EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT (together with the Exhibits incorporated herein, the
"Agreement"), dated as of February 27, 2004 (the "Agreement Date"), is made
among Solo Cup Investment Corporation, a Delaware corporation ("Company"), Solo
Cup Company, an Illinois corporation having its principal place of business at
0000 Xxx Xxxxxxxxx Xxxx, Xxxxxxxx Xxxx, Xxxxxxxx 00000 ("Solo Cup Company"), and
Xxxxxx X. Xxxxxx ("Executive"), residing at 000 Xxxxxxxxxx Xxxx, Xxxxxxxxxxxx,
Xxxxxxxx 00000. References herein to the Company shall include, where
applicable, the Company's Subsidiaries.
ARTICLE I.
PURPOSES
The Board of Directors of the Company ("Board") has determined that
it is in the best interests of the Company and its stockholders to retain the
services of Executive on the terms and conditions set forth herein.
ARTICLE II.
CERTAIN DEFINITIONS
In addition to the terms specifically defined elsewhere in this
Agreement, the following terms shall have the respective meanings indicated
(unless the context indicates otherwise):
2.1 "Agreement" means this Employment Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
2.2 "Article" means an article of this Agreement.
2.3 "Cause" means any of the following:
(a) Executive's willful failure to perform Executive's duties (other
than as a result of total or partial incapacity due to physical or mental
illness); or
(b) Executive's conviction of, or plea of NOLO CONTENDERE to, a
crime constitution (i) a felony under the law of the United States or any
state thereof, or (ii) a misdemeanor involving moral turpitude; or
(c) Executive's willful malfeasance or willful misconduct in
connection with Executive's duties which is materially injurious to the
financial condition or business reputation of the Company or any of its
affiliates; or
(d) Executive's breach of any non-competition, non-solicitation or
confidentiality provisions to which Executive is subject, EXCLUDING,
HOWEVER, any disclosure of confidential information made by Executive in
the ordinary course of Executive's duties with a reasonable belief that it
is in the furtherance of the Company's business; or
(e) Executive's material beach of any other provision of this
Agreement;
PROVIDED, HOWEVER, that "Cause" shall not include any act or omission described
in subsection (a), (c), (d) or (e) above unless within 60 days after the
earliest date on which the Board or any non-employee director of the Company has
actual knowledge of such act or omission, the Company provides written notice to
Executive and opportunity to cure such act or omission, and such act or omission
is not cured to the reasonable satisfaction of the Board by Executive within ten
(10) business days of Executive's actual receipt of such notice.
2.4 "Certificate of Designations" means the Certificate of Designations
of Convertible Participating Preferred Stock of Solo Cup Investment Corporation
dated February 27, 2004.
2.5 "Change of Control" of the Company shall have the meaning set forth
in Section 1.1 of the Stockholders' Agreement.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Convertible Preferred Units" or "CPUs" has the meaning defined for
that term in Section 3.6.
2.8 "Disability" means any medically determinable physical or mental
impairment that has lasted for a period of six (6) months within a consecutive
twelve-month period, can be expected to be permanent or of indefinite duration,
and renders Executive unable to perform the duties required under this
Agreement. Any question as to the existence of the Disability of Executive as to
which Executive and the Company cannot agree shall be determined in writing by a
qualified independent physician mutually acceptable to Executive and the
Company. If Executive and the Company cannot agree as to a qualified independent
physician, each shall appoint such a physician and those two physicians shall
select a third who shall make such determination in writing. The determination
of Disability made in writing to the Company and Executive shall be final and
conclusive for all purposes of the Agreement.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.10 "Excise Tax" means any excise tax imposed under Section 4999 of the
Code.
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2.11 "Good Reason" means any of the following:
(a) a substantial diminution of Executive's position, authority,
duties or responsibilities inconsistent with his position as set forth in
Section 3.1;
(b) any failure by the Company to comply with any provision of this
Agreement or a Related Agreement;
(c) any reduction in Executive's Salary, except if such a reduction
is part of an across-the-board reduction of base salaries of the senior
executives of the Company;
(d) appointment of anyone other than a Hulseman family member or
Executive as Chief Executive Officer of the Company;
(e) the Company's material beach of any other provision of this
Agreement
(f) a termination of employment by Executive for any reason or no
reason at any time during the thirty (30) day period commencing twelve
months following the date of a Change of Control;
PROVIDED, HOWEVER, that "Good Reason" shall not include any act or omission
described in subsections (a) through (f) above unless within 60 days following
the later of (i) the occurrence of such act or omission or (ii) Executive's
knowledge of such act or omission, Executive provides written notice to the
Company and opportunity to cure such act or omission, and such act or omission
is not cured to the reasonable satisfaction of Executive within thirty (30)
business days of the Company's actual receipt of such notice; and PROVIDED,
FURTHER, that with respect to clauses (a) through (e) above, "Good Reason" shall
cease to exist for any act or omission on the 60th day following the later of
its occurrence or Executive's knowledge thereof.
2.12 "Management Plan" means the Solo Cup Investment Corporation 2004
Management Investment and Incentive Compensation Plan.
2.13 "Notice of Termination" means a written notice given in accordance
with Section 10.9 and which sets forth (a) the specific termination provision in
this Agreement relied upon by the party giving such notice and (b) in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under such termination provision.
2.14 "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 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
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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.
2.15 "Principal Stockholders" means SCC Holding Company LLC ("Holdings
LLC"), Vestar Capital Partners IV, L.P. ("VCP"), Vestar Cup Investment, LLC
("Vestar Investment"), and Vestar Cup Investment II, LLC.
2.16 "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, among the Principal Stockholders, the
Company and Executive.
2.17 "Related Agreement" means any of the Stockholders' Agreement,
Registration Rights Agreement, and the Certificate of Designations.
2.18 "Section" means a section of this Agreement.
2.19 "Stockholders' Agreement" means the Stockholders' Agreement, dated as
of the date hereof, among the Principal Stockholders, the Company, Executive and
other management investors.
2.20 "Subsidiary" shall have the meaning set forth in the Stockholders'
Agreement.
ARTICLE III.
POSITION, DUTIES, COMPENSATION AND BENEFITS
3.1 POSITION AND DUTIES; BOARD SERVICE.
(a) PRESIDENT AND CHIEF OPERATING OFFICER. During the Agreement Term
and until any earlier termination of Executive's employment pursuant to
Article IV hereof, (the "Employment Period"), Executive shall be employed
as President and Chief Operating Officer of Solo Cup Company and shall also
serve as President and Chief Operating Officer of the Company, with duties,
responsibilities, powers and authorities commensurate with the most senior
executive position. Executive shall have broadest possible discretion and
authority to establish corporate goals and policies, structure and select
corporate staff and management, direct all executive staff and operational
personnel, and manage and direct the day-to-day affairs of the Company. All
operations and staff personnel shall report directly to Executive or
through one or more officers designated by Executive who shall report
directly to Executive. Executive shall report exclusively to the Chairman
of the Company and the Board. Executive shall meet with the Board on a
periodic basis regarding the Company's performance sufficient to enable the
Board to fulfill its corporate governance responsibilities. Executive's
services shall be performed principally at the
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Company's corporate offices in Highland Park, Illinois, subject to such
reasonable travel as the performance of Executive's duties may require.
