C. Cato Ealy
December 10, 1999
Page 4
ties hereto with respect to a Transaction, neither Shorewood nor any of
Shorewood's Representatives (and none of their respective officers,
directors, employees, agents, controlling persons) shall have any liability
to you or to any of your Representatives relating to, arising out of or
resulting from the Evaluation Material or the use thereof or any errors
therein or omissions therefrom. You further agree that you are not entitled
to rely on the accuracy or completeness of the Evaluation Material and that
only those representations or warranties which are made in a definitive
agreement regarding any Transaction, when, as and if executed, and subject to
such limitations and restrictions as may be specified therein, will have any
legal effect.
You further acknowledge and agree that Shorewood reserves the
right, in its sole discretion, (a) to conduct any process for any transaction
involving Shorewood or its subsidiaries in such manner as Shorewood may
determine in its sole discretion (including, without limitation, negotiating
with any other interested parties and entering into a definitive agreement with
any third party without notice to you or any other person), (b) to change the
procedures relating to any process or our consideration of any transaction
involving Shorewood or its subsidiaries at any time without notice to you or any
other person, (c) to reject any and all proposals made by you or any of your
Representatives with regard to a Transaction, and (d) to terminate discussions
and negotiations with you at any time and request the return of all Evaluation
Material.
You agree that for a period commencing on the date hereof
and terminating at the sooner of the date upon which (w) a person acquires,
directly or indirectly, more than two thirds of the assets of Shorewood or
shares or rights to purchaser shares more than two-thirds of the outstanding
voting power represented by the issued and outstanding capital stock of
Shorewood; (y) a transaction pursuant to which persons who were the
beneficial owners of Shorewood voting securities immediately prior to such
transaction cease to beneficially own more than two-thirds of the voting
power of the successor entity is consummated; or (z) the persons who
constitute the board of directors of Shorewood as of the date hereof (or
their nominees or designees) cease to represent more than a majority of board
of directors of Shorewood (the "Change in Control Date") or at 11:59 p.m.,
New York City time, on the first anniversary hereof (the "Standstill
Period"), unless such shall have been specifically invited in writing by the
Board of Directors of Shorewood, neither you nor any of your affiliates or
Representatives will in any manner, directly or indirectly, (a) effect or
seek, offer or propose (whether publicly or otherwise) to effect, or cause to
participate in or in any way assist any other person to effect or seek, offer
or propose (whether publicly or otherwise) to effect or participate in (i)
any acquisition, di-
4
<PAGE>
C. Cato Ealy
December 10, 1999
Page 5
rectly or indirectly, by purchase or otherwise, of any securities (or
beneficial ownership thereof), or rights to acquire any securities, of
Shorewood or any subsidiary thereof or any successor to or person in control
of Shorewood or any assets of Shorewood or any subsidiary thereof or any such
successor or controlling person; (ii) any tender or exchange offer, merger,
consolidation or other business combination involving Shorewood or any of its
subsidiaries; (iii) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to Shorewood or
any of its subsidiaries or any material portion of the business of Shorewood
or any of its subsidiaries; or (iv) any direct or indirect "solicitation" of
"proxies" (as such terms are used in the proxy rules of the Securities and
Exchange Commission) or written consents in lieu of a meeting as to any
voting securities of Shorewood (or seek to advise or influence any person
with respect to the voting of any voting securities of Shorewood); (b) act,
alone or in concert with others, to nominate directors for election at any
meeting of Shorewood's stockholders or to seek to control, replace or
influence the management, Board of Directors or policies of Shorewood or
propose any matter for submission to a vote of stockholders of Shorewood; (c)
make any public announcements with respect to, or submit a proposal for, an
offer of (with or without conditions) any extraordinary transaction involving
Shorewood or any of its subsidiaries or assets or relating to any of the
matters set forth in subsection (a) above; (d) take any action which might
force Shorewood to make a public announcement regarding any of the matters
set forth in subsection(a) above; (e) form, join or in any way participate in
a "group" (as defined under the Securities Exchange Act of 1934, as amended)
with respect to any of the foregoing; or (f) enter into any discussions or
arrangements with any third party with respect to any of the foregoing or
advise, assist, encourage, finance or seek to persuade others to take any
action with respect to the foregoing. You also agree during the Standstill
Period not to request Shorewood (or its Representatives), directly or
indirectly, to amend or waive any provision of this paragraph (including this
sentence).
In consideration of the Evaluation Material being furnished
hereunder, you agree that, for a period commencing on the date hereof and
terminating at the sooner of the Change in Control Date or 11:59 p.m., New York
City time, on the first anniversary hereof, neither you nor any of your
affiliates will, directly or indirectly, solicit for hire or hire as a director,
officer, employee, independent contractor, consultant or advisor any person
employed by Shorewood on the date hereof in an executive or significant
managerial, financial, sales, marketing, research, development, manufacturing
or technical position with whom you or your affiliates has had contact or who
becomes known to you in connection with your consideration of a Transaction,
without obtaining the prior written consent of Shorewood. Notwith
5
<PAGE>
C. Cato Ealy
December 10, 1999
Page 6
standing the foregoing, this paragraph shall not prohibit you or your
affiliates from discussing employment opportunities with, or hiring, any
employee of Shorewood who contacts you or initiates such discussions with you
or your affiliates without any direct solicitation pursuant to a general
solicitation for employment which is not specifically directed at employees
of Shorewood or any of its subsidiaries.
You understand and agree that no contract or agreement
providing for any Transaction shall be deemed to exist between the parties
unless and until a definitive agreement has been executed and delivered by the
parties. In connection with your consideration of a Transaction, you acknowledge
that the Board of Directors of Shorewood has not made any determination to enter
into any transaction or agreement with you solely by virtue of Shorewood's
execution of this letter agreement.
The provisions of this letter agreement cannot be amended
or waived except with the written consent of each of the parties hereto. You
and Shorewood each understand and agree that no failure or delay by the other
party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or future exercise thereof or the exercise of any other right,
power or privilege hereunder. No modification, waiver, termination,
rescission, discharge or cancellation of this letter agreement and no waiver
of any provision of or default under this letter agreement by a party shall
affect the right of such party thereafter to enforce any other provision or
to exercise any right or remedy in the event of any other default, whether or
not similar.
You and Shorewood further understand and agree that money
damages would be an inadequate remedy for any actual or threatened breach of
this letter agreement by the breaching party or any of its Representatives and
that the non-breaching party shall be entitled to equitable relief, including
injunctive relief, to prevent any breach of the provisions of this letter
agreement, without the necessity of proving actual damages or of posting any
bond, and specific performance, as a remedy for any such breach. Such remedies
shall not be deemed to be the exclusive remedies for a breach of this letter
agreement, but shall be without prejudice to and in addition to all other rights
and remedies available to the non-breaching party.
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<PAGE>
C. Cato Ealy
December 10, 1999
Page 7
If any term, provision, covenant or restriction of this letter
agreement is held by a final judgment (not subject to further appeal) of any
state or federal court located within the State of Delaware to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this letter shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
Each of the parties hereto irrevocably agrees that any
action, suit or other legal proceeding with respect to this letter agreement
or for recognition and enforcement of any judgment in respect hereof brought
by any other party hereto or its successors or assigns shall be brought and
determined in any federal court located in the State of Delaware or the
Chancery or other courts of the State of Delaware, and each of the parties
hereto irrevocably submits with regard to any such action, suit or other
proceeding for itself and in respect to its property, generally and
unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each
of the parties hereto irrevocably waives, and agrees not to assert, by way of
motion, as a defense, counterclaim or otherwise, in any action, suit or other
legal proceeding with respect to this letter agreement, (a) any claim that it
is not personally subject to the jurisdiction of the above-named courts for
any reason, (b) that it or its property is exempt or immune from jurisdiction
of any such court or from any legal process commenced in such courts
(whether through service of notice, attachment before judgment, attachment in
aid of execution of judgment, execution of judgment or otherwise), and (c) to
the fullest extent permitted by applicable law, that (i) such action, suit or
other legal proceeding in any such court is brought in an inconvenient forum,
(ii) the venue of such action, suit or other legal proceeding is improper or
(iii) this letter agreement, or the subject matter hereof, may not be
enforced in or by such court.
This letter agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute the same agreement and shall become a binding agreement when a
counterpart has been signed by each party and delivered to the other party. This
letter agreement constitutes the entire agreement between the parties solely
with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements, understanding and representations, whether oral or
written, of the parties in connection herewith. No prior drafts of this letter
agreement and no words or phrases from any such prior drafts shall be admissible
into evidence in any action, suit or other proceeding involving this letter
agreement. This letter agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
7
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C. Cato Ealy
December 10, 1999
Page 8
This letter agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
executed in and to be performed fully in that State and without regard to any
principles of conflicts or choice of law of that jurisdiction or any other
jurisdiction.
Please confirm your agreement with the foregoing by signing
and returning one copy of this letter agreement to the undersigned, whereupon
this letter agreement shall become a binding agreement between you and
Shorewood.
Very truly yours,
SHOREWOOD PACKAGING CORPORATION
By: /s/ Howard M Liebman
--------------------------------
Name: Howard M. Liebman
Title: President
ACCEPTED AND AGREED as of the date first written above:
By: /s/ C. Cato Ealy
------------------------------------
Name: C. Cato Ealy
Title: Vice President
Business Development & Planning
8
<PAGE>
Exhibit 2
STOCKHOLDERS AGREEMENT
This STOCKHOLDER AGREEMENT (this "Agreement") is made and
entered into as of this 16th day of February 2000 by and among International
Paper Company, a New York corporation ("Parent"), International Paper-37, Inc.,
a Delaware corporation and a direct wholly owned subsidiary of Parent
("Purchaser"), and the individuals and other parties listed on SCHEDULE A
attached hereto (each, a "Stockholder" and, collectively the "Stockholders").
All capitalized terms not otherwise defined herein shall have the meanings set
forth in the Merger Agreement (as defined below).
RECITALS
WHEREAS, the Stockholders desire that Shorewood Packaging
Corporation, a Delaware corporation (the "Company"), Parent and Purchaser enter
into an Agreement and Plan of Merger dated as of the date hereof (as the same
may be amended or supplemented, the "Merger Agreement") with respect to a tender
offer by Purchaser to purchase any and all of the outstanding shares of common
stock, $.01 par value, of the Company ("Company Common Stock") and the
associated rights to purchase preferred stock, issued pursuant to the Rights
Agreement, dated as of June 12, 1995, between the Company and The Bank of New
York, and a business combination whereby Purchaser will be merged with and into
the Company (the "Merger"); and
WHEREAS, the Stockholders are executing this Agreement as an
inducement to Parent to enter into and execute, and to cause Purchaser to enter
into and execute, the Merger Agreement.
NOW, THEREFORE, in consideration of the execution and delivery
by Parent and Purchaser of the Merger Agreement, the foregoing premises and the
mutual covenants, conditions and agreements contained herein and therein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each
Stockholder represents and warrants to Parent and Purchaser in respect of
himself or itself as follows:
(a) The Stockholder is the beneficial owner of, and has good
and marketable title to, the number of shares of Company Common Stock set
forth opposite the Stockholder's name in SCHEDULE A hereto (as may be
adjusted from time to time pursuant to Section 5, the Stockholder's
"Shares"). Except for the Stockholder's Shares and any other shares of
Common Company Stock subject hereto, the Stockholder is not the record or
beneficial owner of any shares of capital stock of the Company other than
shares issuable upon the exercise of options and Shares otherwise subject
to this Agreement due to their ownership by other Stockholders party
hereto. The Stockholder has the sole right to vote such Stockholder's
Shares, and none of such Stockholder's Shares is subject to any voting
trust or other agreement, arrangement or restriction with
<PAGE>
respect to the voting of such Stockholder's Shares, except as contemplated
by this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by the Stockholder and constitutes the legal, valid and binding
obligation of the Stockholder, enforceable against the Stockholder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity. Neither the execution and delivery of this Agreement
nor the consummation by the Stockholder of the transactions contemplated
hereby will result in a violation of, or a default under, or conflict with,
any contract, trust, commitment, agreement, understanding, arrangement or
restriction of any kind to which the Stockholder is a party or bound or to
which the Stockholder's Shares are subject. Except for filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
consummation by the Stockholder of the transactions contemplated hereby
will not violate, or require any consent, approval, or notice under, any
provision of any judgment, order, decree, statute, law, rule or regulation
applicable to the Stockholder or the Stockholder's Shares. If the
Stockholder is married and the Stockholder's Shares constitute community
property or otherwise need spousal or other approval to be legal, valid and
binding, this Agreement has been duly authorized, executed and delivered
by, and constitutes a valid and binding agreement of, the Stockholder's
spouse, enforceable against such spouse in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally. No trust of which such Stockholder is a
trustee requires the consent of any beneficiary to the execution and
delivery of this Agreement or to the consummation of the transactions
contemplated hereby. Each Stockholder hereby grants to Parent an
irrevocable proxy with full power of substitution and resubstitution which
shall be deemed coupled with an interest to vote such Stockholder's Shares
as contemplated by Sections 3(c) and 4 hereof.
(c) The Stockholder's Shares and the certificates representing
such Shares are now and at all times during the term hereof will be held by
the Stockholder, or by a nominee or custodian for the benefit of the
Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder and except for such liens and encumbrances that will not
interfere with the Stockholder's ability to perform his or its obligations
hereunder.
(d) No broker, investment banker, financial adviser or other
person is entitled to any broker's, finder's, financial adviser's or other
similar fee or commission from Parent, Purchaser or the Company in
connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of the Stockholder in his individual
capacity.
(e) The Stockholder understands and acknowledges that Parent
is entering into, and causing Purchaser to enter into, the Merger Agreement
in reliance upon the Stockholder's execution and delivery of this
Agreement.
2
<PAGE>
SECTION 2. AGREEMENT TO TENDER OR SELL.
(a) Each Stockholder hereby agrees that he shall tender all of
his Shares into the Offer (as defined in the Merger Agreement) and that he
shall not withdraw any Shares so tendered. The parties agree that each of
the Stockholders will, for all Shares tendered thereby in the Offer and
accepted for payment by Purchaser, receive a price for each of its Shares
equal to $21.00, or such higher per share consideration paid to other
stockholders who have tendered into the Offer.
(b) Each Stockholder hereby agrees to enter into such
agreements and take such actions as are necessary to provide that all
Options held by such Stockholder are cashed out in connection with the
Merger.
SECTION 3. COVENANTS. Each Stockholder, severally and not jointly, agrees
with, and covenants to, Parent and Purchaser as follows:
(a) The Stockholder shall not, except as contemplated by the
terms of this Agreement, (i) transfer (the term "transfer" shall include,
without limitation, for the purposes of this Agreement, any sale, gift,
pledge or other disposition), any or all of the Stockholder's Shares or any
interest therein, (ii) enter into any contract, option or other agreement
or understanding with respect to any transfer of any or all of such Shares
or any interest therein, (iii) grant any proxy, power-of-attorney or other
authorization or consent in or with respect to such Shares, (iv) deposit
such Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Shares or (v) subject to Section 7, take
any other action that would in any way restrict, limit or interfere with
the performance of his obligations hereunder or the transactions
contemplated hereby. Notwithstanding anything to the contrary provided in
this Agreement, the Stockholder shall have the right to transfer Shares to
(i) any Family Member (as defined below), (ii) the trustee or trustees of a
trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members, (iii) a charitable
remainder trust for the benefit of the Stockholder and/or one or more
Family Members and/or designated charities, (iv) a partnership of which the
Stockholder or a Family Member owns all of the partnership interests or (v)
the executor, administrator personal representative of the estate of the
Stockholder; PROVIDED, THAT in the case of any such transfer, the
transferee shall execute an agreement to be bound by the terms of this
Agreement. "Family Member" shall mean (i) the Stockholder's spouse and (ii)
any other natural person who is a lineal descendant of the Stockholder or
the Stockholder's spouse or is related to the Stockholder or the
Stockholder's spouse within the second degree.
(b) The Stockholder shall not, nor shall he permit any
investment banker, attorney or other adviser or representative of the
Stockholder to, directly or indirectly, (i) solicit, initiate or encourage
the submission of, any Acquisition Proposal or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set
forth in the preceding sentence by an investment banker, attorney or
3
<PAGE>
other adviser or representative of the Stockholder shall be deemed to be a
violation of this Section 3(b) by the Stockholder.
(c) At any meeting of stockholders of the Company called to
vote upon the Merger and the Merger Agreement or at any adjournment thereof
or in any other circumstances upon which a vote, consent or other approval
(including by written consent) with respect to the Merger and the Merger
Agreement is sought, the Stockholder shall, including by initiating a
written consent solicitation if requested by Parent, vote (or cause to be
voted) the Stockholder's Shares in favor of the Merger, the adoption by the
Company of the Merger Agreement and the approval of the terms thereof and
each of the other transactions contemplated by the Merger Agreement.
(d) Until after the Merger is consummated or the Merger
Agreement is terminated, the Stockholder shall use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by the Merger Agreement.
SECTION 4. COMPETING TRANSACTIONS. Each Stockholder hereby agrees to vote
against or refrain from giving any consent in favor of, and not to tender his
shares into any offer relating to, (i) any merger agreement or merger (other
than the Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, joint venture, recapitalization,
dissolution, liquidation or winding up of or by the Company and (ii) any
amendment of the Company's certificate of incorporation or by-laws or other
proposal or transaction including any consent solicitation to remove or elect
any directors of the Company) involving the Company or any of its subsidiaries
which amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify, or result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under or with respect to, the Offer, the Merger, the Merger Agreement or any of
the other transactions contemplated by the Merger Agreement (each of the
foregoing in clause (i) or (ii) above, a "Competing Transaction").
SECTION 5. CERTAIN EVENTS. Each Stockholder agrees that this Agreement
and the obligations hereunder shall attach to the Stockholder's Shares and shall
be binding upon any person or entity to which legal or beneficial ownership of
such Shares shall pass, whether by operation of law or otherwise, including
without limitation the Stockholder's heirs, guardians, administrators or
successors. In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of the
Company affecting the Company Common Stock, or the acquisition of additional
shares of Company Common Stock or other securities or rights of the Company by
any Stockholder, the number of Shares listed on SCHEDULE A beside the name of
the Stockholder shall be adjusted appropriately and this Agreement and the
obligations hereunder shall attach to any additional shares of Company Common
Stock or other securities or rights of the Company issued to or acquired by the
Stockholder.
4
<PAGE>
SECTION 6. VOIDABILITY. If prior to the execution hereof, the board of
directors of the Company shall not have duly and validly authorized and approved
by all necessary corporate action the acquisition of Company Common Stock by
Parent and Purchaser and the other transactions contemplated by this Agreement
and the Merger Agreement, so that by the execution and delivery hereof Parent or
Purchaser would become, or could reasonably be expected to become, an
"interested stockholder" with whom the Company would be prevented for any period
pursuant to Section 203 of the Delaware General Corporation Law from engaging in
any "affiliated transaction" (as such terms are defined in Section 203 of the
Delaware General Corporation Law), then this Agreement shall be void and
unenforceable until such time as such authorization and approval shall have been
duly and validly obtained.
SECTION 7. STOCKHOLDER CAPACITY. No person executing this Agreement who
is or becomes during the term hereof a director or officer of the Company makes
any agreement or understanding herein in his capacity as such director or
officer. Each Stockholder signs solely in his capacity as the record holder and
beneficial owner of, or the trustee of a trust whose beneficiaries are the
beneficial owners of, such Stockholder's Shares and nothing herein shall limit
or affect any actions taken by a Stockholder in his capacity as an officer or
director of the Company to the extent specifically permitted by the Merger
Agreement.
SECTION 8. FURTHER ASSURANCES. Each Stockholder shall, upon request of
Parent or Purchaser, execute and deliver any additional documents and take such
further actions as may reasonably be deemed by Parent or Purchaser to be
necessary or desirable to carry out the provisions hereof.
SECTION 9. TERMINATION. This Agreement, and all rights and obligations of
the parties hereunder, shall terminate upon the earlier of (a) the date upon
which the Merger Agreement is terminated in accordance with its terms or (b) the
date that Parent, Purchaser or the Company shall have purchased and paid for the
Shares of the Stockholders pursuant to Section 2; PROVIDED, HOWEVER, that the
termination of this Agreement shall not relieve any party of liability for
breach of this Agreement prior to termination.
SECTION 10. PUBLIC ANNOUNCEMENTS. Each Stockholder will consult with
Parent before issuing, and provide Parent with the opportunity to review an
comment upon, any press release or other public statements with respect to the
transactions contemplated by this Agreement and the Merger Agreement, and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange.
SECTION 11. MISCELLANEOUS.
(a) Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to such terms in the
Merger Agreement.
(b) All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof
of delivery) to the parties at the
5
<PAGE>
following addresses (or at such other address for a party as shall be
specified by like notice): (i) if to Parent or Purchaser, to the address
set forth in the Merger Agreement; and (ii) if to any Stockholder, to the
address set forth on SCHEDULE A hereto, or such other address as may be
specified in writing by such Stockholder.
(c) Headings of Sections of this Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
(d) This Agreement may be executed by the parties 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 of this
Agreement each signed by less than all, but together signed by all of the
parties hereto. This Agreement shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the
other parties.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its
rules of conflict of laws or those of any other jurisdiction.
(f) Each of the parties hereto (1) (A) consents to submit
itself to the personal jurisdiction of any Federal court located in the
State of Delaware or any Delaware state court in the event any dispute
arises out of this Agreement or any of the transactions contemplated by
this Agreement and (B) agrees that it will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any
such court, and (2) (A) agrees that any action under this Agreement may
also be brought in any Federal or state court located in the City of New
York, Borough of Manhattan and (B) agrees that it will not by motion or
other action contest the bringing of any such action in the above mentioned
courts rather than in any other venue or forum.
(g) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise, by any of the parties without the prior
written consent of the other parties, except by laws of descent. Any
assignment in violation of the foregoing shall be void.
(h) If any term, provisions, covenant or restriction herein,
or the application thereof of any circumstance, shall, to any event, be
held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions herein and the application thereof to any other circumstances,
shall remain in full force and effect, shall not in any way be affected,
impaired or invalidated, and shall be enforced to the fullest extent
permitted by law.
(i) The parties hereto agree that irreparable damage would
occur if any of the provisions of this Agreement was not performed in
accordance with its specific terms or as otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
6
<PAGE>
specifically the terms and provisions of this Agreement in any court
referred to in Section 11(f) of this Agreement, this being in addition to
any other remedy to which they are entitled at law or in equity. In any
such action for specific performance, no party will be required to post a
bond.
(j) No amendment, modification or waiver in respect of this
Agreement shall be effective against any parry unless it shall be in
writing and signed by such party.
(k) This Agreement may be executed by facsimile signatures by
any party and such signature shall be deemed binding for all purposes
hereof, without delivery of an original signature being thereafter
required.
(l) This Agreement, including the Schedule hereto, constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations,
representations and warranties, and discussions, whether oral or written,
among the parties hereto, with respect to the subject matter hereof. There
are no conditions, covenants, agreements, representations, warranties or
other provisions, express or implied, collateral, statutory or otherwise,
relating to the subject matter of this Agreement. No prior drafts of this
Agreement or portions thereof shall be admissible into evidence in any
action, suit or other proceeding involving this Agreement.
(m) Whenever this Agreement requires Purchaser to take any
action, such requirement shall be deemed to include an undertaking on the
part of Parent to cause Purchaser to take such action and a guarantee of
the performance thereof.
7
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Stockholders have caused
this Agreement to be duly executed and delivered as of the date first written
above.
INTERNATIONAL PAPER COMPANY
By: /s/ David W. Oskin
---------------------------
Name: David W. Oskin
Title: Executive Vice President
INTERNATIONAL PAPER - 37, INC.
By: /s/ James W. Guedry
---------------------------
Name: James W. Guedry
Title: President
/s/ Andrew N. Shore
--------------------------
Andrew N. Shore
/s/ Marc P. Shore
--------------------------
Marc P. Shore
SHORE FAMILY PARTNERSHIP, L.P.
By: SHORE FAMILY LLC, as sole
general partner
By: /s/ Marc P. Shore
---------------------------
Name: Marc P. Shore
Title: Manager
PAUL SHORE ESTATE MARITAL TRUST
By: /s/ Marc P. Shore
---------------------------
Name: Marc P. Shore
Title: Trustee
/s/ Howard M. Liebman
---------------------------
Howard M. Liebman
S-1
<PAGE>
PAUL SHORE MARITAL TRUST
By: /s/ Marc P. Shore
---------------------------
Name: Marc P. Shore
Title: Trustee
S-2
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NUMBER OF SHARES OF
NAME AND ADDRESS OF STOCKHOLDER COMPANY COMMON STOCK
- --------------------------------------------------------------------------------
<S> <C>
Shore Family Partnership, L.P. 2,700,000
c/o Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172-0124
- --------------------------------------------------------------------------------
Marc P. Shore 1,007,687
c/o Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172-0124
- --------------------------------------------------------------------------------
Paul Shore Estate Marital Trust (testamentary 586,062
trust)
c/o Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172-0124
- --------------------------------------------------------------------------------
Andrew N. Shore 163,402
c/o Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172-0124
- --------------------------------------------------------------------------------
Paul Shore Marital Trust 108,258
c/o Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172-0124
- --------------------------------------------------------------------------------
Howard M. Liebman 86,736
1302 Azure Place
Hewlett Harbor, NY 11557
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 3
AGREEMENT AND
PLAN OF MERGER
BY AND AMONG
INTERNATIONAL PAPER COMPANY,
INTERNATIONAL PAPER - 37, INC.
AND
SHOREWOOD PACKAGING CORPORATION
DATED AS OF FEBRUARY 16, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
THE OFFER
<S> <C> <C>
1.1 The Offer.................................................................1
1.2 Company Action............................................................3
1.3 Directors.................................................................5
ARTICLE II
THE MERGER
2.1 The Merger................................................................6
2.2 Effective Time............................................................6
2.3 Closing of the Merger.....................................................7
2.4 Effects of the Merger.....................................................7
2.5 Certificate of Incorporation and By-laws..................................7
2.6 Directors.................................................................7
2.7 Officers..................................................................7
2.8 Conversion of Shares......................................................7
2.9 Delivery of Merger Consideration..........................................7
2.10 Dissenting Shares.........................................................9
2.11 Treatment of Company Options and Stock Units.............................10
2.12 Adjustments..............................................................10
2.13 Stockholders' Meeting....................................................10
2.14 Merger Without Meeting of Stockholders...................................11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Existence; Good Standing; Corporate Authority............................11
3.2 Authorization, Validity and Effect of Agreements.........................12
3.3 Capitalization...........................................................12
3.4 Subsidiaries.............................................................13
3.5 Other Interests..........................................................13
3.6 No Conflict; Required Filings and Consents...............................14
3.7 Compliance; Permits......................................................15
3.8 SEC Documents............................................................15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
3.9 Financial Statements; Undisclosed Liabilities............................16
3.10 Absence of Certain Changes...............................................16
3.11 Material Contracts.......................................................17
3.12 Litigation...............................................................18
3.13 Taxes....................................................................18
3.14 Employee Benefit Plans...................................................19
3.15 Labor and Employment Matters.............................................21
3.16 No Brokers...............................................................21
3.17 Properties...............................................................21
3.18 Environmental Laws.......................................................22
3.19 Related Party Transactions...............................................24
3.20 Intellectual Property....................................................24
3.21 State Takeover Statutes Inapplicable.....................................25
3.22 Product Liability........................................................25
3.23 Opinions of Financial Advisors...........................................25
3.24 Rights Agreement.........................................................25
3.25 Full Disclosure..........................................................25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
4.1 Existence; Good Standing; Corporate Authority............................26
4.2 Authorization, Validity and Effect of Agreements.........................26
4.3 No Conflict; Required Filings and Consents...............................27
4.4 No Brokers...............................................................28
4.5 Full Disclosure..........................................................28
4.6 No Prior Activities......................................................28
4.7 Financing................................................................28
ARTICLE V
COVENANTS
5.1 Conduct of Business by the Company Pending the Merger....................29
5.2 No Solicitation..........................................................31
5.3 Access to Information; Confidentiality...................................33
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
5.4 Consents; Approvals......................................................33
5.5 Indemnification and Insurance............................................33
5.6 Employee Benefits........................................................35
5.7 Notification of Certain Matters..........................................35
5.8 Further Action...........................................................36
5.9 Public Announcements.....................................................36
5.10 Financial Information....................................................36
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Offer....................................................................36
6.2 Stockholder Approval.....................................................36
6.3 No Injunction or Action..................................................36
6.4 Governmental Approval....................................................37
ARTICLE VII
TERMINATION
7.1 Termination..............................................................37
7.2 Effect of Termination....................................................39
7.3 Fees and Expenses........................................................39
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements................40
8.2 Notices..................................................................41
8.3 Assignment; Binding Effect...............................................41
8.4 Entire Agreement.........................................................41
8.5 Amendment................................................................42
8.6 Governing Law; Consent to Jurisdiction...................................42
8.7 Counterparts.............................................................42
8.8 Headings.................................................................42
8.9 Interpretation...........................................................42
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
8.10 Waivers..................................................................43
8.11 Incorporation of Exhibits................................................43
8.12 Severability.............................................................43
8.13 Enforcement of Agreement.................................................43
8.14 Waiver of Jury Trial.....................................................44
8.15 Company Disclosure Letter................................................44
8.16 Execution................................................................44
8.17 Personal Liability.......................................................44
8.18 Date for any Action......................................................44
8.19 Obligation of Parent and the Company.....................................44
8.20 Certain Definitions......................................................44
</TABLE>
Annex A
iv
<PAGE>
Exhibit 3
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as
of February 16, 2000, is by and among International Paper Company, a New York
corporation ("PARENT"), International Paper-37, Inc., a Delaware corporation and
a direct wholly owned subsidiary of Parent ("PURCHASER"), and Shorewood
Packaging Corporation, a Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, the Company and Parent have determined to engage in
the transactions (the "TRANSACTIONS") contemplated by this Agreement, including
(a) the commencement of an Offer (as defined below) by Purchaser to purchase for
cash all of the outstanding shares of common stock, $.01 par value, of the
Company ("COMPANY COMMON STOCK") together with the associated rights to purchase
preferred stock (the "RIGHTS"), issued pursuant to the Rights Agreement, dated
as of June 12, 1995 (the "RIGHTS AGREEMENT"), between the Company and The Bank
of New York, and (b) a business combination whereby Purchaser will be merged
with and into the Company in accordance with the Delaware General Corporation
Law (the "DGCL"), with the Company continuing as the surviving corporation of
such merger and a direct wholly-owned subsidiary of Parent (the "MERGER");
WHEREAS, the respective boards of directors of the Company,
Parent and Purchaser have each approved and declared advisable this Agreement
and the Transactions;
WHEREAS, the Board of Directors of the Company (the "BOARD")
(i) has determined that the Merger is advisable and in the best interests of the
Company and its stockholders, (ii) has approved the Merger, the Offer, this
Agreement and the other transactions contemplated hereby and (iii) recommends
that the Company's stockholders adopt this Agreement and the Merger and that the
Company's stockholders tender their shares pursuant to the Offer; and
WHEREAS, the Company, Parent and Purchaser desire to make
certain representations, warranties, covenants and agreements in connection with
the Offer and the Merger and also to prescribe various conditions to the Offer
and the Merger.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, representation, warranties and agreements contained herein,
the parties hereto agree as follows:
ARTICLE I
THE OFFER
1.1 THE OFFER.
(a) Provided that this Agreement shall not have been
terminated in accordance with Article VII and none of the events set forth in
ANNEX A hereto shall have occurred or be existing, Purchaser shall, and Parent
shall cause Purchaser to, as promptly as practicable after the
<PAGE>
date hereof (but in no event later than the tenth business day after the public
announcement of the terms of this Agreement), commence (within the meaning of
Rule 14d-2(a) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")), an offer (the "OFFER") to purchase any and all of the outstanding shares
of Company Common Stock (and associated Rights) at a price of Twenty-One United
States Dollars ($21.00) per share and associated Right (the "OFFER PRICE"), net
to the seller in cash, subject to reduction for any applicable withholding taxes
and, but only if such payment is to be made other than to the registered holder,
any applicable stock transfer taxes payable by such holder. The Offer will be
made pursuant to an Offer to Purchase and related Letter of Transmittal
containing the terms and conditions set forth in this Agreement. The initial
expiration date of the Offer shall be the twentieth business day from and after
the date the Offer is commenced (the "INITIAL EXPIRATION DATE"). The obligation
of Purchaser to accept for payment, purchase and pay for any shares of Company
Common Stock (and associated Rights) tendered pursuant to the Offer shall be
subject, except as provided in Section 1.1(b), only to the satisfaction of (i)
the condition that a number of shares of Company Common Stock representing not
less than fifty-one percent (51%) of the total issued and outstanding shares of
Company Common Stock on a fully-diluted basis (after giving effect to the
conversion or exercise of all outstanding options, warrants and other rights or
securities convertible into shares of Company Common Stock) (excluding any
shares of Company Common Stock held by the Company or any of its Subsidiaries)
on the date such shares are purchased pursuant to the Offer have been validly
tendered and not withdrawn prior to the expiration of the Offer (the "MINIMUM
CONDITION") and (ii) the other conditions set forth in ANNEX A hereto; PROVIDED,
HOWEVER, that Purchaser expressly reserves the right to waive any of the
conditions to the Offer (other than the Minimum Condition) and to make any
change in the terms or conditions of the Offer in its sole discretion, subject
to Section 1.1(b).
(b) Without the prior written consent of the Company,
neither Parent nor Purchaser will (i) decrease the price per share of Company
Common Stock payable in the Offer, (ii) decrease the number of shares of Company
Common Stock sought in the Offer, (iii) change the form of consideration payable
in the Offer, (iv) impose conditions to the Offer in addition to those set forth
in ANNEX A, (v) except as provided below or required by any rule, regulation,
interpretation or position of the Securities and Exchange Commission (the "SEC")
applicable to the Offer, change the expiration date of the Offer, or (vi)
otherwise amend or change any term or condition of the Offer in a manner adverse
to the holders of shares of Company Common Stock. Notwithstanding anything in
this Agreement to the contrary, without the consent of the Company, Purchaser
shall have the right to extend the Offer beyond the Initial Expiration Date in
the following events: (i) from time to time if, at the Initial Expiration Date
(or extended expiration date of the Offer, if applicable), any of the conditions
to the Offer (other than the Minimum Condition to which this clause does not
apply) shall not have been satisfied or waived, until such conditions are
satisfied or waived; (ii) for any period required by any rule, regulation,
interpretation or position of the SEC or the staff thereof applicable to the
Offer or any period required by applicable law; (iii) if all conditions to the
Offer (other than the Minimum Condition) are satisfied or waived, but the
Minimum Condition has not been satisfied, for one or more periods not to exceed
thirty (30) business days (for all such extensions); or (iv) if all of the
conditions to the Offer are satisfied or waived but the number of shares of
Company Common Stock validly tendered and not withdrawn is less than ninety
percent (90%) of the then outstanding number of shares of Company Common Stock
on a fully diluted basis, for an aggregate period not to exceed twenty (20)
business days (for all such extensions), PROVIDED that
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Purchaser shall accept and promptly pay for all securities tendered prior to the
date of such extension and shall otherwise meet the requirements of Rule 14d-11
under the Exchange Act in connection with each such extension. In addition,
Parent and Purchaser agree that Purchaser shall from time to time extend the
Offer, if requested by the Company, (i) if at the Initial Expiration Date (or
any extended expiration date of the Offer, if applicable), any of the conditions
to the Offer other than (or in addition to) the Minimum Condition shall not have
been waived or satisfied, until (taking into account all such extensions) the
earlier of June 30, 2000 or such earlier date upon which any such condition
(other than the Minimum Condition) shall not be reasonably capable of being
satisfied prior to June 30, 2000; or (ii) if at the Initial Expiration Date (or
any extended expiration date of the Offer, if applicable), all of the conditions
to the Offer other than the Minimum Condition shall have been waived or
satisfied and the Minimum Condition shall not have been satisfied, until the
earlier of ten (10) business days after such expiration date or June 30, 2000.
Upon the prior satisfaction or waiver of all the conditions to the Offer, and
subject to the terms and conditions of this Agreement, Purchaser will, and
Parent will cause Purchaser to, accept for payment, purchase and pay for, in
accordance with the terms of the Offer, all shares of Company Common Stock
validly tendered and not withdrawn pursuant to the Offer as soon as reasonably
practicable after the expiration of the Offer.
(c) As soon as reasonably practicable on the date of
commencement of the Offer, Parent and Purchaser shall file or cause to be filed
with the SEC a Tender Offer Statement on Schedule TO (together with any
amendments or supplements thereto, the "SCHEDULE TO") with respect to the Offer.
The Schedule TO will comply as to form and content in all material respects with
the applicable provisions of the federal securities laws and will contain the
offer to purchase and form of the related letter of transmittal (such Schedule
TO and such documents included therein pursuant to which the Offer will be made,
together with any supplements or amendments thereto, the "OFFER DOCUMENTS").
Parent and the Company each agrees to correct promptly any information provided
by it for use in the Offer Documents if and to the extent that such information
shall have become false or misleading in any material respect and to supplement
the information provided by it specifically for use in the Schedule TO or the
other Offer Documents to include any information that shall become necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Parent and Purchaser agree to take all steps
necessary to cause the Offer Documents as so corrected or supplemented to be
filed with the SEC and be disseminated to holders of shares of Company Common
Stock, in each case, as and to the extent required by applicable federal
securities laws. The Company and its counsel shall be given a reasonable
opportunity to review and comment on the Offer Documents prior to their being
filed with the SEC. Parent and Purchaser agree to provide to the Company and its
counsel any comments or other communications which Parent, Purchaser or their
counsel may receive from the Staff of the SEC with respect to the Offer
Documents promptly after receipt thereof.
1.2 COMPANY ACTION.
(a) The Company hereby consents to the Offer and
represents and warrants that the Board, at a meeting duly called and held has
(i) unanimously determined that this Agreement and the Transactions, including
the Offer, the Merger, and the purchase of shares of Company Common Stock and
associated Rights contemplated by the Offer, are advisable and fair to and in
the best interests of the Company and the Company's stockholders,
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(ii) unanimously approved and adopted this Agreement, certain agreements with
stockholders of the Company being entered into in connection herewith and the
Transactions, including the Offer, the Merger, and the purchase of shares of
Company Common Stock and associated Rights contemplated by the Offer, in
accordance with the requirements of the DGCL, which approval satisfies in full
the requirements of prior approval contained in Section 203(a)(1) of the DGCL,
(iii) unanimously resolved to recommend that the stockholders of the Company
accept the Offer, tender their shares of Company Common Stock and associated
Rights pursuant to the Offer and approve and adopt this Agreement and the Merger
and (iv) unanimously resolved to amend the Rights Agreement as contemplated
herein. The Company hereby consents to the inclusion in the Offer Documents, the
Schedule 14D-9 (as defined below) and the Proxy Statement (as defined below) (if
any) of such recommendation of the Board. The Company represents that (1) a
special committee of the Board (the "SPECIAL COMMITTEE") and the Board have
received the written opinion (the "GREENHILL FAIRNESS OPINION") of Greenhill &
Co., LLC ("GREENHILL") and (2) the Board has received the written opinion (the
"BEAR STEARNS FAIRNESS OPINION") of Bear, Stearns & Co. Inc. ("BEAR STEARNS"),
in each case stating that the proposed consideration to be received by the
holders of shares of Company Common Stock pursuant to the Offer and the Merger
is fair to such holders from a financial point of view. The Company has been
authorized by (1) Greenhill to permit, subject to the prior review and consent
by Greenhill (such consent not to be unreasonably withheld), the inclusion of
the Greenhill Fairness Opinion (or a reference thereto) in the Offer Documents
and the Schedule 14D-9 and (2) by Bear Stearns to permit, subject to the prior
review and consent by Bear Stearns (such consent not to be unreasonably
withheld), the inclusion of the Bear Stearns Fairness Opinion (or a reference
thereto) in the Offer Documents and the Schedule 14D-9. The Company has been
advised by each of its directors and by each executive officer of the Company
who as of the date hereof is actually aware (to the knowledge of the Company) of
the Transactions that each such person intends to tender pursuant to the Offer
all Shares owned by such person.
(b) The Company will cause its transfer agent to promptly
furnish Parent and Purchaser with a list of the Company's stockholders, mailing
labels and any available listing or computer file containing the names and
addresses of all record holders of shares of Company Common Stock and lists of
securities positions of shares of Company Common Stock held in stock
depositories and to provide to Parent and Purchaser such additional information
(including, without limitation, updated lists of stockholders, mailing labels
and lists of securities positions) and such other assistance as Parent or
Purchaser or their agents may reasonably request in connection with the Offer.
Subject to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Transactions, Parent and Purchaser and each of their
affiliates, associates and agents will hold in confidence the information
contained in any such labels, listings and files, will use such information only
in connection with the Offer and the Merger and, if this Agreement is
terminated, will deliver, and will use their reasonable efforts to cause their
agents to deliver, to the Company all copies and any extracts or summaries from
such information then in their possession or control.
(c) As soon as reasonably practicable on the date of
commencement of the Offer, the Company shall file with the SEC and disseminate
to holders of shares of Company Common Stock, in each case as and to the extent
required by applicable federal securities laws, a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with any amendments or
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supplements thereto, the "SCHEDULE 14D-9") that shall reflect the
recommendations of the Board referred to above. The Company and Parent each
agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 if and to the extent that it shall have become false or
misleading in any material respect and to supplement the information provided by
it specifically for use in the Schedule 14D-9 to include any information that
shall become necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company agrees to
take all steps necessary to cause the Schedule 14D-9 as so corrected or
supplemented to be filed with the SEC and to be disseminated to holders of
shares of Company Common Stock, in each case, as and to the extent required by
applicable federal securities laws. Parent and its counsel shall be given a
reasonable opportunity to review and comment on the Schedule 14D-9 prior to its
being filed with the SEC. The Company agrees to provide to Parent and Purchaser
and their counsel with any comments or other communications which the Company or
its counsel may receive from the Staff of the SEC with respect to the Schedule
14D-9 promptly after receipt thereof. Parent, Purchaser and the Company each
hereby agree to provide promptly such information necessary to the preparation
of the exhibits and schedules to the Schedule 14D-9 and the Offer Documents
which the respective party responsible therefor will reasonably request.
1.3 DIRECTORS.
(a) Promptly following the purchase of and payment for a
number of shares of Company Common Stock that satisfies the Minimum Condition,
and from time to time thereafter, Purchaser shall be entitled to designate the
number of directors, rounded up to the next whole number, on the Board that
equals the product of (i) the total number of directors on the Board (giving
effect to the election of any additional directors pursuant to this Section) and
(ii) the percentage that the number of shares of Company Common Stock
beneficially owned by Parent and Purchaser (including shares of Company Common
Stock paid for pursuant to the Offer), upon such acceptance for payment, bears
to the total number of shares of Company Common Stock outstanding, and the
Company shall take all action within its power to cause Purchaser's designees to
be elected or appointed to the Board, including, without limitation, increasing
the number of directors, and seeking and accepting resignations of incumbent
directors. At such time, the Company will also use its best efforts to cause
individual directors designated by Purchaser to constitute the number of
members, rounded up to the next whole number, on (i) each committee of the Board
other than any such committee of such board established to take action under
this Agreement and (ii) each board of directors of each Subsidiary (as defined
below) of the Company, and each committee thereof, that represents the same
percentage as such individuals represent on the Board. Notwithstanding the
foregoing, in the event that Purchaser's designees are to be appointed or
elected to the Board, until the Effective Time (as defined below), such board of
directors shall have at least two directors who are directors on the date of
this Agreement and who are not officers of the Company (the "CONTINUING
DIRECTORS"); provided that in the event that the number of Continuing Directors
shall be reduced below two for any reason whatsoever, any remaining Continuing
Directors (or Continuing Director, if there shall be only one remaining) shall
be entitled to designate persons to fill such vacancies who shall be deemed to
be Continuing Directors for purposes of this Agreement. As used in this
Agreement, the term "SUBSIDIARY" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, of
which such party directly or indirectly owns or controls at least a majority of
the securities or
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other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner.
(b) The Company's obligations to appoint Purchaser's
designees to the Board shall be subject to Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions,
and shall include in the Schedule 14D-9 such information with respect to the
Company and its officers and directors, as Section 14(f) and Rule 14f-1 require
in order to fulfill its obligations under this Section. Parent and Purchaser
shall supply to the Company, and be solely responsible for, any information with
respect to themselves and their nominees, officers, directors and affiliates
required by Section 14(f) and Rule 14f-1.
(c) Following the election or appointment of Purchaser's
designees pursuant to Section 1.3(a) and until the Effective Time, the approval
of the Continuing Directors shall be required to authorize (and such
authorization shall constitute the authorization of the Company's board of
directors and no other action on the part of the Company, including any action
by any other director of the Company, shall be required to authorize) any
termination of this Agreement by the Company, any amendment of this Agreement
requiring action by the Company's board of directors, any amendment of the
certificate of incorporation or bylaws of the Company, any extension of time for
performance of any obligation or action hereunder by Parent or Purchaser, any
waiver of compliance with any of the agreements or conditions contained herein
for the benefit of the Company and any material transaction with Parent,
Purchaser or any affiliate thereof.
ARTICLE II
THE MERGER
2.1 THE MERGER. At the Effective Time (as defined in
Section 2.2 below) and upon the terms and subject to the conditions of this
Agreement and in accordance with the DGCL, Purchaser will be merged with and
into the Company. Following the Merger, the Company will continue as the
surviving corporation (the "SURVIVING CORPORATION") and as a wholly owned
subsidiary of Parent, and the separate corporate existence of Purchaser will
cease in accordance with the DGCL. Subject to the terms and conditions of this
Agreement, Parent and Purchaser agree to use all reasonable efforts to cause the
Effective Time to occur as soon as practicable after the Stockholder Meeting
with respect to the Merger or the purchase by Purchaser of 90% or more of the
outstanding shares of Company Common Stock pursuant to the Offer.
2.2 EFFECTIVE TIME. Subject to the provisions of this
Agreement, the parties will cause the Merger to be consummated by filing an
appropriate certificate of merger (the "CERTIFICATE OF MERGER") with the
Secretary of State of the State of Delaware in such form as required by, and
executed in accordance with, the relevant provisions of the DGCL as soon as
practicable on or after the Closing Date (as defined in Section 2.3 below). The
Merger will become effective upon such filing or at such time thereafter as is
provided in the Certificate of Merger (the "EFFECTIVE TIME," and the date of
such effectiveness shall be the "EFFECTIVE DATE").
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2.3 CLOSING OF THE MERGER. The closing of the Merger (the
"CLOSING") will take place on a date and at a place in New York, New York to be
specified by the parties, which shall be no later than the second business day
after satisfaction or waiver (as permitted by this Agreement and applicable law)
of all of the conditions set forth in ARTICLE VI hereof (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions) (the "CLOSING DATE"), unless
the parties agree to another time, date or place in writing.
2.4 EFFECTS OF THE MERGER. The Merger will have the
effects set forth in the DGCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all properties, rights, privileges,
powers and franchises of the Company and Purchaser will vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Purchaser
will become the debts, liabilities and duties of the Surviving Corporation.
2.5 CERTIFICATE OF INCORPORATION AND BY-LAWS. Subject to
the provisions of Section 5.5, the certificate of incorporation and bylaws of
Purchaser in effect immediately prior to the Effective Time will be the
certificate of incorporation and bylaws of the Surviving Corporation until
respectively amended in accordance with their terms and applicable law.
2.6 DIRECTORS. The directors of Purchaser at the
Effective Time will be the initial directors of the Surviving Corporation, each
to hold office in accordance with the certificate of incorporation and bylaws of
the Surviving Corporation until such director's successor is duly elected and
qualified.
2.7 OFFICERS. The officers of the Company as of the
Effective Time will be the initial officers of the Surviving Corporation until
such officer's successor is duly elected or appointed and qualified.
2.8 CONVERSION OF SHARES. At the Effective Time and
without any action on the part of the holder thereof, subject to Section 2.10,
each issued and outstanding share of Company Common Stock will convert into the
right to receive an amount in cash, without interest, equal to Twenty-One United
States Dollars ($21.00) (the "MERGER CONSIDERATION"). As a result of the Merger,
each issued and outstanding share of common stock of Purchaser will be converted
into and become one fully paid and non-assessable share of common stock of the
Surviving Corporation. Notwithstanding anything contained in this Section 2.8 to
the contrary, each share of Company Common Stock issued and held in the
Company's treasury immediately before the Effective Time, and each share of
Company Common Stock held by Parent, Purchaser, any other Subsidiary of Parent
or any Subsidiary of the Company immediately before the Effective Time, will, by
virtue of the Merger, cease to be outstanding and will be cancelled and retired
without payment of any consideration therefor.