(b) DUTIES. During the Agreement Term (other than periods of
vacation, sick leave, or Disability to which Executive is entitled),
Executive shall devote substantially all of Executive's attention and time
to the business and affairs of the Company to discharge the duties assigned
to Executive in accordance with this Agreement, and to use Executive's best
efforts to perform faithfully and efficiently such duties. Notwithstanding
the foregoing, during the Employment Period, Executive may (1) serve on
corporate, civic or charitable boards or committees, (2) deliver lectures,
fulfill speaking engagements or teach at educational institutions, and (3)
manage personal investments, so long as such activities, either
individually or in the aggregate, do not materially interfere with or
conflict in any way with, the performance of Executive's duties under this
Agreement and subject to the covenants set forth in Article VIII.
(c) BOARD SERVICE. Promptly following the Agreement Date, Executive
will be appointed as a member of the Board. Executive will be nominated for
election as a member of the Board at the first annual meeting of the
Company's stockholders following the Agreement Date, and shall thereafter
throughout the Employment Period be renominated for election to successive
terms as a member of the Board.
3.2 AGREEMENT TERM. The term of this Agreement ("Agreement Term") means
the period commencing on the Agreement Date and ending on the fifth anniversary
of the Agreement Date (the "Initial Term"), or if later, the date to which the
Agreement Term is extended under the following sentence. On the last day of the
Initial Term and the last day of each renewal pursuant to this sentence, the
Agreement Term shall automatically be renewed for additional one-year periods
unless the Company or Executive give the other written notice ("Nonrenewal
Notice") at least ninety (90) days before the expiration of the Agreement Term
(as extended and as then in effect) that the Agreement shall not be renewed.
3.3 BASE SALARY AND BONUS.
(a) During the Employment Period, Executive shall earn a base salary
("Salary") at the rate of $900,000 per annum, payable in regular
installments in accordance with the Company's payroll policy. Such Salary
shall be subject to review and increase (but not decrease) by the Board not
less frequently than annually. In no event shall the amount of Executive's
Salary (as may be increased from time to time) be reduced during the
Employment Period.
(b) During the Employment Period, Executive shall also be eligible
to earn an annual bonus ("Bonus") for each fiscal year of the Company,
subject to the Company's annual reduction of indebtedness by $50 million,
equal to the following amount: (1) if the Company achieves 100% of target
EBITDA for such
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fiscal year as set forth on Exhibit A hereto ("Target EBITDA"), a Bonus in
the amount equal to 95% of the annual amount of Salary in effect on the
last day of such fiscal year ("Target Bonus"); (2) if the Company achieves
85% of Target EBITDA for such fiscal year, a Bonus in an amount equal to
50% of Target Bonus; (3) if the Company achieves 115% of target EBITDA, a
Bonus in an amount equal to 150% of Target Bonus. If the Company achieves
between 85% and 100% or between 100% and 115% of Target EBITDA for such
fiscal year, Executive's Bonus shall based on a linear sliding scale
between the applicable targets. If the Company achieves more than 115% of
Target EBITDA in any such fiscal year, Executive's Bonus shall increase
dollar for dollar, provided that in no event shall the maximum Bonus
payable to Executive exceed 200% of his Target Bonus (and Company
performance beyond the point at which 200% of the Target Bonus is reached
shall not result in any further increase in the Bonus). The Bonus for each
fiscal year shall be paid to Executive by the Company in cash not later
than the ninety (90) days after the end of such fiscal year.
Notwithstanding anything in this Agreement to the contrary, Executive
acknowledges and agrees that the aggregate proceeds of the cash bonuses to
which he may become entitled during the Employment Period (whether pursuant
to this Section 3.3 or Section 3.4 of the Agreement or otherwise) shall be
reduced by up to $212,000 (but not below zero) each year, which amount
shall be applied for purposes of repaying the interest-free loan granted to
him by the Company pursuant to Amendment One, dated as of September 21,
2001, to that certain Employment, Confidentiality and Non-Competition
Agreement, dated as of August 4, 1999, between Executive and the Company,
and the related repayment and forgiveness arrangements shall continue
during the Employment Period.
3.4 OTHER BENEFITS.
(a) BONUS AND INCENTIVE PLANS. During the Employment Period,
Executive shall be eligible to participate in the Company's bonus and
incentive plans or arrangements in effect from time to time that are
applicable generally to senior executives of the Company, with award
opportunities commensurate with the most senior executive position,
provided that Executive shall not be entitled to bonus under any such a
bonus or incentive plan that is duplicative of the Bonus prescribed by
Section 3.3.
(b) SAVINGS AND RETIREMENT PLANS. During the Employment Period,
Executive shall be eligible to participate in all savings and retirement
plans provided by the Company as in effect from time to time, on the same
basis as such savings and retirement benefits are generally made available
to other senior executives of the Company.
(c) WELFARE BENEFIT PLANS. During the Employment Period, Executive
(and to the extent eligible, his dependents) shall be eligible to
participate in all welfare benefit plans provided from time to time by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance,
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individual life, group life, dependent life, accidental death and travel
accident insurance plans, to the extent the Company maintains such welfare
benefits from time to time), on the same basis as such welfare benefits are
made available to other senior executives of the Company and their eligible
dependents.
(d) OTHER FRINGE BENEFITS. During the Employment Period, Executive
shall be eligible to participate in fringe benefits provided by the Company
from time to time on the same basis as such fringe benefits are made
available to other senior executives of the Company.
(e) EXPENSES. Executive shall be entitled to reimbursement of all
reasonable employment-related expenses incurred by Executive during the
Employment Period in the performance of Executive's duties hereunder upon
the Company's receipt of accountings in accordance with the terms of the
Company expense reimbursement policy for its senior executives.
(f) OFFICE AND SUPPORT STAFF. During the Employment Period,
Executive shall be entitled to an office of a size and with furnishings and
other appointments and to secretarial and other assistance as it provides
to senior executives of the Company generally.
(g) VACATION. During the Employment Period, Executive shall be
entitled to five (5) weeks of paid vacation provided by the Company, which
vacation shall be taken at a time mutually convenient to Executive and the
Company.
3.5 INITIAL OPTIONS. On the Agreement Date, the Company shall grant
Executive a nonqualified option to purchase 376,953 shares of the Company's
common stock pursuant to a Stock Option Award Agreement issued under the
Company's 2004 Management Investment and Incentive Compensation Plan, such Stock
Option Award Agreement to be substantially in the form attached hereto as
Exhibit B.
3.6 DEFERRED EQUITY COMPENSATION. On the Agreement Date, the Company
shall credit a recordkeeping account maintained on behalf of Executive with
1,907 Convertible Preferred Units ("CPUs") pursuant to a Convertible Preferred
Unit Award Agreement issued under the Company's 2004 Management Investment and
Incentive Plan, such Convertible Preferred Unit Award Agreement to be
substantially in the form attached hereto as Exhibit C.
ARTICLE IV.
TERMINATION OF EMPLOYMENT
4.1 GENERAL. The Agreement Term and Executive's employment hereunder may
be terminated at any time by either party and for any reason; provided that
Executive will be required to give the Company at least 45 days advance written
notice of any
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resignation of Executive's employment. Notwithstanding any other provision of
the Agreement, the provisions of this Article IV shall exclusively govern
Executive's rights upon termination of employment with the Company and/or its
affiliates. Any purported termination of employment by the Company for Cause or
by Executive (other than due to Executive's death) shall be communicated by a
Notice of Termination to the other party hereto.
4.2 IF BY EXECUTIVE FOR GOOD REASON OR BY THE COMPANY OTHER THAN FOR CAUSE
OR DISABILITY OR DEATH. The Agreement Term and Executive's employment hereunder
may be terminated by the Company other than for Cause, death or Disability or by
Executive's resignation for Good Reason. If, during the Agreement Term, the
Company shall terminate Executive's employment (including, without limitation,
by means of the expiration of the Agreement Term following the Company's
election not to extend the Agreement Term) other than for Cause, Disability or
death, or if Executive shall terminate employment for Good Reason, the Company's
obligations to Executive, shall be as set forth below; PROVIDED, that Executive
executes a release of claims in favor of the Company, its affiliates, officers
and directors. Such release shall in no event release the Company from claims
arising from (1) any applicable amounts to be paid hereunder following
termination of Executive's employment, (2) any rights to indemnification under
the Company's bylaws, charter, and applicable law, (3) any benefits to which
Executive is entitled following termination of employment under any benefit plan
of the Company or its Subsidiaries, or under applicable law, (4) any rights
under the Management Plan, the Option Award Agreement, and the Convertible
Preferred Unit Award Agreement following termination of Executive's employment,
or (5) any rights to which Executive is entitled under the Stockholders'
Agreement that continue following termination of employment.
(a) The Company shall, as soon as practicable following the date of
termination of employment (but in no event earlier than the expiration of
the revocation period under the release referred to in the immediately
preceding paragraph) pay Executive a lump-sum cash amount equal to the sum
of the following amounts:
(1) (A) all unpaid amounts of Salary and Bonus previously
accrued to the benefit of Executive; (B) reimbursement for any
unreimbursed business expenses properly incurred by Executive in
accordance with Company policy prior to the date of termination; and
(C) such employee benefits, if any, as to which Executive may be
entitled under the employee benefit plans of the Company
(collectively, the "Accrued Obligations");
(2) an amount equal to the product of Executive's Target Bonus
(determined as of the termination date) multiplied by a fraction, the
numerator of which is the number of days from and including the first
day of the fiscal year in which the termination date occurs through
and
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including the termination date, and the denominator of which is 365
("Pro-Rata Bonus"); and
(3) an amount equal to the product of (A) (i) two (2), or (ii)
if such termination of employment occurs within 60 days prior to or
two (2) years following a Change of Control, three (3), multiplied by
(B) the sum of (i) Salary and (ii) Target Bonus in the year of
termination.
(b) Until the earlier to occur of (i) (A) expiration of the two (2)
year period immediately following the termination date, in case severance
is paid pursuant to clause (3)(i) of Section 4.2(a) hereof or (B)
expiration of the three (3) year period immediately following the
termination date, in case severance is paid pursuant to clause (3)(ii) of
Section 4.2(a) hereof or (ii) Executive is provided similar coverage by a
new employer, the Company shall continue to provide to Executive with
continued coverage under welfare benefit programs in which Executive was
entitled to participate immediately prior to his termination date, at no
greater cost to Executive than that in effect immediately prior to the
termination date; PROVIDED, HOWEVER, that with respect to any such coverage
that is provided on a pre-tax basis, the Company shall not be obligated, if
not permitted by the terms of the applicable plan or by applicable law, to
provide such coverage on a pre-tax basis. In the event that Executive's
participation in any such plan is barred by the terms thereof, the Company
shall arrange to provide Executive with benefits substantially similar to
those which Executive would otherwise be entitled to receive under such
plans, program or arrangements. The Company may meet its obligations under
this Section 4.2(b) by electing to provide, at the Company's expense,
continuation coverage under the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
Following Executive's termination of employment by the Company other
than for Cause (other than by reason of Executive's death or Disability) or by
Executive's resignation for Good Reason, except as set forth in this Section 4.2
and in Sections 10.10 and 10.16, Executive shall have no further rights to any
compensation or any other benefits under this Agreement.
4.3 IF BY THE COMPANY FOR CAUSE OR BY EXECUTIVE OTHER THAN FOR GOOD
REASON. The Agreement Term and Executive's employment hereunder may be
terminated by the Company for Cause and shall terminate automatically upon
Executive's resignation other than for Good Reason. If, during the term of the
Agreement Term, the Company shall terminate Executive's employment for Cause, or
if Executive shall terminate employment other than for Good Reason, the
Company's obligations to Executive shall consist exclusively of payment of the
Accrued Obligations. Following Executive's termination of employment by the
Company for Cause or by Executive's resignation other than for Good Reason,
except as set forth in this Section 4.3 and in Sections 10.10 and 10.16,
Executive shall have no further rights to any compensation or any other benefits
under this Agreement.
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4.4 IF UPON DISABILITY. The Agreement Term and Executive's employment
hereunder may be terminated by the Company upon Executive's Disability. If
Executive's employment is terminated by reason of Executive's Disability during
the Agreement Term, the Company's obligations to Executive shall consist of: (a)
the payment of the Accrued Obligations to Executive's estate or beneficiary and
(b) payment in cash to Executive's estate or beneficiary of a Pro-Rata Bonus,
payable as soon as practicable following the termination of Executive's
employment. Following Executive's termination of employment by the Company for
Disability, except as set forth in this Section 4.4 and in Sections 10.10 and
10.16, Executive shall have no further rights to any compensation or any other
benefits under this Agreement.