2.9 DELIVERY OF MERGER CONSIDERATION.
(a) Promptly after the Effective Time, Parent shall
deposit or cause to be deposited in trust (the "PAYMENT FUND") with an agent
designated by Parent (the "PAYMENT AGENT") for the benefit of the holders of
certificates representing the shares of Company Common Stock issued and
outstanding as of the Effective Time (collectively "CERTIFICATES"), the
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aggregate Merger Consideration, as and when needed, to be paid in respect of the
shares of Company Common Stock. The Payment Fund shall not be used for any other
purpose. The Payment Fund may be invested by the Payment Agent, as directed by
Surviving Corporation, in (i) obligations of or guaranteed by the United States,
(ii) commercial paper rated A-1, P-1 or A-2, P-2, and (iii) certificates of
deposit, bank repurchase agreements and bankers acceptances of any bank or trust
company organized under federal law or under the law of any state of the United
States or of the District of Columbia that has capital, surplus and undivided
profits of at least $1 billion or in money market funds which are invested
substantially in such investments. Any net earnings with respect thereto shall
be paid to the Surviving Corporation as and when requested by the Surviving
Corporation.
(b) As soon as reasonably practicable after the Effective
Time, Parent will instruct the Payment Agent to mail to each holder of record of
Company Common Stock immediately before the Effective Time (excluding any shares
of Company Common Stock cancelled pursuant to Section 2.8):
(1) a letter of transmittal (the "LETTER OF
TRANSMITTAL") (which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon delivery of such
Certificates to the Payment Agent and will be in such form and have such other
provisions as Parent reasonably specifies), and
(2) instructions for use in effecting the
surrender of each Certificate in exchange for the aggregate Merger Consideration
with respect to the shares of Company Common Stock formerly represented thereby.
(c) Parent and the Surviving Corporation shall cause the
Payment Agent to pay to the holders of a Certificate, as soon as practicable
after receipt of any Certificate (or in lieu of any such Certificate which has
been lost, stolen or destroyed, an affidavit of lost, stolen or destroyed share
certificates (including customary indemnity or bond against loss) in form and
substance reasonably satisfactory to Parent) together with the Letter of
Transmittal, duly executed, and such other documents as Parent or the Payment
Agent reasonably request, in exchange therefor a check in the amount equal to
the cash, if any, which such holder has the right to receive pursuant to the
provisions of this ARTICLE II. No interest shall be paid or accrued on any cash
payable upon the surrender of any Certificate. Each Certificate surrendered in
accordance with the provisions of this Section 2.9(c) shall be cancelled
forthwith.
(d) In the event of a transfer of ownership of shares of
Company Common Stock which is not registered in the transfer records of the
Company, the Merger Consideration may be paid to the transferee only if (i) the
Certificate representing such shares of Company Common Stock surrendered to the
Payment Agent in accordance with Section 2.9(c) hereof is properly endorsed for
transfer or is accompanied by appropriate and properly endorsed stock powers and
is otherwise in proper form to effect such transfer, (ii) the person requesting
such transfer pays to the Payment Agent any transfer or other taxes payable by
reason of such transfer or establishes to the satisfaction of the Payment Agent
that such taxes have been paid or are not required to be paid, and (iii) such
person establishes to the reasonable satisfaction of Parent that such transfer
would not violate any applicable federal or state securities laws.
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(e) At and after the Effective Time, each holder of a
Certificate that represented issued and outstanding shares of Company Common
Stock immediately prior to the Effective Time shall cease to have any rights as
a stockholder of the Company, except for the right to surrender his or her
Certificate in exchange for the Merger Consideration multiplied by the number of
shares represented by such Certificate and except as otherwise provided by
applicable law, and no transfer of shares of Company Common Stock shall be made
on the stock transfer books of the Surviving Corporation. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Payment Agent for any reason, they will be canceled and exchanged as provided in
this ARTICLE II, except as otherwise provided by applicable law.
(f) The Merger Consideration paid in the Merger shall be
net to the holder of shares of Company Common Stock in cash, and without
interest thereon, subject to reduction only for any applicable withholding taxes
and, but only if the Merger Consideration is to be paid other than to the
registered holder, any applicable stock transfer taxes payable by such holder.
(g) Promptly following the date which is one year after
the Effective Time, the Payment Agent shall deliver to the Surviving Corporation
all cash, certificates and other documents in its possession relating to the
transactions contemplated hereby, and the Payment Agent's duties shall
terminate. Thereafter, each holder of a certificate representing shares of
Company Common Stock (other than certificates representing Dissenting Shares)
may surrender such certificate to the Surviving Corporation and (subject to any
applicable abandoned property, escheat or similar law) receive in consideration
therefor the aggregate Merger Consideration relating thereto, without any
interest thereon. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation, the Company or the Payment Agent shall be liable to a holder of a
Certificate for any Merger Consideration properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) Any portion of the Merger Consideration made
available to the Payment Agent pursuant to Section 2.9(a) to pay for shares of
Company Common Stock for which appraisal rights have been perfected shall be
returned to Parent upon demand.
2.10 DISSENTING SHARES . Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that are issued and
outstanding immediately before the Effective Time and that are held by
stockholders who have not voted in favor of the Merger or consented thereto in
writing and who have properly exercised appraisal rights with respect thereto in
accordance with Section 262 of the DGCL (insofar as such Section is applicable
to the Merger and provides for appraisal rights with respect to it), shall not
be converted into the right to receive the Merger Consideration as provided in
Section 2.8 hereof, unless such holders fail to perfect or withdraw or otherwise
lose their rights to appraisal. Instead, ownership of such shares will entitle
the holder thereof to receive the consideration determined pursuant to Section
262 of the DGCL; PROVIDED, HOWEVER, that if such holder fails to perfect or
effectively withdraws such holder's right to appraisal and payment under the
DGCL, each of such shares shall thereupon be deemed to have been converted, at
the Effective Time, into the right to receive the Merger Consideration, without
any interest thereon, upon surrender of the Certificate or Certificates in the
manner provided in Section 2.8 hereof. The Company will give Parent (a) prompt
notice of any demands (or withdrawals of demands) for appraisal received by the
Company pursuant to the
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applicable provisions of the DGCL and any other instruments served pursuant to
the DGCL and received by the Company and (b) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company will not, except with the prior consent of Parent, make any
payment with respect to any such demands for appraisal or offer to settle, or
settle, any such demands.
2.11 TREATMENT OF COMPANY OPTIONS AND STOCK UNITS.
(a) Prior to the Initial Expiration Date, the Company
shall take all actions necessary and appropriate to provide that, upon the
Effective Time, each outstanding option to purchase shares or other similar
interest (collectively, the "OPTIONS") granted under any of the Company's stock
option plans or under any other plan or arrangement (the "OPTION PLANS") and
each outstanding warrant to purchase shares described in Section 3.3(b) of the
Company Disclosure Letter (collectively, the "WARRANTS"), whether or not then
exercisable or vested, shall be cancelled and, in exchange therefor, each holder
of such Option or Warrant shall receive an amount in cash in respect thereof, if
any, equal to the product of (i) the excess, if any, of the Merger Consideration
over the per share exercise price thereof and (ii) the number of shares subject
thereto (such payment to be net of applicable withholding taxes).
(b) Prior to the Initial Expiration Date, the Company
shall take all actions necessary and appropriate to provide that, upon the
Effective Time, each outstanding stock unit granted pursuant to the Company's
Incentive Program for Canadian Employees shall become vested and shall be
cancelled, and in exchange therefor, each holder thereof shall be entitled to
receive the Merger Consideration (such payment to be net of applicable
withholding taxes).
(c) The Company shall use its reasonable best efforts to
obtain all necessary waivers, consents or releases from holders of Options,
Warrants and stock units and shall take any such action as may be reasonably
necessary to give effect to, and to accomplish the transactions contemplated by,
this Section 2.11.
2.12 ADJUSTMENTS. If, during the period between the date
of this Agreement and the Effective Time, any change in the outstanding shares
of Company Common Stock shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares of Company Common Stock, or stock dividend thereon with a
record date during such period, the cash payable pursuant to the Offer, the
Merger Consideration and any other amounts payable pursuant to this Agreement
shall be appropriately adjusted.
2.13 STOCKHOLDERS' MEETING. If required by applicable law
to consummate the Merger, the Company, acting through the Board , shall, in
accordance with and to the extent permitted by applicable law:
(a) duly call, give notice of, convene and hold a special
meeting of its stockholders (the "STOCKHOLDERS MEETING") as soon as practicable
following the date on which Purchaser completes the purchase of shares of
Company Common Stock pursuant to the Offer (the "OFFER COMPLETION DATE") for the
purpose of considering and taking action upon this Agreement;
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(b) subject to its fiduciary duties under applicable law,
include in the Proxy Statement (as defined below) the recommendation of the
Board that stockholders of the Company vote in favor of the approval and
adoption of this Agreement and the Merger; and
(c) prepare and file with the SEC a preliminary proxy or
information statement relating to this Agreement and the Merger and use its
reasonable best efforts to obtain and furnish the information required to be
included in the Proxy Statement and, after consultation with Parent and
Purchaser, respond promptly to any comments made by the SEC with respect to the
preliminary proxy statement or information statement and cause a definitive
proxy or information statement relating to this Agreement and the Merger (such
proxy or information statement together with any and all amendments or
supplements thereto, the "PROXY STATEMENT") to be mailed to its stockholders at
the earliest practicable time following the expiration or termination of the
Offer.
At the Stockholders Meeting, Parent and Purchaser and any of
their respective Subsidiaries will vote, or cause to be voted, all shares of
Company Common Stock owned by them in favor of this Agreement and the
transactions contemplated hereby.
2.14 MERGER WITHOUT MEETING OF STOCKHOLDERS. If Parent,
Purchaser or any other Subsidiary of Parent shall acquire at least 90% of the
outstanding shares of Company Common Stock pursuant to the Offer or otherwise,
the parties hereto agree, subject to satisfaction or (to the extent permitted
hereunder) waiver of all conditions to the Merger, to take all necessary and
appropriate action to cause the Merger to be effective as soon as practicable
after the acceptance for payment and purchase of shares of Company Common Stock
pursuant to the Offer without the Stockholders Meeting.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure letter delivered prior
to the execution of this Agreement to Parent (the "COMPANY DISCLOSURE LETTER"),
the Company represents and warrants to Parent and Purchaser as of the date of
this Agreement as follows:
3.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. The Company is duly licensed
or qualified to do business as a foreign corporation and is in good standing
under the laws of any other state of the United States in which the character of
the properties owned or leased by it or in which the transaction of its business
makes such qualification necessary, except where the failure to be so qualified
or to be in good standing could not reasonably be expected to have a Company
Material Adverse Effect. As used herein, the term "Company Material Adverse
Effect" means a material adverse effect on (i) the business, properties,
operations results of operations or condition (financial or otherwise) of (x)
the Company and the Company's Subsidiaries taken as a whole or (y), for purposes
only of Article III of this Agreement, any one of the Company's plants; or (ii)
the ability of the Company to perform its obligations hereunder. Notwithstanding
the foregoing, none of the following shall be deemed, either alone or in
combination, to constitute a "COMPANY MATERIAL ADVERSE EFFECT:" (i) a change in
the market price or trading volume of Company Common Stock, (ii) any adverse
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change, event or effect that is caused by conditions affecting the economy of
the United States generally or the economy of any nation or region in which the
Company or any of its Subsidiaries conducts business that is material to the
business of such entity and its Subsidiaries, taken as a whole, or (iii) the
matters set forth specifically in Section 3.1 of the Company Disclosure Letter.
As used herein, any reference to one or more failures, lapses, defaults,
breaches or other events or circumstances that "could not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect"
shall refer to such one or more failures, lapses, defaults, breaches or other
events or circumstances in the aggregate with all other failures, lapses,
defaults, breaches or other events or circumstances described in this Agreement
which would be required to be mentioned or disclosed herein or in the schedules
or exhibits hereto but for the fact that the same could not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect
(and like phrases shall be similarly interpreted). The Company has all requisite
corporate power and authority to own, operate and lease its properties and carry
on its business as now being conducted, except where the failure to have such
corporate power and authority could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. The copies of
the Company's certificate of incorporation and bylaws made available to Parent
are true and correct as of the date hereof.
3.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The
Company has the requisite corporate power and authority to execute and deliver
this Agreement and all agreements and documents contemplated hereby. The
Agreement, the Merger, and the purchase of shares of Company Common Stock
contemplated by the Offer have been approved by the Board and (other than, with
respect to the Merger, the approval and adoption of this Agreement and the
transactions contemplated hereby by the holders of a majority of the then
outstanding shares of Company Common Stock, if so required), the consummation by
the Company of the transactions contemplated hereby has been duly authorized by
all requisite corporate action and the Board has adopted resolutions so that the
restrictions on business combinations applicable to "interested stockholders"
contained in Section 203 of the DGCL will not apply to the Offer, the Merger and
the other transactions contemplated by this Agreement. This Agreement
constitutes, and all agreements and documents contemplated hereby (when executed
and delivered pursuant hereto) will constitute, the valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, subject to applicable bankruptcy, insolvency, moratorium
or other similar laws relating to creditors' rights and general principles of
equity.
3.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists
of 60,000,000 shares of Company Common Stock, $0.01 par value, 50,000 shares of
Series A preferred stock, $10 par value ("COMPANY SERIES A PREFERRED STOCK"),
500,000 shares of Series B preferred stock, $10 par value ("COMPANY SERIES B
PREFERRED STOCK") and 5,000,000 shares of preferred stock, $10 par value
("COMPANY PREFERRED STOCK"). As of February 15, 2000, there were (i) 27,375,771
shares of Company Common Stock issued and outstanding, (ii) 8,470,424 shares of
Company Common Stock held in the Company's treasury, and (iii) no shares of
Company Series A Preferred Stock, Company Series B Preferred Stock or Company
Preferred Stock issued and outstanding. All issued and outstanding shares of
Company Common Stock are duly authorized,
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validly issued, fully paid, nonassessable, free of preemptive rights, and were
issued in compliance with all applicable laws.
(b) The Company Disclosure Letter lists all outstanding
options, warrants and other rights to purchase shares of Company Common Stock as
of February 15, 2000 with descriptions of such options, warrants and other
rights.
(c) Since February 15, 2000, (i) no options, warrants or
other rights to purchase shares of Company Common Stock have been granted, and
(ii) no additional shares of capital stock of the Company have been issued,
except pursuant to the exercise of outstanding options.
(d) Except with respect to the Rights and as set forth in
paragraphs (a), (b) and (c) above and in the Company Disclosure Letter, the
Company does not have any shares of its capital stock issued or outstanding and
there are no outstanding subscriptions, options, warrants, calls, subscriptions,
convertible securities, rights or other agreements or commitments obligating the
Company or any Subsidiary of the Company to issue, transfer or sell any shares
of capital stock of the Company or any Subsidiary of the Company or to
repurchase any such shares of capital stock. Neither the Company nor any of its
Subsidiaries has outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
the Company or such Subsidiary on any matter. Any equity securities, which were
issued and reacquired by the Company or any of its Subsidiaries, were so
reacquired in compliance with all applicable laws, and neither the Company nor
any of its Subsidiaries has any obligation or liability with respect thereto.
3.4 SUBSIDIARIES. Each Subsidiary of the Company is a
corporation, limited liability company or partnership duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has the corporate, limited liability company or
partnership power and authority to own its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership of its property
or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good standing
could not reasonably be expected to have a Company Material Adverse Effect. The
copies of the organizational and charter documents for the Company's
Subsidiaries made available to Parent are true and correct as of the date
hereof. The Company Disclosure Letter lists all of the Company's Subsidiaries
and correctly sets forth the capitalization of each Subsidiary, the jurisdiction
in which each Subsidiary of the Company is organized or formed, and the current
directors and executive officers of each Subsidiary of the Company. All
outstanding securities or other ownership interests in each Subsidiary of the
Company are (i) owned of record and beneficially by the Company or another of
the Company's wholly-owned Subsidiaries and subject to no lien (other than liens
for taxes not yet due and payable), claim, charge or encumbrance, and (ii) have
been duly authorized, are validly issued, fully paid and nonassessable.
3.5 OTHER INTERESTS. Except as set forth on the Company
Disclosure Letter and except for interests in Subsidiaries of the Company,
neither the Company nor any Subsidiary
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of the Company owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, limited liability company,
joint venture, business, trust or other entity.
3.6 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in the Company Disclosure Letter,
the execution and delivery of this Agreement by the Company do not, and the
consummation by the Company of the transactions contemplated hereby will not,
(1) conflict with or violate the certificate of
incorporation or bylaws or equivalent organizational documents of (i) the
Company or (ii) any Subsidiary of the Company,
(2) subject to making the filings and obtaining
the approvals identified in Section 3.6(b) of this Agreement, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Company or any Subsidiary of the Company or by which any property or asset of
the Company or any Subsidiary of the Company is bound or affected, or
(3) subject to making the filings and obtaining
the approvals identified in Section 3.6(b) of this Agreement, result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, result in the loss of a material
benefit under, or give to others any right of purchase or sale, or any right of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of the Company or any Subsidiary of the Company pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation (each, a "CONTRACT") to which the Company or any
Subsidiary of the Company is a party or by which the Company or any Subsidiary
of the Company or any property or asset of the Company or any Subsidiary of the
Company is bound or affected; except, in the case of clauses (2) and (3), for
any such conflicts, violations, breaches, defaults or other occurrences which
would not prevent or delay consummation of any of the transactions contemplated
hereby in any material respect, or otherwise prevent the Company from performing
its obligations under this Agreement in any material respect, and could not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
(b) The execution and delivery of this Agreement by the
Company do not, and the consummation by the Company of the transactions
contemplated hereby will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign (each a "GOVERNMENTAL ENTITY") or any other
third-party, except
(1) for:
(i) applicable requirements, if any, of the
Exchange Act, the Securities Act of 1933, as amended (the "SECURITIES
ACT"), state securities or "blue sky" laws ("BLUE SKY LAWS") and state
takeover laws,
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(ii) the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations thereunder (the "HSR ACT"),
(iii) filing of the Certificate of Merger and
related documents as required by the DGCL,
(iv) applicable requirements under the rules and
regulations of the New York Stock Exchange (the "NYSE"),
(v) the pre-merger notification requirements of
the Competition Act and the Investment Canada Act; and
(2) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of any of the transactions contemplated
hereby in any material respect, or otherwise prevent the Company from performing
its obligations under this Agreement in any material respect, and could not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
3.7 COMPLIANCE; PERMITS.
(a) The Company and each Subsidiary of the Company are in
compliance with:
(1) all laws, rules, regulations, orders,
judgments and decrees applicable to the Company or any Subsidiary of the Company
or by which any property or asset of the Company or any Subsidiary of the
Company is bound or affected, and
(2) all Contracts to which the Company or any
Subsidiary of the Company is a party or by which the Company or any Subsidiary
of the Company or any property or asset of the Company or any Subsidiary of the
Company is bound or affected; except in both (1) and (2) where failure to comply
could not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.
(b) The Company and the Company's Subsidiaries have
obtained, and are in compliance with the terms of, all licenses, permits and
other authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their businesses as now conducted,
except where the failure to obtain any such item or to take any such action
could not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.
3.8 SEC DOCUMENTS.
(a) The Company has filed all forms, reports and
documents with the SEC since May 1, 1996 required to be filed by it under the
Securities Act and the Exchange Act (collectively, the "COMPANY REPORTS").
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(b) As of the filing date, each Company Report complied
as to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be.
(c) As of its filing date (or, if amended or superceded
by a filing prior to the date hereof, on the date of such later filing), each
Company Report filed pursuant to the Exchange Act did not, and each such Company
Report filed subsequent to the date hereof will not, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(d) Each Company Report that is a registration statement,
as amended or supplemented, if applicable, filed pursuant to the Securities Act,
as of the date such statement or amendment became effective, did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
(e) None of the Company's Subsidiaries is required to
file any forms, reports or other documents with the SEC.
3.9 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. The
audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company included in the Company Reports (including
the notes thereto) fairly present, in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods then ended
(subject to normal year-end adjustments and footnotes in the case of any
unaudited interim financial statements). Except as and to the extent reflected
or reserved against in such consolidated balance sheets (including the notes
thereto), and except for liabilities or obligations which were incurred in the
ordinary course of business consistent with past practice since October 30, 1999
or which were incurred after such date and are expressly disclosed in the
Company Reports filed following such date and prior to the date hereof, the
Company and its Subsidiaries do not have any liabilities or obligations
(absolute or contingent) of a nature required to be or customarily reflected in
a consolidated balance sheet (or the notes thereto) prepared in accordance with
GAAP consistently applied. The consolidated statements of operations present
fairly in all material respects the results of operations of the Company for the
periods indicated.
3.10 ABSENCE OF CERTAIN CHANGES. Except as specifically
contemplated by this Agreement, since April 30, 1999 there has not occurred (a)
any circumstance or event not expressly disclosed in the Company Reports filed
following such date and prior to the date hereof having a Company Material
Adverse Effect or any circumstance or event that could reasonably be expected to
have a Company Material Adverse Effect; (b) any declaration, setting aside or
payment of any dividend or other distribution with respect to its capital stock;
(c) any material change in its accounting principles, practices or methods; (d)
any damage or destruction to, or loss of, any physical property, whether or not
covered by insurance, that could individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect; (e) any
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amendment or changes in the certificate of incorporation or by-laws of the
Company; or (f) other than in the ordinary course of business, any sale of a
material amount of assets of the Company or any of its Subsidiaries. Except as
set forth in the Company Disclosure Letter, since October 30, 1999, neither the
Company nor any Subsidiary of the Company has taken any other action that it
would be prohibited from taking without Parent's consent after the date hereof
pursuant to Section 5.1 other than such actions taken in the ordinary course of
business.
3.11 MATERIAL CONTRACTS. The Company Disclosure Letter
sets forth a complete and accurate list as of the date of this Agreement of any
of the following to which the Company or any Subsidiary of the Company is a
party or by which the Company or any Subsidiary of the Company is bound (each, a
"COMPANY MATERIAL CONTRACT"):
(a) all contracts, agreements, commitments or
understandings which involve payments or receipts by the Company or any of its
Subsidiaries in excess of $1,000,000 during any twelve month period;
(b) all written management, compensation, employment or
other contracts entered into with any executive officer or director of the
Company or any Subsidiary of the Company;
(c) all contracts or agreements under which the Company
or any Subsidiary of the Company has any outstanding indebtedness, obligation or
liability for borrowed money or the deferred purchase price of property or has
the right or obligation to incur any such indebtedness, obligation or liability;
(d) all bonds or agreements of guarantee or
indemnification in which the Company or any Subsidiary of the Company acts as
surety, guarantor or indemnitor with respect to any obligation (fixed or
contingent), other than any such guarantees of the obligations of the Company or
any Subsidiary of the Company;
(e) all noncompete agreements to which the Company, any
Subsidiary of the Company or any affiliate thereof is a party;
(f) all partnership and joint venture agreements;
(g) each other contract or agreement listed as an exhibit
to the Company's most recent Form 10-K and 10-Q; and
(h) all agreements relating to material business
acquisitions or dispositions during the last three years, including any separate
tax or indemnification agreements.
Except as set forth in the Company Disclosure Letter, (i)
neither the Company nor any Subsidiary of the Company is in default under the
terms of any Company Material Contract, which default permits the other party to
adversely alter or terminate any rights of the Company or any Subsidiary of the
Company or accelerate the obligations of the Company or any Subsidiary of the
Company under such Company Material Contract or to collect damages, (ii) to the
knowledge of the Company, no other party thereto is in default in any material
respect under the terms of any Company Material Contract, (iii) each Company
Material Contract is valid,
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binding and in full force and effect in all material respects, and (iv) all
contracts or agreements under which the Company or any Subsidiary of the Company
has any outstanding indebtedness, obligation or liability for borrowed money may
be prepaid in full without any prepayment penalties.
3.12 LITIGATION. Except as set forth in the Company
Disclosure Letter, there is no action, suit or proceeding pending against the
Company or any Subsidiary of the Company or, to the knowledge of the Company,
threatened against the Company or any Subsidiary of the Company, at law or in
equity, or before or by any federal or state court, commission, board, bureau,
agency or instrumentality, that (i) if resolved adversely to it could,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect or impair its ability to consummate the Merger or (ii)
seeks an amount of damages in excess of $1,000,000. The Company is not aware of
any judicial or administrative decision affecting it or any Subsidiary of the
Company that could reasonably be expected to impair its ability to consummate
the Merger.
3.13 TAXES. The Company and each of its Subsidiaries has
timely and accurately filed, or caused to be timely and accurately filed, all
material Tax Returns (as hereinafter defined) required to be filed by it, and
has paid, collected or withheld, or caused to be paid, collected or withheld,
all material amounts of Taxes (as hereinafter defined) required to be paid,
collected or withheld, other than Taxes for which adequate reserves have been
established and are included in the financial statements included in the most
recent Company Reports. There are no material claims, assessments, audits or
investigations pending against the Company or any of its Subsidiaries for any
alleged deficiency in any Tax or relating to any liability in respect of any
Taxes, and the Company has not been notified in writing of any material proposed
Tax claims or assessments against the Company or any of its Subsidiaries (other
than in each case, claims and assessments for which adequate reserves have been
established and are included in the financial statements included in the most
recent Company Reports). Except as set forth in the Company Disclosure Letter,
other than with respect to the Company and its Subsidiaries, neither the Company
nor any of its Subsidiaries is liable for Taxes of any other Person (as
hereinafter defined), or is currently under any contractual obligation to
indemnify any Person with respect to Taxes (except for customary agreements to
indemnify lenders or security holders in respect of Taxes other than income
Taxes), or is a party to any Tax sharing agreement or any other agreement
providing for payments by the Company or any of its Subsidiaries with respect to
Taxes. Neither the Company nor any of its Subsidiaries will be required to
include any adjustment in taxable income for any period ending after the Closing
under Section 481 of the Code (or under any similar provision of the Tax laws of
any jurisdiction) as a result of a change in the method of accounting for a
period ending on or before the Closing or pursuant to an agreement with a Tax
authority with regard to the Tax liability of the Company or any of its
Subsidiaries for any period ending on or before the Closing. Except as set forth
in the Company Disclosure Letter, the Company is not a party to any agreement,
contract, arrangement or plan that would result (taking into account the
Transactions contemplated by this Agreement), separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
As used herein, the term "TAX" means any United States
federal, state, local, non-United States or provincial income, gross receipts,
property, sales, use, license, excise, franchise,
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employment, payroll, alternative or add-on minimum, ad valorem, transfer or
excise tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge imposed by any Governmental Entity, together with any
interest or penalty imposed thereon. As used herein, the term "TAX RETURN" means
a report or other information (including any attached schedules or any
amendments to such report, return or other information) required to be supplied
to or filed with a Governmental Entity with respect to any Tax, including an
information return, claim for refund, amended return or declaration or estimated
Tax. As used herein, the word "PERSON" means an individual, corporation,
partnership, limited liability company, association, trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
3.14 EMPLOYEE BENEFIT PLANS.
(a) EMPLOYEE BENEFIT PLANS, COLLECTIVE BARGAINING AND
EMPLOYEE AGREEMENTS, AND SIMILAR ARRANGEMENTS.
(1) The Company Disclosure Letter lists all
employee benefit plans and collective bargaining, employment or severance
agreements or other similar arrangements to which or by which the Company or any
Subsidiary of the Company is bound, legally or otherwise, or under which there
is any continuing obligation of the Company or any Subsidiary of the Company
(collectively, the "PLANS"), including, without limitation, (a) any
profit-sharing, deferred compensation, bonus, stock option, stock purchase,
pension, retainer, consulting, retirement, severance, welfare or incentive plan,
agreement or arrangement, (b) any material plan, agreement or arrangement
providing for "fringe benefits" or perquisites to employees, officers, directors
or agents, including but not limited to benefits relating to the Company
automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave,
medical, dental, hospitalization, life insurance and other types of insurance,
or (c) any other "employee benefit plan" within the meaning of Section 3(3) or
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(2) [intentionally omitted]
(3) To the best knowledge of the Company, there
are no negotiations, demands or proposals that are pending or have been made
which concern matters now covered by the Plans, or that (if adopted) would be
covered, by employee benefit plans, agreements or arrangements of the type
described in this section.
(4) The Company and each Subsidiary of the
Company are in compliance in all material respects with the applicable
provisions of ERISA (as amended through the date of this Agreement), the
regulations and published authorities thereunder, and all other laws applicable
with respect to the Plans. The Company and each Subsidiary of the Company have
performed all of their obligations under the Plans. To the best knowledge of the
Company as of the date of this Agreement, there are no actions (other than
routine claims for benefits) pending or threatened against the Plans or their
assets, or arising out of the Plans and all of the Plans have been operated in
compliance in all material respects with their terms. To the best knowledge of
the Company, as of the date of this Agreement, no facts exist which could give
rise to any such actions.
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(5) All obligations of the Company and each
Subsidiary of the Company under each of the Plans (x) that are due prior to the
Effective Time have been paid or will be paid prior to that date, and (y) that
have accrued prior to the Effective Time have been or will be paid or properly
accrued at that time.
(6) The Company and each Subsidiary of the
Company have classified all individuals who perform services for the Company or
any Subsidiary of the Company correctly under the Plans, ERISA and the Code as
common law employees, independent contractors or leased employees, except where
the failure to classify individuals correctly could not result in a material
liability for the Company or the Plans.
(b) RETIREMENT PLANS.
(1) The Company Disclosure Letter lists all
"employee pension benefit plans" (within the meaning of Section 3(2) of ERISA)
which are also stock bonus, pension or profit sharing plans within the meaning
of Section 401(a) of the Code (the "RETIREMENT PLANS").
(2) Each Retirement Plan has been duly
authorized by the appropriate board of directors of the Company and/or
Subsidiary of the Company whichever is appropriate. Each Retirement Plan is
qualified in form and operation under Section 401(a) of the Code and each trust
under each Retirement Plan is exempt from tax under Section 501(a) of the Code.
No event has occurred that could reasonably be expected to give rise to
disqualification or loss of tax-exempt status of any Retirement Plan or trust
thereunder. To the best knowledge of the Company, no event has occurred that
will or could subject any Retirement Plan to tax under Section 511 of the Code.
To the best knowledge of the Company, no non-exempt prohibited transaction
(within the meaning of Section 4975 of the Code) or party-in-interest
transaction (within the meaning of Section 406 of ERISA) has occurred with
respect to any Retirement Plan.
(3) [intentionally omitted]
(c) TITLE IV PLANS. No Plan is a "single employer plan"
within the meaning of Section 4001(a)(15) of ERISA or a "multiemployer plan"
within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA. Neither the
Company, any Subsidiary of the Company nor any ERISA Affiliate has ever
maintained or had an obligation to contribute to a "single employer plan" within
the meaning of Section 4001(a)(15) of ERISA or a "multiemployer plan" within the
meaning of Section 3(37) or Section 4001(a)(3) of ERISA. "ERISA AFFILIATE" means
any trade or business (whether or not incorporated) that is or was a member of a
group of which the Company or any Subsidiary of the Company is or was a member
and which is or was under common control with the Company or any Subsidiary of
the Company within the meaning of Section 414 (b) or (c) of the Code or that
would be treated as a single employer with the Company or any Subsidiary of the
Company under Section 4001(a)(14) or Section 4001(b) of ERISA.
(d) HEALTH PLANS. All group health plans of the Company,
each Subsidiary of the Company and any ERISA Affiliate have been operated in
compliance in all material respects with the group health plan continuation
coverage requirements of Section 4980B of the Code. Except as required under
Section 4980B of the Code or as provided in the Company's Employee
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Severance Plan, neither the Company, any Subsidiary of the Company nor any ERISA
Affiliate has any obligation to provide health benefits to any employee
following termination of employment.
(e) FINES AND PENALTIES. There has been no act or
omission by the Company, any Subsidiary of the Company or any ERISA Affiliate
that has given rise to or may give rise to fines, penalties, taxes, or related
charges under Section 502(c) or (i) or Section 4071 of ERISA or Chapter 43 of
the Code, which fines, penalties, taxes or related charges, individually or in
the aggregate, could reasonably be expected to have a Company Material Adverse
Effect.
3.15 LABOR AND EMPLOYMENT MATTERS. Except as set forth in
the Company Disclosure Letter, there are no labor or collective bargaining
agreements which pertain to the Company or any Subsidiary of the Company. To the
knowledge of the Company, there is no union organizing effort pending or
threatened against the Company or any Subsidiary of the Company. Except as set
forth in the Company Disclosure Letter, there is no labor strike, material labor
dispute, work slowdown, stoppage or lockout actually pending, or to the
knowledge of the Company, threatened against or affecting the Company or any
Subsidiary of the Company. There is no unfair labor practice or labor
arbitration proceeding pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary of the Company relating to their business,
except for any such proceeding, which could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
Except as set forth in the Company Disclosure Letter, none of the Company or any
Subsidiary of the Company is a party to any employment, consulting,
non-competition, severance, or indemnification agreement still in effect with
any current or former executive officer or director of the Company or any
Subsidiary of the Company.
3.16 NO BROKERS. No contract, arrangement or understanding
has been entered intro with any person or firm which may result in the
obligation of the Company, Purchaser or Parent to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except (i) that the Company has retained Bear Stearns and
Jefferson Capital Group, Ltd. as its financial advisors and the Company has
retained Greenhill as financial advisor to the Special Committee. Other than as
set forth in this Agreement, the Company is not aware of any claim against it
for payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
3.17 PROPERTIES. The Company and each Subsidiary of the
Company have good and marketable title, free and clear of all liens, claims,
encumbrances and restrictions (except liens, claims, encumbrances or
restrictions arising under any existing bank agreements as described in the
Company Reports and liens for Taxes not yet due and payable or which are being
contested in good faith, statutory liens and other encumbrances and restrictions
affecting real estate which do not secure amounts for borrowed money and will
not materially impair title thereto), to all property and assets described in
the Company Reports as being owned by it. All material leases to which the
Company or any Subsidiary of the Company is a party are valid and binding and no
default has occurred or is continuing thereunder, which could, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect. The
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Company and each of the Company's Subsidiaries enjoy peaceful and undisturbed
possession under all such leases to which any of them is a party as lessee with
such exceptions as do not materially interfere with the use made by the Company
or any Subsidiary of the Company. The plants and equipment, taken as a whole, of
each of the Company and each Subsidiary of the Company are in good operating
condition and repair other than ordinary wear and tear.
3.18 ENVIRONMENTAL LAWS.
(a) Except as set forth on the Company Disclosure Letter:
(1) neither the Company nor any present or
former Subsidiary of the Company has received any written notice, claim, request
for information or demand from any governmental agency or third party alleging
that the Company, any present or former Subsidiary of the Company or any Company
Real Properties is in material violation of, is subject to any administrative or
judicial proceeding pursuant to, or has any material liability under, any
Environmental Law;
(2) with respect to Company Real Properties
which are currently owned, leased or operated by the Company or any present or
former Subsidiary of the Company, to the knowledge of the Company, there has not
occurred, nor is there presently occurring, any Release or Releases of any
Hazardous Materials at, on, into, beneath or migrating from such Company Real
Properties which could reasonably be expected, individually or in the aggregate,
to have a Company Material Adverse Effect;
(3) with respect to Company Real Properties
which were previously owned, leased or operated by the Company or any present or
former Subsidiary of the Company, there did not occur any Release or Releases of
any Hazardous Materials, at, on, into, beneath or migrating from such Company
Real Properties during or, to the knowledge of the Company, prior to the period
of ownership, lease or operation by the Company or any Subsidiary of the Company
which could reasonably be expected, individually or in the aggregate, to have a
Company Material Adverse Effect;
(4) neither the Company nor any present or
former Subsidiary of the Company has Released, or allowed or arranged for any
third parties to Release, any Hazardous Materials at any other site in violation
of or which would reasonably be expected to lead to liability under, any
Environmental Law which could reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect;
(5) to the knowledge of the Company, neither the
Company nor any present or former Subsidiary of the Company is a potentially
responsible party with respect to a federal, state, local or foreign
environmental cleanup site or sites or with respect to investigation or
corrective actions under any Environmental Law with respect to matters which
could reasonably be expected, individually or in the aggregate, to have a
Company Material Adverse Effect;
(6) each of the Company and its Subsidiaries is
currently in compliance with and has been in compliance with all Environmental
Laws except where any
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failure to comply could not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect;
(7) during the period of ownership, lease or
operation by the Company or any present or former Subsidiary of the Company of
any Company Real Properties, the Company or such Subsidiary operated the Company
Real Properties in compliance with all Environmental Laws, except where any
failure could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect;; and
(8) there are no costs or liabilities associated
with any capital or operating expenditures of the Company or any present or
former Subsidiary of the Company required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license, consent, exemption,
franchise, authorization or other approval, any related constraints on operating
activities or any potential liabilities to third parties under Environmental
Laws which could reasonably be expected, individually or in the aggregate, to
have a Company Material Adverse Effect.
(b) As used in this Section,
(1) "COMPANY REAL PROPERTIES" shall mean all
real property now or previously owned, operated or leased by the Company or any
present or former Subsidiary of the Company.
(2) "HAZARDOUS MATERIALS" shall mean asbestos,
petroleum products and all other materials on the date hereof defined as
"hazardous substances," "hazardous wastes," "toxic substances," "solid wastes"
or otherwise on or prior to the date hereof listed or regulated pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. (S)9601 et seq. ("CERCLA"); the Resource Conservation and
Recovery Act, 42 U.S.C. (S)(S)6901 et seq. ("RCRA") and any amendments thereto;
the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S)1801 et seq.
("HMTA"); the Clean Water Act, the Safe Drinking Water Act; the Atomic Energy
Act; the Federal Insecticide, Fungicide, and Rodenticide Act, the Clean Air Act;
or any other similar foreign, federal, state or local statute, regulation or
ordinance or any other law, as now in effect, relating to, or imposing liability
or standards of conduct concerning any hazardous or toxic waste, substance or
material.
(3) "ENVIRONMENTAL LAWS" shall mean any and all
foreign, federal, state and local laws (including, without limitation, common
law), statutes, ordinances, rules, regulations, permits, licenses or other
governmental requirements relating to health, pollution, the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), the release or threatened release, discharge,
emission, of any Hazardous Materials or materials containing Hazardous Materials
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials or
the pollution of the environment, including, without limitation, CERCLA, RCRA
and HMTA.
(4) "RELEASE" shall mean releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, escaping, leaching,
disposing or dumping.
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3.19 RELATED PARTY TRANSACTIONS. Except as set forth in
the Company Disclosure Letter, no director or officer of the Company or any
Subsidiary of the Company and no person related to any of them by consanguinity
or marriage has any direct or indirect interest in (i) any material equipment or
other property, real or personal, tangible or intangible, including, but without
limitation, any item of intellectual property, used in connection with or
pertaining to the Company's or any Subsidiary of the Company's business, or (ii)
any creditor, supplier, customer, manufacturer, agent, representative, or
distributor of products of the Company or any Subsidiary of the Company;
PROVIDED, HOWEVER, that (A) no such director or officer or other person shall be
deemed to have such an interest solely by virtue of the ownership of less than
five percent (5%) of the outstanding voting stock or debt securities of any
publicly-held company, the stock or debt securities of which are traded on a
recognized stock exchange or quoted on the National Association of Securities
Dealers Automated Quotation System, and (B) no such director or officer or other
person shall be deemed to have such an interest solely by virtue of the
ownership by a partnership in which he is a partner of less than 10% of the
outstanding voting stock or debt securities of any privately held company.
3.20 INTELLECTUAL PROPERTY. The Company Disclosure Letter
contains a true and correct list of all the patents, patent applications,
trademarks, service marks, trade names, domain names, and registered copyrights
owned or exclusively licensed by the Company or any Subsidiary of the Company.
The Company and each Subsidiary of the Company own, or possess adequate and
enforceable licenses or other rights to use, all patents, trade secrets,
inventions, processes, technology, software, trademarks, service marks, trade
names, domain names, and content (collectively, the "COMPANY INTELLECTUAL
PROPERTY") used in the business of the Company or any Subsidiary of the Company
as currently conducted. The Company and/or each of its Subsidiaries has made all
necessary filings and recordations to protect and maintain its interest in the
patents, patent applications, trademark and service mark registrations,
trademark and service mark applications, copyright registrations and copyright
applications and licenses included in the Company Intellectual Property, except
where the failure to do so protect or maintain could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
Each patent, patent applications, trademark or service mark registration, and
trademark or service mark application and copyright registration or copyright
application of the Company and/or each of its Subsidiaries included in the
Company Intellectual Property is valid and subsisting and each license of the
Company Intellectual Property is valid, subsisting and enforceable, except where
the failure to be valid, subsisting and enforceable could not, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect. The Company's and its Subsidiaries' ownership, licenses or rights in the
Company Intellectual Property will not be affected by the consummation of the
Merger. To the knowledge of the Company, (i) its rights in, to and under the
Company Intellectual Property do not conflict with or infringe on the rights of
any other person, (ii) no legal action or proceeding has been initiated,
asserted or is pending, nor has any legal action or proceeding been threatened,
against the Company or any Subsidiary of the Company either based upon or
challenging or seeking to deny or restrict its use of any of the Company
Intellectual Property, and (iii) no other person is using the Company
Intellectual Property in a manner that conflict or infringes on the rights of
the Company, nor has it made any written or oral claim or notice to such effect.
The disclosure under the heading "Year 2000" contained in the Company's
Quarterly Report on Form 10-Q for the period ended October 30, 1999 is accurate
and in compliance with applicable law in all material respects.
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3.21 STATE TAKEOVER STATUTES INAPPLICABLE. The
restrictions on business combinations applicable to "interested stockholders"
contained in Section 203 of the DGCL will not apply to the Offer, the Merger and
the other transactions contemplated hereby.
3.22 PRODUCT LIABILITY. Since January 1, 1998, the Company
has not received written notice of any claim, pending or threatened, against the
Company or any of its Subsidiaries for injury to person or property of employees
or any third parties suffered as a result of the sale of any product or
performance of any service by the Company or any of its Subsidiaries, including
claims arising out of the defective or unsafe nature of its products or
services, which is reasonably likely, individually or in the aggregate, to have
a Company Material Adverse Effect.
3.23 OPINIONS OF FINANCIAL ADVISORS. The Special Committee
and the Board have been advised by Greenhill to the effect that in its opinion,
as of the date of this Agreement, the price to be paid for shares of Company
Common Stock in the Offer and the Merger is fair to the holders of shares of
Company Common Stock from a financial point of view. The Company has been
advised by Bear Stearns to the effect that, in its opinion, as of the date of
this Agreement, the price to be paid for shares of Company Common Stock in the
Offer and the Merger is fair to the holders of shares of Company Common Stock
from a financial point of view.
3.24 RIGHTS AGREEMENT The Company has irrevocably taken,
or will take, all necessary action, including, without limitation, amending the
Rights Agreement with respect to all of the outstanding Rights, (a) to render
the Rights Agreement inapplicable to this Agreement, the Offer, the Merger and
the other transactions contemplated hereby, (b) to ensure that (i) Parent and
Purchaser, or either of them, are not deemed to be an Acquiring Person (as
defined in the Rights Agreement) pursuant to the Rights Agreement and (ii) no
Section 11(b) Event or Section 13 Event (as such terms are defined in the Rights
Agreement) occurs by reason of the execution and delivery of this Agreement or
the consummation of the Offer, the Merger or transactions contemplated by this
Agreement and (c) so that the Company will have no obligations under the Rights
or the Rights Agreement in connection with the Offer and the Merger and the
holders of shares of Company Common Stock and the associated Rights will have no
rights under the Rights or the Rights Agreement in connection with the Offer and
the Merger. The Rights Agreement, as so amended, has not been further amended or
modified. Copies of all such amendments to the Rights Agreement have been
previously provided to Purchaser.
3.25 FULL DISCLOSURE.
(a) Each document required to be filed by the Company
with the SEC or required to be distributed or otherwise disseminated to the
Company's stockholders in connection with the Transactions (the "COMPANY
FILINGS"), including, without limitation, the Schedule 14D-9 and any amendments
or supplements thereto, when filed, distributed or disseminated, as applicable,
will comply as to form in all material respects with the applicable requirements
of applicable laws.
(b) No information with respect to the Company or any
Subsidiaries of the Company that the Company or any Subsidiary of the Company or
any of their officers, directors,
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employees, representatives or agents furnishes to Parent or Purchaser for
inclusion or incorporation by reference in the Offer Documents, the Schedule
14D-9 or the Proxy Statement, including any amendments or supplements thereto,
shall, at the respective times the Offer Documents and the Schedule 14D-9 are
filed with the SEC or first published, sent or given to the Company's
stockholders, or, in the case of the Proxy Statement, at the date the Proxy
Statement is first mailed to the Company's stockholders or at the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, the Company does not make any representation or
warranty with respect to the information that has been supplied by Parent or
Purchaser or their officers, directors, employees, representatives or agents for
inclusion or incorporation by reference in any of the foregoing documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser each represents and warrants to the
Company as of the date of this Agreement as follows:
4.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Each
of Parent and Purchaser is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation, is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary, except where the failure to be
so qualified or to be in good standing would not reasonably be expected to have
a Parent Material Adverse Effect. As used herein, a "Parent Material Adverse
Effect" means material adverse effect on (i) the business, properties,
operations, prospects, results of operations or condition (financial or
otherwise) of Parent and Parent's Subsidiaries taken as a whole or (ii) the
ability of Parent or Purchaser to perform its obligations hereunder. Each of
Parent and Purchaser has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now being
conducted.
4.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS.
Each of Parent and Purchaser has the requisite corporate power and authority to
execute and deliver this Agreement and all agreements and documents contemplated
hereby, and the consummation by Parent and Purchaser of the transactions
contemplated hereby has been duly authorized by all requisite corporate action.
This Agreement constitutes, and all agreements and documents contemplated hereby
(when executed and delivered pursuant hereto) will constitute, the valid and
legally binding obligations of Parent and Purchaser, enforceable against Parent
and Purchaser in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
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4.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by
Parent and Purchaser do not, and the consummation by Parent and Purchaser of the
transactions contemplated hereby will not,
(1) conflict with or violate the certificate of
incorporation or bylaws or equivalent organizational documents of (i) Parent or
(ii) Purchaser,
(2) subject to making the filings and obtaining
the approvals identified in Section 4.3(b) of this Agreement, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
Parent or any Purchaser or by which any property or asset of Parent or any
Purchaser is bound or affected, or
(3) subject to making the filings and obtaining
the approvals identified in Section 4.3(b) of this Agreement, result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, result in the loss of a material
benefit under, or give to others any right of purchase or sale, or any right of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of Parent or any Purchaser pursuant to, any Contract to which Parent or any
Purchaser is a party or by which Parent or any Purchaser or any property or
asset of Parent or any Purchaser is bound or affected: except, in the case of
clauses (2) and (3), for any such conflicts, violations, breaches, defaults or
other occurrences which would not prevent or delay consummation of any of the
transactions contemplated hereby in any material respect, or otherwise prevent
Parent from performing its obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by
Parent and Purchaser does not, and the consummation of the transactions
contemplated hereby by Parent and Purchaser will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity or any other third-party, except
(1) for
(i) applicable requirements, if any, of the
Exchange Act, the Securities Act, Blue Sky Laws and state takeover
laws,
(ii) the pre-merger notification requirements of
the HSR Act,
(iii) filing of the Certificate of Merger and
related documents as required by DGCL,
(iv) applicable requirements under the rules and
regulations of the New York Stock Exchange (the "NYSE"),
(v) the pre-merger notification requirements of
the Competition Act and the Investment Canada Act; and
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(2) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of any of the transactions contemplated
hereby in any material respect, or otherwise prevent Parent or Purchaser from
performing its obligations under this Agreement in any material respect, and
would not, individually or in the aggregate, reasonably be expected to have a
Parent Material Adverse Effect.
4.4 NO BROKERS. Neither Parent nor Purchaser has not
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of the Company, Purchaser or Parent to pay
any finder's fee, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby, except that Parent has retained Credit
Suisse First Boston as its financial advisor, the terms of which have been
disclosed in writing to the Company before the date of this Agreement. Other
than the foregoing arrangements, neither Parent nor Purchaser is aware of any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
4.5 FULL DISCLOSURE. None of the information supplied or
to be supplied by Parent or Purchaser, or any of its officers, directors,
employees, representatives or agents, for inclusion or incorporation by
reference in the Proxy Statement, the Schedule 14D-9 or the Offer Documents,
including any amendments or supplements thereto, will, at the respective times
that the Proxy Statement, the Schedule 14D-9 and the Offer Documents, or any
amendments or supplements thereto, are filed with the SEC or first published,
sent or given to the Company's stockholders or, in the case of the Proxy
Statement or the Schedule TO, at the date first mailed to the Company's
stockholders or at the time of the Stockholders Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Schedule TO shall comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.
4.6 NO PRIOR ACTIVITIES Except for the obligations or
liabilities incurred in connection with its incorporation or organization or the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby, Purchaser has not incurred any obligations or
liabilities nor engaged in any business or activities of any type or kind
whatsoever or entered into any agreements or arrangements with any person or
entity.
4.7 FINANCING. Parent has or will obtain sufficient funds
necessary to enable it and Purchaser to consummate the Offer and the Merger and
the transactions contemplated hereby on a timely basis.
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ARTICLE V
COVENANTS
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. The Company covenants and agrees that, during the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Offer Completion Date, unless Parent shall otherwise agree in
writing, and except as set forth in Section 5.1 of the Company Disclosure Letter
or as contemplated hereby, the Company shall conduct its business and shall
cause the businesses of its Subsidiaries to be conducted only in, and the
Company and its Subsidiaries shall not take any action except in, the ordinary
course of business and in a manner consistent with past practice; and the
Company shall use reasonable commercial efforts to preserve substantially intact
the business organization of the Company and its Subsidiaries, to keep available
the services of the present officers, employees and consultants of the Company
and its Subsidiaries and to preserve the present relationships of the Company
and its Subsidiaries with customers, suppliers and other persons with which the
Company or any of its Subsidiaries has significant business relations. By way of
amplification and not limitation, except as contemplated by this Agreement, or
as required by applicable law or rule of any stock exchange or over-the-counter
market, neither the Company nor any of its Subsidiaries shall, during the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Offer Completion Date, and except as set
forth in Section 5.1 of the Company Disclosure Letter, directly or indirectly
do, or propose to do, any of the following without the prior written consent of
Parent:
(a) Amend or otherwise change the Company's certificate
of incorporation or by-laws, or amend the Rights Agreement or reduce the rights
issued thereunder;
(b) Issue, sell, pledge, dispose of or encumber, or
authorize the issuance, sale, pledge, disposition or encumbrance of, any shares
of capital stock of any class, or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) in the
Company, any of its Subsidiaries or affiliates (except for the issuance of
shares of Company Common Stock issuable pursuant to Options under the Option
Plans, which options are outstanding on the date hereof; PROVIDED that the
occurrence of a separation of the rights under the Rights Agreement, and the
related issuance of shares of Company Common Stock to the Company's stockholders
thereunder shall not be deemed a breach of this Agreement to the extent that (i)
the occurrence of such separation occurred as a result of an unsolicited
acquisition of Company Common Stock by a third party, and (ii) such acquisition
did not occur as a result of the Company breaching Section 5.2 hereof;
(c) Sell, pledge, dispose of or encumber any assets of
the Company or any of its Subsidiaries (except for (i) sales of inventory in the
ordinary course of business and in a manner consistent with past practice, (ii)
dispositions of obsolete or worthless assets, and (iii) sales of assets not in
excess of $1,000,000 in the aggregate);
(d) (i) Declare, set aside, make or pay any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly-owned
Subsidiary of the Company may declare and pay a dividend to
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its parent, (ii) split, combine or reclassify any of its capital stock or issue
or authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, (iii) except as
required by the terms of any security as in effect on the date hereof or
expressly permitted hereunder, amend the terms or change the period of
exercisability of, purchase, repurchase, redeem or otherwise acquire, or permit
any Subsidiary to amend the terms or change the period of exercisability of,
purchase, repurchase, redeem or otherwise acquire, any of its securities or any
securities of its subsidiaries, including, without limitation, shares of Company
Common Stock, or any option, warrant or right, directly or indirectly, to
acquire any such securities, or propose to do any of the foregoing, or (iv)
settle, pay or discharge any claim, suit or other action brought or threatened
against the Company with respect to or arising out of a stockholder equity
interest in the Company;
(e) (i) Acquire (by merger, consolidation, or acquisition
of stock or assets) any corporation, partnership or other business organization
or division thereof; (ii) incur any indebtedness for borrowed money, except in
the ordinary course of business or issue any debt securities or assume,
guarantee (other than guarantees of the Company's Subsidiaries entered into in
the ordinary course of business) or endorse or otherwise as an accommodation
become responsible for, the obligations of any person, make any loans or
advances, except in the ordinary course of business consistent with past
practice; or (iii) commit to make any capital expenditures or purchases of fixed
assets which are, in the aggregate, in excess of $7,000,000; PROVIDED that the
Company shall consult with Parent with respect to any such commitment in excess
of $1,000,000; or (iv) enter into or materially amend any contract, agreement,
commitment or arrangement to effect any of the matters prohibited in this
Section 5.1(e);
(f) Except as set forth in Section 5.1 of the Company
Disclosure Letter, increase the compensation or severance payable or to become
payable to its directors, officers or employees, except for increases in salary
or wages of employees of the Company or its Subsidiaries (who are not directors
or executive officers of the Company) in accordance with past practices, or
grant any severance or termination pay (except payments required to be made
under obligations existing on the date hereof in accordance with the terms of
such obligations) to, or enter into any employment or severance agreement with,
any employee of the Company or any of its Subsidiaries, except for agreements
with new employees entered into in the ordinary course of business and providing
for annual base and bonus compensation not to exceed $150,000, or establish,
adopt, enter into or amend any collective bargaining agreement, Plan (within the
meaning of Section 3.14 of this Agreement), trust, fund, policy or arrangement
for the benefit of any current or former directors, officers or employees or any
of their beneficiaries, except, in each case, as may be required by law or as
would not result in a material increase in the cost of maintaining such
collective bargaining agreement, Plan, trust, fund, policy or arrangement;
(g) Take any action to change accounting policies or
procedures (including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable), except as required by a change in GAAP or SEC position occurring
after the date hereof;
(h) Except in the ordinary course of business, make any
Tax election or settle or compromise any material United States federal, state,
local or non-United States Tax liability;
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(i) Pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
in excess of $1,000,000 in the aggregate, other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities reflected or reserved against in the financial
statements contained in the Company Reports or incurred in the ordinary course
of business and consistent with past practice; or
(j) Take, or agree in writing or otherwise to take, any
of the actions described in Sections 5.1(a) through (i) above, or any action
which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect or prevent the Company from
performing or cause the Company not to perform its covenants hereunder.
5.2 NO SOLICITATION. The Company shall not, directly or
indirectly, or through any officer, director, employee, representative or agent
of the Company or any of its Subsidiaries, and shall not permit any such
officer, director, employee, representative or agent to, solicit or encourage
the initiation of (including by way of furnishing information) any inquiries or
proposals regarding, or participate in negotiations or discussions concerning
any merger, sale of assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving the
Company or any Subsidiaries of the Company that if consummated would constitute
an Alternative Transaction (as defined in Section 7.1) (any of the foregoing
inquiries or proposals being referred to herein as an "ACQUISITION PROPOSAL").
Upon the execution of this Agreement, the Company shall immediately cease any
discussions or negotiations with any person, entity or group (other than Parent
or any of its affiliates or representatives) concerning any such transaction or
any Acquisition Proposal that are continuing on the date hereof and thereafter
shall seek to have returned to the Company any confidential information that has
been provided in any such discussions or negotiations. Nothing in this section
shall prevent the Board from (i) furnishing information to a third person which
has made a BONA FIDE Acquisition Proposal that the Board reasonably determines
is likely to lead to a Superior Proposal (as defined below) not solicited in
violation of this Agreement, provided that, with respect to any person that is
not currently party to a confidentiality agreement with the Company, such person
has executed an agreement with confidentiality, standstill and other provisions
substantially similar to those then in effect between the Company and Parent, or
(ii) subject to compliance with the other terms of this Section 5.2, considering
and negotiating a bona fide Acquisition Proposal that is a Superior Proposal not
solicited in violation of this Agreement; PROVIDED, HOWEVER, that, as to each of
clauses (i) and (ii), (x) such actions occur at a time prior to the consummation
(or, if the Offer is consummated and extended, the initial consummation) of the
Offer and (y) the Board determines in good faith (based on the advice of its
financial advisor and counsel) that it is required to take such actions in order
to discharge properly its fiduciary duties. For purposes of this Agreement, a
"SUPERIOR PROPOSAL" means any proposal made by a third person to acquire,
directly or indirectly, for consideration consisting of cash and/or securities,
all of the equity securities of the Company entitled to vote generally in the
election of directors or all or substantially all the assets of the Company, if,
and only if, the Board reasonably determines (after consultation with its
financial advisor and counsel) (i) that the proposed transaction would be more
favorable from a financial point of view to its stockholders than the Offer and
the Merger and the transactions contemplated by this Agreement taking into
account at the time of determination any changes to the terms of this Agreement
which as of that time had been proposed by Parent and (ii) that the person or
entity making such
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Acquisition Proposal is capable of consummating such Acquisition Proposal (based
upon, among other things, the availability of financing and the degree of
certainty of obtaining financing, the expectation of obtaining required
regulatory approvals and the identity and background of such person).
(a) The Company shall notify Parent promptly upon receipt
of any Acquisition Proposal, or any modification of or amendment to any
Acquisition Proposal, or any request for nonpublic information relating to the
Company or any of its Subsidiaries in connection with an Acquisition Proposal or
for access to the properties, books or records of the Company or any Subsidiary
by any person or entity that informs the Board or such Subsidiary that it is
considering making, or has made, an Acquisition Proposal. Such notice to Parent
shall be made orally and in writing, and shall indicate the identity of the
person making the Acquisition Proposal or intending to make an Acquisition
Proposal or requesting non-public information or access to the books and records
of the Company, the terms of any such Acquisition Proposal or modification or
amendment to an Acquisition Proposal, and whether the Company is providing or
intends to provide the person making the Acquisition Proposal with access to
information concerning the Company as provided in this Section 5.2. the Company
shall also promptly notify Parent, orally and in writing, if it enters into
negotiations concerning any Acquisition Proposal.
(b) Except as provided in the following sentence, neither
the Company nor the Board shall withdraw or modify in a manner adverse to Parent
or Purchaser, or propose to withdraw or modify in a manner adverse to Parent or
Purchaser, or fail at Parent's request to reaffirm, the approval by such Board
of this Agreement, the Offer or the Merger or the favorable recommendation of
the Board with respect thereto. The foregoing notwithstanding, in the event
that, after the Company has received a BONA FIDE Acquisition Proposal not
solicited in violation of this Agreement, the Board determines (based on the
advice of its counsel), prior to the consummation (or, if the Offer is
consummated and extended, the initial consummation) of the Offer, that is
required to do so in order to discharge properly its fiduciary duties, the Board
may (x) withdraw or modify its approval or recommendation of this Agreement, the
Offer or the Merger and disclose to the Company's stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act
or otherwise make disclosure to them, or (y) approve or recommend such an
Acquisition Proposal that is a Superior Proposal; PROVIDED, HOWEVER, that in no
event may the Board take either such action earlier than the second full
business day following Parent's receipt of written notice of the intention of
the Board to do so.
(c) The Company and the Board shall not (i) redeem the
Rights under the Rights Agreement, or waive or amend any provision of the Rights
Agreement, in any such case to permit or facilitate the consummation of any
Acquisition Proposal or Alternative Transaction, or (ii) enter into any
agreement with respect to, or otherwise approve or recommend to stockholders, or
publicly propose to approve or recommend, any Acquisition Proposal or
Alternative Transaction, unless this Agreement has been terminated in accordance
with its terms.
(d) The Company shall not release any third party from
the confidentiality and standstill provisions of any agreement to which the
Company is a party.
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5.3 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) The
Company shall (and shall cause its Subsidiaries to):
(i) afford to the officers, employees,
accountants, counsel, financing sources and other representatives of
Parent, reasonable access during normal business hours to its
properties, books, contracts, commitments and records;
(ii) furnish to Parent all information concerning
its business, properties, personnel as Parent may reasonably request or
has reasonably requested; and
(iii) make available during normal business hours
to the officers, employees, accountants, counsel, financing sources and
other representatives of Parent the appropriate individuals (including
management personnel, attorneys, accountants and other professionals)
for discussion of the Company's business, properties, prospects and
personnel as Parent may reasonably request.
(b) Parent shall keep all information disclosed to it
pursuant to this Agreement confidential in accordance with the terms of the
confidentiality letter, dated December 10, 1999 (the "CONFIDENTIALITY LETTER"),
between Parent and the Company.
5.4 CONSENTS; APPROVALS. The Company and Parent shall
each use its reasonable best efforts (which efforts, to the extent reasonably
practicable, shall be made prior to the consummation of the Offer) to obtain all
consents, waivers, approvals, authorizations or orders (including, without
limitation, all United States and foreign governmental and regulatory rulings
and approvals), and the Company and Parent shall make all filings (including,
without limitation, all filings with United States and foreign governmental or
regulatory agencies) required in connection with the authorization, execution
and delivery of this Agreement by the Company, Parent and Purchaser and the
consummation by them of the transactions contemplated hereby. The Company,
Purchaser and Parent shall furnish all information required to be included in
the Proxy Statement or for any application or other filing to be made pursuant
to the rules and regulations of any United States or foreign governmental body
in connection with the transactions contemplated by this Agreement. Each party
hereto shall make an appropriate filing of a notification and report form
pursuant to the HSR Act with respect to the transactions contemplated hereby
within ten business days after the date hereof, shall promptly supply any
additional information and documentary material that may be requested pursuant
to the HSR Act, and shall use commercially reasonable efforts to obtain early
termination of the waiting period under the HSR Act. In addition, each party
hereto shall promptly make any other filing that may be required under any
antitrust law or by any antitrust authority.
5.5 INDEMNIFICATION AND INSURANCE.
(a) The certificate of incorporation and by-laws of the
Surviving Corporation shall contain provisions with respect to indemnification
substantially to the same effect as those set forth in the certificate of
incorporation and the by-laws of the Company on the date hereof, which
provisions shall not be amended, modified or otherwise repealed for a period of
six years after the Effective Time in any manner that would adversely affect the
rights thereunder as of the
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Effective Time of individuals who at the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
required after the Effective Time by law.
(b) Parent shall cause the Surviving Corporation, to the
fullest extent permitted under applicable law or under the Surviving
Corporation's certificate of incorporation or by-laws, to indemnify and hold
harmless, each present and former director, officer or employee of the Company
or any of its Subsidiaries (collectively, the "INDEMNIFIED PARTIES") against any
costs or expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, (x) arising out of or pertaining to the
transactions contemplated by this Agreement or (y) otherwise with respect to any
acts or omissions occurring at or prior to the Effective Time, to the same
extent as provided in the Company's certificate of incorporation or by-laws or
any applicable contract or agreement as in effect on the date hereof, in each
case for a period of six years after the date hereof. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time) and subject to the specific terms of any
indemnification contract, (i) any counsel retained by the Indemnified Parties
for any period after the Effective Time shall be reasonably satisfactory to the
Surviving Corporation, (ii) after the Effective Time, the Surviving Corporation
shall pay the reasonable fees and expenses of such counsel, promptly after
statements therefor are received and (iii) the Surviving Corporation will
cooperate in the defense of any such matter; PROVIDED, HOWEVER, that the
Surviving Corporation shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld or
delayed); and PROVIDED, FURTHER, that, in the event that any claim or claims for
indemnification are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims. The Indemnified Parties as a group may
retain only one law firm to represent them with respect to any single action
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties, in which case each Indemnified Person with respect to whom such a
conflict exists (or group of such Indemnified Persons who among them have no
such conflict) may retain one separate law firm.
(c) In addition, Parent will provide, or cause the
Surviving Corporation to provide, for a period of not less than six years after
the Effective Time, the Company's current directors and officers an insurance
and indemnification policy that provides coverage for events occurring at or
prior to the Effective Time (the "D&O INSURANCE") that is no less favorable than
the existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; PROVIDED, HOWEVER, that Parent and the
Surviving Corporation shall not be required to pay an annual premium for the D&O
Insurance in excess of one and one-half of the annual premium currently paid by
the Company for such insurance, but in such case shall purchase as much such
coverage as possible for such amount.
(d) This Section shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company, the Surviving
Corporation and the Indemnified Parties, shall be binding on all successors and
assigns of the Surviving Corporation and shall be enforceable by the Indemnified
Parties.
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5.6 EMPLOYEE BENEFITS
(a) Effective as of the Effective Time and for a one-year
period following the Effective Time, Parent shall provide, or cause the
Surviving Corporation and its Subsidiaries and successors to provide, those
persons who, immediately prior to the Effective Time, were employees of the
Company and its Subsidiaries and who continue in such employment ("CONTINUING
EMPLOYEES"), with benefits and compensation that are substantially comparable,
in the aggregate, to the compensation and benefits provided to such employees as
of the date of this Agreement; PROVIDED, that nothing herein shall restrict
Parent or the Surviving Corporation from terminating the employment of any such
employees in accordance with applicable laws and contractual rights, if any, of
such employees.
(b) Except with respect to accruals under any defined
benefit pension plan, Parent will, or will cause the Surviving Corporation and
its Subsidiaries to, give Continuing Employees full credit for purposes of
eligibility, vesting and determination of the level of benefits under any
employee benefit plans or arrangements maintained by Parent, the Surviving
Corporation or any Subsidiary of Parent or the Surviving Corporation for such
Continuing Employees' service with the Company or any Subsidiary of the Company
to the same extent recognized by the Company for similar purposes immediately
prior to the Effective Time. Parent will, or will cause the Surviving
Corporation and its Subsidiaries to, (i) waive all limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to the Continuing Employees under any welfare
plan that such employees may be eligible to participate in after the Effective
Time, other than limitations or waiting periods that are already in effect with
respect to such employees and that have not been satisfied as of the Effective
Time under any welfare plan maintained for the Continuing Employees immediately
prior to the Effective Time, and (ii) provide each Continuing Employee with
credit for any co-payments and deductibles paid prior to the Effective Time in
satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans that such employees are eligible to participate in after the
Effective Time to the same extent as if those deductibles or co-payments had
been paid under the welfare plans for which such employees are eligible after
the Effective Time.
(c) For purposes of the Plans, the Offer Completion Date
will constitute a "Change in Control" of the Company (as such term or similar
term is defined in an applicable Plan). The Parent shall (i) cause the Surviving
Corporation after the Offer Completion Date to pay all amounts provided under
all Plans in accordance with their terms, and (ii) honor and cause the Surviving
Corporation to honor all rights, privileges and modifications to or with respect
to any such Plans which become effective as a result of such Change in Control.
5.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall
give prompt notice to Parent and Parent shall give prompt notice to the Company,
of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which is reasonably likely to cause any representation or
warranty of such party contained in this Agreement to be materially untrue or
inaccurate, (ii) any failure of the Company or Parent, as the case may be,
materially to comply with or satisfy, or the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which is reasonably likely to cause the
failure by such party materially to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by
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it hereunder; (iii) the Company obtaining knowledge of a material breach by
Parent, or Parent obtaining knowledge of a material breach by the Company, of
their respective representations, warranties, or covenants hereunder of which
the breaching party has not already given notice pursuant to clauses (i) or
(ii); or (iv) the occurrence of any other event which would be reasonably likely
(A) to have a Company Material Adverse Effect or (B) to cause any condition set
forth in ANNEX A hereto to be unsatisfied in any material respect at any time
prior to the consummation of the Offer; PROVIDED, HOWEVER, that the delivery of
any notice pursuant to this Section shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
5.8 FURTHER ACTION. Upon the terms and subject to the
conditions hereof each of the parties hereto shall use its reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement.
5.9 PUBLIC ANNOUNCEMENTS. Parent and the Company shall
consult with each other before issuing any press release or making any written
public statement with respect to the Offer or Merger or this Agreement and shall
not issue any such press release or make any such public statement without the
prior consent of the other party, which shall not be unreasonably withheld;
PROVIDED, HOWEVER, that either party may, without the prior consent of the
other, issue such press release or make such public statement as may upon the
advice of counsel be required by law or the rules and regulations of The New
York Stock Exchange, in advance of obtaining such prior consent, if it has used
all reasonable efforts to consult with the other party.
5.10 FINANCIAL INFORMATION. The Company will deliver to
Parent, as soon as reasonably practicable, such financial information as Parent
may request to the extent such financial information is regularly prepared by
the Company for the Board or for management.
ARTICLE VI
CONDITIONS TO THE MERGER
The respective obligations of each party to effect the Merger
shall be subject to the fulfillment or waiver at or prior to the Effective Time
of the following conditions:
6.1 OFFER. The Offer Completion Date shall have occurred.
6.2 STOCKHOLDER APPROVAL. This Agreement shall have been
adopted at or prior to the Effective Time by the requisite vote of the
stockholders of the Company in accordance with the DGCL.
6.3 NO INJUNCTION OR ACTION. No order, statute, rule,
regulation, executive order, stay, decree, judgment or injunction shall have
been enacted, entered, promulgated or enforced by any court or other
Governmental Entity which prohibits or prevents the consummation of the Merger
which has not been vacated, dismissed or withdrawn prior to the
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Effective Time. The Company and Parent shall use all reasonable best efforts to
have any of the foregoing vacated, dismissed or withdrawn by the Effective Time.
6.4 GOVERNMENTAL APPROVAL. All Consents of any
Governmental Entity required for the consummation of the Merger and the
transactions contemplated by this Agreement shall have been obtained, except for
those Consents the failure to obtain which would not have a material adverse
effect on the business, assets, condition (financial or other), liabilities or
results of operations of the Surviving Corporation and its Subsidiaries taken as
a whole.
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the
Boards of Directors of Parent and the Company; or
(b) by either Parent or the Company if the initial
consummation of the Offer shall not have occurred on or prior to June 30, 2000;
PROVIDED, HOWEVER, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Offer to be consummated on or prior to such date; or
(c) by either Parent or the Company if, as the result of
the failure of the Minimum Condition or any of the other conditions set forth in
ANNEX A hereto, the Offer shall have terminated or expired in accordance with
its terms without Purchaser having purchased any Shares pursuant to the Offer,
PROVIDED that if the failure to satisfy any conditions set forth in ANNEX A
shall be a basis for termination of this Agreement under any other clause of
this Section 7.1, a termination pursuant to this clause (c) shall be deemed a
termination under such other clause; or
(d) by either Parent or the Company if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling or
taken any other nonappealable final action having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; or
(e) by Parent, if, whether or not permitted to do so by
this Agreement, the Board or the Company shall (x) (i) withdraw, modify or
change its approval or recommendation of the Offer, this Agreement or the Merger
in a manner adverse to Parent, (ii) approve or recommend to the stockholders of
the Company an Acquisition Proposal or Alternative Transaction; or (iii) approve
or recommend that the stockholders of the Company tender their shares in any
tender or exchange offer that is an Alternative Transaction or (y) take any
public position or make any disclosures to the Company's stockholders, whether
or not permitted pursuant to Section 5.2, which has the effect of any of the
foregoing; or
(f) by Parent or the Company, if any representation or
warranty of the Company or Parent, respectively, set forth in this Agreement
shall be untrue when made, if such
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failure to be true and correct, individually or in the aggregate, is reasonably
likely to cause the failure of the condition contained in subparagraph (e) of
ANNEX A; PROVIDED that, if such failure is curable prior to the Initial
Expiration Date (or any extension thereof) by the Company or Parent, as the case
may be, through the exercise of its reasonable best efforts and for so long as
the Company or Parent, as the case may be, continues to exercise such reasonable
best efforts, neither Parent nor the Company, respectively, may terminate this
Agreement under this Section 7.1(f) until such Initial Expiration Date (or
extension); or
(g) by Parent or the Company, if any representation or
warranty of the Company or Parent, respectively, set forth in this Agreement,
shall have become untrue (without for this purpose giving effect to
qualifications of materiality contained in such representations and warranties)
if such failure to be true and correct, individually or in the aggregate, is
reasonably likely to cause the failure of the condition contained in
subparagraph (e) of ANNEX A, other than by reason of a Terminating Breach (as
hereinafter defined); PROVIDED that, if any such failure is curable prior to the
Initial Expiration Date (or any extension thereof) by the Company or Parent, as
the case may be, through the exercise of its reasonable best efforts, and for so
long as the Company or Parent, as the case may be, continues to exercise such
reasonable best efforts, neither Parent nor the Company, respectively, may
terminate this Agreement under this Section 7.1(g) until such Initial Expiration
Date (or extension); or
(h) by Parent or the Company, upon a material breach of
any covenant or agreement on the part of the Company or Parent, respectively,
set forth in this Agreement (a "TERMINATING BREACH"); PROVIDED that, except for
any breach of the Company's obligations under Section 5.2, if such Terminating
Breach is curable prior to the Initial Expiration Date (or any extension
thereof) by the Company or Parent, as the case may be, through the exercise of
its reasonable best efforts and for so long as the Company or Parent, as the
case may be, continues to exercise such reasonable best efforts, neither Parent
nor the Company, respectively, may terminate this Agreement under this Section
7.1(h) until such date; or
(i) by the Company, in order to accept a Superior
Proposal; PROVIDED that (A) the Offer shall not theretofore have been
consummated (or, if the Offer is consummated and extended, initially
consummated); (B) the Board determines (based on the advice of counsel) that it
is required to accept such proposal in order to discharge properly its fiduciary
duties; (C) the Company has given Parent two full business days' advance notice
of the Company's intention to accept such Superior Proposal; (D) the Company
shall have paid the Fee and the Expense Reimbursement pursuant to Section
7.3(b); and (E) the Company shall have complied in all respects with the
provisions of Section 5.2.
Notwithstanding the foregoing, the right to terminate this
Agreement pursuant to clauses (e), (f), (g), (h) and (i) above shall not be
available to Parent if Purchaser or any other affiliate of Parent shall have
acquired Shares pursuant to the Offer.
As used herein, "ALTERNATIVE TRANSACTION" means any of (i) a
transaction pursuant to which any person (or group of persons (including the
shareholders of any party to such transaction)) other than Parent or its
affiliates (a "THIRD PARTY") acquires or would acquire more than 30% of the
outstanding shares of any class of equity securities of the Company, whether
from the Company or pursuant to a tender offer or exchange offer or otherwise,
(ii) a merger or
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other business combination involving the Company pursuant to which any Third
Party acquires more than 30% of the outstanding equity securities of the Company
or the entity surviving such merger or business combination, (iii) any
transaction pursuant to which any Third Party acquires or would acquire control
of assets (including for this purpose the outstanding equity securities of
Subsidiaries of the Company and securities of the entity surviving any merger or
business combination including any of the Company's Subsidiaries) of the
Company, or any of its Subsidiaries having a fair market value (as determined by
the Board in good faith) equal to more than 30% of the fair market value of all
the assets of the Company and its Subsidiaries, taken as a whole, immediately
prior to such transaction, or (iv) any other consolidation, business
combination, recapitalization or similar transaction involving the Company or
any of the Company Subsidiaries that are "significant" under Regulation S-X at a
level of 30% or more, other than the transactions contemplated by this
Agreement; PROVIDED, HOWEVER, that the term Alternative Transaction shall not
include any acquisition of securities by a broker dealer in connection with a
bona fide public offering of such securities.
7.2 EFFECT OF TERMINATION. In the event of the
termination of this Agreement pursuant to Section 7.1, written notice thereof
shall forthwith be given to the other party or parties specifying the provision
hereof pursuant to which such termination is made, and this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto or any of its affiliates, directors, officers or stockholders except for
any obligation of the Company or Parent set forth in Section 7.3 hereof.
Notwithstanding the foregoing, nothing herein shall relieve the Company or
Parent from liability for any willful breach hereof (it being understood that
the provisions of Section 7.3 do not constitute a sole or exclusive remedy for
such willful breach).
7.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated.
(b) The Company shall pay Parent a fee of $25,000,000
(the "FEE") and shall also pay Parent $3,000,000 to reimburse Parent for its
itemized out-of-pocket expenses in connection with the transactions contemplated
hereby (the "Expense Reimbursement") upon the first to occur of any of the
following events:
(1) the termination of this Agreement by Parent
or the Company pursuant to Section 7.1(b), Section 7.1(c), Section 7.1(f) or
Section 7.1(g); PROVIDED that an Alternative Transaction shall be publicly
announced by the Company or any third party within twelve months following the
date of such termination and such transaction shall at any time thereafter be
consummated on substantially the terms theretofore announced; PROVIDED further
that if the termination of this Agreement is pursuant to Section 7.1(g), such
Alternative Transaction, if all cash, must be no less favorable from a financial
point of view to the shareholders of the Company than the transactions
contemplated by the Offer and Merger, unless the events giving rise to the
breach underlying such termination relate to the third party with whom the
Alternative Transaction was consummated;
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(2) the termination of this Agreement by Parent
pursuant to Section 7.1(e) or Section 7.1(h); or
(3) the termination of this Agreement by the
Company pursuant to Section 7.1(i).
(c) Upon the termination of this Agreement by Parent
pursuant to Section 7.1(c) in the event of the failure of the Minimum Condition
to be satisfied, the Company shall pay to Parent the Expense Reimbursement (in
which case such payment shall be credited against any subsequent payment that
may become due to Parent under Section 7.3(b)(1)).
(d) Upon termination of this Agreement by Parent pursuant
to Section 7.1(f), the Company shall pay to Parent the Expense Reimbursement (in
which case such payment shall be credited against any subsequent payment that
may become due to Parent under Section 7.3(b)(1)).
(e) The Fee and/or the Expense Reimbursement shall be
paid by wire transfer of same day funds to an account designated by Parent
within two business days after a demand for payment following (i) in the case of
the Fee and the Expense Reimbursement, the first to occur of any of the events
described in Section 7.3(b); PROVIDED that, in the event of a termination of
this Agreement under Section 7.1(i), the Fee and the Expense Reimbursement shall
be paid as therein provided as a condition to the effectiveness of such
termination; (ii) in the case of the Expense Reimbursement, the first to occur
of any of the events described in Section 7.3(c) or 7.3(d).
(f) The agreements contained in this Section 7.3 are an
integral part of the transactions contemplated by this Agreement and do not
constitute a penalty. In the event of any dispute between the Company and Parent
as to whether the Fee or the Expense Reimbursement under this Section 7.3 is due
and payable, the prevailing party shall be entitled to receive from the other
party the reasonable costs and expenses (including reasonable legal fees and
expenses) in connection with any action, including the filing of any lawsuit or
other legal action, relating to such dispute. Interest shall be paid on the
amount any unpaid fee at the publicly announced prime rate of Citibank, N.A.
from the date such fee was required to be paid.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall not survive the
Merger, PROVIDED that the representations and warranties of the Company shall
not survive the Offer Completion Date, and PROVIDED FURTHER that the agreements
contained in Section 1.3, Section 5.5 and this ARTICLE VIII will survive the
Merger.
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8.2 NOTICES. Any notice required to be given hereunder
will be sufficient if in writing, and sent by facsimile transmission (provided
that any notice received by facsimile transmission or otherwise at the
addressee's location on any business day after 5:00 p.m. (addressee's local
time) shall be deemed to have been received at 9:00 a.m. (addressee's local
time) on the next business day), by courier service (with proof of service),
hand delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
If to Parent or Purchaser: If to the Company:
International Paper Company Shorewood Packaging Company
2 Manhattanville Road 277 Park Avenue
Purchase, NY 10577 New York, NY 10172
Attention: General Counsel Attention: Andrew N. Shore, Esq.
Telecopier No.: 914-397-1909 Telecopier No.: 212-508-5677
With copies to: With copies to:
O'Melveny & Myers LLP Skadden, Arps, Slate, Meagher & Flom LLP
153 East 53rd Street Four Times Square
New York, NY 10022 New York, NY 10036-6522
Attention: Jeffrey J. Rosen, Esq. Attention: Jeffrey W. Tindell, Esq.
Telecopier No.: 212-326-2061 Richard J. Grossman, Esq.
Telecopier No.: 212-735-2000
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed. Any party to this Agreement
may notify any other party of any changes to the address or any of the other
details specified in this paragraph, provided that such notification shall only
be effective on the date specified in such notice or five (5) business days
after the notice is given, whichever is later. Rejection or other refusal to
accept or the inability to deliver because of changed address of which no notice
was given shall be deemed to be receipt of the notice as of the date of such
rejection, refusal or inability to deliver.
8.3 ASSIGNMENT; BINDING EFFECT. Neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by any
of the parties (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon and shall inure to the benefit of the parties and
their respective successors and permitted assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Section 5.5, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.4 ENTIRE AGREEMENT. This Agreement, the Exhibits, the
Company Disclosure Letter, and any documents delivered by the parties in
connection herewith constitute
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the entire agreement among the parties with respect to the subject matter of
this Agreement and supersede all prior representations, warranties, agreements
and understandings among the parties, both written and oral, with respect
thereto except the Confidentiality Agreement which shall continue in full force
and effect, PROVIDED that if there is any conflict between the Confidentiality
Agreement and this Agreement, this Agreement shall prevail; PROVIDED FURTHER,
that if the Offer is terminated without Purchaser purchasing any shares of
Company Common Stock, then the standstill and non-solicitation provisions set
forth on pages four and five of the Confidentiality Agreement shall terminate.
No prior drafts of this Agreement or portions thereof shall be admissible into
evidence in any action, suit or other proceeding involving this Agreement.
8.5 AMENDMENT. This Agreement may be amended by the
parties hereto, by action taken by their respective boards of directors, at any
time before or after approval of matters presented in connection with the Merger
by the stockholders of the Company, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties.
8.6 GOVERNING LAW; CONSENT TO JURISDICTION.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws.
(b) Each of the parties hereto (1) (A) consents to submit
itself to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement and (B)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, and (2) (A) agrees that
any action under this Agreement may also be brought in any Federal or state
court located in the City of New York, Borough of Manhattan and (B) agrees that
it will not by motion or other action contest the bringing of any such action in
the above mentioned courts rather than in any other venue or forum.
8.7 COUNTERPARTS. This Agreement may be executed by the
parties 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 of
this Agreement each signed by less than all, but together signed by all of the
parties hereto. This Agreement shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
parties.
8.8 HEADINGS. Headings of the Articles and Sections of
this Agreement are for the convenience of the parties only, and shall be given
no substantive or interpretive effect whatsoever.
8.9 INTERPRETATION. When a reference is made in this
Agreement to an Article, Section or Exhibit, such reference shall be to an
Article or Section of, or an Exhibit to, this Agreement unless otherwise
indicated. The table of contents to this Agreement is for
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reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant thereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns. Each of
the parties has participated in the drafting and negotiation of this Agreement.
If an ambiguity or question of intent or interpretation arises, this Agreement
must be construed as if it is drafted by all the parties and no presumption or
burden of proof will arise favoring or disfavoring any party by virtue of
authorship of any of the provisions of this Agreement.
8.10 WAIVERS. Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, will be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder will not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
8.11 INCORPORATION OF EXHIBITS. The Company Disclosure
Letter and all Exhibits attached hereto and referred to in this Agreement are
hereby incorporated in this Agreement and made a part of this Agreement for all
purposes as if fully set forth in this Agreement.
8.12 SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent (and only to the extent) of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
8.13 ENFORCEMENT OF AGREEMENT. The parties hereto agree
that irreparable damage would occur if any of the provisions of this Agreement
was not performed in accordance with its specific terms or as otherwise breached
and that money damages would not be an
43
<PAGE>
adequate remedy for any breach of this Agreement. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any court referred to in Section 8.6(b), this being in
addition to any other remedy to which they are entitled at law or in equity. In
any such action for specific performance, each of the parties will waive (a) the
defense of adequacy of a remedy at law and (b) any requirement for the securing
and posting of any bond.
8.14 WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT.
8.15 COMPANY DISCLOSURE LETTER. Except where reference is
made to the Company Disclosure Letter in the definition of "Company Material
Adverse Effect" or in Article V, any matter disclosed in a section of the
Company Disclosure Letter shall be treated as if it were disclosed in all
applicable locations throughout such disclosure letter to the extent that, based
upon a reasonable review of such disclosure letter by someone familiar with this
Agreement, its applicability would be readily apparent. No disclosure in the
Company Disclosure Letter shall be deemed to be an admission or representation
as to the materiality of the item so disclosed.
8.16 EXECUTION. This Agreement may be executed by
facsimile signatures by any party and such signature shall be deemed binding for
all purposes hereof, without delivery of an original signature being thereafter
required.
8.17 PERSONAL LIABILITY. Neither this Agreement nor any
other document delivered in connection with this Agreement (other than the
Stockholders Agreement executed in connection herewith on the date hereof) shall
create or be deemed to create or permit any personal liability or obligation on
the part of any officer or director of the Company or any Subsidiary of the
Company.
8.18 DATE FOR ANY ACTION. In the event that any date on
which any action is required to be taken hereunder by any of the parties hereto
is not a business day, such action shall be required to be taken on the next
succeeding day which is a business day.
8.19 OBLIGATION OF PARENT AND THE COMPANY. Whenever this
Agreement requires Purchaser or another Subsidiary of Parent to take any action,
such requirement shall be deemed to include an undertaking on the part of Parent
to cause Purchaser or such Subsidiary to take such action and a guarantee of the
performance thereof. Whenever this Agreement requires the Surviving Corporation
to take any action, from and after the Offer Completion Date, such requirement
shall be deemed to include an undertaking on the part of Parent to cause the
Surviving Corporation to take such action and a guarantee of the performance
thereof. Whenever this Agreement requires a Subsidiary of the Company to take
any action, such requirement shall be deemed to include an undertaking on the
part of the Company to cause such Subsidiary to take such action and a guarantee
of the performance thereof.
8.20 CERTAIN DEFINITIONS. As used in this Agreement:
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(a) The term "AFFILIATE," as applied to any person, shall
mean any other person directly or indirectly controlling, controlled by, or
under common control with, that person; for purposes of this definition,
"CONTROL" (including, with correlative meanings, the terms "controlling,"
"controlled by," "under common control with"), as applied to any person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise.
(b) A person will be deemed to "BENEFICIALLY" own
securities if such person would be the beneficial owner of such securities under
Rule 13d-3 under the Exchange Act, including securities which such person has
the right to acquire (whether such right is exercisable immediately or only
after the passage of time).
(c) The term "BUSINESS DAY" means any day on which
commercial banks are open for business in New York, New York other than a
Saturday, a Sunday or a day observed as a holiday in New York, New York under
the laws of the State of New York or the federal laws of the United States.
(d) The term "KNOWLEDGE" or any similar formulation of
"KNOWLEDGE" shall mean, with respect to the Company, the actual knowledge of the
Company's executive officers.
(e) The term "PERSON" shall include individuals,
corporations, partnerships, trusts, limited liability companies, associations,
unincorporated organizations, joint ventures, other entities, groups (which term
shall include a "group" as such term is defined in Section 13(d)(3) of the
Exchange Act), labor unions or Governmental Entity.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
and caused the same to be duly delivered on their behalf on the day and year
first written above.
INTERNATIONAL PAPER COMPANY
By: /s/ David W. Oskin
-------------------------------
Name: David W. Oskin
Title: Executive Vice President
SHOREWOOD PACKAGING CORPORATION
By: /s/ Marc P. Shore
---------------------------
Name: Marc P. Shore
Title: Chairman and CEO
INTERNATIONAL PAPER - 37, INC.
By: /s/ James W. Guedry
---------------------------
Name: James W. Guedry
Title: President
S-1
<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
Capitalized terms used but not defined herein shall have the
meanings set forth in the Agreement and Plan of Merger (the "AGREEMENT") of
which this Annex A is a part. Notwithstanding any other provision of the Offer,
Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) promulgated
under the Exchange Act (relating to the obligation of Purchaser to pay for or
return tendered shares of Company Common Stock promptly after termination or
withdrawal of the Offer), pay for, and (subject to any such rules or
regulations) may delay the acceptance for payment of or the payment for any
tendered shares of Company Common Stock and (except as provided in the
Agreement) amend or terminate the Offer if (i) there shall not be validly
tendered and not withdrawn prior to the expiration of the Offer a number of
shares of Company Common Stock such that, upon consummation of the Offer,
Purchaser would own at least fifty-one percent (51%) of the total number of
issued and outstanding shares of Company Common Stock on a fully diluted basis
(after giving effect to the conversion or exercise of all outstanding options,
warrants and other rights or securities convertible into shares of Company
Common Stock) (excluding any shares of Company Common Stock held by the Company
or any of its Subsidiaries) (the "MINIMUM CONDITION") or (ii) any applicable
waiting period under the HSR Act, the Competition Act or the Investment Canada
Act or any similar legal regime in any other country applicable to significant
operations of Parent or any of its Subsidiaries or Company or any of its
Subsidiaries shall not have expired or been terminated prior to the expiration
of the Offer or (iii) at any time on or after the date of this Agreement and
before the initial time of acceptance of shares of Company Common Stock for
payment pursuant to the Offer, any of the following conditions exists:
(a) there shall be in effect an injunction or other
order, decree, judgment or ruling by a Governmental Entity of competent
jurisdiction or a law, rule or regulation shall have been promulgated, or
enacted by a Governmental Entity of competent jurisdiction which in any such
case (i) restrains or prohibits the making or consummation of the Offer or the
consummation of the Merger, or (ii) prohibits or restricts the ownership or
operation by Parent (or any of its affiliates or Subsidiaries) of any portion of
the Company's business or assets or which would substantially deprive Parent
and/or its affiliates or Subsidiaries of the benefit of ownership of the
Company's business or assets, or compels Parent (or any of its affiliates or
Subsidiaries) to dispose of or hold separate any portion of the Company's
business or assets, or of its business or assets, or which would substantially
deprive Parent and/or its affiliates or Subsidiaries of the benefit of ownership
of the Company's business or assets, or (iii) imposes material limitations on
the ability of Purchaser or Parent effectively to acquire or to hold or to
exercise full rights of ownership of the shares of Company Common Stock,
including, without limitation, the right to vote shares of Company Common Stock
purchased by Purchaser pursuant to the Offer or acquired by Parent in the Merger
on all matters properly presented to the stockholders of the Company, or (iv)
imposes any material limitations on the ability of Parent and/or its affiliates
or Subsidiaries effectively to control in any material respect the business and
operations of the Company (other than, prior to the Effective Time, by reason of
there being minority stockholder in the Company); or
Annex A-1
<PAGE>
(b) there shall have been instituted, pending or
threatened (in writing or by public announcement) an action by a Governmental
Entity seeking (i) to restrain or prohibit the making or consummation of the
Offer or the consummation of the Merger or (ii) to impose any other restriction,
prohibition or limitation referred to in the foregoing paragraph (a); or
(c) this Agreement shall have been terminated by the
Company or Parent in accordance with its terms; or
(d) Parent and the Company shall have agreed in writing
that Purchaser shall amend the Offer to terminate the Offer or postpone the
payment for shares of Company Common Stock pursuant thereto; or
(e) the representations and warranties of the Company set
forth in the Agreement shall not be true and accurate in all respects as of the
date of consummation of the Offer as though made on or as of such date (except
for those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need
only be true and accurate as of such date or with respect to such period) (in
each case without for this purpose giving effect to qualifications or
limitations as to materiality or the absence of a Company Material Adverse
Effect contained in such representations and warranties, but reading each such
representation and warranty as though the Company Disclosure Letter included
information plainly disclosed in the Company Reports filed subsequent to May 2,
1999 and prior to the date hereof), except for such failures to be true and
correct as could not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect, or the Company shall have breached or
failed to perform or comply in any material respect with any obligations,
agreement or covenant required by the Agreement to be performed or complied with
by it; PROVIDED, HOWEVER, that such breach or failure to perform is incapable of
being cured or has not been cured prior to the Initial Expiration Date (or such
later date upon with the Offer shall expire); or
(f) The Company or Purchaser shall have failed to receive
any or all governmental or third party consents and approvals to consummate the
Offer which, if not received, would have a Company Material Adverse Effect; or
(g) the Board shall have modified or amended its
recommendation of the Offer in any manner adverse to Parent or shall have
withdrawn its recommendation of the Offer, or shall have recommended acceptance
of any Acquisition Proposal or shall have resolved to do any of the foregoing;
or
(h) (i) any corporation, entity or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act) ("PERSON/GROUP"), other than
Parent and Purchaser shall have acquired beneficial ownership of more than 21%
of the outstanding shares of Company Common Stock, or shall have been granted
any options or rights, conditional or otherwise, to acquire a total of more than
21% of the outstanding shares of Company Common Stock and which, in each case,
does not tender the shares of Company Common Stock beneficially owned by it in
the Offer; (ii) any new group shall have been formed which beneficially owns
more than 15% of the outstanding shares of Company Common Stock and which does
not tender the shares of Company Common Stock beneficially owned by it in the
Offer; or (iii) any person/group (other
Annex A-2
<PAGE>
than Parent or one or more of its affiliates) shall have entered into an
agreement in principle or definitive agreement with the Company with respect to
a tender or exchange offer for any shares of Company Common Stock or a merger,
consolidation or other business combination with or involving the Company; or
(i) any change, development, effect or circumstance shall
have occurred or be threatened that is reasonably likely to be a Company
Material Adverse Effect; or
(j) the Rights shall have become exercisable;
which in the reasonable judgment of Parent or the Purchaser, in any such case,
and regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments.
The foregoing conditions are for the sole benefit of Parent
and Purchaser and may be asserted by Parent and Purchaser regardless of the
circumstances giving rise to any such condition, and, subject to the terms of
this Agreement, may be waived by Parent and Purchaser, in whole or in part, at
any time and from time to time, in the sole discretion of Parent and Purchaser.
The failure by Parent and Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any right, the waiver of such right with
respect to any particular facts or circumstances shall not be deemed a waiver
with respect to any other facts or circumstances, and each right shall be deemed
an ongoing right which may be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing
provisions, all tendered shares of Company Common Stock not theretofore accepted
for payment pursuant thereto shall forthwith be returned to the tendering
stockholders.
Annex A-3
<PAGE>
Exhibit 4
[SHOREWOOD PACKAGING CORPORATION LETTERHEAD]
February 29, 2000
Dear Fellow Stockholders:
We are pleased to inform you that, on February 16, 2000, Shorewood Packaging
Corporation ("Shorewood") entered into an Agreement and Plan of Merger (the
"Merger Agreement") with International Paper Company ("IP") and International
Paper-37, Inc. ("Purchaser"), a wholly owned subsidiary of IP. Pursuant to the
Merger Agreement, Purchaser has today commenced a tender offer (the "IP Offer")
to purchase all of the outstanding shares of Shorewood's common stock, including
the associated preferred stock purchase rights issued pursuant to the Rights
Agreement, dated as of June 12, 1995, between Shorewood and The Bank of New
York, as Rights Agent (together, "Shares"), of Shorewood for $21.00 per Share in
cash, without interest, subject to the terms and conditions contained in the
Offer to Purchase and the related Letter of Transmittal that are included in
Purchaser's offering materials. Under the Merger Agreement and subject to the
terms thereof, following the IP Offer, Purchaser will be merged with and into
Shorewood (the "Merger") and all Shares not purchased in the IP Offer (other
than Shares held by IP, Purchaser, Shorewood or any of their respective
subsidiaries and Shares held by dissenting stockholders) will be converted into
the right to receive $21.00 per Share in cash in the Merger.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY (I) DETERMINED THAT THE IP OFFER AND
THE MERGER ARE ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF SHOREWOOD'S
STOCKHOLDERS AND (II) APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE IP OFFER AND THE MERGER. THE SHOREWOOD BOARD
OF DIRECTORS RECOMMENDS THAT SHOREWOOD'S STOCKHOLDERS ACCEPT THE IP OFFER AND
TENDER THEIR SHARES PURSUANT TO THE IP OFFER.
In arriving at its recommendation, the Shorewood Board gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that is being filed today with the Securities and Exchange Commission. Among
other things, the Shorewood Board considered the fairness opinions and advice of
Shorewood's financial advisors, Bear, Stearns & Co. Inc. and Greenhill & Co.,
LLC. The full text of each of these opinions is included in the attached
Schedule 14D-9. Stockholders are urged to read these opinions carefully in their
entirety.
In addition to the attached Schedule 14D-9 relating to the IP Offer, also
enclosed is the Offer to Purchase, dated February 29, 2000, of Purchaser,
together with related materials to be used for tendering your Shares. If your
Shares are held in certificate form, please use the enclosed Letter of
Transmittal to tender your Shares. If your Shares are held in "street name,"
only your broker or banker can tender your Shares and you should contact the
person responsible for your account for information on how to instruct him or
her to tender Shares on your behalf. These documents set forth the terms and
conditions of the IP Offer and the Merger and provide instructions as to how to
tender your Shares. We urge you to read the enclosed materials carefully.
If you need assistance with the tendering of your Shares, please contact
Georgeson Shareholder Communications Inc., the Information Agent for the IP
Offer, at its address or telephone number appearing on the back cover of the
Offer to Purchase.
On behalf of the Board of Directors, management and employees of Shorewood,
I thank you for the support that you have given Shorewood.
Sincerely,
/s/ Marc P. Shore
-----------------------
Marc P. Shore
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
Exhibit 5
SHOREWOOD PACKAGING AGREES TO BE ACQUIRED BY
INTERNATIONAL PAPER FOR $21 PER SHARE
INTERNATIONAL PAPER WILL COMMENCE TENDER OFFER FOR ALL
OUTSTANDING SHOREWOOD SHARES
STRATEGIC COMBINATION PROVIDES INTERNATIONAL PAPER WITH
LEADING SPECIALTY PACKAGING BUSINESS
- --------------------------------------------------------------------------------
NEW YORK, NY, FEBRUARY 17, 2000 - Shorewood Packaging Corporation
(NYSE:SWD) today announced that it has reached a definitive merger agreement
providing for International Paper Company (NYSE:IP) to acquire Shorewood for $21
per share in cash. International Paper will also assume Shorewood's
approximately $275 million in outstanding debt, giving the transaction a total
value of approximately $875 million. The Boards of both International Paper and
Shorewood have unanimously approved the transaction.
Pursuant to the definitive merger agreement, International Paper will
shortly commence a cash tender offer of $21 per share for all of Shorewood's
outstanding shares. Marc P. Shore, Shorewood's Chairman and Chief Executive
Officer, and the Shore family, who together control approximately 17% of
Shorewood stock, have agreed to tender their shares into the International Paper
offer.
The strategic acquisition of Shorewood will improve International Paper's
position in the value added, specialty packaging business. Shorewood brings to
International Paper state-of-the-art, printed packaging capabilities in the
music and home entertainment, tobacco, cosmetics and toiletries, and hair
coloring industries, among others. Shorewood will benefit from becoming part of
a stronger, more diversified and international organization that is among the
global leaders in the paper
<PAGE>
Page 2 of 4
and packaging industry.