4.5 IF UPON DEATH. The Agreement Term and Executive's employment
hereunder shall terminate automatically upon Executive's death. If Executive's
employment is terminated by reason of Executive's death during the Agreement
Term, the Company's obligations to Executive shall consist of: (a) the payment
of the Accrued Obligations to Executive's estate or beneficiary and (b) payment
in cash to Executive's estate or beneficiary of a Pro-Rata Bonus, payable as
soon as practicable following Executive's death. Following Executive's
termination of employment by the Company for Disability, except as set forth in
this Section 4.5 and in Sections 10.10 and 10.16, Executive shall have no
further rights to any compensation or any other benefits under this Agreement.
4.6 CONTINUED EMPLOYMENT BEYOND THE EXPIRATION OF THE AGREEMENT TERM.
Unless the parties otherwise agree in writing, continuation of Executive's
employment with the Company beyond the expiration of the Agreement Term shall be
deemed an employment at-will and shall not be deemed to extend any of the
provisions of this Agreement and Executive's employment may thereafter be
terminated at will by either Executive or the Company; PROVIDED that the
provisions of Article VIII of this Agreement shall survive any termination of
this Agreement or Executive's termination of employment hereunder.
4.7 BOARD/COMMITTEE RESIGNATION. Upon termination of Executive's
employment for any reason, Executive agrees to resign, as of the date of such
termination and to the extent applicable, from the Board (and any committees
thereof) and the Board of Directors (and any committees thereof) of any of the
Company's affiliates.
ARTICLE V.
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
5.1 If any of the payments or benefits received or to be received by
Executive in connection with a Change in Control or Executive's termination of
employment (whether pursuant to the terms of the Agreement or any other plan,
arrangement or agreement with the Company, any Person whose actions result in a
Change in Control or any Person affiliated with the Company or such Person) (all
such payments and benefits, excluding the Gross-Up Payment, being hereinafter
referred to as the "Total Payments") will be subject to any excise tax imposed
under section 4999 of the Code (the "Excise
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Tax"), the Company shall pay to Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by Executive, 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.
5.2 For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as "parachute payments" (within the meaning of
section 280G(b)(2) of the Code) unless, in the written opinion of tax counsel
("Tax Counsel") selected by the Company's independent auditor (the "Auditor")
(which opinion shall be provided to Executive for purposes of his own tax
reporting obligations), such payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of section 280G(b)(4)(A) of
the Code, (ii) all "excess parachute payments" within the meaning of section
280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in
the opinion of Tax Counsel, such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered (within the
meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount
allocable to such reasonable compensation, or are otherwise not subject to the
Excise Tax, and (iii) the value of any noncash benefits or any deferred payment
or benefit shall be determined by the Auditor in accordance with the principles
of sections 280G(d)(3) and (4) of the Code. For purposes of determining the
amount of the Gross-Up Payment, Executive shall be deemed to pay federal income
tax at the highest marginal rate of federal income taxation in the calendar year
in which the Gross-Up Payment is to be made and state and local income taxes at
the highest marginal rate of taxation in the state and locality of Executive's
residence on the Date of Termination (or if there is no Date of Termination,
then the date on which the Gross-Up Payment is calculated for purposes of this
Section 6.2), net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes. The expenses of Tax
Counsel and the Auditor shall be paid by the Company.
5.3 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, Executive shall repay to the Company, within five (5) 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 Executive, to the extent that such repayment
results in a reduction in the Excise Tax and a dollar-for-dollar reduction in
Executive'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 rate provided in section 1274(b)(2)(B) of the Code. 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 determined 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,
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penalties or additions payable by Executive with respect to such excess) within
five (5) business days following the time that the amount of such excess is
finally determined. Executive and the Company shall each reasonably cooperate
with the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect to
the Total Payments.
ARTICLE VI.
EXPENSES AND INTEREST
6.1 LEGAL FEES AND OTHER EXPENSES.
(a) If Executive incurs legal fees or expenses in an effort to
secure, establish entitlement to, or obtain benefits under this Agreement
(including, without limitation, the reasonable fees of Executive's legal
counsel in connection with enforcing Executive's rights to Gross-up
Payments in Article V, to indemnification in Article IX or under the Stock
Option Award Agreement or the CPU Award Agreement), the Company shall
reimburse Executive on a current basis (in accordance with Section 6.1(c))
for such reasonable fees and expenses incurred, so long as the court or
arbitrator in such proceeding does not determine that Executive acted in
bad faith or without a reasonable basis to pursue such action, proceeding
or claim against the Company.
(b) The Company will pay Executive Executive's legal fees and
expenses in negotiating this Agreement, together with an additional payment
("gross-up payment") such that, after payment of all income, excise or
other taxes on such reimbursement and gross-up payment (after any
deductions or other tax benefits respecting such amounts to which Executive
is entitled) there remains a balance sufficient to pay all such fees and
other expenses.
(c) Reimbursement of legal fees and other expenses and gross-up
payments shall be made monthly within ten (10) days after Executive's
written submission of a request for reimbursement together with evidence
that such fees and expenses were incurred.
6.2 INTEREST. If the Company does not pay any amount due to Executive
under this Agreement within three (3) business days after such amount became due
and owing, interest shall accrue on such amount from the date it became due and
owing until the date of payment at an annual rate equal to the LIBOR rate (as in
effect under the Company's principal revolving credit agreement) plus two
percent (2.0%).
ARTICLE VII.
NO SET-OFF OR MITIGATION
7.1 NO SET-OFF BY COMPANY. Executive's right to receive when due the
payments and other benefits provided for under and in accordance with the terms
of this
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Agreement is absolute, unconditional and not subject to set-off, counterclaim or
legal or equitable defense.
7.2 NO MITIGATION. Executive shall not have any duty to mitigate the
amounts payable by the Company under this Agreement upon any termination of
employment by seeking new employment following termination. Except as
specifically otherwise provided in this Agreement, all amounts payable pursuant
to this Agreement shall be paid without reduction regardless of any amounts of
salary, compensation or other amounts which may be paid or payable to Executive
as the result of Executive's employment by another employer or self-employment.
ARTICLE VIII.
CONFIDENTIALITY AND NONCOMPETITION
8.1 CONFIDENTIALITY.
(a) Executive will not at any time (whether during or after
Executive's employment with the Company), except as reasonably necessary in
connection with the performance of his duties hereunder (x) retain or use
for the benefit, purposes or account of Executive or any other Person, or
(y) disclose, divulge, reveal, communicate, share, transfer or provide
access to any Person outside the Company (other than its professional
advisers who are bound by confidentiality obligations), any non-public,
proprietary or confidential information -- including without limitation
trade secrets, know-how, research and development, software, databases,
inventions, processes, formulae, technology, designs and other intellectual
property, information concerning finances, investments, profits, pricing,
costs, products, services, vendors, customers, clients, partners,
investors, personnel, compensation, recruiting, training, advertising,
sales, marketing, promotions, government and regulatory activities and
approvals -- concerning the past, current or future business, activities
and operations of the Company, its subsidiaries or affiliates and/or any
third party that has disclosed or provided any of same to the Company on a
confidential basis ("Confidential Information") without the prior written
authorization of the Board.
(b) "Confidential Information" shall not include any information
that is (i) generally known to the industry or the public other than as a
result of Executive's breach of this covenant or any breach of other
confidentiality obligations by third parties; (ii) made legitimately
available to Executive by a third party without breach of any
confidentiality obligation; or (iii) required by law to be disclosed;
PROVIDED that Executive shall give prompt written notice to the Company of
such requirement, disclose no more information than is so required, and
cooperate with any attempts by the Company to obtain a protective order or
similar treatment.
(c) Except as required by law, Executive will not disclose to
anyone, other than Executive's immediate family and legal or financial
advisors, the
13
existence or contents of this Agreement; PROVIDED that Executive may
disclose to any prospective future employer the provisions of Article VIII
of this Agreement provided they agree to maintain the confidentiality of
such terms.
8.2 NONSOLICITATION. During the Employment Period and thereafter for a
period of eighteen (18) months, Executive shall not, directly or indirectly, (a)
employ any employee of the Company and/or its affiliates, (b) interfere with the
Company's or any of its affiliates' relationship with, or (c) employ or endeavor
to entice away from the Company and/or its affiliates any person who was an
employee of any business of the Company and/or its affiliates during the period
commencing one (1) year prior to such solicitation or employment.
8.3 NONCOMPETITION. During the Employment Period, and, if Executive's
employment is terminated for any reason, thereafter for a period of eighteen
(18) months, Executive shall not directly or indirectly engage in any
Competitive Activity (as defined below) without the prior approval of the Board.
"Competitive Activity" means to carry on, be engaged in or have any financial
interest (other than an ownership interest of less than 1% in any publicly
traded entity) in any Company Competitor (as such term is defined in the
Stockholders' Agreement). After eighteen (18) months following Executive's
termination of employment, Executive shall not be implicitly or explicitly
restricted from engaging in Competitive Activity subject to his satisfaction of
his obligations under Section 8.3.
8.4 It is expressly understood and agreed that although Executive and the
Company consider the restrictions contained in this Article VIII to be
reasonable, if a final judicial determination is made by a court of competent
jurisdiction that the time or territory or any other restriction contained in
this Agreement is an unenforceable restriction against Executive, the provisions
of this Agreement shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such maximum extent as such
court may judicially determine or indicate to be enforceable. Alternatively, if
any court of competent jurisdiction finds that any restriction contained in this
Agreement is unenforceable, and such restriction cannot be amended so as to make
it enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
ARTICLE IX.
INDEMNIFICATION; NON-EXCLUSIVITY OF RIGHTS
9.1 INDEMNIFICATION. Pursuant to the Company's policies as in effect from
time to time and to the fullest extent permitted by law and the Company's
certificate of incorporation and by-laws, the Company shall indemnify Executive
for all amounts (including, without limitation, judgments, fines, settlement
payments, losses, damages, costs and expenses (including reasonable attorneys'
fees)) incurred or paid by Executive in connection with any action, proceeding,
suit or investigation (the "Proceeding") arising out of or relating to the
performance by Executive of services for, or acting as a fiduciary of any
employee benefit plans, programs or arrangements of the Company or as a
14
director, officer or employee of, the Company or any subsidiary or affiliate
thereof. The Company also agrees to maintain during the period during which
Executive is employed hereunder and continuing for a period of not less than 6
years following the termination of Executive's employment hereunder, a
director's and officers' liability insurance policy covering Executive with
respect to Executive's services performed during the period of Executive's
employment hereunder.
9.2 EXCLUSIONS. Notwithstanding anything to the contrary elsewhere in
this Agreement, Article IX shall not be construed as providing indemnification
in respect of claims, expenses or other liabilities or costs relating to,
arising out of or resulting from (1) the provision prior to, on or after
February 27, 2004 by Executive to Solo Family Members (as defined in the
Stockholders' Agreement) of investment advice, investment management and
investment reporting services or other services not directly related to the
performance by Executive of his duties as an officer, director or employee of
the Company or (2) any claim by a Solo Family Member relating to, arising out of
or resulting from any transaction referred to in or contemplated by the Offering
Memorandum (as defined in the Stockholders' Agreement) and which relates to any
act or omission of Executive occurring on or prior to February 27, 2004.
9.3 REPRESENTATIONS. The Company represents and warrants that this
Article X does not conflict with or violate its certificate of incorporation or
by-laws, and agrees that it will not amend its certificate of incorporation or
by-laws in a manner that would limit the rights of Executive hereunder. The
Company represents that the execution, delivery and performance of this
Agreement by the Company has been duly and validly authorized by its Board.
9.4 SURVIVAL OF INDEMNITY. This Article X shall survive any termination
of the relationship of Executive with the Company, and shall be binding on, and
inure to the benefit of the successors and assigns of the Company and the
successors, assigns, heirs and personal representatives of Executive.
ARTICLE X.
MISCELLANEOUS
10.1 SPECIFIC PERFORMANCE. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Article VIII would be inadequate and the Company would suffer
irreparable damages as a result of such breach or threatened breach. In
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available.
10.2 REPRESENTATIONS; NONDISCLOSURE. Executive represents and warrants
that he is not a party to any agreement, contract or understanding, employment
or otherwise,
15
which would restrict or prohibit him in any way from undertaking or
performing employment in accordance with the terms and conditions of this
Agreement.
10.3 NO ASSIGNABILITY. This Agreement is personal to Executive and without
the prior written consent of the Company shall not be assignable or delegable by
Executive. Any purported assignment or delegation by Executive in violation of
the foregoing shall be null and void ab initio and of no force and effect. This
Agreement may be assigned by the Company to a person or entity which is an
affiliate or a successor in interest to substantially all of the business
operations of the Company. Upon such assignment, the rights and obligations of
the Company hereunder shall become the rights and obligations of such affiliate
or successor person or entity. This Agreement shall inure to the benefit of and
be enforceable by Executive's legal representatives.
10.4 SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns. The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets of the Company to assume expressly and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Any successor to the business
and/or assets of the Company which assumes or agrees to perform this Agreement
by operation of law, contract, or otherwise shall be jointly and severally
liable with the Company under this Agreement as if such successor were the
Company.