Under the terms of the transaction, Shorewood will become the premium
retail packaging operation of IP with the existing IP operations combined with
Shorewood into a single business unit under the Shorewood name. Marc Shore will
become President of Shorewood under IP's ownership, and Howard M. Liebman,
currently Shorewood's President and Chief Financial Officer, will become
Executive Vice President of the Shorewood business. The transaction is subject
to antitrust approval and other customary conditions, and is expected to close
by the end of March 2000.
William Slowikowski, International Paper's Senior Vice President for
Consumer Packaging, stated, "Shorewood is a premier franchise with a reputation
for high quality, value added products and outstanding customer service. The
acquisition of Shorewood is a very significant step in International Paper's
efforts to deliver more value to our customers."
Marc Shore stated, "Our goals have always been very clear - to enhance
shareholder value, provide for employee continuity and continue our focus on
serving the interests of our customers. Consistent with those goals, we believe
that International Paper is the ideal partner for Shorewood. International Paper
has the industry breadth, expertise and global presence to leverage Shorewood's
existing businesses and take them to the next level. We're confident that our
customers and employees will benefit from this strategic combination."
Shore continued, "We are especially pleased that we were able to achieve
an appropriate valuation for Shorewood shareholders - representing a 22% premium
to Chesapeake's (NYSE:CSK) inadequate offer and an all-time high price for
Shorewood shares. I'm extremely proud of the Shorewood Board, which after
looking at a number of alternatives to enhance value, was able to arrive at a
deal that is clearly in the best interests of Shorewood shareholders, employees
and customers."
Shore added, "We view this as a new chapter for Shorewood. We're confident
that the greatest period of growth and opportunity for our business lies ahead,
in the context of our new partnership with International Paper. We look forward
to quickly consummating this transaction."
Separately, Shorewood also announced that, based on preliminary data, it
expects revenues for the Company's third quarter, ended January 31, 2000, to be
approximately $134 million compared to the $141 million reported for the
comparable period last year. The Company also expects that operating and net
earnings will be lower than those reported in the comparable period last year.
The Company's actual financial results for the quarter will be disclosed by
mid-March.
International Paper (http://www.internationalpaper.com) is the world's
largest forest products company. Businesses include printing paper, packaging,
building materials, chemical products and distribution. As the largest private
landowner in the U.S., the company manages its forest under the Sustainable
Forestry Initiative (SFIsm) program, a system that ensures the perpetual growing
and harvesting of trees while protecting wildlife, plants, soil, air and water
quality. Headquartered in the United States at Purchase, New York, IP has
operations in nearly 50 countries, employs nearly 100,000 people and exports its
products to more than 130 nations. Shorewood Packaging Corporation is a leading
value-added provider of high quality printing and paperboard packaging for the
computer software, cosmetics and toiletries, food, home video, music, tobacco
and general consumer markets in North America and China, with 16 plants in the
United States, Canada and China.
<PAGE>
Page 3 of 4
Certain statements included in this press release constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Act"). While the safe harbors intended to be created by the Act
are not available to statements made in connection with a tender offer, it has
not been judicially determined whether such safe harbor provisions apply to
forward-looking statements made in connection with a consent solicitation
conducted in connection with a tender offer. However, the consent solicitation
by Chesapeake Corporation is intended to facilitate its tender offer, and the
statements made herein may be deemed to have been made in connection with such
tender offer. Accordingly, such statements may not be covered by the safe harbor
provisions of the Act. Any forward-looking statements made herein are only
predictions, subject to risks and uncertainties that exist in the business
environment which could render actual outcomes and results materially different
from those expressed in such statements, including, but not limited to, 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 release and in Shorewood's annual report on Form 10-K and quarterly
reports on Form 10-Q.
THIS PRESS RELEASE DOES NOT CONSTITUTE A SOLICITATION TO REVOKE CONSENTS IN
CONNECTION WITH THE CONSENT SOLICITATION OF CHESAPEAKE CORPORATION. ANY SUCH
SOLICITATION WILL BE MADE ONLY BY MEANS OF SEPARATE CONSENT SOLICITATION
MATERIALS COMPLYING THE REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
CERTAIN INFORMATION CONCERNING PARTICIPANTS
Shorewood Packaging Corporation ("Shorewood") and certain other persons named
below may be deemed to be participants in the solicitation of revocations of
consents in response to the consent solicitation being conducted by Chesapeake
Corporation ("Chesapeake"). The participants in this solicitation may include:
(i) the directors of Shorewood (Marc P. Shore (Chairman of the Board and Chief
Executive Officer), Howard M. Liebman (President and Chief Financial Officer),
Leonard Verebay (Executive Vice President), Andrew N. Shore (Vice President and
General Counsel), Kevin J. Bannon, Sharon R. Fairley, Virginia A. Kamsky, R.
Timothy O'Donnell and William P. Weidner; and (ii) William H. Hogan (Senior Vice
President, Finance and Corporate Controller). As of the date of this
communication, the number of shares of common stock, par value $0.01 per share
("Common Stock"), beneficially owned by the Shorewood participants (including
shares subject to stock options exercisable within 60 days) is as follows: Marc
P. Shore (4,750,485), Howard M. Liebman (233,269), Leonard J. Verebay (500,180),
Andrew N. Shore (169,052), Kevin J. Bannon (33,000), Virginia A. Kamsky (4,500),
R. Timothy O'Donnell (326,118); William P. Weidner (57,000); and William H.
Hogan (30,500).
Shorewood has retained Bear, Stearns & Co. Inc. ("Bear Stearns") and Jefferson
Capital Group, Ltd. ("Jefferson Capital") to act as its co-financial advisors in
connection with the tender offer (the "Offer") by Chesapeake and its wholly
owned subsidiary, Sheffield, Inc., to purchase shares of Common Stock for $17.25
per share net to the seller in cash, for which Bear Stearns and Jefferson
Capital may receive substantial fees, as well as reimbursement of reasonable
out-of-pocket expenses. In addition, Shorewood has agreed to indemnify Bear
Stearns, Jefferson Capital and certain related persons against certain
liabilities, including certain liabilities under the federal securities laws,
arising out of their
<PAGE>
Page 4 of 4
engagement. Neither Bear Stearns nor Jefferson Capital admit that they or any of
their partners, directors, officers, employees, affiliates or controlling
persons, if any, is a "participant" as defined in Schedule 14A promulgated under
the Securities Exchange Act of 1934, as amended, in the solicitation of consent
revocations, or that Schedule 14A requires the disclosure of certain information
concerning Bear Stearns and Jefferson Capital, respectively.
In connection with Bear Stearns' role as co-financial advisor to Shorewood, Bear
Stearns and the following investment banking employees of Bear Stearns may
communicate in person, by telephone or otherwise with a limited number of
institutions, brokers or other persons who are stockholders of Shorewood and may
solicit consent revocations therefrom: Terence Cryan (Senior Managing Director),
Charles Edelman (Senior Managing Director), Mark A. Van Lith (Managing Director)
and Karen Duffy (Vice President). Bear Stearns engages in a full range of
investment banking, securities trading, market-making and brokerage services for
institutional and individual clients. In the normal course of its business Bear
Stearns may trade securities of Shorewood for its own account and the accounts
of its customers, and accordingly, may at any time hold a long or short position
in such securities. Bear Stearns has informed Shorewood that, as of the date
hereof, Bear Stearns held, net long, no shares of Common Stock for its own
account.
Bear Stearns and certain of its affiliates may have voting and dispositive power
with respect to certain shares of Common Stock held in asset management,
brokerage and other accounts. Bear Stearns and such affiliates disclaim
beneficial ownership of such shares of Common Stock.
In connection with Jefferson Capital's role as co-financial advisor to
Shorewood, Jefferson Capital and the following investment banking employees of
Jefferson Capital may communicate in person, by telephone or otherwise with a
limited number of institutions, brokers or other persons who are stockholders of
Shorewood and may solicit consent revocations therefrom: R. Timothy O'Donnell
(President) and Louis W. Moelchert (Vice President). R. Timothy O'Donnell is the
beneficial owner of 276,118 shares of Common Stock. Louis W. Moelchert is the
beneficial owner of 1,500 shares of Common Stock. Jefferson Capital has informed
Shorewood that, as of the date hereof, it held 22,231 shares of Common Stock in
its investment account.
The special committee of independent directors (the "Special Committee") of the
Shorewood Board of Directors, formed to evaluate strategic alternatives which
could enhance stockholder value, has retained Greenhill & Co., LLC ("Greenhill")
as its financial advisor. In connection with Greenhill's role as financial
advisor to the Special Committee, Greenhill and the following investment banking
employees of Greenhill may communicate in person, by telephone or otherwise with
a limited number of institutions, brokers or other persons who are stockholders
of Shorewood and may solicit consent revocations therefrom: Robert F. Greenhill
(Chairman), Scott L. Bok (Managing Director), James M. Wildasin (Vice President)
and Joseph A. McMillan, Jr. (Associate). Greenhill has informed Shorewood that,
as of the date hereof, Greenhill held, net long, no shares of Common Stock for
its own account.
# # #
<PAGE>
Exhibit 6
[GREENHILL & CO., LLC LETTERHEAD]
February 16, 2000
Special Strategic Committee of Directors
and the Board of Directors
Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172
Special Strategic Committee of Directors and the Board of Directors:
We understand that Shorewood Packaging Corporation ("Shorewood"),
International Paper Company ("IP") and a direct wholly-owned subsidiary of IP
("Merger Sub") propose to enter into an Agreement and Plan of Merger (the
"Agreement"), which provides, among other things, for Shorewood and IP to
engage in the transactions (the "Transactions") contemplated by the
Agreement, including (a) the commencement of an Offer by IP to purchase for
$21.00 per share in cash (the "Consideration") any and all of the outstanding
shares of common stock, $.01 par value, of Shorewood ("Shorewood Common
Stock") and the associated rights to purchase preferred stock (the "Rights"),
issued pursuant to the Rights Agreement, dated as of June 12, 1995, between
Shorewood and The Bank of New York as rights agent, and (b) a business
combination whereby Merger Sub will be merged with and into Shorewood, with
Shorewood continuing as the surviving corporation of such merger and a direct
wholly-owned subsidiary of IP (the "Merger"), and each share of Shorewood
Common Stock (other than shares of Common Stock owned by IP, Shorewood or
their respective subsidiaries) will be converted into the right to receive
the Consideration. The terms and conditions of the Transactions are more
fully set forth in the Agreement. Capitalized terms used in this letter
without definition have the respective meanings assigned to them in the
Agreement.
You have asked us to render an opinion as to whether, as of the date hereof, the
Consideration is fair, from a financial point of view, to the holders of
Shorewood Common Stock. We have not been requested to opine as to, and our
opinion does not in any manner address, the underlying business decision to
proceed with or effect the Transactions.
For purposes of the opinion set forth herein, we have, among other things:
1. reviewed the draft Agreement dated February 16, 2000 (and
certain related ancillary agreements referred to in the
Agreement);
2. reviewed the structure of the Transactions;
<PAGE>
3. reviewed Forms 10-K and related financial information for the
three fiscal years ended May 3, 1997, May 2, 1998 and May 1,
1999 for Shorewood;
4. reviewed certain other filings with the Securities and
Exchange Commission made by Shorewood, and certain other
publicly available business and financial information relating
to Shorewood, that we deemed relevant;
5. reviewed certain information, including financial forecasts
and other financial and operating data concerning Shorewood,
prepared by the management of Shorewood;
6. discussed the past and current operations, as well as the
financial condition and prospects of Shorewood; with senior
executives of Shorewood;
7. reviewed the historical market prices and trading activity for
the Shorewood Common Stock, as well as related comparable
companies and stock market indices that we deemed relevant;
8. reviewed the financial terms, to the extent publicly
available, of certain other comparable transactions that we
deemed relevant;
9. reviewed the financial terms of, and considered and took into
account such other matters as we deemed necessary or
appropriate related to; the offer from Chesapeake Corporation
to acquire Shorewood;
10. participated in discussions and negotiations among
representatives of Shorewood and its legal advisors and IP and
its financial and legal advisors;
11. participated in discussions among representatives of certain
other parties with respect to a potential sale or other
extraordinary transaction involving Shorewood; and
12. reviewed such other financial studies and analyses and
performed such other investigations and took into account such
other matters as we deemed necessary or appropriate for
purposes of this opinion.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information supplied or otherwise made available to us
by representatives of Shorewood for purposes of this opinion. With respect to
the financial forecasts of Shorewood that have been furnished to us, we have
assumed such forecasts have been reasonably prepared on a basis reflecting the
best currently available estimates and good faith judgements of the management
of Shorewood as to the future financial performance of Shorewood, and we relied
upon such forecasts in arriving at our opinion. In arriving at our opinion, we
have not conducted a physical inspection of Shorewood's plants or facilities,
nor have we undertaken an independent appraisal of the assets of Shorewood nor
are we expressing an opinion as to any aspect of the Transactions other than the
fairness from a
<PAGE>
financial point of view to the holders of Shorewood Common Stock of the
Consideration to be paid in the Transactions.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Special Strategic Committee of
Directors (the "Committee") in connection with the Transactions and will receive
a fee from Shorewood for our services, a significant portion of which is
contingent upon the consummation of the Transactions or a similar transaction.
It is understood that this letter is for the information of the Committee and
the Board of Directors (the "Board") and is rendered to the Committee and the
Board in connection with their consideration of the Transactions and may not be
used for any purpose without our prior written consent, except that this opinion
may be included in its entirety in any filing made by Shorewood with the
Securities and Exchange Commission. This opinion is not intended to be and does
not constitute a recommendation to the Committee or the Board as to whether they
should approve the Transactions.
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that the Consideration to be received in the Transactions by the holders
of Shorewood Common Stock (other than IP and its subsidiaries) is fair, from a
financial point of view, to such stockholders.
Very truly yours,
GREENHILL & CO., LLC
By: /s/ Scott L. Bok
---------------------------------
Name: Scott L. Bok
Title: Managing Director
<PAGE>
Exhibit 7
[BEAR, STEARNS & CO. INC. LETTERHEAD]
February 16, 2000
The Board of Directors
Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172
Ladies and Gentlemen:
We understand that Shorewood Packaging Corporation ("Shorewood"),
International Paper Company ("IP") and, a wholly owned acquisition subsidiary
of IP ("IP Sub"), have entered into an Agreement and Plan of Merger dated as
of February 16, 2000 (the "Merger Agreement") which provides, among other
things, for (i) the tender offer by IP Sub (the "Tender Offer") for all of
the outstanding shares of common stock, $0.01 par value per share (the
"Common Stock"), of Shorewood, including the associated rights to purchase
preferred stock (the "Rights" and, together with the Common Stock, the
"Shares"), other than Shares owned by IP and its affiliates, at a price of
$21.00 per Share, net to the seller in cash (the "Consideration"), and (ii)
the subsequent merger (the "Merger") of IP Sub with and into Shorewood.
Pursuant to the Merger, Shorewood will become a wholly owned subsidiary of IP
and each outstanding Share, other than Shares held in treasury or owned by IP
or its affiliates or as to which dissenters' rights have been perfected, will
be converted into the right to receive the Consideration. The terms and
conditions of the Tender Offer and the Merger (collectively, the
"Transaction") are more completely set forth in the Merger Agreement.
You have asked us to render our opinion as to whether the Consideration to be
received in the Transaction by the holders of Shorewood Common Stock, other
than IP and its affiliates, Chesapeake Corporation ("Chesapeake") and its
affiliates, and affiliates of Shorewood, including Marc Shore and his
affiliates (the "Public Holders"), is fair, from a financial point of view,
to such holders.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed the Merger Agreement;
- reviewed Shorewood's Annual Reports to Stockholders and Annual Reports on
Form 10-K for the fiscal years ended April 29, 1995 through May 1, 1999
and Shorewood's Quarterly Report on Form 10-Q for the period ended
October 30, 1999;
- reviewed certain operating and financial information, including
projections, provided to us by Shorewood management relating to
Shorewood's business and prospects;
- met with certain members of Shorewood's senior management to discuss
Shorewood's business, operations, historical and projected financial
results and future prospects;
- reviewed the historical prices, trading multiples and trading volume of
the Shorewood Common Stock;
- reviewed publicly available financial data, stock market performance data
and trading multiples of companies which we deemed generally comparable to
Shorewood;
- reviewed publicly available financial data of IP;
- reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to Shorewood;
- performed discounted cash flow analyses based on the projections for
Shorewood furnished to us; and
- conducted such other studies, analyses, inquiries and investigations as we
deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the projections, provided to us by Shorewood. With respect
to Shorewood's projected financial results, we have assumed that they have
been
<PAGE>
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior management of Shorewood as to the expected future
performance of Shorewood. We have not assumed any responsibility for the
independent verification of any such information or of the projections provided
to us, and we have further relied upon the assurances of the senior management
of Shorewood that it is unaware of any facts that would make the information and
projections provided to us incomplete or misleading.
In arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets or liabilities of Shorewood, nor have we been
furnished with any such appraisals. In connection with our engagement, we
were not asked to, and did not, take responsibility for soliciting interest
from prospective acquirors of Shorewood. Our opinion is necessarily based on
economic, market and other conditions, and the information made available to
us, as of the date hereof.
We have acted as a financial advisor to Shorewood in connection with the
Transaction and will receive a fee for such services, a substantial portion
of which is contingent on the Transaction. In the ordinary course of
business, Bear Stearns may actively trade the equity and debt securities of
Shorewood and/or IP for our own account and for the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
Our opinion is limited to the fairness, from a financial point of view, of
the Consideration to be received in the Transaction by the Public Holders of
Shorewood Common Stock, and does not constitute a recommendation to the Board
of Directors as to how to vote in connection with the Transaction or to any
holder of Shorewood Common Stock as to whether or not to tender Shares
pursuant to the Tender Offer or how to vote with respect to any proposal
presented to the holders of Shorewood Common Stock. This opinion does not
address Shorewood's underlying business decision to pursue the Transaction.
We express no opinion as to the future trading values of the Shorewood Common
Stock. This letter is intended for the benefit and use of the Board of
Directors of Shorewood and is not to be used for any other purpose, or
reproduced, disseminated, quoted to or referred to at any time, in whole or
in part, without our prior written consent, provided that this letter may be
reproduced in full in a Schedule 14D-9 filed by Shorewood with respect to the
Tender Offer. With your consent, we have no obligation, and do not intend, to
update or revise this letter after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration to be received in the Transaction by the Public
Holders of Shorewood Common Stock is fair, from a financial point of view, to
such holders.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Charles Edelman
-------------------------
Senior Managing Director
<PAGE>
EXHIBIT 8
Article Sixth of Shorewood's Certificate of Incorporation as amended to date:
Sixth: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, Title 8 of the
Delaware Code, or (iv) for any transaction from which the director derived an
improper personal benefit.
<PAGE>
Exhibit 9
ARTICLE VII of Shorewood's By-laws, as amended to date:
Indemnification
The Corporation shall indemnify any director or officer of the
Corporation or a subsidiary, or any person serving at the request of the
Corporation or a subsidiary as a director, officer or member of another
corporation, partnership, joint venture, trust, committee or other enterprise or
any person who is or was an employee or agent of the Corporation or a
subsidiary, as deemed advisable by the Board of Directors, to the full extent
permitted by Delaware law or any other applicable law.
The indemnification and advancement of expenses permitted by
law shall, unless otherwise provided, when authorized or ratified, continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
<PAGE>
Exhibit 10
CONFIDENTIAL TREATMENT*/
SHOREWOOD PACKAGING CORPORATION
1995 PERFORMANCE BONUS PLAN
The 1995 Performance Bonus Plan (the "Plan") of Shorewood Packaging
Corporation (the "Company") authorizes the grant of annual performance bonuses
(each, a "Performance Bonus") to Marc P. Shore, the Company's President and
Vice Chairman of the Board (the "Executive"), upon the attainment of certain
performance objectives set forth below. The Plan is administered by the
Compensation and Stock Option Committee (the "Committee").
1. DEFINITIONS. Certain defined terms in the Plan shall have the meanings
ascribed to them below:
(a) "Award Year" means each fiscal year of the Company during the five
year period beginning on May 1, 1995.
(b) "Earnings from Operations" shall mean, with respect to any fiscal
year of the Company, the Company's consolidated earnings from operations plus
depreciation and amortization, determined in accordance with the Company's
audited financial statements for that fiscal year. For purposes of computing
Earnings from Operations, (i) if during any Award Year the Company or any of
its subsidiaries acquires, directly or indirectly, any material business, the
Company's Earnings from Operations in the immediately preceding fiscal year and
that portion of such Award Year preceding the date of the acquisition shall be
adjusted to include therein the earnings from operations plus depreciation and
amortization of the acquired business during the applicable periods; and (ii)
if during any Award Year the Company or any of its subsidiaries disposes or
divests itself, directly or indirectly, of any material business, the Company's
Earnings from Operations in the immediately preceding fiscal year and that
portion of such Award Year preceding the date of the disposition shall be
adjusted to exclude therefrom the earnings from operations plus depreciation
and amortization of the divested business during the applicable periods.
(c) "First Tier Bonus" shall mean, with respect to any Award Year of
the Company, an amount determined in accordance with the following formula:
$200,000 multiplied by Y = Bonus
---
[*]
As used above, "Y" means the numeral (without regard to its value as a
percentage) used in expressing the percentage increase in the Company's
Earnings from Operations in that fiscal year as compared with the Company's
Earnings from Operations in the immediately preceding fiscal year (i.e., if
the percentage increase is [*], Y would be [*]). Y shall in no event exceed
[*].
__________________________________
*/Portions of this document have been omitted pursuant to an Application for
Confidential Treatment which was previously filed. Such omissions were filed
separately with the Securities and Exchange Commission together with such
Application for Confidential Treatment.
<PAGE>
By way of illustration, if the Company's Earnings from Operations in fiscal
year 1 is $[*] and its Earnings from Operations in fiscal year 2 is $[*], Y
would be [*] (representing the percentage increase in Earnings from Operations
from fiscal year 1 to fiscal year 2). In such case, Executive's First Tier
Bonus in respect of fiscal year 2 would be $[*].
(d) "Second Tier Bonus" shall mean, with respect to any Award Year of the
Company, an amount determined in accordance with the following formula:
$1,600,000 multiplied by Z = Bonus
---
[*]
As used above, "Z" means the numeral (without regard to its value as a
percentage) used in expressing the percentage increase in the Company's
Earnings from Operations in that fiscal year as compared with the Company's
Earnings from Operations in the immediately preceding fiscal year minus [*]
(i.e., if the percentage increase is [*], Z would be [*]). Z shall in no event
exceed [*] or be less than 0.
By way of illustration, if the Company's Earnings from Operations in fiscal
year 1 is $[*] and its Earnings from Operations in fiscal year 2 is $[*], Z
would be [*] (representing the percentage increase in Earnings from Operations
from fiscal year 1 to fiscal year 2 minus [*]). In such case, Executive's
Second Tier Bonus in respect of fiscal year 2 would be $[*].
___________________________
*/ Portions of this document have been omitted pursuant to an Application for
Confidential Treatment which was previously filed. Such omissions were filed
separately with the Securities and Exchange Commission together with such
Application for Confidential Treatment.
2
<PAGE>
2. PERFORMANCE BONUS. With respect to each Award Year in which the
Company's Earnings from Operations equal or exceed [*] in the immediately
preceding fiscal year, Executive shall be entitled to a Performance Bonus in an
amount equal to the sum of (i) $200,000 plus (ii) if the Company's Earnings
from Operations in that fiscal year exceed [*] in the immediately preceding
fiscal year, the First Tier Bonus (determined in accordance with the Section
1(c) above) plus (iii) if the Company's Earnings from Operations in that fiscal
year exceed [*], the Second Tier Bonus (determined in accordance with Section
1(d) above). The Performance Bonus payable to Executive in respect of any
Award Year shall in no event exceed $2,000,000. No Performance Bonus shall be
payable in respect of any Award Year in which the Company's Earnings from
Operations do not equal or exceed [*] in the immediately preceding fiscal year.
The determination of the amount of the Performance Bonus (the "Bonus
Determination") payable to Executive in respect of any Award Year covered by
the Plan shall be made by the Compensation Committee based upon the audited
financial statements of the Company with respect to such Award Year. The Bonus
Determination shall be made by the Compensation Committee at its first
regularly scheduled meeting after the audited financial statements of the
Company are available to the Board of Directors. The Performance Bonus so
determined shall be payable to Executive in a single lump sum no later than
fifteen days after the Bonus Determination is made. The Bonus Determination
shall be final, conclusive and binding for all purposes.
3. PARTIAL YEARS. Executive's Performance Bonus shall be reduced
proportionately in respect of any fiscal year in which Executive is not
employed by the Company for the entire fiscal year, except that no Performance
Bonus shall be payable to Executive in respect of any fiscal year in which his
employment by the Company is terminated for cause. The provisions hereof
notwithstanding, the termination of Executive's employment by the Company for
any reason shall not affect the Performance Bonus otherwise payable to him
under the Plan in respect of any fiscal year preceding the fiscal year in which
such termination occurs. The Executive shall not be entitled to receive any
Performance Bonus in respect of any period after he ceases being employed by
the Company for any reason.
_______________________
*/ Portions of this document have been omitted pursuant to an Application for
Confidential Treatment which was previously filed. Such omissions were
filed separately with the Securities and Exchange Commission together with
such Application for Confidential Treatment.
3
<PAGE>
4. ADMINISTRATION. (a) The Plan shall be administered and interpreted by
the Compensation Committee; provided, however, that, notwithstanding any other
provision of the Plan that might appear to provide to the contrary, the Plan
shall be operated in such manner that awards paid pursuant to the Plan shall be
fully tax-deductible by the Company pursuant to the exception for qualified
performance-based compensation provided for under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). All determinations of
the Compensation Committee in respect of the interpretation and administration
of the Plan shall be final, conclusive and binding for all purposes. In making
any such determinations, the Committee shall be entitled to rely on opinions,
reports or statements of officers or employees of the Company and of counsel,
public accountants and other professional experts and persons. The Committee
may adopt such rules as it may deem appropriate regarding the withholding of
taxes on payments to the Executive.
(b) The Plan shall be governed by the laws of the State of New York and
applicable Federal law.
5. EFFECTIVE DATE; APPLICATION. The Plan shall become effective as of May
1, 1995, subject to approval by the Company's stockholders entitled to vote
thereon. The Plan shall apply to each fiscal year of the Company during the
five year period beginning on the effective date of the Plan.
6. ADJUSTMENTS. In order to assure the incentive features of the Plan and
to avoid distortion in the operation of the Plan, the Committee may make
adjustments in the performance criteria in respect of any Award Year whether
before or after the end of such Award Year to compensate for or reflect any
extraordinary changes which may have occurred during the Award Year or the
immediately preceding fiscal year which alter the basis upon which performance
levels were determined or to comply with government regulations. Such changes
include the following: extraordinary operating results, accounting changes, and
the impact of material events that have been publicly disclosed.
Notwithstanding anything to the contrary, the Committee shall not make any
adjustment which would increase the award to the Executive if such adjustment
would render any amount payable to Executive nondeductible under Section 162(m)
of the Code.
7. NO RIGHT TO EMPLOYMENT. The Plan shall not confer upon the Executive
any right to continue in the employ of the Company or affect in any way the
right of the Company to terminate Executive's employment at any time.
8. CERTIFICATION BY COMMITTEE. The Committee must certify that performance
thresholds have been satisfied before any payments may be made under the Plan.
4
<PAGE>
Exhibit 11
SHOREWOOD PACKAGING CORPORATION
1993 INCENTIVE PROGRAM
AS AMENDED MAY 4, 1995
The 1993 Incentive Program, as amended (the "Program") of Shorewood
Packaging Corporation (the "Company") authorizes the Compensation and Stock
Option Committee of the Board of Directors (the "Committee") to provide
officers, directors, key executives, employees, consultants and advisors of the
Company and its direct or indirect subsidiaries with certain rights to acquire
shares of the Company's common stock (the "Common Stock"). The Company
believes that this Program will cause those persons to contribute materially to
the growth of the Company, thereby benefitting its stockholders.
1. ADMINISTRATION.
The Program shall be administered and interpreted by a
Committee or Committees consisting of not less than two persons appointed by
the Board of Directors of the Company from among its members. The Board may
appoint different Committees to handle different administrative duties under
the Program. The Committee or Committees with respect to directors and
officers subject to the reporting requirements of Section 16 (the "Reporting
Persons") promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), must be constituted in such manner as to permit the
Program and transactions thereunder to comply with Rule 16b-3 under the
Exchange Act. The Committee shall determine the fair market value of the
Common Stock for purposes of the Program in accordance with the provisions of
Section 10(i) hereof. Subject to the requirements of Rule 16b-3 under the
Exchange Act, the decisions of the Board of Directors or Committee designated
by the Board of Directors shall be final and conclusive with respect to the
interpretation and administration of the Program and any grant made under it.
2. GRANTS.
Grants under the Program shall consist of incentive stock
options, non-qualified stock options, stock appreciation rights in tandem with
stock options or freestanding, restricted stock grants, and Restored Options
(any of the foregoing, in any combination, collectively, "Grants"). All Grants
shall be subject to the terms and conditions set forth herein and to such other
terms and conditions consistent with this Program as the Committee deems
appropriate. The Committee shall approve the form and provisions of each
Grant. Grants under a particular section of the Program need not be uniform,
and Grants under two or more sections may be combined in one instrument.
3. ELIGIBILITY FOR GRANTS.
Grants may be made to any employee of the Company or any of
its subsidiaries who is an officer or other key executive, director,
professional or administrative employee or a consultant or advisor to the
Company or any of its subsidiaries ("Eligible Employee"). The Committee shall
select the persons to receive Grants ("Grantees") from among the Eligible
Employees and determine the number of shares subject to any particular Grant.
<PAGE>
4. SHARES AVAILABLE FOR GRANT.
(a) Shares Subject to Issuance or Transfer. Subject to
adjustment as provided in Section 4(b), the aggregate number of shares of
Common Stock (the "Shares") that may be issued or transferred under the Program
is 1,000,000 Shares, plus 10% of any increase (excluding any increase relating
to or arising out of the conversion or exercise of any convertible securities,
options or warrants issued and outstanding as of the date the Program was
adopted by the Board) in the number of shares issued and outstanding over the
number of Shares issued and outstanding on the date the Program was adopted by
the Board (the "Incremental Amount"). The Shares may be authorized but
unissued Shares or treasury Shares. The number of Shares available for Grants
at any given time shall be reduced by the aggregate of all Shares previously
issued or transferred plus the aggregate of all Shares which may become subject
to issuance or transfer under then-outstanding and then-currently exercisable
Grants. For purposes of this Section 4, the number of shares outstanding at
any time shall not include Grants under the Program but shall include Shares
issuable under Substituted Stock Incentives (as defined in Section 10(b) below)
assumed by the Company upon or in connection with the acquisition of a merger
with another corporation.
(b) Recapitalization Adjustment. If any subdivision or
combination of shares of Common Stock or any stock dividend, capital
reorganization, recapitalization, consolidation, or merger in which the Company
is the surviving corporation occurs after the adoption of the Program, the
Committee shall make such proportional adjustments as it determines appropriate
in the number of shares of Common Stock that may be issued or transferred
thereafter under Section 4(a) or 8. The Committee shall similarly adjust the
number of Shares subject to such stock option and option price in all
outstanding Grants made before the event within 60 days of the event.
5. STOCK OPTIONS.
The Committee may grant options qualifying as incentive stock
options ("ISOs") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options ("NQOs") not entitled to
special tax treatment under the Code or Restored Options (collectively, "Stock
Options"). The following provisions are applicable to Stock Options (other
than Director Options).
(a) Exercise of Option. A Grantee may exercise a Stock
Option by delivering a notice of exercise to the Company, either with or
without accompanying payment of the option price. The notice of exercise, once
delivered, shall be irrevocable.
(b) Satisfaction of Option Price. The Grantee shall pay
the option price (the "Option Price") in cash, or with the Committee's
permission, by delivering shares of Common Stock already owned by the Grantee,
held by the Grantee for a minimum of six (6) months and having a Fair Market
Value on the date of exercise equal to the Option Price, or a combination of
cash and Shares. The Grantee shall pay the Option Price not later than thirty
(30) days after the date of a statement from the Company following exercise
setting forth the Option Price, Fair Market Value of Common Stock on the
exercise date, the number of Shares that may be delivered in payment of the
Option Price, and the amount of withholding tax due, if any. If the Grantee
fails to pay the Option Price within the period and in the manner prescribed in
the specific instrument of Grant, the Committee shall have the right to take
whatever action it deems appropriate, including voiding the option exercise.
The Company shall not issue or transfer Shares upon exercise of a Stock Option
until the Option Price is fully paid. The Committee may prescribe such other
or different exercise or payment terms as it may deem appropriate.
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(c) Price; Term and Conditions. The exercise price per
share, term and other provisions of stock options granted hereunder shall be
specified by the grant, as limited, in the case of ISOs, by the provisions of
paragraph (d) below. In addition, the Committee may prescribe such other
conditions as it may deem appropriate, which conditions shall be specified by
the Grant.
(d) Limits on the ISOs. The aggregate fair market value
of the stock covered by ISOs granted under the Program or any other stock
option plan of the Company or any subsidiary or parent of the Company that
becomes exercisable for the first time by any Grantee in any calendar year
shall not exceed $100,000. The aggregate Fair Market Value will be determined
at the time of grant. The period of exercise of an ISO shall not exceed ten
(10) years from the date of Grant (or five (5) years if the Grantee is also a
10% stockholder). The price at which Common Stock may be purchased by the
Grantee under an Incentive Stock Option shall be the Fair Market Value (or 110%
of the Fair Market Value if the Grantee is a 10% stockholder) of Common Stock
on the date of the Grant.
(e) Restored Options. Stock Options granted under the
Program may, with the Committee's permission, include the right to acquire a
restored option (a "Restored Option"). If a Stock Option grant contains a
Restored Option and if a Grantee pays all or part of the Option Price of the
Stock Option with shares of Common Stock held by the Grantee, then upon
exercise of the Stock Option the Grantee shall be granted a Restored Option to
purchase, at the fair market value as of the date of the grant of the Restored
Option, the number of shares of Common Stock of the Company equal to the sum of
the number of whole shares used by the Grantee in payment of the Option Price
and the number of whole shares, if any, withheld by the Company as payment for
withholding taxes. A Restored Option may be exercised between the date of
grant and the date of expiration, which will be the same as the date of
expiration of the Stock Option to which a Restored Option is related.
6. STOCK APPRECIATION RIGHT.
The Committee may grant a Stock Appreciation Right ("SAR")
either independently or in conjunction with any Stock Option granted under the
Program either at the time of grant of the option or thereafter. The following
provisions are applicable to each SAR:
(a) Options to Which Right Relates. Each SAR which is
issued in conjunction with a Stock Option shall specify the Stock Option to
which the SAR is related, together with the Option Price and number of option
shares subject to the SAR at the time of its grant.
(b) Requirement of Employment. Each SAR may be exercised
only while the Grantee is in the employment of the Company, provided that the
Committee may provide for partial or complete exceptions to this requirement as
it deems equitable.
(c) Exercise. A Grantee may exercise each SAR in whole or
in part by delivering a notice of exercise to the Company, except that the
Committee may provide for partial or complete exceptions to this requirement as
it deems equitable.
(d) Payment and Form of Settlement. If a Grantee
exercises any SAR which is issued in conjunction with a Stock Option, the
grantee shall receive the aggregate of the excess of the fair market value of
each share of Common Stock with respect to which the SAR is being exercised
over the Option Price of each such share. Payment, in any event, may be made in
cash, Common Stock or a combination of the two, in the discretion of the
Committee. Fair Market Value shall be determined as of the date of exercise.
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(e) Expiration and Termination. Each SAR shall expire on
a date determined by the Committee at the time of grant. If a Stock Option is
exercised in whole or in part, any SAR related to the Shares purchased in
connection with such exercise shall terminate immediately.
7. RESTRICTED STOCK GRANTS.
The Committee may issue or transfer Shares ("Restricted
Stock") to a Grantee under a Restricted Stock Grant. Upon the issuance or
transfer, the Grantee is entitled to vote the Shares and to receive any
dividends paid. The following provisions are applicable to Restricted Stock
Grants:
(a) Requirement of Employment. If the Grantee's
employment terminates during the period designated in the Grant as the
"Restriction Period", the Restricted Stock Grant terminates and the shares of
Common Stock must be returned immediately to the Company. However, the
Committee may provide for partial or complete exceptions to this requirement as
it deems equitable.
(b) Restrictions of Transfer and Legend on Stock
Certificate. During the Restriction Period, a Grantee may not sell, assign,
transfer, pledge, or otherwise dispose of the Shares of Restricted Stock except
to a Successor Grantee under Section 10(a). Each certificate for shares issued
or transferred under a Restricted Stock Grant shall contain a legend giving
appropriate notice of the restrictions applicable to the Grant.
(c) Lapse of Restrictions. All restrictions imposed
under any Restricted Stock Grant shall lapse upon the fulfillment of the
conditions for vesting set forth in the instrument of Grant provided that all
of the conditions stated in Sections 7(a) and (b) have been met as of the date
of such lapse. The Grantee shall then be entitled to have the legend removed
from the certificate.
8. DIRECTOR STOCK OPTIONS.
(a) Eligible Directors. This Section 8 provides for the
automatic Grant of NQOs (the "Director Options") to directors of the Company
who are neither employees nor officers of the Company or any of its
subsidiaries (the "Eligible Directors"). All powers vested in the Committee in
respect of the administration and interpretation of the Program and the Grants
made under it shall, solely in respect of this Section 8, be vested in an
alternate committee appointed by the Board (the "Alternate Committee")
consisting of two or more directors not eligible to receive Director Options.
All terms and conditions of Director Options not specifically set forth in this
Section 8 shall be determined by the Alternate Committee.
(b) Shares Subject to Issuance or Transfer. Subject to
adjustment as provided in Section 4(b), the aggregate number of Shares that may
be issued or transferred under Section 8 of the Program is up to, but not in
excess of, 100,000, plus 10% of any Incremental Amount.
(c) Non-Qualified Options. All options granted under this
Section 8 shall be NQOs not entitled to special tax treatment under Section 422
of the Code.
(d) Grant of Options. Director Options shall be granted
automatically on the date of adoption of the Program by the stockholders of the
Company and on January 2 (or if January 2 is not a business day, on the next
succeeding business day) of each calendar year following the year in which this
Program is adopted (each, a "Program Year"). The number of Shares subject to
Director Options
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granted pursuant to this Section 8 to any Eligible Director shall be equal to
the nearest number of whole shares determined in accordance with the following
formula:
Annual Retainer Number
-------------------------------- = of
Fair Market Value - $_____ Shares
"Annual Retainer" shall mean the dollar amount set by the Board for the
relevant Program Year, prior to the commencement of such Program Year, and
shall include all fees for attendance at meetings of the Board or any committee
of the Board or for any other services to be provided to the Company. The
Annual Retainer may be zero in any year. "Fair Market Value" shall mean the
Fair Market Value of the Common Stock on January 2 of the applicable year,
determined in accordance with Section 10(i) hereof. Notwithstanding the
foregoing, the maximum number of Shares subject to Director Options granted in
any year pursuant to this Section 8 shall not exceed 10,000 per director. The
exercise price of the Shares subject to Director Options shall be equal to the
Fair Market Value of the Common Stock on the date of grant of the Director
Options. The amount, price and timing of awards of Director Options are fixed
by the terms of this paragraph and are not intended to be subject to the
discretion of any person or committee. The award of Director Options is not
intended to preclude the Company from awarding other compensation to Eligible
Directors outside of the Program for attendance at meetings of the Board or any
committee of the Board or for any other services provided or to be provided to
the Company.
(e) Terms. Director Options shall become exercisable
over five (5) years from the date of grant with installments of 20% of the
total number of underlying shares vesting on each of the first five (5)
anniversaries of the date of grant; provided, however, that Director Options
shall become exercisable in full for a period of 90 days following (i) the
death of the Grantee director or retirement from the Board because of total and
permanent disability, or (ii) a Change in Control of the Company (as that term
is defined in Section 10(j)).
(f) Exercise of Director Options. A Director Option
shall be exercised by delivering a notice of exercise to the Company,
accompanied by a certified check in the amount of, or Shares of Common Stock
already owned by the Grantee, held by the Grantee for a minimum of six (6)
months and having a Fair Market Value on the date of exercise equal to, the
aggregate amount of the exercise price. If the Grantee fails to comply with
this paragraph, the Alternate Committee shall have the right to take such
action as it deems appropriate, including voiding the option exercise. The
Company shall not issue or transfer Shares of Common Stock upon exercise of a
Director Option until the exercise price has been paid in full.
(g) Termination. All rights of an Eligible Director
in a Director Option, to the extent that they have not been previously
exercised, shall terminate upon the expiration of ten (10) years from the date
of grant or, if sooner, two (2) years after such director's termination as a
director of the Company for any reason, except that, if a director is removed
for cause, all of his Director Options then outstanding hereunder shall
terminate immediately upon such removal. Notwithstanding the foregoing, if an
Eligible Director dies during his tenure on the Board, all of his Director
Options then outstanding shall terminate upon the failure of his designated
representative to exercise said options within the time period provided in
Section 8(e). In the event that an Eligible Director ceases to be a member of
the Board for any reason, the number of Shares subject to the Director Option
issued to him or her in respect of the Program Year in which such termination
occurs shall, effective as of the date of such termination, be reduced in the
same proportion that the unearned portion of such Director's Annual Retainer
for the relevant Program Year bears to the aggregate Annual Retainer set by the
Board for that Program Year.
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(h) Death of Director. Any Director Option granted
to an Eligible Director under this Section 8 and outstanding on the date of
such director's death may be exercised by the personal representative of the
deceased director or the person or persons to whom the Option shall have been
transferred by the director's will in accordance with the laws of descent and
distribution at any time prior to the termination of such Option in accordance
with the terms of Section 8(g).
(i) Restriction on Amendments. Notwithstanding anything
to the contrary contained in this Program, the provisions of Section 8 shall
not be amended more than once every 6 months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act, or the rules
thereunder.
9. AMENDMENT AND TERMINATION OF THE PROGRAM.
(a) Amendment. Subject to Section 8(i) above, the Board
of Directors may amend the Program except that it may not, with respect to ISOs
granted hereunder, (i) increase the maximum number of Shares in the aggregate
which may be sold pursuant to such options granted hereunder; (ii) change the
manner of determining the minimum option prices, other than to change the
manner of determining the fair market value of any Shares underlying the option
to conform to any than applicable provisions of the Code or regulations
thereunder, (iii) increase the periods during which such options may be granted
or exercised or (iv) change the employees or class of employees eligible to
receive such options hereunder. In any event, no termination, suspension,
modification or amendment of the Program may adversely affect the rights of any
Grantee without his consent.
(b) Termination of the Program. The Program shall
terminate on the tenth anniversary of its effective date unless terminated
earlier by the Board or unless extended by the Board.
(c) Termination and Amendment of Outstanding Grants. A
termination or amendment of the Program that occurs after a Grant is made shall
not result in the termination or amendment of the Grant unless the Grantee
consents or unless the Committee acts under Section 10(e). The termination of
the Program shall not impair the power and authority of the Committee with
respect to outstanding Grants. Whether or not the Program has terminated, an
outstanding Grant may be terminated or amended under Section 10(e) or may be
amended by agreement of the Company and the Grantee consistent with the
Program.
10. GENERAL PROVISIONS.
(a) Prohibitions Against Transfer. Only a Grantee or his
authorized representative may exercise rights under a Grant. Except as
provided herein, a Grantee may not transfer rights under a Grant, except upon
the express written consent of the Company, which may be granted or denied in
the Company's discretion. Except as otherwise expressly provided herein or in
the instrument of grant, when a Grantee dies, the personal representative or
other person entitled under a prior Stock Option or a Grant under the Program
to succeed to the rights of the Grantee ("Successor Grantee") may exercise the
rights. A Successor Grantee must furnish proof satisfactory to the Company of
his or her right to receive the Grant under the Grantee's will or under the
applicable laws of descent and distribution.
(b) Substitute Grants. The Committee may make a Grant (a
"Substitute Grant") to an employee of another corporation who becomes an
Eligible Employee by reason of a corporate merger, consolidation, acquisition
of stock or property, reorganization or liquidation involving the Company in
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<PAGE>
substitution for a stock option, stock appreciation right, performance award,
or restricted stock grant granted by such corporation ("Substituted Stock
Incentive"). The terms and conditions of the Substitute Grant may vary from
the terms and conditions required by the Program and from those of the
Substituted Stock Incentive. The Committee shall prescribe the exact
provisions of the Substitute Grant, preserving where possible the provisions of
the Substitute Stock Incentive. The Committee shall also determine the number
of shares of Common Stock to be taken into account under Section 4.
(c) Subsidiaries. The term "subsidiary" means an
affiliated corporation controlled by the Company directly or indirectly through
one or more intermediaries.
(d) Fractional Shares. Fractional shares shall not be
issued or transferred under a Grant, but the Committee or Alternate Committee
may pay cash in lieu of a fraction or round the fraction.
(e) Compliance with Law. The Program, the exercise of
Grants, and the obligations of the Company to issue or transfer shares of
Common Stock under Grants shall be subject to all applicable laws and to
approvals by any governmental or regulatory agency as may be required. The
Committee or Alternate Committee may revoke any Grant if it is contrary to law
or modify a Grant to bring it into compliance with any valid and mandatory
government regulation. The Committee may also adopt rules regarding the
withholding of taxes on payment to Grantees.
(f) Ownership of Stock. A Grantee or Successor Grantee
shall have no rights as a stockholder of the Company with respect to any Shares
covered by a Grant until the Shares are issued or transferred to the Grantee or
Successor Grantee on the Company's books.
(g) No Right to Employment. The Program and the Grants
under it shall not confer upon any Grantee the right to continue in the
employment of the Company or affect in any way the right of the Company to
terminate the employment of a Grantee at any time.
(h) Effective Date of the Program. The Program shall
become effective upon its approval by the Company's stockholders entitled to
vote thereon.
(i) Fair Market Value. For the purposes of the Program,
the term "Fair Market Value" means, as of any date, the closing price of a
share of Common Stock of the Company on such date. The closing price shall be
(i) if the Common Stock is then listed or admitted for trading on any national
securities exchange or, if not so listed or admitted for trading, is listed or
admitted for trading on the Nasdaq National Market, the last sale price of the
common stock, regular way, or the mean of the bid and asked prices thereof for
any trading day on which no such sale occurred, in each case as officially
reported on the principal securities exchange on which the common stock is
listed or admitted for trading or on the Nasdaq National Market, as the case
may be, or (ii) if not so listed or admitted for trading on a national
securities exchange or the Nasdaq National Market, the mean between the closing
high bid and low asked quotations for the Common Stock in the over-the-counter
market as reported by Nasdaq, or any similar system for the automated
dissemination of securities prices then in common use, if so quoted, as
reported by any member firm of the New York Stock Exchange selected by the
Company; provided, however, that if, by reason of extended or continuous
trading hours on any exchange or in any market or for any other reason, the
time, with respect to any trading day, of the close of trading for the purpose
of determining the "last sale price" or the "closing" bid and asked prices is
not objectively determinable, the time on such trading day used for the purpose
of reporting any compilation of last sale prices or
7
<PAGE>
closing bid and asked prices in The Wall Street Journal shall be the time on
such trading day as of which the "last sale price" or "closing" bid and asked
prices are determined for purposes of this definition. If the Common Stock is
quoted on a national securities or central market system in lieu of a market or
quotation system described above, the closing price shall be determined in the
manner set forth in clause (i) of the preceding sentence if actual transactions
are reported, and in the manner set forth in clause (ii) of the preceding
sentence if bid and asked quotations are reported but actual transactions are
not. If on the date in question, there is no exchange or over-the-counter
market for the Common Stock, the "fair market value" of such Common Stock shall
be determined by the Committee acting in good faith.
(j) Change in Control. For purposes of the Program, the
term "Change of Control" means: the acquisition, without the approval of the
Board, by any person or entity, other than the Company and certain related
entities, of more than 20% of the outstanding shares of Common Stock through a
tender offer, exchange offer, or otherwise; the liquidation or dissolution of
the Company following a sale or other disposition of all or substantially all
of its assets; a merger or consolidation involving the Company that results in
the Company not being the surviving parent corporation; or a change in the
majority of the members of the Board during any two-year period that is not
approved by at least two-thirds of the members of the Board who were members at
the beginning of the two year period.
(k) Withholding. The Committee may, in its discretion
and subject to such rules as it may adopt, permit or require a Grantee to
satisfy, in whole or in part, any withholding tax obligation which may arise in
connection with the distribution to him or her of Shares of Common Stock or
cash pursuant to the Program by authorizing the Company to withhold from such
distribution cash or Shares having a Fair Market Value equal to the amount of
the withholding tax. Notwithstanding the foregoing, the Committee shall
require, as a condition to the distribution of any cash or Shares of Common
Stock to any Reporting Person, that the Company withhold from such distribution
cash or Shares having an aggregate Fair Market Value equal to the amount of the
Grantee's liability for any and all taxes required by law to be withheld.
(l) Further Restrictions Applicable to Reporting Persons.
Common Stock acquired by a Reporting Person pursuant to the Program shall in no
event be transferable until six (6) months have elapsed from the date of Grant
of the Common Stock or, in the case of Shares acquired pursuant to a stock
option awarded under the Program, at least six (6) months have elapsed from the
date of Grant of the stock option to the date of disposition of the Common
Stock underlying such option.
(m) Program Controls. In the case of any conflict
between the term of this Program and the terms of any instrument of Grant, the
terms of this Program will control.
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Exhibit 12
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
SHOREWOOD PACKAGING CORPORATION
WITH HOWARD M. LIEBMAN
AGREEMENT made effective as of May 3, 1998, among 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 HOWARD M. LIEBMAN, currently residing at 1302 Azure Place, Hewlett Harbor,
N.Y. 11557 (herein called the "Executive").
W I T N E S S E T H:
----------
The Corporation and the Executive entered into that certain Employment
Agreement dated as of May 16, 1994 (the "Prior Employment Agreement"), which
provides for the employment of the Executive by the Corporation upon the terms
and conditions set forth therein.
The Corporation and the Employee desire to enter into a new employment
agreement upon the terms and conditions hereinafter set forth, which employment
agreement will supersede and replace the Prior Employment Agreement in its
entirety.
The Corporation recognized that the longer the Executive remains in the
full time active employ of the Corporation, the more valuable will be any
consultative and advisory services that the Executive may provide during his
full time employment by the Corporation.
The Corporation recognized that the possibility of a proposal from a third
person, whether solicited by the Corporation or unsolicited, concerning a
possible business combination with the Corporation, including the acquisition of
a substantial share of the equity or voting securities of the Corporation, may
be unsettling to the Executive and deter him from continuing full time
employment with the Corporation.
This Agreement is intended to help assure a continuing dedication by the
Executive to his duties to the Corporation notwithstanding the possibility or
occurrence of a business combination proposal.
The Corporation and the Executive believe it imperative that should the
Corporation receive proposals from third parties with respect to its future, the
Executive should, without being influenced by the uncertainties of his own
situation, assess and advise the Corporation whether such proposals would be in
the best interest of the Corporation and its stockholders and take such other
action regarding such proposals as the Corporation might
<PAGE>
determine to be appropriate.
Accordingly, the parties desire to and do hereby enter into this Agreement
as of the date first set forth above.
NOW, THEREFORE,
1. EMPLOYMENT; TERM. Subject to the terms hereof, the term of this Agreement
shall be from May 3, 1998 through and including May 2, 2003. The Corporation
agrees to and does hereby employ the Executive as Chief Financial Officer and an
Executive Vice President for the period commencing May 3, 1998 and terminating
May 2, 2003 (the "Employment Period") and the Executive agrees that he shall
serve an Executive Vice President and the Chief Financial Officer of the
Corporation during the Employment Period. The foregoing notwithstanding, in the
event of any "Change in Control" (as hereinafter defined) of the Corporation at
any time during the last two fiscal years of the Corporation beginning prior to
May 2, 2003, the Employment Period hereunder shall be automatically extended
through and including May 2, 2005.
2. 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 and the
Chief Financial Officer 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 interpreted, and, to the extent not defined
therein, as the same are customarily performed and exercised by a Chief
Financial Officer or an Executive Vice President of a publicly owned corporation
incorporated in one of the states of the United States of America. The Executive
shall 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. The Executive agrees to accept
the payments to be made to him under his Agreement as full and complete
compensation for the services required to be performed by him under this
Agreement.
3. COMPENSATION. As compensation for the services to be rendered by the
Executive pursuant to this Agreement, subject to the conditions herein stated,
the Corporation agrees to pay to the Executive all of the following:
(a) BASE SALARY. Beginning May 3, 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 $450,000 per year, payable in weekly or
bi-weekly installments as nearly
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equal as may be practicable or otherwise in accordance with the Corporation's
customary payroll practices for its Executives. Executive's Base Salary shall
be reviewed annually 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.
(b) PARACHUTE EFFECTIVE DATE. Notwithstanding the present effectiveness of
this Agreement, the provisions of Sections 3(f), (g) and (l) of this Agreement
shall become operative only when, as and if there has been a "Change in Control"
of the Corporation. For purposes of this Agreement, the terms "Subsidiary" and
"Subsidiaries" shall mean each corporation of which more than 50% of the
outstanding capital stock entitled to vote for directors is owned directly or
indirectly by the Corporation and a "Change in Control" of the Corporation shall
be deemed to have occurred upon the occurrence of any of the following events:
(i) A change in control of the direction and administration of the
Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported in response to (a) Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provisions of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirements;
or
(ii) Any "person" or "group" (as such term is used in connection with
Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Corporation or any "affiliate" or "associate" of the
Corporation (as defined in Regulation 12b-2 under the Exchange Act)(a) 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
fifty percent (50%) or more of the combined voting power of the Corporation's
outstanding securities then entitled ordinarily (and apart from rights accruing
under special circumstances) to vote for the election of directors or (b)
acquires by proxy or otherwise 50% or more of the combined voting securities of
the Corporation having the right to vote for the election of directors of the
Corporation, for any merger or consolidation of the Corporation, or for any
other matter; or
(iii) During any period of twenty-four (24) consecutive months, the
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) The Corporation shall cease to meet the basic conditions of
listing on the New York Stock Exchange (or any other securities exchange on
which the Corporation's Common Stock, as hereinafter defined, is listed for
trading) in respect of the number of shares of the Corporation's Common Stock
held by the public; or
(v) There shall be consummated (A) any consolidation, merger or
recapitalization of the Corporation or any similar transaction involving the
Corporation, whether
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or not the Corporation is the continuing or surviving corporation, pursuant to
which shares of the Corporation's common stock, par value $.01 per share
("Common Stock"), would be converted into cash, securities or other property,
other than a merger of the Corporation in which the holders of Common Stock
immediately prior to the merger have the same proportion and ownership of
common stock of the surviving corporation immediately after the merger, (B) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Corporation or (C) the adoption of a plan of complete liquidation of the
Corporation (whether or not in connection with the sale of all or substantially
all of the Corporation's assets) or a series of partial liquidations of the
Corporation that is de jure or de facto part of a plan of complete liquidation
of the Corporation; provided, that the divestiture of less than substantially
all of the assets of the Corporation in one transaction or a series of related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a Subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change-in-Control"; or
(vi) The Board of Directors of the Corporation shall approve any
merger, consolidation, or like business combination or reorganization of the
Corporation, the consummation of which would result in the occurrence of any
event described in Section 3(c)(i), (ii) or (v) above.
(c) DEFINITION OF "CONTINUING DIRECTORS". For purposes of this Agreement,
"Continuing Directors" shall mean the directors of the Corporation in office on
the date hereof and any successor to any such director and any additional
director who after the date hereof (i) was nominated or selected by a majority
of the Continuing Directors in office at the time of his nomination or
selection and (ii) who is not an "affiliate" or "associate" (as defined in
Regulation 12b-2 under the Exchange Act) or any person who is the beneficial
owner, directly or indirectly, of securities representing ten percent (10%) or
more of the combined voting power of the Corporation's outstanding securities
then entitled ordinarily to vote for the election of directors.
(d) TERMINATION RIGHTS UNCHANGED. Except as provided in Section 3(f)
below, nothing in this Agreement shall affect any right which the Executive may
otherwise have to terminate his employment by the Corporation or a Subsidiary,
nor shall anything in this Agreement affect any right which the Corporation or
any Subsidiary may have to terminate the Executive's employment at any time in
any lawful manner, subject to the provision that in the event of termination of
the Executive's employment under the circumstances specified in Sections 3(g)
and 3(l) below following a Change in Control, the Corporation will provide to
the Executive the payments and benefits described in Sections 3(g) and 3(l) of
this Agreement.
(e) VOLUNTARY TERMINATION. In the event any person or organization
commences a tender or exchange offer, circulates a proxy statement to the
Corporation's stockholders, or takes other steps designed to effect a Change in
Control of the Corporation, the Executive agrees that in order to receive the
benefits provided by this Agreement, he will not voluntarily leave the employ of
the corporation or any of its Subsidiaries, and will continue to perform his
regular duties and to render the services specified in the recitals of this
Agreement, until such person or organization has abandoned or terminated his
efforts to effect a Change in
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Control or until a Change in Control has occurred. Should the Executive
voluntarily terminate his employment before any such effort to effect a Change
in Control of the Corporation has commenced, or after any such effort has been
abandoned or terminated without effecting a Change in Control and no such
effort is then in process, this Agreement shall lapse and be of no further force
or effect. Should the Executive voluntarily terminate his employment with the
Corporation or any of its Subsidiaries during such time as any person or
organization has commenced, but has not yet abandoned, any steps designed to
effect a Change in Control of the Corporation, but at a time when a Change in
Control has not been effected, the Executive shall not be entitled to receive
any of the benefits of Sections 3(g) or 3(l) hereof.
(f) TERMINATION FOLLOWING CHANGE OF CONTROL. If a Change of Control of the
Corporation shall have occurred, then Executive shall be entitled to the
benefits provided in Section 3(l) hereof upon the subsequent termination of his
employment by the Corporation or the Executive for any reason or for no reason
within the applicable period set forth in Section 3(l) hereof following such
Change in Control.
(g) TERMINATION BY REASON OF DEATH OR DISABILITY. If the Executive's
employment is terminated by reason of his death or Disability during the two
(2) years following a Change in Control, the Executive shall be entitled to
death or long-term disability benefits, as the case may be, from the Corporation
no less favorable than the most favorable benefits to which he would have been
entitled had the death or termination for Disability occurred at any time
during the period commencing one year prior to the initiation of actions that
resulted in a Change in Control. If prior to any such termination for
Disability during the two (2) years following a Change in Control, the
Executive fails to perform his duties as a result of incapacity due to physical
or mental illness, he shall continue to receive his Base Salary and Guaranteed
Bonus (as herein defined) less any benefits as may be received by him under the
Corporation's or Subsidiary's disability plan until his employment is
terminated for Disability, and shall be entitled to the most favorable other
benefits applicable under the Corporation's policies during the period
commencing one year prior to the initiation of actions that resulted in the
Change in Control.
(h) DEFINITIONS. For purposes of this Agreement:
(i) "Disability" shall mean that, as a result of the Executive's
incapacity due to physical or mental illness, the Executive has been absent
from the full-time performance of his duties (as described in Section 2 hereof)
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 full-time performance of his duties (as described in Section 2 hereof).
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. The written determination
of such physician shall be final and conclusive for purposes of this Agreement.
(ii) "Retirement" shall mean that the Executive shall have retired after
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reaching the earliest normal or early retirement date provided in the
Corporation's retirement plans as then in effect (or if Executive retires after
a Change in Control of the Corporation, as in effect on the date of the Change
in Control).
(iii) "For Cause" shall mean:
(A) The willful and continued failure by the Executive to
substantially perform his duties with the Corporation (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure resulting from termination by
the Executive for Good Reason) which is not cured within thirty (30) days after
a written demand for substantial performance is delivered to the Executive by
the Board of Directors, which demand specifically identifies the manner in which
the Board of Directors believes that the Executive has not substantially
performed his duties; or
(B) The willful engagement in conduct by the Executive which is
demonstrably and materially injurious to the Corporation, monetarily or
otherwise, which is not discontinued within five (5) days after written demand
to cease and desist from such conduct is delivered to the Executive by the Board
of Directors, which demand specifically identifies the conduct which the Board
of Directors believes is injurious to the Corporation; or
(C) Conviction for a felony or other crime punishable by
imprisonment for more than one (1) year, or the entering of a plea of nolo
contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the Executive a resolution duly adopted by the affirmative vote of not less
than a majority of the entire membership of the Board of Directors (other than
the Executive) at a meeting called and held for such purpose (after reasonable
notice to the Executive and an opportunity for the Executive, together with his
counsel, to be heard before the Board of Directors), finding that in the good
faith opinion of the Board of Directors the Executive was guilty of conduct set
forth above in clause (A), (B) or (C) and specifying the particulars thereof in
detail.
For purposes of this Section 3(j), no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by him knowing and with the intent that such action or inaction would not
be in the best interests of the Corporation or otherwise was done or omitted to
be done in bad faith.
(iv) "Base Salary" shall mean the annual base salary paid to the
Executive immediately prior to the Change in Control of the Corporation
(provided that such amount shall in no event be less than the annual Base Salary
paid to the Executive during the one (1) year period immediately prior to the
Change in Control).
(i) NOTICE OF TERMINATION. Any purported termination of employment by
the Corporation by reason of the Executive's Disability or for Cause, or by the
Executive for any or no reason, shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice given by the
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Executive or by the Corporation or a Subsidiary, as the case may be, which shall
indicate the specific basis for termination (if any) and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
determination of any payments 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 hereunder with the Corporation or a
Subsidiary by reason of Executive's Disability or for Cause after the expiration
of six (6) months following the last to occur of the events specified by it to
constitute Cause or Disability.
(j) DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean (i) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
the Executive shall not have returned to the full-time performance of his duties
(as described in Section 2 hereof) during such thirty (30) day period) or (ii)
if the Executive's employment is terminated by the Corporation for Cause or by
the Executive for any or no reason, the date specified in the Notice of
Termination, which shall be not more than ninety (90) days after such Notice of
Termination is given. If within thirty (30) days after any Notice of Termination
is given, the party who receives such Notice of Termination notifies the other
party that a Dispute (as hereinafter defined) exists, the parties agree to
pursue promptly the resolution of such Dispute with reasonable diligence.
Pending the resolution of any such Dispute, the Corporation or a Subsidiary
shall make the payments and provide the benefits to the Executive provided for
in Section 3(l) or Section 5 hereof, as the case may be. In the event that it is
finally determined, either by mutual written agreement of the parties, by a
binding arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, then all sums paid by the Corporation or
a Subsidiary to the Executive from the Date of Termination specified in the
Notice of Termination until final resolution of the Dispute pursuant to this
Section 3(l) shall be repaid promptly by the Executive to the Corporation or a
Subsidiary, with interest at the base rate charged from time to time by the
Corporation's principal commercial bank. In the event that it is finally
determined that a challenged termination by the Corporation or a Subsidiary by
reason of the Executive's Disability or for Cause was not justified, then the
Executive shall be entitled to retain all sums paid to the Executive pending
resolution of the Dispute.
(K) DEFINITION OF "DISPUTE". For purposes of this Agreement,
"Dispute" shall mean (i) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary for Disability or Cause, that the
Executive challenges the existence of Disability or Cause.
(L) PARACHUTE PAYMENTS UPON TERMINATION; CHANGE OF CONTROL. If within
two (2) years after a Change in Control of the Corporation, the Executive's
employment shall terminate for any or no reason, subject in each case to Section
3(j) hereof, the Corporation or a Subsidiary will pay to the Executive as
compensation for services rendered, beginning not later than the fifth business
day following completion of the "Parachute Procedure" (as hereinafter defined)
if the Corporation elects to follow such procedure and not later than the
fifteenth day
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after the Date of Termination otherwise:
(i) the Executive's Base Salary and Guaranteed Bonus through
the Date of Termination, any existing fringe benefits (including medical
benefits) and incentive compensation for the fiscal year in which the
termination occurs in accordance with any arrangements then existing with the
Executive and proportionate to the period of the fiscal year which has expired
prior to the termination; and
(ii) a lump sum severance payment equal to 2.99 times the
Executive's average annual compensation during the Base Period (as hereinafter
defined)(subject to any applicable payroll or other taxes and charges required
to be withheld computed at the rate for supplemental payments) provided that in
no event shall "Total Payments" (as hereinafter defined) exceed 2.99 times the
Executive's "Base Amount", as such term is defined in Section 28OG of the
Internal Revenue Code (the "Code"). The Executive's Base Amount shall be
determined in accordance with temporary or final regulations promulgated under
section 28OG of the Code then in effect, if any. In the absence of such
regulations, if the Executive was not employed by the Corporation (or any
corporation or partnership affiliated with the Corporation (an "Affiliate")
within the meaning of Section 1504 of the Code or a predecessor of the
Corporation) during the entire five calendar years (the "Base Period") preceding
the calendar year in which a Change in Control of the Corporation occurred, the
Executive's average annual compensation for the purposes of such determination
shall be the lesser of (1) the average of the Executive's annual compensation
for the complete calendar years during the Base Period during which the
Executive was so employed or (2) the average of the Executive's annual
compensation for both complete and partial calendar years during the Base Period
during which the Executive was so employed, determined by annualizing any
compensation (other than nonrecurring items) includible in the Executive's gross
income for any partial calendar year or (3) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 28OG of the
Code. For purposes of this Section 3(l), a "change in control of the
Corporation" shall have the meaning set forth in Section 28OG of the Code and
any temporary or final regulations promulgated thereunder, subject to the
limitation stated in Section 3(l)(iii) below; and
(iii)(A) Notwithstanding anything to the contrary contained
herein, in the event that any portion of the aggregate payments and benefits
(the "Total Payments") received or to be received by the Executive, whether paid
or payable pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, a subsidiary or any other person
or entity, would not be deductible in whole or in part by the Corporation, a
Subsidiary or by such other person or entity in the calculation of its Federal
income tax by reason
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of section 28OG of the Code, the Total Payments payable shall be reduced by the
least amount necessary so that no portion of the Total Payments would fail to be
deductible by reason of being an "excess parachute payment."
(B) At the option of the Corporation, no payments shall be made
pursuant to this section until the procedure described in this Section 3(1)(iii)
is completed (the "Parachute Procedure"). If the Corporation elects to comply
with such procedure, the Corporation shall cause its independent auditors to
deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payment not to be
deductible in whole or part in the calculation of Federal income tax by reason
of Section 28OG of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 28OG of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 28OG of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 28OG of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 28OG of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 28OG of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 28OG of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 28OG of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 28OG of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3(1) within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall constitute completion of
the Parachute Procedure; and
(iv) The Corporation shall contest any improper assessment of an
excise or other tax imposed as a result of determination that an "excess
parachute payment" has been made to the Executive within the meaning of Section
28OG of the Code. If it is established pursuant to a final determination of a
court of competent jurisdiction or an Internal Revenue Service proceeding that
an "excess parachute payment" does in fact exist, within the meaning of Section
28OG of the Code, then the Executive shall pay to the Corporation, upon demand,
an amount not to exceed the sum of (i) the excess of the aggregate Total
Payments over the aggregate Total Payments that would have been paid without any
portion of such payment being deemed an "excess parachute payment" within the
meaning of Section 28OG of the Code and (ii)
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interest on the amount set forth in clause (i) above at the applicable federal
rate specified in Section 1274(d) of the Code from the date of receipt by the
Executive of such excess until the date of such repayment.
(v) If litigation shall be brought to enforce or interpret any provision
contained herein, the Corporation shall indemnify the Executive for his
attorneys' fees and disbursements incurred in such litigation and pay
prejudgment interest on any money judgment obtained by the Executive calculated
at the base rate of interest charged from time to time from the date that
payment should have been made under this Agreement; provided, however, that the
Executive shall not have been found by the court to have had no cause to bring
the action, or to have acted in bad faith, which findings must be final with the
time to appeal therefrom having expired and no appeal having been taken.
(vi) The Corporation's obligation to pay the Executive the compensation
and to make the arrangements provided herein shall be absolute and unconditional
and shall not be affected by any circumstance, including, without limitation,
any setoff, counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or anyone else. All amounts payable
by the Corporation hereunder shall be paid without notice or demand.
(vii) Except as expressly provided herein, the Corporation waives all
rights it may now have or may hereafter have conferred upon it, by statute or
otherwise, to terminate, cancel or rescind this Agreement in whole or in part.
Except as otherwise provided herein, each and every payment made hereunder by
the Corporation shall be final and the Corporation will not seek to recover for
any reason all or any part of such payment from the Executive or any person
entitled thereto. The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment, and if
Executive obtains such other employment, any compensation earned by Executive
pursuant thereto shall not be applied to mitigate any payment made to Executive
pursuant to this Agreement.
(viii) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by written
agreement to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place. As used in this Agreement, the term
"Corporation" shall mean the Corporation as hereinbefore defined and any
successor to or assignee of its business and/or assets as aforesaid which
executes and delivers the agreement required by this Section 3(1)(viii), or
which otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law.
(ix) This Agreement shall constitute the entire agreement between the
Executive and the Corporation concerning the Executive's termination subsequent
to a Change in Control as provided herein, and performance of its obligations
hereunder by the Corporation shall constitute full settlement and release of any
claim or cause of action, of whatsoever nature,
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which the Executive might otherwise assert or claim against the Corporation or
any of its directors, stockholders, officers or employees on account of such
termination. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing, signed by the Executive and an authorized officer of the Corporation.
No waiver by either party hereto at any time of any breach by the other party
hereto of compliance with any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of any similar or
dissimilar provision or condition at such same or at any prior or subsequent
time. No assurances or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. However, this Agreement is in
addition to and not in lieu or any other plan providing for payments to or
benefits for the Executive or any agreement now existing or which hereafter may
be entered into between the Corporation and the Executive, provided that,
notwithstanding anything to the contrary contained in the terms of any such
plan or agreement, in the event of Executive's termination, within two (2)
years after a Change in Control as provided herein, of Executive's employment,
this Agreement shall govern the rights and the obligations of the Corporation
and the Executive.
4. BENEFITS. The Executive shall be entitled to participate in any life,
accident and health insurance, hospitalization 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 insurance, maintenance, gasoline and parking
expenses incurred in furtherance of the Corporation's business.
5. EARLY TERMINATION; NO CHANGE OF CONTROL. If prior to the expiration of
this Agreement or a Change in Control of the Corporation, (a) the Executive
fails because of Disability to perform services of the character contemplated
by Section 2 of this Agreement, or (b) if the Corporation's Board of Directors
determines that the Executive's employment should be terminated for Cause;
then, the Corporation may by written Notice of Termination terminate
Executive's employment. In addition, this Agreement shall terminate immediately
upon the death or Retirement of Executive prior to a change of Control of the
Corporation. Upon any termination of the Executive's employment under this
Section 5, 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. Upon any termination of the Executive's employment under this
Section 5, the Executive shall be entitled to receive solely all amounts and
benefits to be paid or provided by the Corporation under Sections 3(a), 3(b)
and 4 of this Agreement up to the Date of Termination, except that a
"Proportionate Part" (hereinafter defined) of the Guaranteed Bonus is payable
under Section 3(b) of this Agreement. The provisions of this Section 5 shall
terminate and cease to be of any force or effect immediately upon any Change in
Control of the Corporation.
6. (a) COMPLETE PAYMENT. Upon the payment of the amounts provided in this
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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 Section 4 hereof. Notwithstanding the
foregoing, Executive expressly reserves any rights he may have at law equity or
otherwise in the event that his employment by the Corporation is terminated in
contravention of this Agreement.
(b) NON-COMPETITION. The Executive expressly covenants and agrees that
during the term of this Agreement he will not, directly or indirectly, own,
manage, operate, join, control or participate in or be connected with as an
officer, employee, partner, stockholder, or otherwise, any business,
individual, partnership, firm or corporation (other than a parent of the
Corporation or a subsidiary or affiliate of such parent), which is at the time
engaged wholly or partly, in the business of manufacturing and marketing
packaging products or in any business which is directly in competition with the
then business of the Corporation or any subsidiary or affiliate of the
Corporation (as defined in the General Rules and Regulations promulgated under
the Securities and Exchange Act of 1934), or any firm, partnership or
corporation which shall succeed to all or a substantial part of the business of
the Corporation, or any such subsidiary or affiliate.
(c) INVESTMENTS. Nothing in this Agreement is intended, or shall be
construed, to prevent the Executive during the term of his employment hereunder
from investing in the stock or other securities listed on a national securities
exchange or actively traded on the over-the-counter market of any corporation
which is at the time engaged wholly or partly in any business which is,
directly or indirectly, at the time, in competition with the business of the
Corporation or any such subsidiary or affiliate, or any firm, partnership, or
corporation which shall succeed to all or a substantial part of the business of
the Corporation, or any such subsidiary of affiliate, provided that the
Executive and direct members of his family living in the same household as the
Executive shall not directly or indirectly, hold, beneficially or otherwise, in
the aggregate, more than three percent of any issue of such stock or other
securities of any one such corporation.
(d) CONFIDENTIAL INFORMATION. The Executive expressly covenants and
agrees that he will not at any time, during the term of his employment hereunder
or thereafter and without regard to when or for what reason, if any, such
employment shall terminate, directly or indirectly, use or permit the use of any
trade secrets, customers' lists or other information of, or relating to, the
Corporation, or any Subsidiary or affiliate, in connection with any activity of
business, except the business of the Corporation of any Subsidiary or affiliate
of the Corporation, and will not divulge such trade secrets, customers' lists,
and information to any person, firm, or corporation whatsoever, except as may be
necessary in the performance of his duties hereunder.
(e) 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
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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 paragraphs (b) or (d) of
this Section, 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 of 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 for
any other person, firm or corporation.
7. SEVERABILITY. The invalidity or unenforceability of any provisions of this
Agreement in any circumstances 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.
8. 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 this then
residence in the case of the Executive 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.
9. 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 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.
10. 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.
11. GOVERNING LAW. This Agreement shall be subject to, and governed by, the
laws of the State of New York.
12. 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 or 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
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other designee or, if there be no such designee, to the Executive's estate.
IN WITNESS WHEREOF, the parties hereto have duly signed this Agreement in
duplicate original on the 10th day of November 1999 effective as of May 3, 1998.
SHOREWOOD PACKAGING CORPORATION
By: /s/ Marc P. Shore
------------------------------
Name: Marc P. Shore
Title: CEO and Chairman
/s/ Howard M. Liebman
---------------------------------
HOWARD M. LIEBMAN
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Exhibit 13
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
SHOREWOOD PACKAGING CORPORATION
WITH
MARC P. SHORE
AGREEMENT made effective as of May 3, 1998, among SHOREWOOD PACKAGING
CORPORATION, a Delaware corporation having its principal executive offices at
277 Park Avenue, New York, New York 10172 (herein called the "Corporation") and
MARC P. SHORE, currently residing at 68 Talcott Road, Ryebrook, New York 10573
(herein called the "Executive").
WITNESSETH:
The Corporation and the Executive entered into that certain Employment
Agreement dated January 25, 1996 and made effective as of May 1, 1995 (the
"Prior Employment Agreement"), which provides for the employment of the
Executive by the Corporation upon the terms and conditions set forth therein.
The Corporation and the Executive desire to enter into a new employment
agreement upon the terms and conditions hereinafter set forth, which employment
agreement will supersede and replace the Prior Employment Agreement in its
entirety.
The Corporation recognizes that the longer the Executive remains in the
full time active employ of the Corporation, the more valuable will be any
consultative and advisory services that the Executive may provide during his
full time employment by the Corporation.
The Corporation recognizes that the possibility of a proposal from a third
person, whether solicited by the Corporation or unsolicited, concerning a
possible business combination with the Corporation, including the acquisition of
a substantial share of the equity or voting securities of the Corporation, may
be unsettling to the Executive and deter him from continuing full time
employment with the Corporation.
This Agreement intended to help assure a continuing dedication by the
Executive to his duties to the Corporation notwithstanding the possibility or
occurrence of a business combination proposal.
The Corporation and the Executive believe it imperative that should the
Corporation receive proposals from third parties with respect to its future, the
Executive should, without being influenced by the uncertainties of his own
situation, assess and advise the Corporation whether such proposals would be in
the best interest of the Corporation and its stockholders and take such other
action regarding such proposals as the Corporation might determine to be
appropriate.
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Accordingly, the parties desire to and do hereby enter into this Agreement
as of the date first set forth above.
NOW, THEREFORE,
1. EMPLOYMENT; TERM. Subject to the terms hereof, the term of this
Agreement shall be from May 3, 1998 through and including May 2, 2003. The
Corporation agrees to and does hereby employ the Executive as Chief Executive
Officer and President for the period commencing May 3, 1998 and terminating May
2, 2003 (the "Employment Period") and the Executive agrees that he shall serve
as Chief Executive Officer and President of the Corporation during the
Employment Period. The foregoing notwithstanding, in the event of any "Change in
Control" (as hereinafter defined) of the Corporation at any time during the last
two fiscal years of the Corporation beginning prior to May 2, 2003, the
Employment Period hereunder shall be automatically extended through and
including May 2, 2005.
2. 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 the Chief Executive Officer and
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 interpreted, and, to the extent not defined therein, as the same
are customarily performed and exercised by a Chief Executive Officer or a
President of a publicly owned corporation incorporated in one of the states of
the United States of America. The Executive shall serve as the Chairman of the
Board of Directors (and a member 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. 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.
3. COMPENSATION. As compensation for the services to be rendered by the
Executive pursuant to this Agreement, subject to the conditions herein stated,
the Corporation agrees to pay to the Executive all of the following:
(a) BASE SALARY. Beginning May 3, 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 $800,000 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. Executive's Base Salary shall be reviewed annually and may be
increased at the Corporation's discretion. This Agreement shall not be deemed
abrogated or
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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.
(b) BONUS. The Corporation shall pay to the Executive a signing bonus in an
aggregate amount of $1,000,000, payable in full although earned ratably over the
five-year Employment Period if Executive continues to be employed by the
Corporation at the end of each such year. In addition, during the Employment
Period the Executive shall be entitled to receive annual performance bonuses in
accordance with the terms and conditions of the Corporation's Amended and
Restated 1995 Performance Bonus Plan (the "Bonus Plan") in the form annexed
hereto as Exhibit I, as same may be amended from time to time hereafter in
accordance with its terms. The provisions of the Bonus Plan shall govern the
award of performance bonuses by the Corporation to Executive under the Bonus
Plan, and, to that extent, shall supersede any inconsistent or contrary
provisions contained in the main body of this Agreement. The Corporation may in
its discretion award bonuses to Executive outside of the scope of the Bonus
Plan; but, nothing herein shall be deemed to obligate the Corporation to award
any such bonuses.
(c) PARACHUTE EFFECTIVE DATE. Notwithstanding the present effectiveness of
this Agreement, the provisions of Sections 3(g),(h), and (m) of this Agreement
shall become operative only when, as and if there has been a "Change in
Control" of the Corporation. For purposes of this Agreement, the terms
"Subsidiary" and "Subsidiaries" shall mean each corporation of which more than
50% of the outstanding partial stock entitled to vote for directors is owned
directly or indirectly by the Corporation and a "Change in Control" of the
Corporation shall be deemed to have occurred upon the occurrence of any of the
following events:
(i) A change in control of the direction and administration of the
Corporation's business of a nature that if any securities of the Corporation
were registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), would be required to be reported in response to (a) Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act, or (b)
Item 1(a) of Form 8-K under the Exchange Act as each is in effect on the date
hereof and any successor provision of such regulations under the Exchange Act,
whether or not the Corporation is then subject to such reporting requirements;
or
Any "person" or "group" (as such term is used in connection with
Section 13(d) and 14(d)(2) of the Exchange Act) but excluding any employee
benefit plan of the Corporation or any "affiliate" or "associate" of the
Corporation (as defined in Regulation 12b-2 under the Exchange Act)(a) 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
fifty percent (50%) or more of the combined voting power of the Corporation's
outstanding securities then entitled ordinarily (and apart from rights accruing
under special circumstances) to vote for the election of directors or (b)
acquires by proxy or otherwise 50% or more of the combined voting securities of
the Corporation having the right to vote for the election of directors of the
Corporation, for any merger or consolidation of the Corporation, or for any
other matter; or
(iii) During any period of twenty-four (24) consecutive months, the
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individuals who at the beginning of such period constitute the Board of
Directors of the Corporation or any individuals who would be "Continuing
Directors" (as hereinafter defined) cease for any reason to constitute at least
a majority thereof; or
(iv) The Corporation shall cease to meet the basic conditions of listing
on the New York Stock Exchange (or any other securities exchange on which the
Corporation's Common Stock, as hereinafter defined, is listed for trading) in
respect of the number of shares of the Corporation's Common Stock held by the
public; or
(v) There shall be consummated (A) any consolidation, merger or
recapitalization of the Corporation or any similar transaction involving the
Corporation, whether or not the Corporation is the continuing or surviving
corporation, pursuant to which shares of the Corporation's common stock, par
value $.01 per share ("Common Stock"), would be converted into cash, securities
or other property, other than a merger of the Corporation in which the holders
of Common Stock immediately prior to the merger have the same proportion and
ownership of common stock of the surviving corporation immediately after the
merger, (B) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all, or substantially all, of the assets
of the Corporation or (C) the adoption of a plan of complete liquidation of the
Corporation (whether or not in connection with the sale of all or substantially
all of the Corporation's assets) or a series of partial liquidations of the
Corporation that is de jure or de facto part of a plan of complete liquidation
of the Corporation; provided, that the divestiture of less than substantially
all of the assets of the Corporation in one transaction or a series of related
transactions, whether effected by sale, lease, exchange, spin-off, sale of the
stock or merger of a Subsidiary or otherwise, or a transaction solely for the
purpose of reincorporating the Corporation in another jurisdiction, shall not
constitute a "Change in Control"; or
(vi) The Board of Directors of the Corporation shall approve any merger,
consolidation or like business combination or reorganization of the Corporation,
the consummation of which would result in the occurrence of any event described
in Section 3(o)(i), (ii) or (v) above.
(d) DEFINITION OF "CONTINUING DIRECTORS". For purposes of this Agreement,
"Continuing Directors" shall mean the directors of the Corporation in office on
the date hereof and any successor to any such director and any additional
director who after the date hereof (i) was nominated or selected by a majority
of the Continuing Directors in office at the time of his nomination or
selection and (ii) who is not an "affiliate" or "associate" (as defined in
Regulation 12b-2 under the Exchange Act) of any person who is the beneficial
owner, directly or indirectly, of securities representing ten percent (10%) or
more of the combined voting power of the Corporation's outstanding securities
then entitled ordinarily to vote for the election of directors.
(e) TERMINATION RIGHTS UNCHANGED. Except as provided in Section 3(f) below,
nothing in this Agreement shall affect any right which the Executive may
otherwise have to terminate his employment by the Corporation or a Subsidiary,
nor shall anything in this Agreement affect any right which the Corporation or
any Subsidiary may have to terminate the Executive's employment at any time in
any lawful manner, subject to the provision that in the
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event of termination of the Executive's employment under the circumstances
specified in Sections 3(g) and 3(m) below following a Change in Control, the
Corporation will provide to the Executive the payments and benefits described
in Sections 3(g) and 3(m) of this Agreement.
(f) VOLUNTARY TERMINATION. In the event any person or organization
commences a tender or exchange offer, circulates a proxy statement to the
Corporation's stockholders, or takes other steps designed to effect a Change in
Control of the Corporation, the Executive agrees that in order to receive the
benefits provided by this Agreement, he will not voluntarily leave the employ of
the Corporation or any of its Subsidiaries, and will continue to perform his
regular duties and to render the services specified in the recitals of this
Agreement, until such person or organization has abandoned or terminated his or
its efforts to effect a Change in Control or until a Change in Control has
occurred. Should the Executive voluntarily terminate his employment before any
such effort to effect a Change in Control of the Corporation has commenced, or
after any such effort has been abandoned or terminated without effecting a
Change in Control and no such effort is then in process, this Agreement shall
lapse and be of no further force or effect. Should the Executive voluntarily
terminate his employment with the Corporation or any of its Subsidiaries during
such time as any person or organization has commenced, but has not yet
abandoned, any steps designed to effect a Change in Control of the Corporation,
but at a time when a Change in Control has not been effected, the Executive
shall not be entitled to receive any of the benefits of Sections 3(g) and 3(m)
hereof.
(g) TERMINATION FOLLOWING CHANGE IN CONTROL. If a Change in Control of the
Corporation shall have occurred, then Executive shall be entitled to the
benefits provided in Section 3(m) hereof upon the subsequent termination of his
employment by the Corporation or the Executive for any reason or for no reason
within the applicable period set forth in Section 3(m) hereof following such
Change in Control.
(h) TERMINATION BY REASON OF DEATH OR DISABILITY. If the Executive's
employment is terminated by reason of his death or Disability during the two (2)
years following a Change in Control, the Executive shall be entitled to death or
long-term disability benefits, as the case may be, from the Corporation no less
favorable than the most favorable benefits to which he would have been entitled
had the death or termination for Disability occurred at any time during the
period commencing one year prior to the initiation of actions that resulted in a
Change in Control. If prior to any such termination for Disability during the
two (2) years following a Change in Control, the Executive fails to perform his
duties as a result of incapacity due to physical or mental illness, he shall
continue to receive his Base Salary (as defined herein) less any benefits as may
be received by him under the Corporation's or Subsidiary's disability plan until
his employment is terminated for Disability, and shall be entitled to the most
favorable other benefits applicable under the Corporation's policies during the
period commencing one year prior to the initiation of actions that resulted in
the Change in Control.
(i) DEFINITIONS. For purposes of this Agreement:
(i) "Disability" shall mean that, as a result of the Executive's
incapacity due to physical or mental illness, the Executive has been absent
from the full-time
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performance of his duties 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 full-time performance of his duties. 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. The written determination
of such physician shall be final and conclusive for purposes of this Agreement.
(ii) "Retirement" shall mean that the Executive shall have retired
after reaching the earliest normal or early retirement date provided in the
Corporation's retirement plans as then in effect (or if Executive retires after
a Change in Control of the Corporation, as in effect on the date of the Change
in Control).
(iii) "Cause" shall mean:
(A) The willful and continued failure by the Executive to perform
substantially his duties with the Corporation (other than any such failure
resulting from the Executive's incapacity due to physical or mental illness or
any such actual or anticipated failure resulting from termination by the
Executive for Good Reason) which is not cured within thirty (30) days after a
written demand for substantial performance is delivered to the Executive by the
Board of Directors, which demand specifically identifies the manner in which
the Board of Directors believes that the Executive has not substantially
performed his duties; or
(B) The willful engagement in conduct by the Executive which is
demonstrably and materially injurious to the Corporation, monetarily or
otherwise, which is not discontinued within five (5) days after written demand
to cease and desist from such conduct is delivered to the Executive by the
Board of Directors, which demand specifically identifies the conduct which the
Board of Directors believes is injurious to the Corporation; or
(C) Conviction for a felony or other crime punishable by imprisonment
for more than one (1) year, or the entering of a plea of nolo contendere
thereto.
Notwithstanding any of the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the Executive a resolution duly adopted by the affirmative vote of not less
than a majority of the entire membership of the Board of Directors (other than
the Executive) at a meeting called and held for such purpose (after reasonable
notice to the Executive and an opportunity for the Executive, together with his
counsel, to be heard before the Board of Directors), finding that in the good
faith opinion of the Board of Directors the Executive was guilty of conduct set
forth above in clause (A), (B) or (C) and specifying the particulars thereof
in detail.
For purposes of this Section 3(i), no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by him knowing and with the intent that such action or inaction would not
be in the best interests of the Corporation or otherwise was done or omitted to
be done in bad faith.
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(iv) "Base Salary" shall mean the annual base salary paid to the
Executive immediately prior to the Change in Control of the Corporation
(provided that such amount shall in no event be less than the annual base salary
paid to the Executive during the one (1) year period immediately prior to the
Change in Control).
(j) NOTICE OF TERMINATION. Any purported termination of employment by
the Corporation by reason of the Executive's Disability or for Cause, or by the
Executive for any or no reason, shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice given by the Executive or by the Corporation
or a Subsidiary, as the case may be, which shall indicate the specific basis for
termination (if any) and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for determination of any payments 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
hereunder with the Corporation or a Subsidiary by reason of Executive's
Disability or for Cause after the expiration of six (6) months following the
last to occur of the events specified by it to constitute Cause or Disability.
(k) DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean (i) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
the Executive shall not have returned to the full-time performance of his duties
during such thirty (30) day period) or (ii) if the Executive's employment is
terminated by the Corporation for Cause or by the Executive for any or no
reason, the date specified in the Notice of Termination, which shall be not more
than ninety (90) days after such Notice of Termination is given. If within
thirty (30) days after any Notice of Termination is given, the party who
receives such Notice of Termination notifies the other party that a Dispute (as
hereinafter defined) exists, the parties agree to pursue promptly the resolution
of such Dispute with reasonable diligence. Pending the resolution of any such
Dispute, the Corporation or a Subsidiary shall make the payments and provide the
benefits to the Executive provided for in Section 3(m) or Section 5 hereof, as
the case may be. In the event that it is finally determined, either by mutual
written agreement of the parties, by a binding arbitration award or by a final
judgment, order or decree of a court of competent jurisdiction (which is not
appealable or the time for appeal therefrom having expired and no appeal having
been perfected), that a challenged termination by the Corporation or a
Subsidiary by reason of the Executive's Disability or for Cause was justified,
then all sums paid by the Corporation or a Subsidiary to the Executive from the
Date of Termination specified in the Notice of Termination until final
resolution of the Dispute pursuant to this Section 3(k) shall be repaid promptly
by the Executive to the Corporation or a Subsidiary, with interest at the base
rate charged from time to time by the Corporation's principal commercial bank.
In the event that it is finally determined that a challenged termination by the
Corporation or a Subsidiary by reason of the Executive's Disability or for Cause
was not justified, then the Executive shall be entitled to retain all sums paid
to the Executive pending resolution of the Dispute.
(l) DEFINITION OF "DISPUTE". For purposes of this Agreement, "Dispute"
shall mean in the case of the Executive's termination as an Executive with the
Corporation or a Subsidiary for Disability or Cause, that the Executive
challenges the existence of Disability or Cause.
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(m) PARACHUTE PAYMENTS UPON TERMINATION; CHANGE OF CONTROL. If within two
(2) years after a Change in Control of the Corporation, the Executive's
employment shall terminate for any or no reason, subject in each case to Section
3(k) hereof, the Corporation or a Subsidiary will pay to the Executive as
compensation for services rendered, beginning not later than the fifth business
day following completion of the "Parachute Procedure" (as hereinafter defined)
if the Corporation elects to follow such procedure and not later than the
fifteenth day after the Date of Termination otherwise:
(i) the Executive's Base Salary through the Date of Termination, any
existing fringe benefits (including medical benefits) and incentive compensation
for the fiscal year in which the termination occurs in accordance with any
arrangements then existing with the Executive and proportionate to the period of
the fiscal year which has expired prior to the termination; and
(ii) a lump sum severance payment equal to 2.99 times the Executive's
average annual compensation during the Base Period (as hereinafter defined)
(subject to any applicable payroll or other taxes and charges required to be
withheld computed at the rate for supplemental payments) provided that in no
event shall "Total Payments" (as hereinafter defined) exceed 2.99 times the
Executive's "Base Amount," as such term is defined in Section 28OG of the
Internal Revenue Code (the "Code"). The Executive's Base Amount shall be
determined in accordance with temporary or final regulations promulgated under
Section 28OG of the Code then in effect, if any. In the absence of such
regulations, if the Executive was not employed by the Corporation (or any
corporation or partnership affiliated with the Corporation (an "Affiliate")
within the meaning of Section 1504 of the Code or a predecessor of the
Corporation) during the entire five calendar years (the "Base Period") preceding
the calendar year in which a Change in Control of the Corporation occurred, the
Executive's average annual compensation for the purposes of such determination
shall be the lesser of (1) the average of the Executive's annual compensation
for the complete calendar years during the Base Period during which the
Executive was so employed or (2) the average of the Executive's annual
compensation for both complete and partial calendar years during the Base Period
during which the Executive was so employed, determined by annualizing any
compensation (other than nonrecurring items) includible in the Executive's gross
income for any partial calendar year or (3) the annual average of the
Executive's total compensation for the Base Period during which the Executive
was so employed, determined by dividing such total compensation by the number of
whole and fractional years included in the Base Period. Compensation payable to
the Executive by the Corporation or any Affiliate or predecessor of the
Corporation shall include every type and form of compensation includible in the
Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 28OG of the
Code. For purposes of this Section 3(m) a "change in control of the Corporation"
shall have the meaning set forth in Section 28OG of the Code and any temporary
or final regulations promulgated thereunder, subject to the limitation stated in
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Section 3(m)(iii) below; and
(iii) (A) Notwithstanding anything to the contrary contained herein, in the
event that any portion of the aggregate payments and benefits (the "Total
Payments") received or to be received by the Executive, whether paid or payable
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Corporation, a Subsidiary or any other person or entity,
would not be deductible in whole or in part by the Corporation, a Subsidiary or
by such other person or entity in the calculation of its Federal income tax by
reason of Section 28OG of the Code, the Total Payments payable shall be reduced
by the least amount necessary so that no portion of the Total Payments would
fail to be deductible by reason of being an "excess parachute payment."
(B) At the option of the Corporation, no payments shall be made
pursuant to this section until the procedure described in this Section 3(m)(iii)
is completed (the "Parachute Procedure"). If the Corporation elects to comply
with such procedure, the Corporation shall cause its independent auditors to
deliver to the Executive, within fifteen (15) days after the Date of
Termination, a statement which shall indicate whether payment to the Executive
of the Total Payments would cause any portion of the Total Payment not to be
deductible in whole or part in the calculation of Federal income tax by reason
of Section 28OG of the Code, or would cause, directly or indirectly, an "excess
parachute payment" to exist within the meaning of Section 28OG of the Code. Such
statement shall set forth the value, calculated in accordance with the
principles of Section 28OG of the Code and any temporary or final regulations
promulgated thereunder, of any non-cash benefits or any deferred or contingent
payment or benefit payable pursuant to the terms of this Agreement or any other
plan, arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 28OG of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 28OG of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 28OG of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 28OG of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 28OG of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 28OG of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3(m) within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall constitute completion of
the Parachute Procedures; and
(iv) The Corporation shall contest any improper assessment of an
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excise or other tax imposed as a result of determination that an "excess
parachute payment" has been made to the Executive within the meaning of Section
28OG of the Code. If it is established pursuant to a final determination of a
court of competent jurisdiction or an Internal Revenue Service proceeding that
an "excess parachute payment" does in fact exist, within the meaning of Section
28OG of the Code, then the Executive shall pay to the Corporation, upon demand,
an amount not to exceed the sum of (i) the excess of the aggregate Total
Payments over the aggregate Total Payments that would have been paid without any
portion of such payment being deemed an "excess parachute payment" within the
meaning of Section 28OG of the Code and (ii) interest on the amount set forth in
clause (i) above at the applicable federal rate specified in Section 1274(d) of
the Code from the date of receipt by the Executive of such excess until the date
of such repayment.
4. BENEFITS. (a) The executive shall be entitled to participate in any
life, accident, disability and health insurance, hospitalization 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 $2,250 per month during the
Employment Period plus reimbursement for reasonable insurance, maintenance,
gasoline and parking expenses incurred in furtherance of the Corporation's
business.
(b) The Corporation shall maintain in effect during the Employment
Period a term life insurance policy on the life of Executive in a declining
amount equal to any one time to the aggregate Base Salary payable hereunder over
the then unexpired balance of the Employment Period. In addition, the
Corporation shall maintain in effect during the Employment Period disability
insurance for the benefit of Executive covering, in the event this Agreement is
terminated on account of Executive's Disability, 100% of Executive's Base Salary
through the end of the Employment Period less any benefits as may be received by
him during such time under the Corporation's other disability plans. In
connection therewith, Executive shall, at such time or times and at such place
or places as the Corporation may reasonably direct, subject himself to such
physical examination and execute and deliver such documents as the Corporation
may deem necessary.
5. EARLY TERMINATION; NO CHANGE OF CONTROL. If prior to the expiration
of this Agreement or a Change in Control of the Corporation, (a) the Executive
fails because of Disability to perform services of the character contemplated
by Section 2 of this Agreement; or (b) if the Corporation's Board of Directors
determines that the Executive's employment should be terminated for Cause;
then, the Corporation may by written Notice of Termination terminate
Executive's employment. In addition, this Agreement shall terminate immediately
upon the death or Retirement of Executive prior to a Change of Control of the
Corporation. Upon any termination of the Executive's employment under this
Section 5, the Executive shall be deemed removed from all positions held by him
with the Corporation, its subsidiaries and affiliates.
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effective as of the Date of Termination, and shall be entitled to receive
solely all amounts and benefits to be paid or provided by the Corporation under
Sections 3(a), 3(b) and 4 of this Agreement up to the Date of Termination and
any other amounts to be paid thereafter to Executive or his beneficiaries
pursuant to any deferred compensation plan or other employee benefit plan or
program in effect on the Date of Termination, to the extent he remains eligible
to participate thereunder under the terms of the Corporation's applicable
policies and plans. The provisions of this Section 5 shall terminate and cease
to be of any force or effect immediately upon any Change in Control of the
Corporation.
6. (a) COMPLETE PAYMENT. 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 Section 4 hereof. Notwithstanding the
foregoing, Executive expressly reserves any rights he may have at law, equity or
otherwise in the event that his employment by the Corporation is terminated in
contravention of this Agreement.
(b) NON-COMPETITION. The Executive expressly covenants and agrees
that during the term of this Agreement he will not, directly or indirectly, own,
manage, operate, join, control or participate in or be connected with as an
officer, employee, partner, stockholder, or otherwise, any business, individual,
partnership, firm or corporation (other than a parent of the Corporation or a
subsidiary or affiliate of such parent), which is at the time engaged wholly or
partly, in the business of manufacturing and marketing packaging products or in
any business which is directly in competition with the then business of the
Corporation or any subsidiary or affiliate of the Corporation (as defined in the
General Rules and Regulations promulgated under the Securities and Exchange Act
of 1934), or any firm, partnership or corporation which shall succeed to all or
a substantial part of the business of the Corporation, or any such subsidiary or
affiliate.