10.5 PAYMENTS TO BENEFICIARY. If Executive dies before receiving amounts
to which Executive is entitled under this Agreement, such amounts shall be paid
to the beneficiary designated in writing by Executive, or if none is so
designated, to Executive's estate.
10.6 NON-ALIENATION OF BENEFITS. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, before actually being received by
Executive, and any such attempt to dispose of any right to benefits payable
under this Agreement shall be void.
10.7 SEVERABILITY. If any one or more Articles, Sections or other portions
of this Agreement are declared by any court or governmental authority to be
unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any Article, Section or other portion not so declared to be unlawful
or invalid. Any Article, Section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such Article,
Section or other portion to the fullest extent possible while remaining lawful
and valid.
10.8 AMENDMENTS. This Agreement shall not be altered, amended or modified
except by written instrument executed by the Company and Executive.
16
10.9 NOTICES. All notices and other communications under this Agreement
shall be in writing and delivered by hand, by nationally recognized delivery
service that promises overnight delivery, or by first class registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive:
Xxxxxx X. Xxxxxx
000 Xxxxxxxxxx Xxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
with a copy to:
Sonnenschein, Nath & Xxxxxxxxx
0000 Xxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxx, Esq.
If to the Company:
Solo Cup Investment Corporation
0000 Xxx Xxxxxxxxx Xxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Attention:______________________
with a copy to:
________________________________
________________________________
________________________________
Attention:______________________
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
10.10 SURVIVAL OF EXECUTIVE'S RIGHTS. All of Executive's rights hereunder
relating to reimbursement of fees and expenses and indemnification shall survive
any termination of the relationship of Executive with the Company, including
termination or expiration of the Agreement Term or termination of this
Agreement, and shall be binding on the successors and assigns of the Company and
shall inure to the benefit of the successors, assigns, heirs and personal
representatives of Executive.
10.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
17
10.12 GOVERNING LAW. This Agreement shall be interpreted and construed in
accordance with the laws of the State of Illinois, without regard to its
conflict of laws principles.
10.13 CAPTIONS. The captions of this Agreement are not a part of the
provisions hereof and shall have no force or effect.
10.14 TAX WITHHOLDING. The Company may withhold from any amounts payable
under this Agreement any federal, state or local taxes that are required to be
withheld pursuant to any applicable law or regulation.
10.15 NO WAIVER. Executive's failure to insist upon strict compliance with
any provision of this Agreement shall not be deemed a waiver of such provision
or any other provision of this Agreement. A waiver of any provision of this
Agreement shall not be deemed a waiver of any other provision, and any waiver of
any default in any such provision shall not be deemed a waiver of any later
default thereof or of any other provision.
10.16 NON-EXCLUSIVITY OF RIGHTS. This Agreement shall not prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans provided by the Company or any of its Subsidiaries and for which
Executive may qualify, nor shall this Agreement limit or otherwise affect such
rights as Executive may have under any other agreements with the Company or any
of its Subsidiaries including but not limited to any Related Agreement. Amounts
which are vested benefits or which Executive is otherwise entitled to receive
under any plan of the Company or any of its Subsidiaries and any other payment
or benefit required by law at or after the termination date shall be payable in
accordance with such plan or applicable law except as expressly modified by this
Agreement. In addition, the awards granted to Executive under the Management
Plan shall be governed by the terms of such plan and the award agreements
thereunder.
10.17 PRIOR AGREEMENTS. This Agreement supersedes all prior agreements and
understandings (including verbal agreements) between Executive and the Company
and/or its affiliates regarding the terms and conditions of Executive's
employment with the Company and/or its affiliates including, without limitation,
the Employment, Confidentiality and Non-Competition Agreement dated August 4,
1999, between Executive and Solo Cup Company.
10.18 ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the Company and Executive with respect to its subject matter.
10.19 PAYMENTS DUE HEREUNDER. The payment obligations of the Company
hereunder shall be met by the payment of such amounts to Executive by Solo Cup
Company or a Subsidiary or affiliate of the Company.
18
IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date first above written.
SOLO CUP INVESTMENT CORPORATION
By: /S/ Xxxxxx X. Xxxxxxxx
------------------------------------
Title: Chairman and CEO
---------------------------------
SOLO CUP COMPANY
By: /S/ Xxxxxx X. Xxxxxxxx
------------------------------------
Title: Chairman and CEO
---------------------------------
/S/ Xxxxxx X. Xxxxxx
----------------------------------------
XXXXXX X. XXXXXX
19
EXHIBIT A
EBITDA TARGETS(1)
The targets (in millions) are as follows:
2004 2005 2006 2007 2008
---- ---- ---- ---- ----
EBITDA $ 205.5 $ 236.8 $ 264.4 $ 277.3 $ 290.3
----------
(1) EBITDA shall have the meaning set forth in the "Consolidated EBITDA"
definition set forth in the Company's revolving credit agreement. Note also that
all EBITDA target numbers shall be calculated after payment of bonuses.
20
EXHIBIT B
[SEE ATTACHED]
21
SOLO CUP INVESTMENT CORPORATION
STOCK OPTION AWARD AGREEMENT
UNDER THE 2004 MANAGEMENT INVESTMENT AND INCENTIVE
COMPENSATION PLAN
THIS STOCK OPTION AWARD AGREEMENT (the "Award Agreement"), dated as of
February 27, 2004, is made by and between Solo Cup Investment Corporation, a
Delaware corporation (the "Company"), and Xxxxxx X. Xxxxxx (the "Optionee").
1. GRANT OF OPTION
The Company hereby grants to the Optionee an option (the "Option") to purchase
the number of Common Shares set forth below, at the exercise price per share set
forth below (the "Exercise Price"), subject to the terms and conditions of the
Solo Cup Investment Corporation 2004 Management Investment and Incentive
Compensation Plan (the "Plan"), which is incorporated herein by reference, and
this Award Agreement. The Options shall consist of Time Options and Performance
Options (each as defined below). Except as otherwise expressly set forth herein,
the Award Agreement shall be construed in accordance with the provisions of the
Plan and any capitalized terms not otherwise defined in this Award Agreement
shall have the definitions set forth in the Plan. The Committee shall have final
authority to interpret and construe the Plan and this Award Agreement and to
make any and all determinations under them, and its decisions shall be binding
and conclusive upon the Optionee and the Optionee's legal representative in
respect of any questions arising under the Plan or this Award Agreement;
provided, however, that in the event of a good faith dispute between the
Optionee (or the Optionee's legal representative) and the Committee with respect
to a decision made by the Committee in respect of such a question, the decision
of the Committee shall not preclude the Optionee (or the Optionee's legal
representative), from submitting such dispute for de novo, binding resolution to
a court of competent jurisdiction or to an arbitrator (in accordance with the
rules of the American Arbitration Association then in effect). In the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Award Agreement, the terms and conditions of the Plan shall
prevail.