(c) INVESTMENTS. Nothing in this Agreement is intended, or shall be
construed, to prevent the Executive during the term of his employment hereunder
from investing in the stock or other securities listed on a national securities
exchange or actively traded on the over-the-counter market of any corporation
which is at the time engaged wholly or partly in any business which is, directly
or indirectly, at the time, in competition with the business of the Corporation
or any such subsidiary or affiliate, or any firm, partnership, or corporation
which shall succeed to all or a substantial part of the business of the
Corporation, or any such subsidiary or affiliate, provided that the Executive
and direct members of his family living in the same household as the Executive
shall not directly or indirectly, hold, beneficially or otherwise, in the
aggregate, more than three percent of any issue of such stock or other
securities of any one such corporation.
(d) CONFIDENTIAL INFORMATION. The Executive expressly covenants and
agrees that he will not any time, during the term of his employment hereunder or
thereafter and
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without regard to when or for what reason, if any, such employment shall
terminate, directly or indirectly, use or permit the use of any trade secrets,
customers' lists or other information of, or relating to, the Corporation, or
any Subsidiary or affiliate, in connection with any activity or business,
except the business of the Corporation or any Subsidiary or affiliate of the
Corporation, and will not divulge such trade secrets, customers' lists, and
information to any person, firm, or corporation whatsoever, except as may be
necessary in the performance of his duties hereunder.
(e) 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, including, but not limited to, the terms and provisions of
subparagraphs (b) or (d) of this Section, 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 for any other person, firm or corporation.
7. SEVERABILITY. The invalidity or unenforceability of any
provisions 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.
8. 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 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.
9. 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 or 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 is no such designee, to the Executive's estate.
10. ATTORNEYS' FEES. If litigation shall be brought to enforce
or interpret any
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provision contained herein, the Corporation shall indemnify the Executive for
his attorneys' fees and disbursements incurred in such litigation and pay
prejudgment interest on any money judgment obtained by the Executive calculated
at the base rate of interest charged from time to time from the date that
payment should have been made under this Agreement; provided, however, that the
Executive shall not have been found by the court to have had no cause to bring
the action, or to have acted in bad faith, which findings must be final with the
time to appeal therefrom having expired and no appeal having been taken.
11. OBLIGATION TO PAY COMPENSATION. The Corporation's obligation to
pay the Executive the compensation and to make the arrangements provided herein
shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, any setoff, counterclaim,
recoupment, defense or other right which the Corporation may have against the
Executive or anyone else. All amounts payable by the Corporation hereunder shall
be paid without notice or demand. Except as expressly provided herein, the
Corporation waives all rights it may now have or may hereafter have conferred
upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement
in whole or in part. Except as otherwise provided herein, each and every payment
made hereunder by the Corporation shall be final and the Corporation will not
seek to recover for any reason all or any part of such payment from the
Executive or any person entitled thereto. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment, and if Executive obtains such other employment, any
compensation earned by Executive pursuant thereto shall not be applied to
mitigate any payment made to Executive pursuant to this Agreement.
12. SUCCESSORS BOUND BY AGREEMENT. The Corporation shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation, by written agreement, to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform it if no such succession had taken place. As used in this
Agreement, the term "Corporation" shall mean the Corporation as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement required by this Section 12, or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
13. ENTIRE AGREEMENT. This Agreement shall constitute the entire
agreement between the Executive and the Corporation concerning the subject
matter hereof and supersedes all prior agreements between the parties with
respect thereto. In the event that Executive's employment is terminated
subsequent to a Change in Control as provided herein, performance by the
Corporation of its obligations hereunder shall constitute full settlement and
release of any claim or cause of action, of whatsoever nature, which the
Executive might otherwise assert or claim against the Corporation or any of its
directors, stockholders, officers or employees on account of such termination.
No provisions of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing, signed by the
Executive and an authorized officer of the Corporation. No waiver by either
party hereto at any time of any breach by the other party hereto of compliance
with an condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of any similar or
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dissimilar provision or condition at such same or at any prior or subsequent
time. No assurances or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. However, this Agreement is in
addition to and not in lieu or any other plan providing for payments to or
benefits for the Executive or any agreement now existing or which hereafter may
be entered into between the Corporation and the Executive, provided that,
notwithstanding anything to the contrary contained in the terms of any such
plan or agreement, in the event of Executive's termination, within (2) years
after a Change in Control as provided herein, of Executive's employment, this
Agreement shall govern the rights and the obligations of the Corporation and
the Executive. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York without
giving effect to the provisions, principles, or policies thereof relating to
choice or conflict of laws.
14. MISCELLANEOUS. The masculine or neuter gender shall include the
feminine gender. This Agreement may be executed in more than one counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly signed this Agreement
in duplicate original on the 10th day of November 1999 effective as of May 3,
1998.
SHOREWOOD PACKAGING CORPORATION
By: /s/ Howard M. Liebman
---------------------------
Howard M. Liebman
President
/s/ Marc P. Shore
---------------------------
Marc P. Shore
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Exhibit 14
SHOREWOOD PACKAGING CORPORATION
---------------------
EMPLOYEE
NON-QUALIFIED STOCK OPTION AGREEMENT
NON-QUALIFIED STOCK OPTION AGREEMENT made as of April 17, 1997, between
Shorewood Packaging Corporation, a Delaware corporation (the "Company"), and
Marc P. Shore (the "Optionee").
WHEREAS, the Stock Option and Compensation Committee of the Board of
Directors of the Company (the "Compensation Committee") has determined that it
is in the best interests of the Company and its stockholders to grant to the
Optionee non-qualified stock options to purchase 150,000 shares of its common
stock, par value $.01 per share (the "Common Stock"), in recognition of the
Optionee's services to the Company as its Chairman, Chief Executive Officer and
President, upon the terms and conditions set forth herein.
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
1. Grant of Options. The Company grants to the Optionee, on the terms and
conditions hereinafter set forth, non-qualified stock options (the "Options") to
purchase 150,000 shares of the Common Stock (the "Option Shares").
2. Exercise Price. The exercise price (the "Exercise Price") of the Options
is $18.125 per Share, subject to adjustment as provided in Section 17 hereof.
3. Tax Treatment. Optionee understands that the Options granted under this
Agreement are not entitled to special tax treatment under Section 422 of the
Internal Revenue Code of 1986, as amended to date and as may be amended from
time to time.
4. Exercise Period of Options. The Options shall be exercisable, in whole
or in part, at any time during the period commencing on the date hereof and
expiring ten (10) years from the date hereof (the "Exercise Period"). All rights
of the Optionee in the Options, to the extent that they have not been exercised,
shall terminate upon expiration of the Exercise Period.
5. Exercise of Options. The Options may be exercised only by delivering or
transmitting by registered or certified mail to the Secretary or the Treasurer
of the Company, at the Company's then principal office, a written notice signed
by the Optionee specifying the number of Option Shares that the Optionee has
irrevocably elected to purchase. The notice must be accompanied by cash or other
immediately available funds in the amount of, or shares of Common Stock already
owned by the Optionee, held by the Optionee for a minimum of six (6) months and
having a fair market value on the date of exercise equal to, or any combination
of cash or other immediately available funds and shares of Common Stock equal
to, the aggregate amount of the Exercise Price for such number of Option Shares.
Upon receipt of such notice and
<PAGE>
payment, the Company shall deliver to the Optionee a certificate or certificates
in respect of the shares of Common Stock purchased and the Optionee shall be
deemed to be the holder of the shares of Common Stock purchased as of the date
of issuance to him of the certificates for such shares. The Company may delay
issuing certificates representing Option Shares for a reasonable period of time
pending listing of same on the NASDAQ Stock Market or the New York Stock
Exchange if shares of Common Stock of the Company are then listed on such
Exchange. The Optionee will not be nor deemed to be a holder of any shares
subject to the Options unless and until certificates for such shares are issued
to him under the terms of this Agreement.
6. Restrictive Legend. If and when the Options are exercised, the
certificates to be issued evidencing shares of the Company's Common Stock shall
bear a legend substantially as follows:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), and may not be
transferred in the absence of an effective registration statement under the
Act covering the shares or of an opinion of counsel to the Company that
such transfer will not require registration of such shares under the Act."
7. Death of Optionee. Options granted hereunder and outstanding on the date
of Optionee's death may be exercised by the personal representative of the
Optionee or the person or persons to whom the Options shall have been
transferred by the Optionee's will or in accordance with the laws of descent and
distribution, as the case may be, at any time prior to the termination of such
Options pursuant to Section 4 above.
8. No Stockholders' Rights for Options. The Optionee shall have no rights
as a stockholder with respect to the Option Shares until the date of the
issuance to the Optionee of a stock certificate or certificates therefor, and no
adjustment will be made for cash dividends or other rights for which the record
date is prior to the date of issuance of such certificate(s).
9. Demand Registration. At any time prior to the tenth anniversary hereof,
the Optionee shall have the right exercisable by written notice to the Company
(the "Demand Request"), to have the Company prepare and file with the Securities
and Exchange Commission (the "SEC"), on no more than one (subject to Section 11
below) occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of the Company counsel, to comply
with the provisions of the Securities Act of 1933, as amended (the "Securities
Act"), so as to permit a public offering and sale of the Option Shares.
Notwithstanding anything else herein contained, the Company will have no
obligation to prepare and file a registration statement under the Securities Act
pursuant to this Section 9 other than on Form S-3 if available to the Company
(or the equivalent thereto if such form is no longer generally available). The
Company shall be entitled to postpone for up to six (6) months the filing of any
registration statement otherwise required to be prepared and filed by the
Company pursuant to this Section 9 if at the time the Company receives a request
for registration the Board of Directors of the Company determines in its
reasonable business judgment, that the filing of such registration statement and
the offering of the Option Shares pursuant thereto would interfere
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with any financing, acquisition, corporate reorganization or other material
transaction by the Company, and the Company promptly gives the Optionee notice
of such determination and postponement. If the Company shall so postpone the
filing of a registration statement, the Optionee shall have the right to
withdraw the request for registration by giving written notice to the Company
within fifteen (15) days after receipt of the Company's notice of postponement
(and, in the event of such withdrawal, such request shall not be deemed a
request for registration which may be made pursuant to this Section 9).
Notwithstanding the foregoing, the Company will have no obligation to prepare
and file a registration statement under the Securities Act, if to do so would
require a special audit of the Company's balance sheet and related financial
statements in connection with the preparation of the registration statement,
even if, as a result, the filing of the registration statement would be delayed
until after the completion of the Company's next regular audit.
10. Piggy-Back Registration. If at any time the Company proposes to file a
registration statement to register any Common Stock (other than Common Stock
issued with respect to any acquisition or any employee stock option, stock
purchase or similar plan) under the Securities Act for sale to the public in an
underwritten offering, it will at each such time give written notice to the
Optionee of its intention to do so ("Notice of Intent") and, upon the written
request of the Optionee (the "Piggy-Back Request") made within 30 calendar days
after the receipt of any such notice (which request must specify that the
Optionee intends to dispose of all of the Option Shares held by the Optionee on
the date the Notice of Intent is received by the Optionee), the Company will use
its best efforts to effect the registration under the Securities Act of the
Option Shares which the Company has been so requested to register; provided,
however, that if the managing underwriter shall certify in writing that
inclusion of all or any of the Option Shares would, in such managing
underwriter's opinion, materially interfere with the proposed distribution and
marketing of the Common Stock in respect of which registration was originally to
be effected (such writing to state the basis of such opinion and the maximum
number of shares which may be distributed without such interference), then the
Company may, upon written notice to the Optionee, have the right to exclude from
such registration such number of Option Shares which it would otherwise be
required to register hereunder as is necessary to reduce the total amount of
Common Stock to be so registered to the maximum amount which can be so marketed.
11. Combined Exercise and Registration Request. If at or before the date of
a Demand Request or a Piggy-Back Request, the Optionee shall not have exercised
the Options in accordance with the terms of Sections 4 and 5 hereof, such Demand
Request or Piggy-Back Request, as the case may be, shall be deemed to be a
notice of exercise by the Optionee pursuant to the first sentence of Section 5
and an agreement to pay to the Company the full amount required by the terms
hereof on or before the earlier of the termination of the Options or the date
when a registration statement filed by the Company pursuant to Section 9 or
Section 10 becomes effective under the Securities Act (the "Effective Date").
Notwithstanding the foregoing, at any time before the Company requests the SEC
to accelerate the Effective Date of a registration statement filed pursuant to
Section 9 or Section 10 hereof, the Optionee may, by delivery of a written
notice to the Company, withdraw its Demand Request or Piggy-Back Request, as the
case may be, and upon delivery of such withdrawal notice such Demand Request or
Piggy-Back
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Request, as the case may be, shall be deemed to be null and void and the
Optionee shall continue to have the rights granted in Sections 5, 9 and 10
hereof, within the time limits provided therein, to the same extent as if no
Demand Request or Piggy-Back Request had been made and no notice of exercise of
this warrant had been delivered; provided, however, that if the Demand Request
or Piggy-Back Request, as the case may be, is delivered to the Company before
the expiration of the Exercise Period and the Optionee has not before then
otherwise exercised the Options pursuant to the terms hereof, the Optionee may,
at his election include with such withdrawal notice the payment required
hereunder and the Company shall deliver to the Optionee a stock certificate or
stock certificates in accordance with the provisions of Section 5 hereof.
12. Registration Expenses. The costs and expenses (other than underwriting
discounts and commissions) of all registrations and qualifications under the
Securities Act, and of all other actions the Company is required to take or
effect pursuant to this Agreement shall be paid by the Company (including,
without limitation, all registration and filing fees, printing expenses, fees
and expenses of complying with Blue Sky laws, and fees and disbursements of
counsel for the Company and of independent public accountants); provided,
however, that fees and expenses of complying with Blue Sky laws in those states
where Option Shares and no other securities of the Company covered by the
registration statement will be offered for sale shall be paid by the Optionee.
13. Registration Procedures. If and whenever the Company is required to
effect the registration of any Option Shares under the Securities Act as
provided in this Agreement, the Company will promptly:
(i) prepare and file with the SEC a registration statement with
respect to such Option Shares and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
such Option Shares and other securities covered by such registration statement
until such time as all of such Option Shares and other securities have been
disposed of in accordance with such registration statement, but in no event for
a period of more than nine months after such registration statement becomes
effective;
(iii) furnish to the Optionee such number of copies of such
registration statement and of each such amendment and supplement thereto, such
number of copies of the prospectus included in such registration statement, in
conformity with the requirements of the Securities Act;
(iv) use its best efforts to register or qualify the Option Shares
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions within the United States of America (including
territories and commonwealths thereof) as the Optionee shall reasonably request,
except that the Company shall not for any such purpose be
4
<PAGE>
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, to subject itself to taxation in
any such jurisdiction.
The Company may require the Optionee to furnish the Company such
information regarding the Optionee and the distribution of such Option Shares as
the Company may from time to time request in writing and as shall be required by
law to effect such registration.
14. Termination of Obligations. The obligations of the Company imposed by
Sections 9 through 13 above shall cease and terminate, as to any particular
Option Shares, when such shares shall have been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering such securities.
15. Availability of Information. The Company will cooperate with the
Optionee in supplying such information and documentation as may be necessary for
him to complete and file any information reporting forms presently or hereafter
required by the SEC as a condition to the availability of an exemption from the
Securities Act for the sale of any Option Shares.
16. Registration Rights Condition. Notwithstanding any other provision
contained herein, the Company shall not be obligated to comply with any demands
for registration of any Option Shares under the Securities Act if, at the time
of such demand by the Optionee:
(i) the Optionee is free to sell such Option Shares in accordance with
Rule 144 promulgated under the Securities Act or any similar rule or regulation
promulgated under the Securities Act; or
(ii) the Company has in effect a registration statement covering the
disposition of such Option Shares.
17. Dilution or Other Adjustments. In the event of any change in the Common
Stock subject to the Options granted by this Agreement through merger,
consolidation, reorganization, recapitalization, stock split, stock dividend, or
the issuance to stockholders of rights to subscribe to stock of the same class,
or in the event of any change in the capital structure or other increase or
decrease in the number of issued shares of Common Stock effected without the
receipt of consideration by the Company, the Board of Directors of the Company
shall make such adjustments with respect to (i) the number of Option Shares,
(ii) the Exercise Price, or (iii) any provision of this Agreement, as it may
deem equitable in order to prevent dilution or enlargement of the Options and
the rights granted hereunder.
18. Miscellaneous.
18.1 The interpretation of this Agreement by the Compensation
Committee shall be binding on the Optionee.
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18.2 The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York without
giving effect to the provisions, principles or policies thereof relating to
choice or conflict of law.
18.3 Any and all notices referred to herein shall be sufficient if
furnished in writing and delivered in person or mailed by certified mail (return
receipt requested) to the respective parties at their addresses set forth above
or to such other address as either party may from time to time designate in
writing.
18.4 No amendment, change or modification of this document shall be
valid unless in writing and signed by all of the parties hereto.
18.5 No reliance upon or waiver of one or more provisions of this
Agreement shall constitute a waiver of any other provisions hereof.
18.6 All of the terms and provisions contained herein shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
heirs, personal representatives, successors and assigns.
18.7 This Agreement constitutes the entire understanding and agreement
of the parties with respect to the subject matter of this Agreement, and
supersedes any and all prior agreements, understandings or representations.
IN WITNESS WHEREOF, the Company and the Optionee have duly executed
this Agreement as of the day and year first above written.
SHOREWOOD PACKAGING CORPORATION
By: ______________________________
Name:
Title:
______________________________
MARC P. SHORE
6
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Exhibit 15
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
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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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(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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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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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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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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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
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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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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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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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Exhibit 16
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
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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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(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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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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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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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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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
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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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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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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>
(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>
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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<PAGE>
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>
Exhibit 17
February 16, 2000
Mr. Marc P. Shore
68 Talcott Road
Rye, New York 10573
Re: Employment Agreement
Dear Mark:
As you know, International Paper Company, a New York
corporation ("Parent"), International Paper - 37, Inc., a Delaware corporation
and a direct wholly owned subsidiary of Parent ("Purchaser") and Shorewood
Packaging Corporation, a Delaware corporation (the "Company") have entered into
discussions relating to a proposal to engage in transactions including (a) the
commencement of an offer by Purchaser to purchase all of the outstanding shares
of common stock of the Company (the "Proposed Offer") and (b) the merger of
Purchaser with and into the Company, with the Company continuing as the
surviving corporation and a direct wholly-owned subsidiary of Parent (the
"Proposed Merger")(such transactions are hereinafter together referred to as the
"Proposed Transactions"). As Parent has made clear to you in discussions
relating to the Proposed Transactions, Parent is willing to proceed with the
Proposed Transactions based upon your representation that you agree to remain
employed by the Company upon the terms and conditions set forth in the
employment agreement attached hereto as EXHIBIT A (the "Employment Agreement"),
and would be unwilling to proceed if you did not so agree.
In addition, the Company has adopted an Employee Severance
Plan that provides certain benefits if your employment terminates under certain
conditions following a Change in Control (as defined in the Company Employee
Severance Plan) of the Company. Finally, the Company has made loans to you that
are currently outstanding and which are listed in the schedule attached hereto
as EXHIBIT B.
In order to assure Parent that you will remain employed by the
Company on and after the date of Purchaser's first purchase of the Company's
common stock pursuant to the Proposed Offer (the "First Purchase Date") if the
Proposed Transactions are consummated, and for other good and valuable
consideration, this letter agreement (the "Agreement") sets forth the agreements
and understandings between you and Parent with respect to these matters.
<PAGE>
Section 1. EMPLOYMENT AGREEMENT.
Simultaneously with your execution of this letter you will
execute the Employment Agreement. Parent will execute and cause the Company to
execute the Employment Agreement on the First Purchase Date. The Employment
Agreement will automatically become effective upon execution by Parent and the
Company on the First Purchase Date.
Section 2. REPAYMENT OF LOANS.
On the First Purchase Date you will repay to the Company the
entire outstanding principal balance on each loan listed in the schedule
attached hereto as EXHIBIT B, together with interest accrued through the First
Payment Date.
Section 3. EMPLOYEE SEVERANCE PLAN.
On the First Payment Date, Parent will cause the Company to
pay to you a lump sum payment of Severance Pay (as defined in the Company
Severance Plan) in the amount of $5,699,475.72 and the Gross-Up Payment (as
defined in the Company's Employee Severance Plan) determined in accordance with
the applicable terms of the Employee Severance Plan.
Section 4. GOVERNING LAW.
The provisions of this Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without regard to principles of conflicts of laws.
If the foregoing terms are acceptable to you, please sign and
return to Parent the enclosed copy of this letter and the enclosed Employment
Agreement, whereupon this letter shall become a binding agreement between you
and Parent.
Sincerely,
INTERNATIONAL PAPER COMPANY
By: /s/ David W. Oskin
-------------------------------------
David W. Oskin
Executive Vice President
Accepted and Agreed as of the date first written above
/s/ Marc P. Shore
- -------------------------
Marc P. Shore
2
<PAGE>
EXHIBIT A
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into on
this __th day of ___________, 2000 by and among Marc P. Shore ("Executive"),
International Paper Company ("International Paper"), a New York corporation, and
Shorewood Packaging Corporation (the "Company"), a Delaware corporation having
its principal executive offices at 277 Park Avenue, New York, New York 10172.
I. EMPLOYMENT.
The Company hereby employs Executive and Executive hereby
accepts such employment, upon the terms and conditions hereinafter set forth,
from ____________, 2000 to and including December 31, 2004 (hereinafter the
"Term"), unless earlier terminated under Section V of this Agreement.
II. DUTIES.
A. Executive shall serve during the course of his employment as
President of the Company and shall perform such duties as may from time to time
be assigned, delegated or limited by the senior officer of International Paper
designated in writing by the Chief Executive Officer of International Paper,
which shall initially be the Senior Vice President-Consumer Packaging of
International Paper, (such senior officer is hereinafter referred to as the "IP
Officer") consistent with Executive's position as President of the Company.
Executive shall report directly to the IP Officer. During the Term of this
Agreement, Executive shall devote all of his professional and business-related
time, energy and skill to the business of the Company and shall perform his
duties in good faith.
<PAGE>
B. Executive shall not, without the prior written consent of the
IP Officer, render to others any services of any kind for compensation or engage
in any activity which conflicts or interferes with the performance of his duties
and obligations hereunder.
C. Neither International Paper nor the Company shall be deemed to
have breached this Agreement if the Company is liquidated to become a division
of International Paper instead of a separate subsidiary provided that Executive
becomes the President of such division. If such a liquidation occurs, "Company"
shall thereafter mean International Paper.
D. In connection with his employment hereunder, Executive shall
not be required, without his consent, to be based anywhere other than the
greater metropolitan New York City area, which shall include Purchase, New York.
III. PRIOR AGREEMENT.
Executive and the Company are currently parties to that
certain Amended and Restated Employment Agreement made effective as of May 3,
1998 (the "Prior Agreement"). Company and Executive agree that from and after
execution of this Agreement, all further obligations of the parties under the
Prior Agreement shall cease and become null and void, except as to (A) the
Company's obligation to pay to Executive any salary earned prior to execution of
this Agreement and not yet paid and (B) Executive's obligation to repay the
unearned portion of the $1 million signing bonus that the Company paid to him in
connection with the original execution of the Prior Agreement in the event that
he is terminated by the Company for Cause as defined in Section V-C1 or he
terminates his employment with the Company without Good Reason (as defined in
Section V-C) prior to May 1, 2003.
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<PAGE>
IV. COMPENSATION.
A. SALARY. The Company will pay to Executive a base salary at the
rate of $500,000 per year. Such salary shall be earned monthly and shall be
payable in periodic installments no less frequently than monthly in accordance
with the Company's customary practices. Any increases in Executive's base salary
will be at the discretion of the IP Officer.
B. ANNUAL BONUS. During the Term of this Agreement, Executive
shall be entitled to receive an annual bonus from the Company in accordance
with an annual bonus plan for Executive (the "Bonus Plan") in lieu of any
further bonuses under the 1995 Performance Bonus Plan of Shorewood Packaging
Corporation. The IP Officer shall establish reasonable target performance
objectives for Executive under the Bonus Plan for the year 2000. For each
subsequent year ending during the Term of this Agreement, the IP Officer
shall establish reasonable target performance objectives under the Bonus Plan
on or before January 31 of the year for which the bonus may be earned.
Executive's bonus under the Bonus Plan for each calendar year ending during
the Term of this Agreement will be determined on the basis of the
satisfaction of the target performance objectives in accordance with the
following table:
<TABLE>
<CAPTION>
PERCENT OF TARGET BONUS
----------------- -----
<S> <C>
below 80% $0
80% $250,000
100% $350,000
at or above 125% $450,000
</TABLE>
The amount of the bonus payable to Executive for satisfaction of performance
objectives above the 80% level and below the 125% level will be determined using
linear interpolation. Notwithstanding the foregoing, for the period ending
December 31, 2000, the amount of the bonus that Executive is eligible to earn
under the Bonus Plan shall be equal to 75% of the amounts shown in the above
table. The Company shall pay any bonus that Executive earns
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<PAGE>
under the Bonus Plan on or before March 15 of the year following the year in
which Executive earns such bonus. In the event Executive's employment with the
Company terminates on or after July 1 of a year during the Term of this
Agreement on account of Executive's death, Disability or termination of his
employment with Good Reason, or the Company's termination of his employment
without Cause, Executive (or his beneficiary or estate) shall be entitled to a
bonus under the Bonus Plan in an amount equal to the 100% target bonus for the
year prorated for the number of days during the year that Executive was employed
by the Company. No bonus will be payable under the Bonus Plan for a year if (1)
his employment terminates for any reason prior to July 1 of such year, (2) the
Company terminates Executive with Cause or (3) Executive terminates his
employment without Good Reason.
C. GUARANTEED BONUS. In addition to any bonus Executive earns
under the Bonus Plan, the Company shall pay to Executive (1) a separate
guaranteed bonus of $112,000 for the period of service from the date of this
Agreement through December 31, 2000, and (2) a separate guaranteed bonus of
$150,000 for each subsequent calendar year ending during the Term of this
Agreement. The Company shall pay each such guaranteed bonus to Executive on or
before February 15 of the year following the year for which the guaranteed bonus
is paid.
D. RESTRICTED STOCK AWARD. Effective as of the date of this
Agreement, International Paper shall grant to Executive, in accordance with the
International Paper Company Long-Term Incentive Compensation Plan (the "Stock
Incentive Plan"), that number of shares of common stock of International Paper
having a fair market value as of the date of this Agreement of $1 million, which
shares shall be nontransferable and subject to forfeiture until vested in
accordance with the vesting schedule set forth in the award agreement (the
"Restricted Stock"). The award agreement for the Restricted Stock shall provide
that one-fifth of Restricted Stock will vest on
4
<PAGE>
December 31, 2000 and on December 31 of each of the four subsequent years
provided that the target performance objectives established under the Bonus Plan
for each such year are achieved. If in any year shares of Restricted Stock do
not vest because of the failure to satisfy the target performance objectives for
that year, those shares shall vest on December 31 of the first subsequent year
ending on or before December 31, 2004 for which the target performance
objectives are achieved. Any shares of Restricted Stock which have not vested as
of December 31, 2004, shall be permanently forfeited, and neither International
Paper nor the Company shall have any obligations to Executive with respect to
such forfeited shares. The award agreement for the Restricted Stock shall also
provide that all of Executive's shares of Restricted Stock will immediately vest
and be non-forfeitable in the event Executive's employment is terminated on
account of death or Disability, he terminates his employment with Good Reason or
the Company terminates his employment without Cause.
E. STOCK OPTIONS. Effective as of the date of this Agreement,
International Paper shall grant to Executive a nonqualified stock option under
the Stock Incentive Plan to purchase 20,000 shares of International Paper common
stock at a price per share equal to the fair market value of International Paper
common stock on the date of this Agreement. Such option grant shall be evidenced
by a standard stock option agreement in the form used by International Paper for
the grant of other stock options under the Stock Incentive Plan and shall
contain vesting and other terms which are consistent with the grants of stock
options made to other executives of International Paper and its subsidiaries.
Each year thereafter during the Term of this Agreement, Executive shall be
eligible to receive such additional stock option awards under the Stock
Incentive Plan or any successor plan as the Board of Directors of International
Paper (or its delegate) determines in its sole discretion.
5
<PAGE>
F. For a one-year period of time following the effective date of
the merger of the Company with International Paper - 37, Inc., (the "Effective
Time"), the Company shall provide Executive with benefits that are substantially
comparable in the aggregate to the benefits provided to Executive as of the date
of the merger agreement between the Company and International Paper - 37, Inc.;
PROVIDED, HOWEVER, that the Company will continue Executive's current
split-dollar life insurance arrangement only through December 31, 2000, and the
Company will provide Executive an automobile lease allowance of $2,250 per month
plus reimbursement for reasonable insurance, maintenance, gasoline and parking
expenses incurred in furtherance of the Company's business only through December
31, 2000. After the one-year period following the Effective Time, the following
provisions will apply:
1. SAVINGS AND RETIREMENT PLANS. Executive shall be entitled to
participate in all savings and retirement plans, practices, policies
and programs to the extent applicable generally to other peer
executives of International Paper.
2. WELFARE BENEFIT PLANS. Executive shall be eligible for
participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by International Paper
(including, without limitation, medical, dental, disability, group life
insurance, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer executives
of International Paper.
3. FRINGE BENEFITS; VACATION. Executive shall be entitled to
fringe benefits and paid vacation in accordance with the plans,
practices, programs and policies as in effect generally with respect to
other peer executives of International Paper.
4. International Paper and the Company reserve the right to
modify, suspend or discontinue any and all of the above plans,
practices, policies and programs at any time
6
<PAGE>
without recourse by Executive so long as such action is taken generally
with respect to other similarly situated peer executives and does not
single out Executive.
V. TERMINATION.
A. DEATH. Executive's employment shall terminate automatically
upon Executive's death.
B. DISABILITY. If the Company determines in good faith that
Executive has become disabled (physically or mentally), it may give to Executive
written notice in accordance with Section XV of this Agreement of its intention
to terminate Executive's employment. In such event, Executive's employment with
the Company shall terminate effective on the 30th day after receipt of such
notice by Executive, provided that, within the 30 days after such receipt,
Executive shall not have returned to full-time performance of his duties. For
purposes of this Agreement, disability shall mean a physical or mental
impairment that renders Executive unable to perform the essential functions of
his position. The Company reserves the right, in good faith, to make the
determination of disability under this Agreement based upon information supplied
by Executive and/or his medical personnel, as well as information from medical
personnel (or others) selected by the Company or its insurers.
C. CAUSE OR GOOD REASON.
1. The Company may terminate Executive's employment for Cause.
For purposes of this Agreement, "Cause" shall mean that the Company,
acting in good faith based upon the information then known to the
Company, determines that Executive has engaged in or committed: willful
misconduct; gross negligence; theft, fraud or other illegal conduct;
refusal or unwillingness to perform his duties or performance of his
duties in an unsatisfactory manner; sexual harassment; conduct which
reflects adversely
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<PAGE>
upon, or making any remarks disparaging of, the Company or
International Paper, their Boards of Directors, officers, directors,
advisors or employees or their affiliates or subsidiaries;
insubordination; any willful act that is likely to and which does in
fact have the effect of injuring the reputation, business or a business
relationship of the Company or International Paper; violation of any
fiduciary duty; violation of any duty of loyalty; and breach of any
term of this Agreement.
2. Executive may terminate his employment for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean a material breach
of this Agreement by the Company or International Paper.
D. OTHER THAN CAUSE OR DEATH OR DISABILITY. The Company may
terminate Executive's employment at any time, with or without Cause, by written
notice to Executive, effective upon Executive's receipt of such notice.
E. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
1. DEATH OR DISABILITY. If Executive's employment is
terminated by reason of Executive's death or Disability, this Agreement
shall terminate without further obligations to Executive or his legal
representatives under this Agreement, other than for (a) payment of the
sum of (i) Executive's annual base salary through the date of
termination to the extent not theretofore paid, (ii) any guaranteed
bonus or performance bonus under the Bonus Plan for the calendar year
ending prior to Executive's death or Disability to the extent not
theretofore paid, (iii) any prorated bonus payable under the Bonus Plan
pursuant to Section IV-B and (iv) and any accrued vacation pay to the
extent not theretofore paid (the sum of the amounts described in
clauses (i), (ii), (iii) and (iv) shall be hereinafter referred to as
the "Accrued Obligations"), which shall be paid to
8
<PAGE>
Executive or his estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the date of termination.
2. CAUSE. If the Company terminates Executive's employment for
Cause, this Agreement shall terminate without further obligations to
Executive other than for the timely payment of Accrued Obligations. If
it is subsequently determined that the Company did not have Cause for
termination under Section V-C, then the Company's decision to terminate
shall be deemed to have been made under Section V-D and the amounts
payable under Section V-E3 shall be the only amounts Executive may
receive for his termination.
3. OTHER THAN CAUSE OR DEATH OR DISABILITY; GOOD REASON. If
the Company terminates Executive's employment for other than Cause or
death or Disability during the Term of this Agreement, or if Executive
terminates his employment with the Company with Good Reason, this
Agreement shall terminate without further obligations by the Company or
International Paper to Executive other than (a) the timely payment of
Accrued Obligations, and (b), subject to Executive's signing a release
in the standard form then in use by the Company or International Paper
for other peer executives, (i) severance pay (payable in regular
installments in accordance with the Company's normal payroll practices)
constituting Executive's base salary for the lesser of one year or the
remaining Term of this Agreement and (ii) the amount of the guaranteed
bonus for the calendar year during which Executive's employment with
the Company terminates.
9
<PAGE>
4. EXPIRATION OF AGREEMENT. If this Agreement expires at the
end of the Term and Executive ceases to be employed by the Company at
that time, Executive will receive timely payment of the Accrued
Obligations.
5. EXCLUSIVE REMEDY. Executive agrees that the payments
contemplated by this Agreement shall constitute the exclusive and sole
remedy for any termination of his employment and Executive covenants
not to assert or pursue any other remedies, at law or in equity, with
respect to any termination of employment. Notwithstanding the preceding
sentence, neither the severance pay described in Section V-E3 nor any
other payment under this Section V-E shall reduce or affect any
benefits the Executive (or his estate or beneficiary) may be entitled
to under the specific terms of the benefit plans of the Company or any
stock option or restricted stock awards.
VI. COVENANTS OF EXECUTIVE.
A. GENERAL: Executive and the Company understand and agree that
the purpose of the provisions of this Section VI is to protect the legitimate
business interests of the Company and International Paper, as more fully
described below. Executive hereby acknowledges that the restrictions set forth
in this Section VI are reasonable and necessary to protect the business
interests of the Company and/or International Paper. Therefore, Executive shall
be subject to the restrictions set forth in this Section.
B. RESTRICTIONS ON DISCLOSURE AND USE OF CONFIDENTIAL
INFORMATION: Executive understands and agrees that confidential information and
materials of a confidential or proprietary nature constitute valuable assets of
the Company and International Paper and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that he shall not, directly or
indirectly, at any time during the Term and at any time following the Term,
10
<PAGE>
reveal, divulge or disclose any "Confidential Information" (as defined below),
and Executive shall not, directly or indirectly, use or make use of any
"Confidential Information" in connection with any business activity other than
that of the Company and/or International Paper; PROVIDED, HOWEVER, that
Executive may disclose or use "Confidential Information" during the Term as
authorized by the IP Officer or consistent with the proper exercise of
Executive's duties as President of the Company. "Confidential Information" means
all information regarding the Company and/or International Paper, its and their
activities, business, clients, or potential clients that is the subject of
reasonable efforts by the Company and/or International Paper to maintain its
confidentiality and that is not generally disclosed to persons not employed by
the Company and/or International Paper. "Confidential Information" shall
include, but is not limited to, any of the following information or materials of
the Company and/or International Paper: financial plans and data; management
planning information; business plans; operational methods; market studies;
marketing plans or strategies; product development techniques or plans; customer
lists; details of customer contracts; current and anticipated customer
requirements; past, current and planned research and development; business
acquisition plans; and new personnel acquisition plans. "Confidential
Information" shall not include information that has become generally available
to the public.
C. NONSOLICITATION. Executive understands and agrees that the
relationship between the Company and/or International Paper and their respective
employees, business relations, clients and customers, and potential clients and
customers, constitutes a valuable asset of the Company and/or International
Paper and may not be converted to Executive's own use. Accordingly, Executive
agrees that, during the Term of this Agreement, and for a period of three (3)
years from the termination for any reason pursuant to Section V of this
Agreement other than
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<PAGE>
the Company's termination of Executive without Cause or Executive's termination
of his employment with Good Reason (the "Restricted Period"), neither Executive
nor any entity with whom he is at the time affiliated (any other person,
corporation, partnership or other business entity of any kind) shall, directly
or indirectly, solicit or entice away or in any manner persuade or attempt to
persuade, any officer, employee, agent, representative, business relation,
client or customer, or prospective client or customer of the Company and/or
International Paper, to discontinue his/her/its relationship or prospective
relationship with the Company and/or International Paper.
D. RESTRICTIVE COVENANT. Executive acknowledges that his services
are special, unique, and extraordinary, and that in the course of his employment
with the Company and/or International Paper he has had and will continue to have
dealings and develop special relationships with the clients and customers of the
Company and/or International Paper. Executive further acknowledges that in the
course of his employment with or service to the Company and/or International
Paper, he has obtained and will continue to obtain Confidential Information. In
order to protect the legitimate business interests, goodwill, relationships, and
Confidential Information of the Company and/or International Paper, Executive
agrees that during the Restricted Period defined above in Section VI-C,
Executive shall not (whether for his own account or on behalf of any person,
corporation, partnership, or other business entity of any kind, and whether
directly or indirectly), without the prior written consent of the IP Officer,
engage in the business of printing or manufacturing paperboard packaging
anywhere in North America. Notwithstanding the foregoing, if Executive's
employment with the Company terminates on or after the expiration of this
Agreement at the end of its Term, Executive shall be
12
<PAGE>
subject to the same non-competition policy of International Paper that is
applicable to other peer executives of International Paper.
E. ENFORCEMENT OF COVENANTS. In the event Executive breaches, or
threatens to commit a breach of, any of the provisions of this Section VI, the
Company and/or International Paper shall have the following rights and remedies,
which shall be independent of any others and severally enforceable, and shall be
in addition to, and not in lieu of, any other rights and remedies available to
the Company and/or International Paper at law or in equity:
1. the right to enjoin, preliminarily and permanently,
Executive from violating or threatening to violate the terms of this
Section VI and to have the promises made herein specifically enforced
by any court of competent jurisdiction; and
2. the right and remedy to require Executive to account for an
pay over to the Company and/or International Paper all compensation,
profits, monies, accruals, increments or other benefits derived or
received by Executive as a result of the transactions constituting a
breach of this Section VI.
VII. ARBITRATION.
Any and all controversies, claims or disputes arising out of
or in any way relating to this Agreement, its enforcement or interpretation, or
because of an alleged breach, default, or misrepresentation in connection with
any of its provisions, or any other claim by Executive arising out of or in
connection with his employment, including any claims for discrimination
prohibited by any federal, state or other statute, ordinance or law, shall be
submitted to a panel of three (3) arbitrators (hereinafter referred to as the
"Panel"). Executive shall select one arbitrator; the Company or International
Paper, as the case may be, shall select one arbitrator; and the two arbitrators
shall chose the third arbitrator from a list of arbitrators with expertise in
employment
13
<PAGE>
disputes provided by the American Arbitration Association ("AAA").
Subject to the foregoing, the arbitration shall be in accordance with the
National Rules for Resolution of Employment Disputes of the AAA. The arbitration
shall be commenced by filing a demand for arbitration with the AAA within sixty
(60) days after the occurrence of the facts giving rise to any such controversy,
claim or dispute. The arbitration shall be conducted in Purchase, New York.
Judgment upon the award rendered by the Panel may be entered in any court having
jurisdiction thereof. All costs and expenses of any arbitration proceeding shall
be borne by the respective party incurring such costs and expenses.
VIII. ASSIGNMENT.
Executive acknowledges that his services are unique and
personal. Accordingly, Executive may not assign his rights or delegate his
duties under this Agreement to any person or entity.
IX. SUCCESSORSHIP.
This Agreement is binding on and inures to the benefit of the
Company and/or International Paper, its successors and assigns.
X. MODIFICATION.
This Agreement may not be amended or modified other than by a
written agreement executed by Executive and the Company or its designee.
XI. SAVINGS CLAUSE.
If any provision of this Agreement or the application thereof
is held invalid, the invalidity shall not affect other provisions or
applications of the Agreement which can be given
14
<PAGE>
effect without the invalid provisions or applications and to this end the
provisions of this Agreement are declared to be severable.
XII. COMPLETE AGREEMENT.
This Agreement hereby incorporates by reference the letter
agreement entered into between Executive and International Paper on February 16,
2000 (the "Letter Agreement"). This Agreement, together with the Letter
Agreement, constitutes and contains the entire agreement and final understanding
concerning Executive's employment with the Company and the other subject matters
addressed herein between the parties. The parties intend it as a complete and
exclusive statement of the terms of their agreement. It supersedes and replaces
all prior negotiations and all agreements proposed or otherwise, whether written
or oral, concerning the subject matter hereof. Any representation, promise or
agreement not specifically included in this Agreement shall not be binding upon
or enforceable against either party. This is a fully integrated agreement.
XIII. GOVERNING LAW.
The provisions of this Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without regard to principles of conflict of laws.
XIV. PARAGRAPH HEADINGS.
Paragraph and other headings contained in this Agreement are
for the convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
15
<PAGE>
XV. NOTICES.
Any notices to be given under this Agreement by one party to
the other may be effected by personal delivery in writing or by mail, registered
or certified, postage prepaid with return receipt requested. Mailed notice shall
be deemed receive as of three (3) days after mailing. Notices by mail shall be
sent to the address listed below unless and until notice to a change is given
pursuant to this Section:
To Executive:
Mr. Marc P. Shore
68 Talcott Road
Ryebrook, New York 10573
To the Company:
Shorewood Packaging Corporation
c/o International Paper Company
Two Manhattanville Road
Purchase, New York 10577
Attn: William Slowikowski
XVI. WITHHOLDING.
All amounts payable to Executive under this Agreement shall be
reduced by any applicable income and employment withholding taxes and other
authorized deductions.
XVII. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder
shall survive any termination of Executive's employment to the extent necessary
to the intended preservation of such rights and obligations.
16
<PAGE>
XVIII. COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which will take effect as an original, and all of which shall evidence
one and the same Agreement.
XIX. REPRESENTATION.
The Company, International Paper and Executive represent that
they are knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that they have read this Agreement and that
they understand its terms. The Company, International Paper and Executive
acknowledge that, prior to assenting to the terms of this Agreement, they have
been given a reasonable amount of time to review it and to negotiate at arm's
length as to its contents. The Company, International Paper and Executive agree
that the language used in this Agreement is the language chosen by the parties
to express their mutual intent, and that they have entered into this Agreement
freely and voluntarily and without pressure or coercion from anyone.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SHOREWOOD PACKAGING CORPORATION
By:
--------------------------------
Title:
--------------------------
INTERNATIONAL PAPER COMPANY
By:
--------------------------------
Title:
--------------------------
MARC P. SHORE
------------------------------------
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
Outstanding
Date Of Loan Principal Amount Rate of Interest Due Date
------------ ---------------- ---------------- --------
<S> <C> <C> <C>
May, 1995 $2,000,000 Applicable Federal May 4, 2000
Rate plus Interest
July 26, 1999 $527,316 6.5% October 2, 2000
</TABLE>
<PAGE>
Exhibit 18
February 16, 2000
Mr. Howard M. Liebman
1302 Azure Place
Hewlitt Harbor, New York 11557
Re: Employment Agreement
Dear Howard:
As you know, International Paper Company, a New York corporation
("Parent"), International Paper-37, Inc., a Delaware corporation and a
direct wholly owned subsidiary of Parent ("Purchaser") and Shorewood
Packaging Corporation, a Delaware corporation (the "Company") have entered
into discussions relating to a proposal to engage in transactions including
(a) the commencement of an offer by Purchaser to purchase all of the
outstanding shares of common stock of the Company (the "Proposed Offer")
and (b) the merger of Purchaser with and into the Company, with the Company
continuing as the surviving corporation and a direct wholly-owned
subsidiary of Parent (the "Proposed Merger")(such transactions are
hereinafter together referred to as the "Proposed Transactions"). As Parent
has made clear to you in discussions relating to the Proposed Transactions,
Parent is willing to proceed with the Proposed Transactions based upon your
representation that you agree to remain employed by the Company upon the
terms and conditions set forth in the employment agreement attached hereto
as EXHIBIT A (the "Employment Agreement"), and would be unwilling to
proceed if you did not so agree.
In addition, the Company has adopted an Employee Severance Plan that
provides certain benefits if your employment terminates under certain
conditions following a Change in Control (as defined in the Company
Employee Severance Plan) of the Company. Finally, the Company has made
loans to you that are currently outstanding and which are listed in the
schedule attached hereto as EXHIBIT B.
In order to assure Parent that you will remain employed by the Company
on and after the date of Purchaser's first purchase of the Company's common
stock pursuant to the Proposed Offer (the "First Purchase Date") if the
Proposed Transactions are consummated, and for other good and valuable
consideration, this letter agreement (the "Agreement") sets forth the
agreements and understandings between you and Parent with respect to these
matters.
<PAGE>
Section 1. EMPLOYMENT AGREEMENT.
Simultaneously with your execution of this letter you will execute the
Employment Agreement. Parent will execute and cause the Company to execute
the Employment Agreement on the First Purchase Date. The Employment
Agreement will automatically become effective upon execution by Parent and
the Company on the First Purchase Date.
Section 2. REPAYMENT OF LOANS.
On the First Purchase Date you will repay to the Company the entire
outstanding principal balance on each loan listed in the schedule attached
hereto as EXHIBIT B, together with interest accrued through the First
Payment Date.
Section 3. EMPLOYEE SEVERANCE PLAN.
On the First Payment Date, Parent will cause the Company to pay to you
a lump sum payment of Severance Pay (as defined in the Company Severance
Plan) in the amount of $1,820,499.00 and the Gross-Up Payment (as defined
in the Company's Employee Severance Plan) determined in accordance with the
applicable terms of the Employee Severance Plan.
Section 4. GOVERNING LAW.
The provisions of this Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without
regard to principles of conflicts of laws.
If the foregoing terms are acceptable to you, please sign and return
to Parent the enclosed copy of this letter and the enclosed Employment
Agreement, whereupon this letter shall become a binding agreement between
you and Parent.
Sincerely,
INTERNATIONAL PAPER COMPANY
By: /s/ David W. Oskin
-------------------------
David W. Oskin
Executive Vice President
Accepted and Agreed as of the date first written above
/s/ Howard M. Liebman
- -------------------------
Howard M. Liebman
2
<PAGE>
EXHIBIT A
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into on this
__th day of ___________, 2000 by and among Howard M. Liebman ("Executive"),
International Paper Company ("International Paper"), a New York
corporation, and Shorewood Packaging Corporation (the "Company"), a
Delaware corporation having its principal executive offices at 277 Park
Avenue, New York, New York 10172.
I. EMPLOYMENT.
The Company hereby employs Executive and Executive hereby accepts such
employment, upon the terms and conditions hereinafter set forth, from
____________, 2000 to and including December 31, 2002 (hereinafter the
"Term"), unless earlier terminated under Section V of this Agreement.
II. DUTIES.
A. Executive shall serve during the course of his employment as
Executive Vice-President of the Company and shall perform such duties as
may from time to time be assigned, delegated or limited by the President of
the Company. Executive shall report directly to the President of the
Company. During the Term of this Agreement, Executive shall devote all of
his professional and business-related time, energy and skill to the
business of the Company and shall perform his duties in good faith.
B. Executive shall not, without the prior written consent of the
senior officer of International Paper designated in writing by the Chief
Executive Officer of International Paper, which shall initially be the
Senior Vice President-Consumer Packaging of International Paper,
<PAGE>
(such senior officer is hereinafter referred to as the "IP Officer"), render to
others any services of any kind for compensation or engage in any activity which
conflicts or interferes with the performance of his duties and obligations
hereunder.
C. Neither International Paper nor the Company shall be deemed to have
breached this Agreement if the Company is liquidated to become a division
of International Paper provided that Executive remains employed by such
division and reports directly to the President or other head of such
division. If such a liquidation occurs, "Company" shall thereafter mean
International Paper.
D. In connection with his employment hereunder, Executive shall not be
required, without his consent, to be based anywhere other than the greater
metropolitan New York City area, which shall include Purchase, New York.
III. PRIOR AGREEMENT.
Executive and the Company are currently parties to that certain
Amended and Restated Employment Agreement made effective as of May 3, 1998
(the "Prior Agreement"). Company and Executive agree that from and after
execution of this Agreement, all further obligations of the parties under
the Prior Agreement shall, except as to salary earned prior to execution of
this Agreement and not yet paid, cease and become null and void.
IV. COMPENSATION.
A. SALARY. The Company will pay to Executive a base salary at the rate
of $350,000 per year. Such salary shall be earned monthly and shall be
payable in periodic installments no less frequently than monthly in
accordance with the Company's customary practices. Any increases in
Executive's base salary will be at the discretion of the IP Officer.
2
<PAGE>
B. ANNUAL BONUS. During the Term of this Agreement, Executive shall be entitled
to receive an annual bonus from the Company in accordance with an annual bonus
plan for Executive (the "Bonus Plan"). The IP Officer shall establish reasonable
target performance objectives for Executive under the Bonus Plan for the year
2000. For each subsequent year ending during the Term of this Agreement, the IP
Officer shall establish reasonable target performance objectives under the Bonus
Plan on or before January 31 of the year for which the bonus may be earned.
Executive's bonus under the Bonus Plan for each calendar year ending during the
Term of this Agreement will be determined on the basis of the satisfaction of
the target performance objectives in accordance with the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
PERCENT OF TARGET BONUS
below 80% $0
80% $140,000
100% $175,000
at or above 125% $215,000
</TABLE>
The amount of the bonus payable to Executive for satisfaction of performance
objectives above the 80% level and below the 125% level will be determined using
linear interpolation. Notwithstanding the foregoing, for the period ending
December 31, 2000, the amount of the bonus that Executive is eligible to under
the Bonus Plan shall be equal to 75% of the amounts shown in the above table.
The Company shall pay any bonus that Executive earns under the Bonus Plan on or
before March 15 of the year following the year in which Executive earns such
bonus. In the event Executive's employment with the Company terminates on or
after July 1 of a year during the Term of this Agreement on account of
Executive's death, Disability or termination of his employment with Good Reason,
or the Company's termination of his employment without Cause, Executive (or his
beneficiary or estate) shall be entitled to a bonus under the Bonus Plan in an
amount equal to the 100% target bonus for the year prorated for the
3
<PAGE>
number of days during the year that Executive was employed by the Company. No
bonus will be payable under the Bonus Plan for a year if (1) his employment
terminates for any reason prior to July 1 of such year, (2) the Company
terminates Executive with Cause or (3) Executive terminates his employment
without Good Reason.
C. RESTRICTED STOCK. Effective as of the date of this Agreement,
International Paper shall grant to Executive, in accordance with the
International Paper Company Long-Term Incentive Compensation Plan (the
"Stock Incentive Plan"), that number of shares of common stock of
International Paper having a fair market value as of the date of this
Agreement of $100,000, which shares shall be nontransferable and subject to
forfeiture until vested in accordance with the vesting schedule set forth
in the award agreement (the "Restricted Stock"). The award agreement for
the Restricted Stock shall provide that Executive's shares of Restricted
Stock will vest on December 31, 2002 provided that Executive remains
employed until that date. The award agreement for the Restricted Stock
shall also provide that all of Executive's shares of Restricted Stock will
immediately vest and be non-forfeitable in the event Executive's employment
is terminated on account of death or Disability, he terminates employment
with Good Reason or the Company terminates his employment without Cause. If
Executive's employment terminates for any other reason prior to December
31, 2000, his shares of Restricted Stock shall be permanently forfeited,
and neither International Paper nor the Company shall have any obligations
to Executive with respect to such forfeited shares.
D. STOCK OPTIONS. Effective as of the date of this Agreement,
International Paper shall grant to Executive a nonqualified stock option
under the Stock Incentive Plan to purchase 10,000 shares of International
Paper common stock at a price per share equal to the fair market value of
International Paper common stock on the date of this Agreement. Such option
grant
4
<PAGE>
shall be evidenced by a standard stock option agreement in the form used by
International Paper for the grant of other stock options under the Stock
Incentive Plan and shall contain vesting and other terms which are consistent
with the grants of stock options made to other executives of International Paper
and its subsidiaries. Each year thereafter during the Term of this Agreement,
Executive shall be eligible to receive such additional stock option awards under
the Stock Incentive Plan or any successor plan as the Board of Directors of
International Paper (or its delegate) determines in its sole discretion.
E. For a one-year period of time following the effective date of the
merger of the Company with International Paper-37, Inc. (the "Effective
Time"), the Company shall provide Executive with benefits that are
substantially comparable in the aggregate to the benefits provided to
Executive as of the date of the merger agreement between the Company and
International Paper-37, Inc.; PROVIDED, HOWEVER, that the Company will
continue Executive's current split-dollar life insurance arrangement only
through December 31, 2000, and the Company will provide Executive an
automobile lease allowance of $1,000 per month plus reimbursement for
reasonable insurance, maintenance, gasoline and parking expenses incurred
in furtherance of the Company's business only through December 31, 2000.
After the one-year period following the Effective Time, the following
provisions will apply:
1. SAVINGS AND RETIREMENT PLANS. Executive shall be entitled to
participate in all savings and retirement plans, practices,
policies and programs to the extent applicable generally to
other peer executives of International Paper.
2. WELFARE BENEFIT PLANS. Executive shall be eligible for
participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by
International Paper (including, without limitation, medical,
dental, disability,
5
<PAGE>
group life insurance, accidental death and travel accident
insurance plans and programs) to the extent applicable
generally to other peer executives of International Paper.
3. RABBI TRUST. The Company shall continue to maintain the rabbi
trust established for the benefit of Executive in accordance
with its terms.
4. FRINGE BENEFITS; VACATION. Executive shall be entitled to
fringe benefits and paid vacation in accordance with the
plans, practices, programs and policies as in effect
generally with respect to other peer executives of
International Paper, PROVIDED HOWEVER, Executive shall be
entitled to five weeks of vacation per year.
5. International Paper and the Company reserve the right to
modify, suspend or discontinue any and all of the above plans,
practices, policies and programs at any time without recourse
by Executive so long as such action is taken generally with
respect to other similarly situated peer executives and does
not single out Executive.
V. TERMINATION.
A. DEATH. Executive's employment shall terminate automatically upon
Executive's death.
B. DISABILITY. If the Company determines in good faith that Executive
has become disabled (physically or mentally), it may give to Executive
written notice in accordance with Section XV of this Agreement of its
intention to terminate Executive's employment. In such event, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by Executive, provided that, within the 30 days
after such receipt, Executive shall not have returned to full-time
performance of his duties. For purposes of this Agreement, disability shall
mean a physical or mental impairment that renders Executive unable to
perform the essential functions of his position. The Company reserves the
right, in good faith,
6
<PAGE>
to make the determination of disability under this Agreement based upon
information supplied by Executive and/or his medical personnel, as well as
information from medical personnel (or others) selected by the Company or its
insurers.
C. CAUSE OR GOOD REASON.
1. The Company may terminate Executive's employment for Cause.
For purposes of this Agreement, "Cause" shall mean that the Company,
acting in good faith based upon the information then known to the
Company, determines that Executive has engaged in or committed:
willful misconduct; gross negligence; theft, fraud or other illegal
conduct; refusal or unwillingness to perform his duties or performance
of his duties in an unsatisfactory manner; sexual harassment; conduct
which reflects adversely upon, or making any remarks disparaging of,
the Company or International Paper, their Boards, officers, directors,
advisors or employees or their affiliates or subsidiaries;
insubordination; any willful act that is likely to and which does in
fact have the effect of injuring the reputation, business or a
business relationship of the Company or International Paper; violation
of any fiduciary duty; violation of any duty of loyalty; and breach of
any term of this Agreement.
2. Executive may terminate his employment for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean a material breach
of this Agreement by the Company or International Paper.
D. OTHER THAN CAUSE OR DEATH OR DISABILITY. The Company may terminate
Executive's employment at any time, with or without Cause, by written
notice to Executive, effective upon Executive's receipt of such notice.
7
<PAGE>
E. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
1. DEATH OR DISABILITY. If Executive's employment is terminated
by reason of Executive's death or Disability, this Agreement
shall terminate without further obligations to Executive or
his legal representatives under this Agreement, other than for (a)
payment of the sum of (i) Executive's annual base salary through the
date of termination to the extent not theretofore paid, (ii) any
performance bonus under the Bonus Plan for the calendar year ending
prior to Executive's death or Disability to the extent not theretofore
paid, (iii) any prorated bonus payable under the Bonus Plan pursuant
to Section IV-B and (iv) and any accrued vacation pay to the extent
not theretofore paid (the sum of the amounts described in clauses (i),
(ii), (iii) and (iv) shall be hereinafter referred to as the "Accrued
Obligations"), which shall be paid to Executive or his estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of
the date of termination.
2. CAUSE. If the Company terminates Executive's employment for
Cause, this Agreement shall terminate without further obligations to
Executive other than for the timely payment of Accrued Obligations. If
it is subsequently determined that the Company did not have Cause for
termination under Section V-C, then the Company's decision to
terminate shall be deemed to have been made under Section V-D and the
amounts payable under Section V-E3 shall be the only amounts Executive
may receive for his termination.
3. OTHER THAN CAUSE OR DEATH OR DISABILITY; GOOD REASON. If the
Company terminates Executive's employment for other than Cause or
death or Disability during the Term of this Agreement, or if Executive
terminates his employment with the Company
8
<PAGE>
with Good Reason, this Agreement shall terminate without further
obligations by the Company or International Paper to Executive other
than (a) the timely payment of Accrued Obligations, and (b), subject
to Executive's signing a release in the standard form then in use by
the Company or International Paper for other peer executives,
severance pay (payable in regular installments in accordance with the
Company's normal payroll practices) constituting Executive's base
salary for the lesser of one year or the remaining Term of this
Agreement.
4. EXPIRATION OF AGREEMENT. If this Agreement expires at the end
of the Term and Executive ceases to be employed by the Company at that
time, Executive will receive timely payment of the Accrued
Obligations.
5. EXCLUSIVE REMEDY. Executive agrees that the payments
contemplated by this Agreement shall constitute the exclusive and sole
remedy for any termination of his employment and Executive covenants
not to assert or pursue any other remedies, at law or in equity, with
respect to any termination of employment. Notwithstanding the
preceding sentence, neither the severance pay described in Section
V-E3 nor any other payment under this Section V-E shall reduce or
affect any benefits the Executive (or his estate or beneficiary) may
be entitled to under the specific terms of the benefit plans of the
Company or any stock option or restricted stock award.
VI. COVENANTS OF EXECUTIVE
A. GENERAL: Executive and the Company understand and agree that the purpose
of the provisions of this Section VI is to protect the legitimate business
interests of the Company and International Paper, as more fully described below.
Executive hereby acknowledges that the restrictions set forth in this Section VI
are reasonable and necessary to protect the business
9
<PAGE>
interests of the Company and/or International Paper. Therefore, Executive shall
be subject to the restrictions set forth in this Section.
B. RESTRICTIONS ON DISCLOSURE AND USE OF CONFIDENTIAL INFORMATION:
Executive understands and agrees that confidential information and materials of
a confidential or proprietary nature constitute valuable assets of the Company
and International Paper and may not be converted to Executive's own use.
Accordingly, Executive hereby agrees that he shall not, directly or indirectly,
at any time during the Term and at any time following the Term, reveal, divulge
or disclose any "Confidential Information" (as defined below), and Executive
shall not, directly or indirectly, use or make use of any "Confidential
Information" in connection with any business activity other than that of the
Company and/or International Paper; PROVIDED, HOWEVER, that Executive may
disclose or use "Confidential Information" during the Term as authorized by the
IP Officer or consistent with the proper exercise of Executive's duties as
President of the Company. "Confidential Information" means all information
regarding the Company and/or International Paper, its and their activities,
business, clients, or potential clients that is the subject of reasonable
efforts by the Company and/or International Paper to maintain its
confidentiality and that is not generally disclosed to persons not employed by
the Company and/or International Paper. "Confidential Information" shall
include, but is not limited to, any of the following information or materials of
the Company and/or International Paper: financial plans and data; management
planning information; business plans; operational methods; market studies;
marketing plans or strategies; product development techniques or plans; customer
lists; details of customer contracts; current and anticipated customer
requirements; past, current and planned research and development; business
acquisition plans; and new personnel acquisition
10
<PAGE>
plans. "Confidential Information" shall not include information that has become
generally available to the public.
C. NONSOLICITATION. Executive understands and agrees that the relationship
between the Company and/or International Paper and their respective employees,
business relations, clients and customers, and potential clients and customers,
constitutes a valuable asset of the Company and/or International Paper and may
not be converted to Executive's own use. Accordingly, Executive agrees that,
during the Term of this Agreement, and for a period of two (2) years from the
termination for any reason pursuant to Section V of this Agreement other than
the Company's termination of Executive without Cause or Executive's termination
of his employment with Good Reason (the "Restricted Period"), neither Executive
nor any entity with whom he is at the time affiliated (any other person,
corporation, partnership or other business entity of any kind) shall, directly
or indirectly, solicit or entice away or in any manner persuade or attempt to
persuade, any officer, employee, agent, representative, business relation,
client or customer, or prospective client or customer of the Company and/or
International Paper, to discontinue his/her/its relationship or prospective
relationship with the Company and/or International Paper.
D. RESTRICTIVE COVENANT. Executive acknowledges that his services are
special, unique, and extraordinary, and that in the course of his employment
with the Company and/or International Paper he has had and will continue to have
dealings and develop special relationships with the clients and customers of the
Company and/or International Paper. Executive further acknowledges that in the
course of his employment with or service to the Company and/or International
Paper, he has obtained and will continue to obtain Confidential Information. In
order to protect the legitimate business interests, goodwill, relationships, and
11
<PAGE>
Confidential Information of the Company and/or International Paper, Executive
agrees that during the Restricted Period defined above in Section VI-C,
Executive shall not (whether for his own account or on behalf of any person,
corporation, partnership, or other business entity of any kind, and whether
directly or indirectly), without the prior written consent of the IP Officer,
engage in the business of printing or manufacturing paperboard packaging
anywhere in North America. Notwithstanding the foregoing, if Executive's
employment with the Company terminates on or after the expiration of this
Agreement at the end of its Term, Executive shall be subject to the same
non-competition policy of International Paper that is applicable to other peer
executives of International Paper.
E. ENFORCEMENT OF COVENANTS. In the event Executive breaches, or threatens
to commit a breach of, any of the provisions of this Section VI, the Company
and/or International Paper shall have the following rights and remedies, which
shall be independent of any others and severally enforceable, and shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company and/or International Paper at law or in equity:
1. the right to enjoin, preliminarily and permanently, Executive
from violating or threatening to violate the terms of this Section VI
and to have the promises made herein specifically enforced by any
court of competent jurisdiction; and
2. the right and remedy to require Executive to account for and
pay over to the Company and/or International Paper all compensation,
profits, monies, accruals, increments or other benefits derived or
received by Executive as a result of the transactions constituting a
breach of this Section VI.
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VII. ARBITRATION.
Any and all controversies, claims or disputes arising out of or in
any way relating to this Agreement, its enforcement or interpretation, or
because of an alleged breach, default, or misrepresentation in connection with
any of its provisions, or any other claim by Executive arising out of or in
connection with his employment, including any claims for discrimination
prohibited by any federal, state or other statute, ordinance or law, shall be
settled by arbitration in accordance with the National Rules for Resolution of
Employment Disputes of the American Arbitration Association (the "AAA"). The
arbitration shall be commenced by filing a demand for arbitration with the AAA
within sixty (60) days after the occurrence of the facts giving rise to any such
controversy, claim or dispute. The arbitration shall be conducted in Purchase,
New York. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. All costs and expenses of any arbitration
proceeding shall be borne by the respective party incurring such costs and
expenses.
VIII. ASSIGNMENT.
Executive acknowledges that his services are unique and personal.
Accordingly, Executive may not assign his rights or delegate his duties under
this Agreement to any person or entity.
IX. SUCCESSORSHIP.
This Agreement is binding on and inures to the benefit of the
Company and/or International Paper, its successors and assigns.
13
<PAGE>
X. MODIFICATION.
This Agreement may not be amended or modified other than by a
written agreement executed by Executive and the Company or its designee.
XI. SAVINGS CLAUSE.
If any provision of this Agreement or the application thereof is
held invalid, the invalidity shall not affect other provisions or applications
of the Agreement which can be given effect without the invalid provisions or
applications and to this end the provisions of this Agreement are declared to be
severable.
XII. COMPLETE AGREEMENT.
This Agreement hereby incorporates by reference the letter
agreement entered into between Executive and International Paper on February 16,
2000 (the "Letter Agreement"). This Agreement, together with the Letter
Agreement, constitutes and contains the entire agreement and final understanding
concerning Executive's employment with the Company and the other subject matters
addressed herein between the parties. The parties intend it as a complete and
exclusive statement of the terms of their agreement. It supersedes and replaces
all prior negotiations and all agreements proposed or otherwise, whether written
or oral, concerning the subject matter hereof. Any representation, promise or
agreement not specifically included in this Agreement shall not be binding upon
or enforceable against either party. This is a fully integrated agreement.
14
<PAGE>
XIII. GOVERNING LAW.
The provisions of this Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without regard to principles of conflict of laws.
XIV. PARAGRAPH HEADINGS.
Paragraph and other headings contained in this Agreement are for
the convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
XV. NOTICES.
Any notices to be given under this Agreement by one party to the
other may be effected by personal delivery in writing or by mail, registered or
certified, postage prepaid with return receipt requested. Mailed notice shall be
deemed receive as of three (3) days after mailing. Notices by mail shall be sent
to the address listed below unless and until notice to a change is given
pursuant to this Section:
To Executive:
Mr. Howard M. Liebman
1302 Azure Place
Hewlett Harbor, New York 11557
To the Company:
Shorewood Packaging Corporation
c/o International Paper Company
Two Manhattanville Road
Purchase, New York 10577
Attn: William Slowikowski
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XVI. WITHHOLDING.
All amounts payable to Executive under this Agreement shall be
reduced by any applicable income and employment withholding taxes and
other authorized deductions.
XVII . SURVIVORSHIP.
The respective rights and obligations of the parties hereunder
shall survive any termination of Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.
XVIII. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each
of which will take effect as an original, and all of which shall
evidence one and the same Agreement.
XIX. REPRESENTATION.
The Company, International Paper and Executive represent that they
are knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that they have read this Agreement and that
they understand its terms. The Company, International Paper and Executive
acknowledge that, prior to assenting to the terms of this Agreement, they have
been given a reasonable amount of time to review it and to negotiate at arm's
length as to its contents. The Company, International Paper and Executive agree
that the language used in this Agreement is the language chosen by the parties
to express their mutual intent, and that they have entered into this Agreement
freely and voluntarily and without pressure or coercion from anyone.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SHOREWOOD PACKAGING CORPORATION
By: ________________________________
Title:____________________________
INTERNATIONAL PAPER COMPANY
By: ________________________________
Title:____________________________
HOWARD M. LIEBMAN
______________________________________
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
OUTSTANDING
DATE OF LOAN PRINCIPAL AMOUNT RATE OF INTEREST DUE DATE
------------ ---------------- ---------------- --------
<S> <C> <C> <C> <C>
April 1998 $605,000 6.5% August 1, 2013
June 23, 1999 $341,145 6.5% October 2, 2000
July 26, 1999 $316,376 6.5% October 2, 2000
</TABLE>
<PAGE>
Exhibit 19
AGREEMENT
---------
AGREEMENT ("Agreement") dated effective January 1, 1996 by and between
SHOREWOOD PACKAGING CORPORATION, a DELAWARE corporation ("Shorewood") and KAMSKY
ASSOCIATES, INC., a NEW YORK corporation, ("KAI").
It is hereby agreed as follows:
1. OBJECTIVE
(a) It is Shorewood Packaging Corporation's ("Shorewood")
objective to command a substantial share of the Chinese
printing and packaging industry by building and operating one
or more plants in the Peoples' Republic of China ("China") to
support key international companies currently operating in
China as well as developing high quality domestic consumer
product industry.
(b) Kamsky Associates, Inc. ("KAI") is well positioned to
assist Shorewood in formulating the appropriate market
strategy with which to reach this objective.
2. MARKET ENTRY STRATEGY
(a) KAI shall focus on identifying and qualifying one or
more projects, either majority owned joint ventures or wholly
foreign owned ("Project[s]") in strategic locations in China.
The decision to proceed with a joint venture and the terms of
any joint venture shall be determined solely by Shorewood and
its joint venture partner.
(b) The time frame for the implementation for this
strategy would be set in consultation with Shorewood. However,
given that Shorewood's objective is to command a majority
market share, KAI believes that current growth in the printing
and packaging industry would warrant that this time frame be
minimized.
(c) At present, a number of key international players are
extending their activities in China to service the growing
number of companies, particularly foreign-invested
enterprises, in China which require high quality packaging. To
serve as an example, one major Australian printing packaging
firm entered the Chinese market to support important customers
such as Mars Inc. and Walls Ice-cream, which have already set
up manufacturing facilities in Beijing. The company has
recently finished construction of a wholly owned factory in
southern Beijing, which is additional to operating joint
ventures in Qingdao and Beijing. As a further response to
customer demand, it is understood that this company has
already taken concrete steps to expand its presence to the
Shanghai region.
<PAGE>
(d) Another strategic consideration is the recent change
in tax laws in China, which will affect to a certain degree
the environment in which future foreign investors must
operate. As part of China's compliance with national treatment
requirements for entry to GATT and the World Trade
Organization, China's executive Vice Premier in charge of the
Economy, Mr. Zhu Rongji, has recently announced that China
will phase out tax exemptions for capital equipment imports by
foreign-invested enterprises from January 1, 1996. This new
policy will increase the market entry price for foreign firms
considerably, especially those in technology and
equipment-intensive industries. However, companies which have
registered their projects with government authorities by this
date will not be affected.
(e) KAI, with its considerable experience in China, will
use its best efforts on Shorewood's behalf to find a creative
mechanism to try to avoid or lessen the impact of the new
policy on the company's planned investments.
(f) On the basis of current knowledge, KAI would recommend
Shorewood to consider five cities as possible locations for
the Project(s). KAI would classify these cities as "priority"
and "secondary" targets.
(g) The three "priority" cities of Tianjin, Shanghai, and
Guangzhou provide Shorewood with strategic China-wide
coverage. The "secondary" cities of Chengdu and Dalian have
the advantage of allowing Shorewood to support specialist
markets in those regions. KAI has extensive experience in
working in each of these cities.
(h) Tianjin. Tianjin, a two hour drive to the east of
Beijing, is a major port city which has attracted substantial
foreign investment over the last few years, including major
existing and potential Shorewood customers such as Motorola,
Eastman Kodak, Heinz, Seagram and Samsung. Tianjin and its
locality provide a strong customer base for a potential
Shorewood venture. An excellent potential site for a Project
is the Tianjin Economic-Technological Development Area (TEDA),
the management of which KAI has had extensive dealings. A
number of foreign companies have successfully established
wholly foreign owned ventures in TEDA, and several Chinese
printing and packaging companies, which may prove to be
desirable joint venture partners, are also established in the
Area. TEDA provides investors with preferential tax treatment.
Tianjin is linked with China's Northeast by the
Beijing-Shenyang Railway line, allowing access as far north as
Jilin and Heilortgjiang Provinces. There are rail, road and
air links with Beijing and the surrounding areas of Shandong,
Hebei and Shanxi. As such, a Tianjin based venture would not
only be close to major potential and current customers, but
also can conveniently service the northern and north east
China markets.
(i) Shanghai. Shanghai is one of China's economically most
dynamic cities. Many world renowned multinationals have been
attracted to the city, including
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<PAGE>
existing and potential Shorewood customers as Gillette, 3M,
Xerox, Johnson & Johnson and Lux. In addition, Shanghai has an
extremely well developed light and chemical industry sector,
with companies such as BASF, Du Pont, Ciba Geigy and SICPA
well represented. The city provides for strong support form
raw material and printing suppliers. KAI would consider the
Taopu Chemical Industry Area or the Pudong Development zone as
two of a number of potential sites for a Shanghai venture.
Shanghai is connected to an east-west railway line
reaching as far as Xi'an and ultimately Urumugi in Xinjiang
Province. Shanghai is also China's major port connecting the
city with international and domestic shipping lines.
Furthermore, inland China can be accessed via the Yangtze
River.
The city also has an excellent airport facility. A
second airport is planned for Shanghai to cover strong demand
for cargo transport. As such this city is an excellent
location from which to service China's eastern seaboard and
the Provinces of Shaanxi, Hubei, Sichuan, Jiangxi and Anhui.
(j) Guangzhou. Guangzhou is situated in the center of the
Pearl River Delta, the fastest growing region in China. This
area attracts one third of all foreign investment into China,
sourced from Hong Kong, the overseas Chinese communities of
Sough East Asia as well as the West. The region is a center
for the computer and compact Disk manufacturing industries, as
well as consumer electricals.
In addition to heavy investment in the food and
beverage industries, pharmaceuticals, cosmetics, electric and
other consumer items, the Province is supplying the needs of
the tobacco industry. Indeed, a new cigarette filter
manufacturing joint venture is currently being established in
the neighboring city of Zhuhai.
Guangzhou is linked to Hong Kong by rail, road and
air. The cities of Guizhou and Kunming, centers of the major
tobacco manufacturing regions of Guangxi and Yunnan, are all
accessible by rail and air from Guangzhou. Excellent road
links also exist between Guangzhou and Fujian Province.
(k) Chengdu. Chengdu is the capitol city of Sichuan
Province and is the hub of the tobacco industry in China. A
venture established in this town would strategically position
Shorewood vis-a-vis this industry which is, although
nationwide, concentrated in Sichuan, Yunnan and Guizhou.
There are a number of additional advantages to
investing in this inland Provincial capitol. There are strong
discrepancies in economic growth and living standards between
the coastal and inland regions, due to a skewed investment
pattern favoring coastal areas. It is a policy priority for
the Central Government to develop
3
<PAGE>
inland China, and therefore investments in this region are
encouraged at the central level.
As such, the environment in areas such as Chengdu can
be more flexible. A case in hand was recounted to Virginia
Kamsky by the Governor of Sichuan, Mr. Xiao Yang. Glaxo, the
English pharmaceutical company, had been discussing a joint
venture in Shanghai. After three years, with no results, the
company turned to Chengdu as a location for their investment,
and a joint venture was signed within three months.
(l) Dalian. Dalian, a coastal city in Liaoning Province,
is a focus for Japanese and Korean investment in China. The
area has a strong pharmaceutical base, with companies such as
Japan Medical Supplies and Pfizer investing in the area.
Furthermore, Dalian is a base for third country export for
Japanese as well as South Korean companies. The superior
quality of consumer items manufactured in this city, many
destined for the Japanese and third country markets, has
created a strong demand for high quality packaging products.
Dalian, a major port city, is linked to Chin's eastern
seaboard by boat, and to the northeast and northern China by
train.
(m) It is notable that the coastal province of Shandong
plays a similar role, particularly for Korean investors, as
Dalian. A high level South Korean official related to KAI that
over 10,000 South Korean consumer goods manufacturers have
relocated to Shandong to take advantage of the opportunities,
not only to access the Chinese domestic market, but also for
third country trade.
3. MARKET ANALYSIS
(a) KAI will carry out a national survey consistent with
KAI's past practices, focusing upon the areas listed above to
help identity potential Shorewood customers, both domestic and
international, in the high end consumer goods industry. KAI's
market analysis will also cover the activities of key local
and international competitors. KAI will source this
information from available reference materials as well as from
personal interviews with KAI's current and extensive industry
and government contacts.
(b) In all of the foregoing locations, KAI shall identify
the operations which are engaged in printing and packaging
manufacturing for consumer products including, where
available, information as to size, revenues, description of
packaging and printing technology, samples of products, prices
of products and principal customers. KAI will assess these and
other entitles for their desirability as a joint venture
partner and provide this and other necessary information to
assist Shorewood in making the decision of to the structure of
each investment, whether that be majority share joint venture
or a 100% foreign owned.
4
<PAGE>
(c) KAI shall promptly prepare and present a proposed
schedule for the upcoming visit of Shorewood executives in
China. KAI would suggest that the trip encompass the three
priority cities, i.e. Guangzhou, Shanghai and Tianjin. An
alternative agenda might extend this schedule to include
Dalian and Chengdu. During each of these stopovers, KAI will
introduce Shorewood executives to key government officials in
charge of both foreign investment and the printing and
packaging industry, and potential joint venture partners or
sponsors for Project(s).
(d) KAI will make all necessary arrangements to ensure the
effectiveness of this trip. This will include full logistic
and on ground support, including, where possible and if
necessitated by severe traffic congestion, police escort.
4. Commitment of Personnel
(a) KAI will appoint a core team to work on Shorewood
Project(s).
(b) However, given the urgency of the task at hand, KAI
will set up several teams in the first instance to work in
concert on the geographical areas listed above, i.e. Shanghai,
Tianjin, Guangzhou, Chengdu and Dalian. The teams will be
supervised by the Managing Director of KAI Beijing. The
Managing Director will be responsible for consolidating
information gathered so as to provide a comprehensive briefing
on the basis of with Shorewood can make an informed decision.
(c) As Shorewood moves forward, the core team will
continue to provide full and appropriate support. KAI will add
to the team as KAI deems reasonably necessary. Furthermore, if
necessary and subject to Shorewood's approval, KAI will assist
Shorewood in identifying and recruiting experts and
specialized support to assist Shorewood with the
implementation of the investment strategy.
(d) All KAI executive staff in Beijing are bilingual in
Chinese and English.
5. Project Registration and Contract Negotiation
(a) Once Shorewood has identified a Project or more than
one Project(s), KAI shall work closely with Shorewood to
provide the data required to make a decision. Upon making a
decision to proceed on a particular Project(s), KAI shall
coordinate with the Chinese joint venture partner or sponsor
regarding project registration and shall provide full
assistance on Shorewood's behalf, as required.
(b) KAI shall further assist with the preparation of a
letter of intent, memorandum of understanding, a
pre-feasibility study, if necessary, a formal contract, a
feasibility study, and numerous other documents required for
approval by the Foreign Investment Control Commission. A
feasibility study, together with a binding contract and
articles of association must be submitted to this body for
approval ("Approval of the Project"). In addition, KAI will
assist with any licensing
5
<PAGE>
permits, application for abatement or reduction of taxes and
exemptions, or reduction of duties on imported equipment and
raw materials, etc.
(c) KAI shall assist Shorewood throughout the approval
process for the Project(s). KAI shall provide comprehensive
logistical support throughout this period for Shorewood
personnel, including assistance in the negotiation,
preparation and execution of various documents. KAI's
facilities in Beijing will be available to Shorewood's
representatives.
6. Ongoing Support
(a) Upon commencement of the operation of Shorewood's
Project(s), KAI shall continue to assist with the expansion of
operations.
(b) KAI will further provide assistance with any
operational issues that arise, including the identification of
sources of raw materials, labor and equipment. With over 15
years experience in the China market, KAI is well positioned
to assist with the establishment of accounting, billing and
collection procedures, and will provide such assistance.
(c) KAI will utilize its comprehensive network in order to
assist Shorewood with the identification of suitable
management personnel.
7. Compensation
(a) KAI's compensation for the foregoing services shall be
at the rate of Twenty-five Thousand ($25,000.00) Dollars per
month, payable in advance, with the initial payment due as of
January 1, 1996 and thereafter equal successive payments on
each and every successive monthly anniversary date. Shorewood
has paid, and KAI acknowledges receipt of, $75,000
representing monthly payments due hereunder through March 1,
1996. Compensation shall be prorated for partial months. KAI
shall also be entitled to reimbursement of all reasonable out
of pocket expenses (exclusive of KAI's administration and
overhead, salaries, and similar expenses) incurred by KAI in
carrying out the terms of this Agreement including first class
air travel for KAI's managing director allocable to
Shorewood's business.
(b) Prior to but not later than the "Approval of the
Project(s)", whether by way of a joint venture, or a
wholly-owned operation, or otherwise, Shorewood shall issue or
cause to be issued to KAI a profit participation in the
Project(s) ("Interest") at the percentage levels set forth on
EXHIBIT A.
(c) If in Shorewood's good faith judgment, it is not
feasible for Shorewood to grant the Interest at that time,
Shorewood shall grant it at such a time that it is practicable
but in no event later than the earlier of (i) a date not less
than thirty (30) days prior to the sale of any interest in the
Project(s) or (ii) the date that any Project
6
<PAGE>
commences commercial operations. In connection with the
issuance of the Interest, Shorewood and KAI or their
Affiliates shall execute such documents and agreements
necessary to evidence the issuance of the Interest and to
assure compliance with state and federal securities laws
and/or exemptions therefrom. By way of example, Shorewood and
KAI may enter into a profit participation agreement containing
terms not inconsistent with the terms of this Agreement. At
Shorewood's election, the Interest may be in the form of
non-voting, second class stock, common stock, with or without
voting rights, or a participation in Net Profits (as herein
defined) and a share in Shorewood's Profit Upon Sale Or
Liquidation of its interest in the Project(s), or any other
structure determined by Shorewood provided that the net effect
to KAI is to irrevocably provide KAI with the percentage
interest in Net Profits and Profit Upon Sale Or Liquidation,
at the levels described above.
(d) For purposes of calculating KAI's share of Net
Profits, Net Profit shall mean "Gross Sales" (as herein
defined) from all Project(s) less all direct "Costs" incurred
in generating those sales (which costs shall exclude any
depreciation on Shorewood's "Invested Capital" or "Capital
Costs", as defined below) including, without limitation, the
cost of labor and material used in the manufacture of
Shorewood's product; marketing, sales and promotional expenses
and a reasonably proportionate share of Shorewood's interest
expense, depreciation on fixed assets acquired with Net
Profits, income taxes incurred in connection with Project(s),
overhead and administrative expenses for each fiscal year. All
of the foregoing shall be allocated and assigned by Shorewood
in accordance with its normal and customary administrative and
accounting practices as the same shall be applied and
implemented from time to time, which practices shall e in
accordance with U S. generally accepted accounting principles.
If in any fiscal year there is a loss (Costs in excess of
Gross Sales), losses shall be accrued and netted against
future Net Profits on a dollar for dollar basis until fully
absorbed in subsequent years. If at the time of sale or
liquidation of KAI's Interest such losses have not been fully
absorbed, such losses shall be deducted from any distribution
to KAI of Profit Upon Sale or Liquidation, or if Shorewood is
acquiring KAI's interest the accumulated loss, if any, may be
deducted from the purchase price; provided, however, that such
losses shall not be deducted from any distribution to KAI if
Shorewood is matching an offer to KAI, pursuant to Section 1
of Exhibit A hereto. KAI shall have no personal liability for
any Costs, accumulated losses or liabilities incurred by
Shorewood in connection with the operation of the Project(s),
whether or not any losses are fully absorbed by Net Profits.
For purposes hereof, "Gross Sales" shall mean all revenues
from the sale of product from all Project(s), less all
returns, costs of collection, rebates or other credits or
consideration given by Shorewood to its customers in the
ordinary course of business. For purposes hereof, "Invested
Capital" means Shorewood's aggregate cash investment in
Project(s) from time to time, whether such investment takes
the form of cash contributions or loans from Shorewood or its
Affiliates.
Notwithstanding anything to the contrary in this
Agreement, in making any calculations of costs pursuant to
this paragraph, any inter-corporate or other charges
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<PAGE>
or transactions among Shorewood and its Affiliates (such as
transfer pricing among subsidiaries or inter-corporate loans)
shall be determined by Shorewood in the first instance as if
the entities involved were dealing on the open market on an
arm's length basis.
For the purpose of calculation of KAI's share of
Profit Upon Sale or Liquidation, Profit Upon Sale or
Liquidation (i) shall mean Shorewood's profit then it sells,
disposes of, liquidates, transfers, assigns or otherwise
disposes of any portion of its interest in any Project
(whether such interest is in the form of stock, partnership
interest or otherwise) and (ii) shall mean the cumulative net
proceeds realized by Shorewood from such sale(s),
liquidation(s) or other disposition(s), after retirement of
applicable debt and expenses related to the transaction or
transactions, together with interest on any notes received by
Shorewood upon the sale of the Project(s), less all of
Shorewood's direct start-up costs and capital expenditures
made in connection with all Project(s), including without
limitation, the cost of land, buildings, construction costs,
construction labor, construction interest, manufacturing,
office or other equipment, permits, licenses or approvals,
architects, contributions of working capital, engineers,
attorneys and other professionals and consultants, including
fees and expenses paid to KAI pursuant to Paragraph 7 (a)
above (all of the foregoing defined as "Capital Costs"). Net
Profits reinvested in the Project(s), if any, are specifically
excluded from Capital Costs. In the event Shorewood sells less
than its entire interest in the Project(s) in an offering of
securities, whether public or private, and Shorewood retains
an interest in the Project(s), the amount received by KAI in
connection with such sale shall only be charged with that
portion of Shorewood's cost recovery, bearing the same
percentage as the interest sold by Shorewood bears to the
entirety of enterprise.
It is the intent of the parties that "Costs" and
"Capital Costs" shall not include or double-count the same
items.
In the event Shorewood obtains financing on any
Project(s) and distributes all or any part of the net proceeds
of such financing as a dividend or otherwise, KAI shall
receive a distribution in an amount calculated by multiplying
KAI's percentage Interest by the total amount to be
distributed to Shorewood as a dividend.
The entity which owns the Project(s) shall use such
fiscal year as Shorewood shall determine in its sole
discretion. Distributions of Net Profits, if any, shall be
made at such times, if at all, that Shorewood shall determine
in its sole discretion.
(e) The transfer of the Interest shall be subject to the
provisions set forth on Exhibit A attached hereto and
applicable state and federal securities laws. Notwithstanding
the Approval of the Project(s) or the issuance of the
Interest, Shorewood may postpone, delay, terminate or abandon
the Project(s) at any time in its sole and absolute discretion
subject however to Shorewood's obligation, if any,
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<PAGE>
to pay KAI any compensation earned through the date of
termination and the compensation described in the next
paragraph below.
(f) In the event of the termination of this Agreement by
Shorewood without good cause or by KAI for good cause, those
compensation provisions relating to the granting to KAI of the
Interest shall continue and be earned to the extent that
Shorewood enters into Project(s) in China within 30 months
from the date of this Agreement or twelve (12) months from the
termination of this Agreement, if the Agreement is extended
pursuant to Paragraph 8(a), whichever is later.
Notwithstanding the preceding sentence, in the event of the
termination of this Agreement by Shorewood, with or without
good cause, within three (3) months of the date hereof, those
compensation provisions relating to the granting to KAI of the
Interest shall continue and be earned to the extent that
Shorewood enters into Project(s) in China within 30 months
from the date of this Agreement, provided KAI has specifically
identified and/or contributed material services and/or such
services materially contributed or lead to the consummation by
Shorewood of the joint venture, wholly-owned operation or
other arrangements respecting the Project(s). For purposes of
this Agreement, Shorewood will be deemed to have entered into
a Project(s) at such time that any Project is constructed,
permitted, staffed, equipped and stocked such that there are
no conditions or impediments to the commencement of commercial
operations beyond Shorewood's reasonable control. Without
limiting Shorewood's remedies following a breach of contract
by KAI, any Interest previously earned by KAI, or to which KAI
is entitled hereunder, shall not be forfeited solely because
of the termination of this Agreement by Shorewood for cause.
8. Term
(a) The term of this Agreement shall be eighteen (18)
months from the date hereof, provided however Shorewood shall
have the right to extend this Agreement for three, six-month
increments upon written notice given not less then thirty days
prior to the expiration of this Agreement as the same may be
extended from time to time.
(b) Notwithstanding the foregoing, KAI may terminate this
Agreement without cause upon ninety (90) days written notice
to Shorewood and Shorewood may terminate this Agreement
without cause upon thirty (30) days written notice to KAI.
(c) This Agreement can be terminated by Shorewood or KAI,
without penalty, for good cause, at any time during the Term
upon fifteen (15) days' prior written notice from one party
to the other setting forth the reason for termination for
cause; provided however, that in the case KAI or Shorewood as
the case may be, shall have fifteen (15) days from receipt of
such written notice to cure the cause set forth in such
written notice as being the reason for such termination. In
the event that such cause cannot be cured within such fifteen
(15) days, the cause shall be deemed cured if the defaulting
party immediately commences the cure upon receipt of the
written notice
9
<PAGE>
and diligently prosecutes such cure to completion. For
purposes hereof, "good cause" shall mean a material breach of
this Agreement, including but not limited to poor performance
of KAI or failure by Shorewood to pay amounts due hereunder.
However, it is understood by Shorewood that China is a
developing nation, subject to certain inherent political and
economic instability. Accordingly, nothing stated or implied
herein shall be construed as a guaranty or assurance by KAI
that any particular Shorewood goals or objectives can or will
be met, and KAI shall be entitled to all compensation
otherwise payable hereunder, even if Shorewood does not meet
its goals or objectives, or political or other prevailing
conditions render such goals impossible or not feasible, as
long as KAI is using its reasonable best efforts on
Shorewood's behalf and otherwise performs its obligations
contained in this Agreement. Performance is to be judged by
reference to facts and circumstances existing at the time. Any
dispute as to whether good cause exists to terminate this
Agreement or whether such default has been cured, shall be
determined by arbitration consistent with the arbitration
provisions of this Agreement.
(d) Upon expiration of the term or earlier termination as
provided in this Paragraph, KAI shall deliver to Shorewood all
reports, studies, approvals and other documents related to the
Project(s) in KAI's possession. KAI may retain copies of all
such items for its records.
9. Director Designation
During the period in which KAI owns an Interest in
the Project(s), Shorewood, at KAI's request, shall elect
Virginia A. Kamsky or her designee as a member of the board of
directors of the Project(s) (or similar governing body),
provided there is a board of directors (or similar governing
body) of the entity which owns the Project(s). Any designee of
Virginia A. Kamsky must be acceptable to Shorewood and nothing
herein shall limit Shorewood's right to determine the number
of board members.
10. Miscellaneous
(a) KAI's services rendered in fulfillment of the terms
and obligations of this Agreement shall be as an independent
contractor and not as agent, employee, partner, or joint
venturer. KAI shall not represent itself to third persons to
be other than Shorewood' s independent contractor, nor shall
KAI offer or agree to incur or assume any obligations or
commitments for or in the name of Shorewood.
(b) KAI shall maintain the confidentiality of all
proprietary information obtained from Shorewood or obtained in
the course of providing services to Shorewood, connected with
and arising out of or pertaining to Shorewood's business
except that information which has been actually disclosed to
the public by Shorewood in the ordinary course of its business
such as its annual reports or quarterly filings with the SEC
or such information that is disclosed through no fault of KAI,
is disclosed by
10
<PAGE>
a person whom KAI does not know to be subject to any
confidentiality agreement, or is disclosed pursuant to any
statute, law, rule, regulation, judgment, order, decree, edict
or the like.
(c) During the term of this Agreement (as such term may be
shortened or extended pursuant to the terms of this Agreement)
and (if KAI has been issued an Interest hereunder during such
term) for a period of two (2) years after KAI disposes of the
Interest, KAI and its sole shareholder, Virginia Kamsky, shall
not represent or perform any services for any company or
person whose services or products manufactured and/or sold are
competitive with Shorewood's business of manufacturing folding
cartons, consumer packaging and printed materials; provided,
however, that (i) KAI's current or future services in
providing general economic and China-related advice to
Westvaco shall not be considered a breach of this provision,
provided such services rendered to Westvaco do not expand to
assisting or advising Westvaco in areas that could reasonably
be deemed to be competitive with Shorewood's business
described above and (ii) the non-competition provisions of
this paragraph shall in no event apply if this Agreement has
been terminated without cause by Shorewood or Shorewood has
breached the terms of this Agreement. If Shorewood has not
issued an Interest to KAI hereunder during the term of this
Agreement (as such term may be shortened or extended pursuant
to the terms of this Agreement), the foregoing non-competition
provision shall apply only for a period of one year following
the end of such term; provided, however, that if Shorewood
issues an Interest to KAI in a bona fide Project during such
one-year period, then the foregoing non-competition provision
shall be effective for a period of two years after KAI
disposes of such Interest.
(d) In the performance of the services contemplated by
this Agreement, KAI and Shorewood, their principals and
employees shall comply with all applicable federal, state and
local laws and regulations, including without limitation, the
Foreign Corrupt Practices Act, the provisions of which will be
incorporated herein by reference as if fully set forth herein.
KAI and Shorewood and their respective employees shall also
comply with all applicable laws and regulations of China and
other government authorities therein.
(e) In the event of a dispute or controversy under this
Agreement the parties shall promptly submit the dispute or
controversy to arbitration, to be conducted in accordance with
the commercial rules and regulations of the American
Arbitration Association. Any such arbitration shall be
conducted in the City and County of New York before a single
arbitrator selected in accordance with the commercial rules
and regulations of the American Arbitration Association. The
determination by the arbitrator shall be final and binding and
may be entered as a final judgment by the parties with any
judge having the jurisdiction thereof. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and performed
entirely therein. The arbitrator shall have the power to award
the prevailing party its reasonable costs incurred in
11
<PAGE>
connection with the arbitration (including, without
limitation, the cost of experts and the arbitrator) and
attorney fees.
(f) Any notice, report or writing required or permitted to
be given hereunder shall be in writing and shall be served by
delivering the same personally either to the other party, or
to the agents, officers or other representatives thereof
hereinbelow designated, if any, or by depositing the notice,
contained in a sealed envelope, postage prepaid, in the United
States Postal System as registered or certified mail, with
return receipt requested or by reputable overnight courier
such as Federal Express or by electronic facsimile
transmission ("Fax"). Any and all such notices shall be
delivered to the parties at their respective addresses or Fax
numbers specified as follows:
If to Shorewood:
Shorewood Packaging Corporation
277 Park Avenue
New York, New York 10172-0124
Attention: President
Fax Number: (212) 223-3815
If to KAI:
Kamsky Associates, Inc.
2 Park Avenue
Manhasset, New York 11030-2442
Attention: Managing Director
Fax Number: (212) 319-0200
Any such notice deposited in the mail shall be
conclusively deemed delivered to and received by the addressee
seventy-two (72) hours after the deposit in the mail or one
business day after delivery to the overnight courier or one
business day after the Fax transmission, if all of the
foregoing conditions of notice shall have been satisfied and
if such notice shall at the time of mailing or delivery have
been contained in an envelope or wrapper addressed to the
party at the address above, or in the case of a Fax, shall be
preceded by a Fax cover sheet correctly setting forth the name
and Fax number of the intended recipient. Any party hereto may
change its address or Fax Number for the purposes of this
paragraph by giving such other party notice, as provided for
herein, of the new address or Fax Number.
(g) This Agreement is for the sole benefit of and shall be
binding upon the parties hereto, their respective heirs,
successors and assigns, and no other person or entity shall be
entitled to rely upon or receive any benefit from this
Agreement or any term hereof.
12
<PAGE>
(h) This Agreement and the exhibits attached hereto which
are hereby made a part hereof embody the entire Agreement of
the parties regarding the subject matter hereof. All prior
negotiations and representations are merged herein. This
Agreement may not be altered or modified, except by an
instrument in writing signed by both parties (which may be in
counterpart); nor may any provision be waived by a party
unless in writing signed by such party.
(i) Neither party may assign its rights or delegate the
performance of its obligations without the prior written
consent of the other, except to an "Affiliate". For purposes
hereof an Affiliate shall mean an entity or person
controlling, controlled by, or under common control with a
party. No such assignment or delegation shall relieve the
assignor of its obligations. Without limiting the foregoing
provisions of this paragraph, any acquirer of any Project, or
of control thereof, shall be bound by the payment provisions
of this Agreement to the extent KAI's Interest was not sold or
liquidated in connection with such acquisition.
IN WITNESS WHEREOF the parties hereto have set their hands hereto
effective the date first above written.
KAMSKY ASSOCIATES, INC. SHOREWOOD PACKAGING
CORPORATION
By: /s/ Virginia Kamsky By: /s/ Howard Liebman
-------------------------------- --------------------------------
Virginia Kamsky, President Howard Liebman,
Executive Vice President
13
<PAGE>
EXHIBIT A
---------
The Interest if and when issued to KAI may be disposed of as follows:
1. In the event that a bona fide written offer has been received by
KAI to purchase its Interest, Shorewood shall be notified in
writing by KAI, within five (5) days of the receipt of such offer,
of the terms thereof. Shorewood shall thereafter have fifteen (15)
business days within which to match such offer upon substantially
identical terms contained in the offer by notifying KAI in writing
to that effect. If matched, Shorewood shall purchase the Interest
within thirty (30) days of its acceptance by the payment in U.S.
Dollars required thereunder by making payment to KAI at the address
as herein set forth. If Shorewood's matching right has expired, KAI
shall be able to sell the Interest upon terms and conditions not
more favorable to the offeror than the terms of the aforementioned
offer within sixty (60) days thereafter and if not consummated
within such sixty (60) day period then the Interest may not be sold
by KAI except in the manner hereinabove set forth. In all events
Shorewood has the right to disapprove of a sale of the Interest or
any portion thereof to any person whom Shorewood, in good faith,
considers to be a competitor of Shorewood's. Nothing herein shall
preclude KAI from transferring all or any part of its Interest to
any Affiliate or principal of KAI.
2. All but not some of the Interest may be "put" by KAI to Shorewood
after KAI has held the same for at least three (3) years after the
Project(s) produces its first commercial product and the purchase
price for the Interest to be paid by Shorewood shall be determined
as follows:
(a) if the Interest is common stock or any other security and if
any shares of common stock of the Project(s) or other security are
being traded publicly then the purchase price per share shall be
the average selling price per share of such stock at the end of
each of the thirty (30) days preceding the written offer to
Shorewood, or
(b) in all other cases not covered by Paragraph 2(a) above, then at
a purchase price per share or unit on the date upon which Shorewood
shall have received KAI's offer to sell, determined by an
internationally recognized investment banker who has been mutually
selected by KAI and Shorewood within thirty (30) days of the
receipt of such offer by KAI. In all other cases not covered by
Paragraph 2(a) above, and if such banker has not been selected by
the parties, then such investment banker shall be selected by the
American Arbitration Association located in New York City upon the
application of either party with both parties sharing equally in
any expenses thereof. Absent fraud or similar wrongdoing, the
determination of the investment banker shall be final and shall be
enforceable in accordance with paragraph 10(b) of this Agreement.