Date of Grant: February 27, 2004
Exercise Price per Common Share: $ 47.32
Total Number of Common Shares 376,953
Subject to Options:
Number of Common Shares
subject to Time Options 226,172
22
Number of Common Shares 150,781
subject to Performance Options
Type of Options Nonqualified Stock Option
Term/Expiration Date: February 27, 2014 (the "Expiration
Date") or an earlier date as
provided herein
2. VESTING
So long as the Optionee is employed by the Company or any subsidiary of the
Company on the applicable vesting dates set forth below the Options shall,
unless they vest and become exercisable earlier as provided herein, become
vested and exercisable as follows:
A. TIME OPTIONS.
Percentage Vesting Date
---------- ------------
25% First anniversary of date of grant
25% Second anniversary of date of grant
25% Third anniversary of date of grant
25% Fourth anniversary of date of grant
B. PERFORMANCE OPTIONS.
(i) (i) (a) 20% of the shares subject to the Performance Option shall
be subject to the Series A vesting requirements set forth in Section
2(B)(ii)(a) below (the "Series A Options"), (b) an additional 20% shall be
subject to the Series B vesting requirements set forth in Section
2(B)(ii)(b) below (the "Series B Options"), (c) an additional 20% shall be
subject to the Series C vesting requirements set forth in Section
2(B)(ii)(c) below (the "Series C Options"), (d) an additional 20% shall be
subject to the Series D vesting requirements set forth in Section
2(B)(ii)(d) below (the "Series D Options") and (e) an additional 20% shall
be subject to the Series E vesting requirements set forth in 2(B)(ii)(e)
below (the "Series E Options" and together with the Series A Options, the
Series B Options, the Series C Options and the Series D Options, the
"Performance Options"). The vesting of all Performance Options shall be
subject to the achievement of their respective "Target Level" set forth in
Exhibit A hereto. The Target Level shall be expressed in terms of
cumulative EBITDA targets (the "Cumulative EBITDA Targets") and cumulative
debt paydown targets (the "Cumulative Debt Paydown Target"). All unvested
Performance Options shall expire on December 31, 2008. To the extent that
(A)(1) the Executive has not had the
23
opportunity to dispose of any shares underlying the Performance Options, or
(2) the Company has not exercised its rights to effect an OCR and (b)
Vestar ceases to be a Stockholder (as defined in the Stockholders'
Agreement), the Optionee shall be entitled to receive from the Company, in
the form of cash, notes or a combination thereof (as determined by the
Committee) an amount equal to the aggregate Fair Market Value of the Common
Shares subject to such Performance Options as of December 31, 2008, less
the aggregate exercise price of such Performance Options.
(ii) (ii) (a) all Series A Options shall (I) become 100% fully vested
and exercisable on the first anniversary of the date of grant if the
Company attains the Series A Target Level for fiscal year 2004, (II) become
50% vested and exercisable if the Company achieves either the Cumulative
EBITDA Target or satisfies the Cumulative Debt Paydown Target, in each case
in respect of the Series A Target Level for fiscal year 2004 or (III) not
become vested or exercisable if the Company does not attain either portion
of the Series A Target Level in respect of fiscal year 2004 of the Company.
Any Series A Options which do not become exercisable pursuant to this
paragraph shall be referred to as "Suspended Options."
(b) all Series B Options shall (I) become 100% fully vested and
exercisable on the second anniversary of the date of grant if the Company
attains the Series B Target Level for fiscal year 2005, (II) become 50% vested
and exercisable the Company achieves either the Cumulative EBITDA Target or
satisfies the Cumulative Debt Paydown Target, in each case in respect of Series
B Target Level for fiscal year 2005 or (III) not become vested or exercisable if
the Company does not attain either portion of the Series B Target Level in
respect of fiscal year 2005 of the Company. Any Series B Options which do not
become exercisable pursuant to this paragraph shall be referred to as "Suspended
Options."
(c) all Series C Options shall (I) become 100% fully vested and
exercisable on the third anniversary of the date of grant if the Company attains
the Series C Target Level for fiscal year 2006, (II) become 50% vested and
exercisable if the Company achieves either the Cumulative EBITDA Target or
satisfies the Cumulative Debt Paydown Target, in each case in respect of Series
C Target Level for fiscal year 2006 or (III) not become vested or exercisable if
the Company does not attain either portion of the Series C Target Level in
respect of fiscal year 2006 of the Company. Any Series C Options which do not
become exercisable pursuant to this paragraph shall be referred to as "Suspended
Options."
(d) all Series D Options shall (I) become 100% fully vested and
exercisable on the fourth anniversary of the date of grant if the Company
attains the Series D Target Level for fiscal year 2007, (II) become 50% vested
and exercisable if the Company achieves either the Cumulative EBITDA Target or
satisfies the Cumulative Debt Paydown Target, in each case in respect of Series
D Target Level for fiscal year 2007 or (III) not become vested or exercisable if
the Company does not attain either portion of the Series D Target Level in
respect of fiscal year 2007 of the Company. Any Series D Options which do not
become exercisable pursuant to this paragraph shall be referred to as "Suspended
Options."
24
(e) all Series E Options shall (I) become 100% fully vested and
exercisable on the fifth anniversary of the date of grant if the Company attains
the Series E Target Level for fiscal year 2008, (II) become 50% vested and
exercisable if the Company achieves either the Cumulative EBITDA Target or
satisfies the Cumulative Debt Paydown Target, in each case in respect of Series
E Target Level for fiscal year 2008 or (III) not become vested or exercisable if
the Company does not attain either portion of the Series E Target Level in
respect of fiscal year 2008 of the Company. Any Series E Options which do not
become exercisable pursuant to this paragraph shall be referred to as "Suspended
Options."
C. RECAPTURE OF SUSPENDED OPTIONS.
(iii) Notwithstanding any provision contained in Sections
2(B)(ii)(a), (b), (c), (d), or (e) above to the contrary, (i) if the
Company achieves the Cumulative EBITDA Target and satisfies the Cumulative
Debt Paydown Target with respect to any fiscal year prior to fiscal
year-end 2008, all Suspended Options in respect of all prior years shall
become fully vested as of the end of the fiscal year in which the Company
achieves such Cumulative EBITDA Target and satisfies such Cumulative Debt
Paydown Target or (ii) if the Company only achieves either the Cumulative
EBITDA Target or satisfies only the Cumulative Debt Paydown Target with
respect to any fiscal year, one-half of all Suspended Options in respect of
all prior years shall become fully vested as of the end of the fiscal year
in which the Company achieves such target.
D. LIQUIDITY EVENT; OPTIONAL CONTINGENT REDEMPTION; ETC.
(i) TIME OPTIONS. In the event of an occurrence of a Liquidity Event
or an Optional Contingent Redemption (as defined in the Certificate of
Designations) of Convertible Participating Preferred Stock (an "OCR"),
all unvested Time Options shall become fully vested and exercisable.
(iv) (ii) PERFORMANCE OPTIONS. In the event of an occurrence of a
Liquidity Event or an OCR, all unvested Performance Options shall become vested
and exercisable in full if the Company has achieved the Target Level (with
respect to both the Cumulative EBITDA Target and Cumulative Debt Paydown Target)
in respect of the fiscal year ending immediately prior to the year in which an
OCR occurs.
(v) (iii) ACCELERATED VESTING OF TIME OPTIONS AND PERFORMANCE
OPTIONS. If (a) the Optionee's employment is terminated by the Company other
than for Cause, death or Disability, or by the Optionee for Good Reason, or (b)
the Company fails to renew the term of the
employment agreement between the
Optionee and the Company dated February 27, 2004 (the "
Employment Agreement"),
then, if the Company has achieved the Cumulative EBITDA Target and satisfied the
Cumulative Debt Paydown Target, in each case in respect of the fiscal year
ending immediately prior to such termination of employment, all unvested Time
Options and Performance Options shall vest and become exercisable in full.
25
(vi) (iv) TAG-ALONG RIGHTS FOR OPTIONS UPON AN OCR. If the
Company exercises its right to redeem a percentage of Convertible Participating
Preferred Shares pursuant to an OCR (its "OCR Right"), the Optionee may elect to
have the Company (A) redeem the same percentage of the Optionee's Options and
Option Stock (on a fully diluted basis), but, in the case of Options only to the
extent the Options are then vested, or, if lesser, (B) redeem the number of
shares of Option Stock plus the number of Optionee's Options which are vested
(the "Tag-Along Right"); provided, however, that if the Company exercises its
OCR Right, and the Optionee elects not to exercise his Tag-Along Right, the
Optionee may not exercise his Tag-Along Right in any subsequent OCR. Pursuant to
the Tag-Along Right, the Company will provide the Optionee with notice that it
intends to exercise its OCR Right at the same time that it provides notice of
the same to Vestar. The Optionee will have five (5) business days from receiving
such notice to notify the Company that he intends to exercise his Tag-Along
Right. An Optionee who exercises the Tag-Along Right shall receive an amount
equal to the aggregate Fair Market Value of the Common Shares subject to such
Option as of the date of the OCR, less the aggregate exercise price of such
Options. Notwithstanding anything to the contrary contained herein or in the
Stockholders' Agreement, the Tag-Along Right shall not be available on or after
the 6th anniversary of the Original Issuance Date through the last day pursuant
to Section 6(c) that Redemption Securities (as defined in the Certificate of
Designations) can be redeemed after the 7th anniversary of the Original Issuance
Date.
E. TREATMENT OF OPTIONS FOLLOWING A LIQUIDITY EVENT OR OCR. In
connection with the occurrence of a Liquidity Event or an OCR, the
Committee may take such actions as it deems appropriate which may include,
but without limitation, any one or more of the following: (i) acceleration
or change of the exercise and/or expiration dates of the Option to require
that exercise be made, if at all, prior to the Liquidity Event or OCR; (ii)
cancellation of the Option upon payment to the Optionee in cash of the Fair
Market Value of the Common Share subject to such Option as of the date of
the Liquidity Event or an OCR, less the aggregate exercise price of the
Option; and (iii) in any case where equity securities of another entity are
proposed to be delivered in exchange for or with respect to Common Shares
or shares of Convertible Preferred Stock, as the case may be, equitable
adjustments including substitute options with respect to such other
securities, with appropriate adjustments in the number of shares subject
to, and the exercise prices under, the award.
3. TERMS OF OPTION
A. METHOD OF EXERCISE. Any vested portion of this Option shall be
exercised by the Optionee by giving written notice to the Company in the
form attached as EXHIBIT B. Such exercise shall be effective upon receipt
of such notice by the Company at its principal office, specifying the
number of
26
Common Shares with respect to which the Option is being exercised and
accompanied by (i) the executed Stockholders' Agreement; (ii) the payment
of the exercise price thereof in cash or such other method approved by the
Committee; and, (iii) the payment of any tax amount the Company is required
to withhold at source as a result of such exercise by Optionee to the
extent the Company does not withhold pursuant to Section 10 a portion of
the Common Shares otherwise to be issued.
B. OPTION CALL. Notwithstanding anything herein to the contrary, all
vested Options (and the Common Shares acquired upon exercise of the Option
("Option Shares")) shall be subject to Sections 3.9(a), 3.9(b) and 3.9(c)
of the Stockholders' Agreement. Following the Call Date (as defined below)
the Company shall have the right (the "Call Right") to purchase from the
Optionee or any Permitted Transferee (as defined pursuant to the
Stockholders' Agreement) of any Option Stock (i) all Options (whether or
not vested) held by such Optionee and any Option Stock held by such
Optionee or Permitted Transferee at an aggregate purchase price equal to
the (A) the Fair Market Value of the Option Stock issuable upon exercise of
such Options on the date the right to call such Options hereunder is
exercised (provided, that for purposes of this provision, all Options of
such Optionee shall be deemed vested) minus (B) the exercise price of such
Options (the "Option Call Price") and (ii) all Option Stock then held by
such Optionee or his or her Permitted Transferees at an aggregate purchase
price equal to the Fair Market Value of such shares of Option Stock on the
date the right to call hereunder is exercised; provided, however, that such
Call Right may be exercised only after Vestar no longer owns any Redemption
Securities or, if in connection with the exercise of the Call Right, Vestar
will cease to own any Redemption Securities. For the purposes hereof the
"Call Date" shall mean the 6th anniversary of the Original Issuance Date.
The Company shall have a period from the Call Date until the first to occur
of (i) the Expiration Date and (ii) the date upon which such options cease
to be exercisable in accordance with Section 3D hereof in which to give
notice in writing to the Optionee or such Permitted Transferee of its
election to exercise the rights pursuant to this Section 3B (the "Call
Notice"). The completion of the purchases pursuant to the foregoing shall
take place at the principal office of the Company within the later of (A)
the tenth business day after the giving of the Call Notice or (B) ten (10)
business days after the receipt of all necessary regulatory approvals
(including but not limited to the expiration or termination of the waiting
periods under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended, if applicable). The price payable as described herein shall be
paid by delivery to the Optionee or his or her Permitted Transferees
against delivery of certificates or other instruments representing the
Option or the Option Stock so