Payment in U.S. Dollars to KAI shall be promptly made upon the
determination of the purchase price per share of such Interest and
the release and assignment of the interest by KAI. In making such
determination, the investment
14
<PAGE>
banker shall not take into account any discount for KAI's minority
interest, for the illiquidity of such interest, or similar
considerations.
3. In the event that Shorewood has accepted an offer to sell any or
all of its equity in the Project(s), Shorewood shall promptly
notify KAI in writing of the written terms thereof and KAI shall
have the right to include its Interest in such sale in the same
proportion that the equity to be sold by Shorewood bears to the
total equity of the Project(s). KAI must notify Shorewood in
writing, within ten (10) days after written notice of the intended
sale, that it desires to include its Interest, to the extent of the
aforementioned proportion, in the sale thereof; otherwise, it shall
have no further right to have its Interest sold.
4. KAI's profit percentage shall be at the following levels:
<TABLE>
<CAPTION>
AGGREGATE INVESTED CAPITAL IN
PROJECT(S) (NOT INCLUSIVE OF LOANS
FROM UNRELATED THIRD PARTIES, IN KAI PROFIT INTEREST
MILLIONS OF U.S.$) (PERCENTAGE)
- ---------------------------------------- ---------------------------
<S> <C>
up to 24.99 5.0
25 - 29.99 4.75
30 - 34.99 4.50
35 - 39.99 4.25
40 - 44.99 4.0
45 - 49.99 3.75
50 - 54.99 3.50
55 - 59.99 3.25
60 - 64.99 3.0
65 - 74.99 2.75
75 - 84.99 2.50
85 - 94.99 2.25
95 and above 2.0
</TABLE>
5. KAI's profit percentage for any given Project shall be determined
by reference to the above chart in Paragraph 4 of this Exhibit,
based upon the aggregate capital investment by Shorewood in China
(as to which KAI has been issued an interest) as of the date of the
issuance of the Interest relating to the Project.
15
<PAGE>
Exhibit 20
SHOREWOOD PACKAGING CORPORATION
-----------------
NON-QUALIFIED STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated as of October 30, 1998, between
Shorewood Packaging Corporation, a Delaware corporation, with its principal
office at 277 Park Avenue, New York, New York, 10172, (the "Company") and
Jefferson Capital Group, Ltd., a Virginia corporation, with its principal office
at One James Center, Suite 1600, Richmond, Virginia, 23219, (the "Optionee").
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Company and its stockholders to grant to
the Optionee an option to purchase 50,000 shares of the common stock, par value
$.0l per share (the "Common Stock") of the company in recognition of the
Optionee's services to the Company during the Queens transaction and as an
inducement to perform additional services on behalf of the Company; and
WHEREAS, R. Timothy O'Donnell ("O'Donnell"), the managing
director of Optionee, is also a director of Company; and
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Company and its stockholders to grant
the Optionee certain rights pursuant to the terms of this Agreement in
recognition of the Optionee's services to the Company and as an inducement to
perform additional services on behalf of the Company.
NOW, THEREFORE, the parties agree as follows:
1. GRANT OF OPTION
---------------
1.1 The Company grants to the Optionee, on the terms and
conditions hereinafter set forth, an option (the "Option") to purchase 50,000
shares of Common Stock of the Company (the "Option Shares").
1.2 The Option does not qualify for "ISO" treatment to the
extent permitted by Section 422A of the Internal Revenue Code of 1986, as
amended.
1.3 The Option Shares are not, and are not required to be,
registered under the Securities Act of 1933, as amended, (the "Securities Act")
but may be listed upon any securities exchange upon which the Company's Common
Stock is listed at the time of such issuance and sale.
<PAGE>
2. PRICE AND PAYMENT FOR SHARES
----------------------------
2.1 The purchase price for the Option Shares shall be
$16.00 per share (the closing price of Company common stock on the date of this
agreement).
2.2 Payment of the purchase price upon exercise of the
Option may be made in cash or check subject to collection.
3. PERIOD OF OPTION AND CERTAIN LIMITATIONS ON RIGHT TO
----------------------------------------------------
EXERCISE AND RIGHT TO SELL STOCK RECEIVED UPON EXERCISE OF THE OPTION.
- ----------------------------------------------------------------------
3.1 The period of the Option will be five years from the
date the option is granted, which date is first written above (the "Period").
The Option will be exercisable, in whole or in part, at any time during the
Period.
3.2 Optionee understands and acknowledges that by virtue
of O'Donnell's status as a director of the Company, the subsequent sale by
Optionee of the shares may be subject to Securities and Exchange Commission Rule
10b-5 and Exchange Act Section 16(b), restricting transactions in Company
securities by certain corporate insiders. Moreover, the purchase and sale of any
securities of the Company by O'Donnell and/or any entity controlled by or under
common control with O'Donnell are subject to the Company's insider trading
policies as promulgated from time to time.
4. EXERCISE OF OPTION
------------------
4.1 The Option herein granted shall be exercisable, in
whole or in part, from time to time by notice in writing from the Optionee to
the Company which notice shall be signed by a duly authorized officer of the
Optionee. Such notice shall specify the number of Option Shares with respect to
which the Option is then being exercised and shall be accompanied, pursuant to
Section 2 hereof.
4.2 Upon the exercise of the Option in whole or in part,
the Company shall promptly issue stock certificates for the shares of Common
Stock purchased and the Optionee shall be deemed to be the holder of the shares
of Common Stock purchased as of the date of issuance of certificates for such
shares to it. The Company may delay issuing certificates representing Option
Shares for a reasonable period of time pending listing on any stock exchange.
The Optionee will not be nor deemed to be, a holder of any shares subject to the
Option unless and until certificates for such shares are issued to it or them
under the terms of this Agreement.
2
<PAGE>
4.3 If and when the Option is exercised, the certificates
to be issued evidencing shares of the Company's Common Stock will be restricted
stock and shall bear a legend substantially as follows:
"The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended. No
transfer, sale or other disposition of these shares may be
made except pursuant to Rule 144 under the Securities Act
of 1933, as amended, or unless a registration statement
with respect to these shares has become effective under
said Act, or the Company is furnished with an opinion of
counsel satisfactory in form and substance to the Company
that such registration is not required."
5. TRANSFERABILITY OF OPTIONS
--------------------------
The Option shall not be assignable or transferable by the
Optionee to any other individual or entity without the prior written consent of
the Company, which may be withheld in its reasonable discretion.
6. ACCELERATION OF OPTION EXERCISE
-------------------------------
Upon the occurrence of any of the following events, the
Option shall be exercisable only within the 30 calendar days next succeeding the
occurrence of the relevant Triggering Event (as defined below), so long as such
exercise occurs within the Period and then only (a) by an authorized officer of
the Optionee on the Optionee's behalf and (b) if and to the extent that the
Optionee was entitled to exercise the Option at the date of the stockholder
approval of the Change of Control:
(a) the event that the stockholders of the Company have
approved an agreement to merge or consolidate with or into another corporation
(and the Company is not the survivor of such merger or consolidation) or an
agreement to sell or otherwise dispose of all or substantially all of the
Company's assets (including a plan of liquidation) ("Change of Control") (the
date of the stockholder approval of the Change of Control shall be the
Triggering Event for purposes of this Subsection (a)).
(b) intentionally omitted.
7. PIGGY-BACK REGISTRATION
-----------------------
Subject to Sections 8 and 12 hereof, if at any time after
the date of this
3
<PAGE>
Agreement during the Period, the Company in addition to any of the holders of
the Common Stock other than the Optionee propose to file a registration
statement to register any security of the Company (other than Common Stock
issued with respect to any acquisition or any employee stock option, stock
purchase or similar plan) under the Securities Act for sale to the public in an
underwritten offering upon which may be registered securities similar to the
Option Shares, it will at each such time give written notice to the Optionee of
its intention to do so ("Notice of Intent") and, upon the written request of the
Optionee made within 30 calendar days after the receipt of any such notice
(which request must specify that the Optionee intends to dispose of all of the
Option Shares held by the Optionee on the date the Notice of Intent is received
by the Optionee, and state the intended method of disposition thereof), the
Company will use its best efforts to effect the registration under the
Securities Act of the Option Shares which the Company has been so requested to
register, to the extent requisite to permit the intended disposition; provided,
however, that if the managing underwriter shall certify in writing that
inclusion of all of the Option shares would, in such managing underwriter's
opinion, materially interfere with the proposed distribution of the securities
in respect of which registration was originally to be effected (x) at a price
reasonably related to fair value, and (y) under circumstances which will not
materially and adversely affect the market of the Company's securities (such
writing to state the basis of such opinion and the maximum number of shares
which may be distributed without such interference), then the Company may, upon
written notice to the Optionee, have the right to exclude from such registration
such number of Option Shares which it would otherwise be required to register
hereunder as is necessary to reduce the total amount of securities to be so
registered to the maximum amount which can be so marketed.
8. REGISTRATION EXPENSES
---------------------
The costs and expenses (other than underwriting discounts
and commissions) of all registrations and qualifications under the Securities
Act, and of all other actions the Company is required to take or effect pursuant
to this Agreement shall be paid by the Company (including, without limitation,
all registration and filing fees, printing expenses, fees and expenses of
complying with Blue Sky laws, and fees and disbursements of counsel for the
Company and of independent public accountants; provided, however, that fees and
expenses of complying with Blue Sky laws in those states where Option Shares and
no other securities of the Company covered by the registration statement will be
offered for sale, shall be paid by the Optionee).
9. REGISTRATION PROCEDURES
-----------------------
If and whenever the Company is required to effect the
registration of any Option Shares under the Securities Act as provided in this
Agreement, the Company will promptly:
4
<PAGE>
(i) prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on such form as the Company
may select with respect to such Option Shares and use its best efforts to cause
such registration statement to become effective;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all such Option Shares and other securities covered by
such registration statement until such time as all of such Option Shares and
other securities have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof set forth in such registration
statement, but in no event for a period of more than nine months after such
registration statement becomes effective;
(iii) furnish to the Optionee such number of copies of such
registration statement and of each such amendment and supplement thereto, such
number of copies of the prospectus included in such registration statement, in
conformity with the requirements of the Securities Act;
(iv) use its best efforts to register or qualify the Option
Shares covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions within the United States of America
(including territories and commonwealths thereof) as the seller shall reasonably
request, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any jurisdiction;
(v) notify the Optionee when a prospectus relating to the
Option Shares is required to be delivered under the Securities Act within the
period mentioned in subdivision (ii) of this paragraph, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing (and upon receipt of such notice and until a supplemented or amended
prospectus as set forth below is available, the Optionee shall not offer or sell
any securities covered by such registration statement and shall return all
copies of such prospectus to the Company if requested to do so by it); and
(vi) furnish to the Optionee, at the time of the
disposition of any
5
<PAGE>
Option Shares by him, a signed copy of an opinion of counsel to the effect that:
(a) a registration statement covering such Option Shares has been filed with the
Commission under the Securities Act and has been made effective by order of the
Commission, (b) said registration statement and the prospectus contained therein
comply as to form in all material respects with the requirements of the
Securities Act, (c) no stop order has been issued by the Commission suspending
the effectiveness of such registration statement and (d) the applicable
provisions of the securities or Blue Sky laws of each state in which the Company
shall be required, pursuant to clause (iv) of this paragraph, to register or
qualify such Option Shares, have been complied with, assuming the accuracy and
completeness of the information furnished to such counsel with respect to each
filing relating to such laws; it being understood that such opinion may contain
such qualifications and assumptions as are customary in the rendering of similar
opinions, and that such counsel may rely, as to all factual matters treated
therein, on certificates of the Company.
The Company may require the Optionee to furnish the Company
such information regarding it and the distribution of such Option Shares as the
Company may from time to time request in writing and as shall be required by law
to effect such registration.
10. TERMINATION OF OBLIGATIONS
--------------------------
The obligations of the Company imposed by Sections 7
through 9 above shall cease and terminate, as to any particular Option Shares,
(a) when such shares shall have been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering such
securities, or (b) when in the opinion of counsel for the Company such
restrictions are no longer required in order to insure compliance with the
Securities Act or (c) seven years and one day after the date hereof. Whenever
such restrictions shall terminate as to any Option Shares, the Optionee shall be
entitled to receive from the Company without expense a new certificate or
certificates representing such securities not bearing the legend set forth in
Section 4.3 hereto.
11. AVAILABILITY OF INFORMATION
---------------------------
The Company will use its best efforts to comply with the
reporting requirements of Sections 13 and 15(d) of the Securities Exchange Act
of 1933 to the extent it shall be required to do so pursuant to such Sections,
and at all times while so required shall use its best efforts to comply with all
other public information reporting requirements of the Commission (including
reporting requirements which serve as a condition to utilization of Rule 144
promulgated by the Commission under the Securities Act) from time to time in
effect and relating to the availability of an exemption from the Securities Act
for the sale of any Option Shares. The Company will also cooperate with the
Optionee in supplying such information and documentation as may be necessary for
him to complete and file any information reporting forms
6
<PAGE>
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Option
Shares.
12. REGISTRATION RIGHTS CONDITION
-----------------------------
Notwithstanding any other provision contained herein, the
Company shall not be obligated to comply with any demands for registration of
Option Shares under the Securities Act if, at the time of such demand by the
Optionee:
(i) he is free to sell all of the Option Shares with
respect to which such registration was requested in accordance with Rule 144
promulgated under the Securities Act or any similar rule or regulation
promulgated under the Securities Act; or
(ii) the Company has in effect a registration statement
covering the disposition of the Option Shares.
13. DILUTION OR OTHER ADJUSTMENTS
-----------------------------
In the event of any change in the Common Stock subject to
the Option granted by this Agreement through merger, consolidation,
reorganization, recapitalization, stock split, stock dividend, or the issuance
to stockholders of rights to subscribe to stock of the same class, or in the
event of any change in the capital structure, the Board of Directors of the
Company shall on an equitable basis make such adjustments with respect to (i)
the number of shares of Common Stock of the Company subject to the Option, (ii)
options granted hereunder, or (iii) any provision of this Agreement, in order to
prevent dilution or enlargement of the Option and the rights granted hereunder.
14. MISCELLANEOUS
-------------
14.1 This Agreement shall be governed by the laws of the
State of New York.
14.2 Any and all notices referred to herein shall be
sufficient if furnished in writing and delivered in person or mailed by
certified mail (return receipt requested) to the respective parties at their
addresses set forth above or to such other address as either party may from time
to time designate in writing.
14.3 As used herein, the masculine gender shall include
the feminine gender.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above mentioned.
7
<PAGE>
SHOREWOOD PACKAGING CORPORATION
By: /s/ Howard M. Liebman
--------------------------------------
Howard M. Liebman
Executive Vice President and
Chief Financial Officer
JEFFERSON CAPITAL GROUP, LTD.
By: /s/ R. Timothy O'Donnell
--------------------------------------
R. Timothy O'Donnell
Managing Director
8
<PAGE>
Exhibit 21
FORM OF
TRUST AGREEMENT
This Agreement made this day of , 1999, by and between
Shorewood Packaging Corporation, a New York corporation (the "Company"), and
___________ (the "Trustee");
WHEREAS, Company has adopted the Shorewood Packaging
Corporation Employee Severance Plan (the "Plan"); and
WHEREAS, Company may incur liability under the terms of the
Plan upon a Change in Control (as defined in the Plan); and
WHEREAS, Company wishes to establish a trust (hereinafter
called "Trust") and to contribute to the Trust, subject to the terms hereof,
assets that shall be held therein, subject to the claims of Company's creditors
in the event of Company's Insolvency, as herein defined, until paid to Plan
participants and their beneficiaries in such manner and at such times as
specified in the Plan; and
WHEREAS, subject to the terms hereof, it is the intention of
Company to make contributions to the Trust to provide itself with a source of
funds to assist it in the meeting of its liabilities, if any, under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST
(a) Company hereby deposits with Trustee in trust the sum of
one hundred dollars ($100), which shall become the principal of the Trust to be
held, administered and disposed of by Trustee as provided in this Trust
Agreement.
(b) The Trust hereby established is revocable by Company;
provided, however, that it shall be irrevocable upon a Change in Control.
1
<PAGE>
(c) The Trust is intended to be a grantor trust, of which
Company is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended (the
"Code"), and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of Plan participants and general creditors
as herein set forth. Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement shall be mere
unsecured contractual rights of Plan participants and their beneficiaries
against Company. Any assets held by the Trust will be subject to the claims of
Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) Immediately prior to a Change in Control, the Chief
Executive Officer of Company (or his or her designee) (such individual, the
"CEO") shall authorize a cash contribution to be made to the Trust in an amount
equal to the amount that, in the determination of Company, is sufficient to pay
each Plan participant or beneficiary the benefits to which Plan participants or
their beneficiaries would be entitled pursuant to the terms of the Plan as of
the date of the Change in Control assuming each participant terminated
employment as of such date under circumstances giving rise to payment of
benefits under the Plan. In addition, Company shall also fund, an expense
reserve for Trustee in the amount of $100,000. After a Change in Control,
Trustee may compel any contribution that is required under the Trust.
SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR
BENEFICIARIES.
(a) Upon the occurrence of a Change in Control, the Company
shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the
amounts payable in respect of each Plan participant (and his or her
beneficiaries), that provides a formula or other instructions acceptable to
Trustee for determining the amounts so payable, the form in which such amount is
to be paid (as provided for or available under the Plan), and the time of
commencement for payment of such amounts. Except as otherwise provided herein,
Trustee shall make payments to the Plan participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment
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of benefits pursuant to the terms of the Plan and shall pay amounts withheld to
the appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by Company.
(b) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plan shall be determined under the Plan, and
any claim for such benefits shall be considered and reviewed under the
procedures, if any, set out in the Plan.
(c) Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plan. Company shall notify Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plan, Company shall make the balance of each such payment as it
falls due.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN COMPANY IS INSOLVENT.
(a) Trustee shall cease payment of benefits to Plan
participants and their beneficiaries if the Company is Insolvent. Company shall
be considered "Insolvent" for purposes of this Trust Agreement if (i) Company is
unable to pay its debts as they become due, or (ii) Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and state law as
set forth below.
(1) The Board of Directors and the Chief Executive
Officer of Company shall have the duty to inform Trustee in writing of
Company's Insolvency. If a person claiming to be a creditor of Company
alleges in writing to Trustee that Company has become Insolvent,
Trustee shall, in its sole discretion, determine whether Company is
Insolvent and, pending such determination, Trustee shall discontinue
payment of benefits to Plan participants or their beneficiaries.
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(2) Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person claiming to
be a creditor alleging that Company is Insolvent, Trustee shall have no
duty to inquire whether Company is Insolvent. Trustee may in all events
rely on such evidence concerning Company's solvency as may be furnished
to Trustee and that provides Trustee with a reasonable basis for making
a determination concerning Company's solvency.
(3) If at any time Trustee has determined that
Company is Insolvent, Trustee shall discontinue payments to Plan
participants or their beneficiaries and shall hold the assets of the
Trust for the benefit of Company's general creditors. Nothing in this
Trust Agreement shall in any way diminish any rights of Plan
participants or their beneficiaries to pursue their rights as general
creditors of Company with respect to benefits due under the Plan or
otherwise.
(4) Trustee shall resume the payment of benefits to
Plan participants or their beneficiaries in accordance with Section 2
of this Trust Agreement only after Trustee has determined that Company
is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by Company in lieu of the payments provided
for hereunder during any such period of discontinuance, plus interest on such
unpaid amount, determined for the period commencing on the date such amount
should have been paid and ending on the date of such payment, at an annual rate
equal to the prime rate (as in effect from time to time at[ ]Bank).
SECTION 4. PAYMENTS TO COMPANY.
Except as provided in Section 3 hereof, after the Trust has
become irrevocable, Company shall have no right or power to direct Trustee to
return to Company or to divert to others any of the assets of the Trust before
(a) all payments
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of benefits have been made to Plan participants and their beneficiaries pursuant
to the terms of the Plan and (b) all expenses of the Trust have been paid.
At any time prior to the Trust becoming irrevocable, Company
shall have the right or power to direct Trustee to return to Company any of the
assets of the Trust.
SECTION 5. INVESTMENT AUTHORITY.
(a) All rights associated with assets of the Trust shall be
exercised by Trustee or the person designated by Trustee, and shall in no event
be exercisable by or rest with Plan participants.
(b) Trustee shall not be liable in discharging its duties
hereunder if it acts for the exclusive benefit of Plan participants and their
beneficiaries, in good faith and as a prudent person would act in accomplishing
a similar task and in accordance with the terms of this Trust Agreement and any
applicable federal or state laws, rules or regulations.
(c) Subject to investment guidelines agreed to in writing from
time to time by Company and Trustee prior to a Change in Control, Trustee shall
have the power in investing and reinvesting the assets of the Trust in its sole
discretion:
(1) To invest and reinvest in any readily marketable
common and preferred stocks, bonds, notes, debentures (including
convertible stocks and securities but not including any stock or
security of Trustee other than a de minimis amount held in a mutual
fund), certificates of deposit or demand or time deposits (including
any such deposits with Trustee) and shares of investment companies and
mutual funds, including any proprietary mutual funds of Trustee,
without being limited to the classes or property in which Trustee is
authorized to invest by any law or any rule of court of any state and
without regard to the proportion any such property may bear to the
entire amount of the assets of the Trust;
(2) To commingle for investment purposes all or any
portion of the assets of the Trust with assets of any other similar
trust or trusts established by Company with Trustee;
(3) To retain any property at any time received by
Trustee;
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(4) To sell or exchange any property held by it at
public or private sale, for cash or on credit, to grant and exercise
options for the purchase or exchange thereof, to exercise all
conversion or subscription rights pertaining to any such property and
to enter into any covenant or agreement to purchase any property in the
future;
(5) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar plan
relating to property held by it and to consent to or oppose any such
plan or any action thereunder or any contract, lease, mortgage,
purchase, sale or other action by any person;
(6) To deposit any property held by it with any
protective, reorganization or similar committee, to delegate
discretionary power thereto, and to pay part of the expenses and
compensation thereof any assessments levied with respect to any such
property to deposited;
(7) To extend the time of payment of any obligation
held by it;
(8) To hold uninvested any moneys received by it,
without liability for interest thereon, but only in anticipation of
payments due for investments, reinvestments, expenses or disbursements;
(9) To exercise all voting or other rights with
respect to any property held by it and to grant proxies, discretionary
or otherwise;
(10) For the purposes of the Trust, to borrow money
from a bank to issue its promissory note or notes therefor, and to
secure the repayment thereof by pledging any property (including but
not limited to any insurance policies) held by it;
(11) To employ and rely upon suitable contractors and
counsel, who may be counsel to Company or to Trustee, and to pay their
reasonable expenses and compensation from the assets of the Trust to
the extent not paid by the Company;
(12) To register investments in its own name or in
the name of a nominee; to hold any investment in bearer form; and to
combine certificates representing securities with certificates of the
same issue held by it in
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other fiduciary capacities or to deposit or to arrange for the deposit
of such securities with any depository, even though, when so deposited,
such securities may be held in the name of the nominee of such
depository with other securities deposited therewith by other persons,
or to deposit or to arrange for the deposit of any securities issued or
guaranteed by the United States government, or any agency or
instrumentality thereof, including securities evidenced by book entries
rather than by certificates, with the United States Department of the
Treasury or a Federal Reserve Bank, even though, when so deposited,
such securities may not be held separate from securities deposited
therein by other persons; provided, however, that no securities held in
the Trust shall be deposited with the United States Department of the
Treasury or a Federal Reserve Bank or other depository in the same
account as any individual property of Trustee, and provided, further,
that the books and records of Trustee shall at all times show that all
such securities are part of the assets of the Trust;
(13) To settle, compromise or submit to arbitration
any claims, debts or damages due or owing to or from the Trust,
respectively, to commence or defend suits or legal proceedings to
protect any interest of the Trust, and to represent the Trust in all
suits or legal proceedings in any court or before any other body or
tribunal; provided, however, that Trustee shall not be required to take
any such action unless it shall have been indemnified by Company to its
reasonable satisfaction against liability or expenses it might incur
therefrom;
(14) To hold and retain policies of life insurance,
annuity contracts, and other property of any kind which policies are
contributed to the Trust by Company or are purchased by Trustee;
(15) To hold any other class of assets which may be
contributed by Company and that is deemed reasonable by Trustee, unless
expressly prohibited herein; and
(16) Generally, to do all acts, whether or not
expressly authorized, that Trustee may deem necessary or desirable for
the protection of the assets of the Trust.
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SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and reinvested.
SECTION 7. ACCOUNTING BY TRUSTEE.
Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
Company and Trustee. Within ninety (90) days following the close of each
calendar year and within thirty (30) days after the removal or resignation of
Trustee, Trustee shall deliver to Company a written account of its
administration of the Trust during such year or during the period from the close
of the last preceding year to the date of such removal or resignation, setting
forth all investments, receipts, disbursements and other transactions effected
by it, including a description of all securities and investments purchased and
sold with the cost or net proceeds of such purchases or sales (accrued interest
paid or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
SECTION 8. RESPONSIBILITY OF TRUSTEE.
(a) Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Company which is contemplated by, and
in conformity with, the terms of the Plan or this Trust and is given in writing
by Company. In the event of a dispute between Company and a party, Trustee may
apply to a court of competent jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust, Company agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments.
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<PAGE>
(c) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or obligations
hereunder.
(d) Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals and rely on
advice given by such professionals to assist it in performing any of its duties
or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly provided otherwise
herein, provided, however, that if an insurance policy is held as an asset of
the Trust, Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to
this Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE.
Company shall pay administrative and Trustee's fees and
expenses. If such payments are not made within a reasonable time, the Trustee
may charge the Trust for such fees and expenses.
SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) Trustee may resign at any time by written notice to
Company, which shall be effective sixty (60) days after receipt of such notice
unless Company and Trustee agree other wise.
(b) Trustee may be removed by Company on sixty (60) days
notice or upon shorter notice accepted by Trustee; provided, however, that on
and after the occurrence of a Change in Control,Trustee may only be removed by
the
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<PAGE>
affirmative vote of not less than three-fourths (3/4) of the participants in the
Plan (or their beneficiaries, as applicable).
(c) Upon resignation or removal of Trustee and appointment of
a successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed as soon as practicable, but
in any event within sixty (60) days after receipt of notice of resignation,
removal or transfer.
(d) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraphs (a) or (b) of this section. If no such
appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR.
(a) If Trustee resigns or is removed in accordance with
Section 10 hereof, Company may appoint, subject to Section 11(b) below, any
third party national banking association with a market capitalization exceeding
$1,000,000,000 to replace Trustee upon resignation or removal. The successor
Trustee shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust. The former Trustee shall execute any instrument
necessary or reasonably requested by Company or the successor Trustee to
evidence the transfer.
(b) If Trustee resigns within two years after a Change in
Control, the appointment by Company of a successor trustee in accordance with
Section 11(a) above shall be subject to the approval of a two-thirds majority of
the Plan participants.
(c) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing assets of the
Trust, subject to Sections 7 and 8 hereof. The successor Trustee shall not be
responsible for and Company shall indemnify and defend the successor Trustee
from any claim or liability resulting from any action or inaction of any prior
Trustee or from any other past event, or any condition existing at the time it
becomes successor Trustee.
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SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written
instrument executed by Trustee and Company. Notwithstanding the foregoing, no
such amendment shall conflict with the terms of the Plan or shall make the Trust
revocable after it has become irrevocable in accordance with Section 1(b)
hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan and all expenses of the Trust have been paid unless
sooner revoked in accordance with Section 1(b) hereof. Upon termination of the
Trust, any assets remaining in the Trust shall be returned to Company.
(c) No provision of this Trust Agreement may be amended by
Company in any manner adverse to Plan participants and beneficiaries following a
Change in Control.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without invalidating
the remaining provisions hereof.
(b) Benefits payable to Plan participants and their
beneficiaries under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(d) For purposes of this Trust, a "Change in Control" shall
have the meaning ascribed to such term in the Plan.
(f) For purposes of this Section 13, "Affiliate" shall have
the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange
Act.
(g) For purposes of this Section 13, "Beneficial Owner" shall
have the meaning set forth in Rule 13d-3 under the Exchange Act.
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<PAGE>
(h) For purposes of this Section 13, "Exchange Act" shall mean
the Securities Exchange Act of 1934, as amended from time to time.
(i) For purposes of this Section 13, "Person" shall have the
meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in
Sections 13(d) and 14(d) thereof, except that such term shall not include (i)
the Company or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any of its
Affiliates, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be , 1999.
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IN WITNESS WHEREOF, this instrument has been executed as of
the day and year first above written.
SHOREWOOD PACKAGING CORPORATION
By:
-----------------------------
Title:
--------------------------
[TRUSTEE]
By:
----------------------------
Title:
-------------------------
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EXHIBIT 22
SHOREWOOD PACKAGING CORPORATION
EMPLOYEE SEVERANCE PLAN
The Company hereby adopts the Shorewood Packaging Corporation
Employee Severance Plan for the benefit of certain employees of the Company and
its Affiliates, on the terms and conditions hereinafter stated. All capitalized
terms used herein are defined in Section 1 hereof.
SECTION 1. DEFINITIONS. As hereinafter used:
1.1 "Affiliate" shall have the meaning set forth in Rule 12b-2
under Section 12 of the Exchange Act.
1.2 "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
1.3 "Board" means the Board of Directors of the
Company.
1.4 "Cause" means (i) the willful and continued failure by the
Eligible Employee to substantially perform the Eligible Employee's duties with
the Employer (other than any such failure resulting from the Eligible Employee's
incapacity due to physical or mental illness), or (ii) the willful engaging by
the Eligible Employee in conduct which is demonstrably injurious to the Company,
monetarily or otherwise. For purposes of this definition, no act, or failure to
act, on the Eligible Employee's part shall be deemed "willful" unless done, or
omitted to be done, by the Eligible Employee not in good faith or without
reasonable belief that the Eligible Employee's act, or failure to act, was in
the best interest of the Company.
1.5 A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(i) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially
owned by such Person any securities acquired directly
from the Company or its affiliates) representing 30%
or more of the combined voting power of the Company's
then outstanding securities, excluding any Person who
becomes such a
<PAGE>
Beneficial Owner in connection with a transaction
described in clause(A) of paragraph (iii) below; or
(ii) the following individuals cease for any
reason to constitute a majority of the number of
directors then serving: individuals who, on the date
hereof, constitute the Board and any new director
(other than a director whose initial assumption of
office is in connection with an actual or threatened
election contest, including but not limited to a
consent solicitation, relating to the election of
directors of the Company) whose appointment or
election by the Board or nomination for election by
the Company's shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were
directors on the date hereof or whose appointment,
election or nomination for election was previously
so approved or recommended; or
(iii) there is consummated a merger or
consolidation of the Company or any direct or
indirect subsidiary of the Company with any other
corporation, other than (A) a merger or consolidation
which results in the directors of the Company
immediately prior to such merger or consolidation
continuing to constitute at least a majority of the
board of directors of the Company, and, if
applicable, the surviving entity or any parent
thereof or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or
similar transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the
securities Beneficially Owned by such Person any
securities acquired directly from the Company or its
Affiliates) representing 40% or more of the combined
voting power of the Company's then outstanding
securities; or
(iv) the shareholders of the Company approve
a plan of complete liquidation or dissolution of the
Company or there is consummated an agreement for the
sale or disposition by the Company of all or
substantially all of the Company's assets, other than
a sale or disposition by the Company of all or
substantially all of the Company's assets to an
entity, at least 60% of the combined voting power of
the voting securities of which are owned by
shareholders of the
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Company in substantially the same proportions as
their ownership of the Company immediately prior to
such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
1.6 "Code" means the Internal Revenue Code of 1986, as it may
be amended from time to time.
1.7 "Company" means the Shorewood Packaging Corporation or
any successors thereto.
1.8 "Eligible Employee" means any employee who is a Tier 1,
Tier 2, or Tier 3 Employee. An Eligible Employee becomes a "Severed Employee"
once he or she incurs a Severance.
1.9 "Employer" means the Company or any of its Affiliates
which is an employer of an Eligible Employee.
1.10 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
1.11 "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
1.12 "Good Reason" in respect of a Tier 2 Employee means, the
occurrence, on or after the date of a Change in Control and without the affected
Tier 2 Employee's written consent, of (i) the assignment of duties in the
aggregate that are inconsistent with the Tier 2 Employee's level of
responsibility immediately prior to the date of the Change in Control or any
diminution in the nature or status of the Tier 2 Employee's responsibilities
from those in effect immediately prior to the date of the Change in Control,
(ii) a reduction by the Employer in the Tier 2 Employee's annual base salary, or
annual incentive compensation opportunity (including equity-based compensation),
from that in effect immediately prior to the Change in Control, or
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(iii) the relocation of the Tier 2 Employee's principal place of employment to a
location more than fifty (50) miles from the Tier 2 Employee's principal place
of employment immediately prior to the date of the Change in Control. "Good
Reason" in respect of a Tier 3 Employee means the occurrence, on after the date
of a Change in Control and without the Tier 3 Employee's written consent, of (i)
a reduction by the Employer in the Tier 3 Employee's annual base salary, or
annual incentive compensation opportunity (including equity-based compensation)
from that in effect immediately prior to the Change in Control or (ii) the
relocation of the Tier 3 Employee's principal place of employment to a location
more than fifty (50) miles from the Tier 3 Employee's principal place of
employment immediately prior to the date of the Change in Control. A "Good
Reason" determination, made by an Eligible Employee in good faith, shall be
conclusive and not subject to review or challenge by the Company.
1.13 "Gross-Up Payment" shall have the meaning set forth in
Section 2.5 hereof.
1.14 "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
Affiliates, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
1.15 "Plan" means the Shorewood Packaging Corporation Employee
Severance Plan, as set forth herein, as it may be amended from time to time.
1.16 "Plan Administrator" means the person or persons
appointed from time to time by the Board which appointment may be revoked at any
time by the Board.
1.17 "Savings Plan" means the Shorewood Packaging Corporation
Retirement and Savings Plan, or such other similar arrangement of the Company
that is applicable to the Eligible Employee.
1.18 "Severance" means the termination of an Eligible
Employee's employment with the Employer (or, if applicable, a successor to the
Employer) on or
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within two years following the date of the Change in Control, (i) by the
Employer other than for Cause, (ii) in the case of a Tier 1 Employee, by the
Tier 1 Employee for any reason, or (iii) in the case of a Tier 2 or Tier 3
Employee, by the Eligible Employee for Good Reason. A Tier 2 Employee or Tier 3
Employee will not be considered to have incurred a Severance if his or her
employment is discontinued by reason of death or a physical or mental condition
causing his or her inability to substantially perform his or her duties with the
Employer, including, without limitation, such condition entitling him or her to
benefits under any sick pay or disability income policy or program of the
Employer.
1.19 "Severance Date" means the date on or after the date of
the Change in Control on which an Eligible Employee incurs a Severance.
1.20 "Severance Pay" means the payment determined pursuant to
Section 2.1, 2.2, or 2.3 hereof, as applicable.
1.21 "Tier 1 Employee" means each of the Chief Executive
Officer of the Company and the Chief Financial Officer of the Company.
1.22 "Tier 2 Employee" means an individual so designated on
Schedule A hereto.
1.23 "Tier 3 Employee" means an individual so designated on
Schedule A hereto.
SECTION 2. BENEFITS.
2.1 Each Tier 1 Employee who incurs a Severance shall be
entitled, subject to Section 2.12, to receive Severance Pay equal to (i) the sum
of his annual base salary, his highest annual bonus received in the three years
immediately preceding the year in which the Change in Control occurs, and the
value of matching contributions made by the Company to the Savings Plan on his
behalf with respect to the calendar year immediately preceding the calendar year
of the Change in Control, (ii) multiplied by 3. The Severance Pay payable to a
Tier 1 Employee shall be reduced by any amounts paid to him under his employment
agreement by reason of a termination following a "Change in Control" (as defined
in his employment agreement). For purposes of this Section, annual base salary
shall be determined immediately prior to the Severance (without regard to any
reductions therein which would
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<PAGE>
constitute Good Reason for termination if the Tier 1 Employee were a Tier 2
Employee).
2.2 Each Tier 2 Employee who incurs a Severance shall be
entitled, subject to Section 2.12, to receive Severance Pay equal to (i) the sum
of his or her annual base salary, his or her highest annual bonus received in
the three years immediately preceding the year in which the Change in Control
occurs, and the value of matching contributions made by the Company to the
Savings Plan on his or her behalf with respect to the calendar year immediately
preceding the calendar year of the Change in Control, (ii) multiplied by 2. For
purposes of this Section, annual base salary shall be determined immediately
prior to the Severance (without regard to any reductions therein which
constitute Good Reason for termination by a Tier 2 Employee).
2.3 Each Tier 3 Employee who incurs a Severance shall be
entitled, subject to Section 2.12, to receive Severance Pay equal to the sum of
his or her annual base salary, his or her highest annual bonus received in the
three years immediately preceding the year in which the Change in Control
occurs, and the value of matching contributions made by the Company to the
Savings Plan on his or her behalf with respect to the calendar year immediately
preceding the calendar year of the Change in Control. For purposes of this
Section, annual base salary shall be determined immediately prior to the
Severance (without regard to any reductions therein which constitute Good Reason
for termination by a Tier 3 Employee).
2.4 Severance Pay shall be paid to an eligible Severed
Employee in a cash lump sum, as soon as practicable following the Severance
Date, but in no event later than twenty (20) business days immediately following
the expiration of the revocation period, if any, applicable to such Severed
Employee's release, described in Section 2.12.
2.5 (i) If any of the payments or benefits received or to be
received by a Tier 1 Employee in connection with the Change in Control or his or
her termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement or agreement) (such payments or benefits, excluding
the Gross-Up Payment, being hereinafter referred to as the "Total Payments")
will be subject to the Excise Tax, the Company shall pay to the Eligible
Employee an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Eligible Employee, after deduction of any Excise Tax on the
Total Payments and any federal, state and local income and employment taxes and
Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments. The
amount of the Gross-Up
6
<PAGE>
Payment, if any, shall be determined by the Plan Administrator or any person or
entity designated by the Plan Administrator. The Gross-Up Payment, if any, (a)
with respect to a Severed Employee, shall be paid in a cash lump sum, as soon as
practicable following the Severance Date, but, in any event, not later than
twenty (20) business days immediately following the expiration of the revocation
period, if any, applicable to such Severed Employee's release, described in
Section 2.12, and, (b) with respect to any other Eligible Employee, shall be
paid in a cash lump sum not later than twenty (20) business days immediately
following the receipt of payments subject to the Excise Tax. The provisions of
this Section 2.5 shall supersede the provisions of any other agreement between
the Company and a Severed Employee which prevent the Company from making any
payment to a Severed Employee if such payment would fail to be deductible by
reason of being an "excess parachute payment".
(ii) In the event that the Excise Tax is finally determined
to be less than the amount taken into account hereunder in calculating
the Gross-Up Payment, the Eligible Employee shall repay to the Company,
within twenty (20) business days following the time that the amount of
such reduction in the Excise Tax is finally determined, the portion of
the Gross-Up Payment attributable to such reduction (plus that portion
of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income and employment taxes imposed on the Gross-Up
Payment being repaid by the Eligible Employee, to the extent that such
repayment results in a reduction in the Excise Tax and a
dollar-for-dollar reduction in the Eligible Employee's taxable income
and wages for purposes of federal, state and local income and
employment taxes), plus interest on the amount of such repayment at
120% of the semiannual compounding short term Applicable Federal Rate
published with respect to the month in which the Gross-Up Payment was
made. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder in calculating the Gross-Up Payment
(including by reason of any payment the existence or amount of which
cannot be deter mined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess
(plus any interest, penalties or additions payable by the Eligible
Employee with respect to such excess) within twenty (20) business days
following the time that the amount of such excess is finally
determined. The Eligible Employee shall notify the Company immediately
of the assertion by any taxing authority of any under payment of tax.
The Eligible Employee and the Company shall each reason ably cooperate
with the other in connection with any administrative or
7
<PAGE>
judicial proceedings concerning the existence or amount of liability
for Excise Tax with respect to the Total Payments and in resolving any
dispute with any taxing authority regarding any asserted underpayment
of Excise Tax.
2.6 If any of the payments or benefits received or to be
received by a Tier 2 Employee in connection with a Change in Control (whether
pursuant to the terms of this Plan or any other plan, arrangement or agreement)
will be subject to the Excise Tax, then, after taking into account any reduction
in the Total Payments provided by reason of section 280G of the Code in such
other plan, arrangement or agreement, the Severance Payments shall be reduced to
the extent necessary so that no portion of the Total Payments is subject to the
Excise Tax but only if (A) the net amount of such Total Payments, as so reduced
(and after subtracting the net amount of federal, state and local income taxes
on such reduced Total Payments) is greater than or equal to (B) the net amount
of such Total Payments without such reduction (but after subtracting the net
amount of federal, state and local income taxes on such Total Payments and the
amount of Excise Tax to which the Executive would be subject in respect of such
unreduced Total Payments).
2.7 The Company shall provide each Severed Tier 1 and Tier 2
Employee with individual outplacement services; provided that, however, the
maximum expense in respect of the provision of such services to the Company
shall be $40,000 and $25,000, respectively, for a Tier 1 Employee and a Tier 2
Employee.
2.8 Commencing on the day immediately following a Severed Tier
1, Tier 2 or Tier 3 Employee's Severance Date, until the third, second, or first
anniversary, respectively, of the Severance Date or, if sooner, until such
Severed Tier 1, Tier 2 or Tier 3 Employee obtains employment which provides
substantially similar benefits, the Company shall provide such Severed Employee
and anyone entitled to claim under or through such Severed Employee all benefits
under any group hospitalization, health care plan, dental care plan, life, or
other insurance or death benefit plan, or other present or future similar group
employee benefit plan or program of the Employer to the same extent as if such
Severed Employee had continued to be an employee during such period. The
coverage period for purposes of the group health continuation requirements of
section 4980B of the Code shall commence immediately following the end of such
benefit continuation. In addition, commencing on the day immediately following a
Severed Tier 1, Tier 2 or Tier 3 Employee's Severance Date, until the third,
second, or first anniversary, respectively, of the Severance Date or, if sooner,
until such Severed Tier 1, Tier 2 or Tier 3 Employee obtains employ-
8
<PAGE>
ment which provides substantially similar benefits, the Company shall provide
such Severed Employee and anyone entitled to claim under or through such Severed
Employee all fringe benefits to the Severed Employee and his or her family at
least equal to those which were provided to them prior to termination.
2.9 The Company shall reimburse each Tier 1 and Tier 2
Severed Employee for financial counseling and tax planning service costs
incurred within 6 months following the Severance Date; provided that the
aggregate cost of such financial counseling and tax planning services for any
such employee shall not exceed $7,500.
2.10 The Company shall pay to each Tier 1 and Tier 2 Employee
all reasonable legal fees and expenses incurred by such Eligible Employee in
pursuing any claim under the Plan in which such Tier 1 or Tier 2 Employee
prevails in any material respect.
2.11 In the event of a claim by an Eligible Employee as to the
amount or timing of any distribution, such Eligible Employee shall present the
reason for his or her claim in writing to the Plan Administrator. The Plan
Administrator shall, within sixty (60) days after receipt of such written claim,
send a written notification to the Eligible Employee as to its disposition. In
the event the claim is wholly or partially denied, such written notification
shall (a) state the specific reason or reasons for the denial, (b) make specific
reference to pertinent Plan provisions on which the denial is based, (c) provide
a description of any additional material or information necessary for the
Eligible Employee to perfect the claim and an explanation of why such material
or information is necessary, and (d) set forth the procedure by which the
Eligible Employee may appeal the denial of his or her claim. In the event an
Eligible Employee wishes to appeal the denial of his or her claim, he or she may
request a review of such denial by making application in writing to the Plan
Administrator within sixty (60) days after receipt of such denial. Such
Eligible Employee (or his or her duly authorized legal representative) may, upon
written request to the Plan Administrator, review any documents pertinent to his
or her claim, and submit in writing, issues and comments in support of his or
her position. Within sixty (60) days after receipt of a written appeal (unless
special circumstances, such as the need to hold a hearing, require an extension
of time, but in no event more than one hundred twenty (120) days after such
receipt), the Plan Administrator shall notify the Eligible Employee of the final
decision. The final decision shall be in writing and shall include specific
reasons for the decision, written in a manner calculated to be
9
<PAGE>
understood by the claimant, and specific references to the pertinent Plan
provisions on which the decision is based.
2.12 No Severed Employee shall be eligible to receive
Severance Pay or other benefits under the Plan unless he or she first executes a
written release substantially in the form attached hereto as Schedule B, (or, if
the Severed Employee is not a United States employee, a similar release which is
in accordance with the applicable laws of the relevant jurisdiction).
2.13 An Employer shall be entitled to withhold from amounts to
be paid to the Severed Employee hereunder any federal, state or local
withholding or other taxes or charges (or foreign equivalents of such taxes or
charges) which it is from time to time required to withhold.
SECTION 3. PLAN ADMINISTRATION.
3.1 The Plan Administrator shall administer the Plan and may
interpret the Plan, prescribe, amend and rescind rules and regulations under the
Plan and make all other determinations necessary or advisable for the
administration of the Plan, subject to all of the provisions of the Plan,
including, without limitation, Section 2.11 thereof.
3.2 The Plan Administrator may delegate any of its duties
hereunder to such person or persons from time to time as it may designate.
3.3 The Plan Administrator is empowered, on behalf of the
Plan, to engage accountants, legal counsel and such other personnel as it deems
necessary or advisable to assist it in the performance of its duties under the
Plan. The functions of any such persons engaged by the Plan Administrator shall
be limited to the specified services and duties for which they are engaged, and
such persons shall have no other duties, obligations or responsibilities under
the Plan. Such persons shall exercise no discretionary authority or
discretionary control respecting the management of the Plan. All reasonable
expenses thereof shall be borne by the Employer.
SECTION 4. PLAN MODIFICATION OR TERMINATION.
The Plan may be amended or terminated by the Board at any
time; provided, however, that the Plan may not be terminated or amended during
the pendency of, or within two years following a Change in Control.
10
<PAGE>
SECTION 5. GENERAL PROVISIONS.
5.1 Except as otherwise provided herein or by law, no right or
interest of any Eligible Employee under the Plan shall be assignable or
transferable, in whole or in part, either directly or by operation of law or
otherwise, including without limitation by execution, levy, garnishment,
attachment, pledge or in any manner; no attempted assignment or transfer thereof
shall be effective; and no right or interest of any Eligible Employee under the
Plan shall be liable for, or subject to, any obligation or liability of such
Eligible Employee. When a payment is due under this Plan to a Severed Employee
who is unable to care for his or her affairs, payment may be made directly to
his or her legal guardian or personal representative.
5.2 If an Employer is obligated by law or by contract to pay
severance pay, a termination indemnity, notice pay, or the like, or if an
Employer is obligated by law to provide advance notice of separation ("Notice
Period"), then any Severance Pay hereunder shall be reduced by the amount of any
such severance pay, termination indemnity, notice pay or the like, as
applicable, and by the amount of any compensation received during any Notice
Period.
5.3 Neither the establishment of the Plan, nor any
modification thereof, nor the creation of any fund, trust or account, nor the
payment of any benefits shall be construed as giving any Eligible Employee, or
any person whomsoever, the right to be retained in the service of the Employer,
and all Eligible Employees shall remain subject to discharge to the same extent
as if the Plan had never been adopted.
5.4 If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and this Plan shall be construed and enforced as if such
provisions had not been included.
5.5 This Plan shall inure to the benefit of and be binding
upon the heirs, executors, administrators, successors and assigns of the
parties, including each Eligible Employee, present and future, and any successor
to the Employer. If a Severed Employee shall die while any amount would still be
payable to such Severed Employee hereunder if the Severed Employee had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Plan to the executor, personal representative
or administrators of the Severed Employee's estate.
11
<PAGE>
5.6 The headings and captions herein are provided for
reference and convenience only, shall not be considered part of the Plan, and
shall not be employed in the construction of the Plan.
5.7 The Plan shall not be funded. No Eligible Employee shall
have any right to, or interest in, any assets of any Employer which may be
applied by the Employer to the payment of benefits or other rights under this
Plan.
5.8 Any notice or other communication required or permitted
pursuant to the terms hereof shall have been duly given when delivered or mailed
by United States Mail, first class, postage prepaid, addressed to the intended
recipient at his, her or its last known address.
5.9 This Plan shall be construed and enforced according to
the laws of the New York to the extent not preempted by federal law, which shall
otherwise control.
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Exhibit 23
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
<PAGE>
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 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
<PAGE>
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 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,
<PAGE>
PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN
EFFECTIVE 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.
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
<PAGE>
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 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
<PAGE>
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 (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
<PAGE>
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-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
<PAGE>
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;
(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
<PAGE>
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
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>
(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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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
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
<PAGE>
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
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:
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Name:
Title:
STOCKHOLDERS:
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Name:
Residential Address:
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Name:
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Residential Address:
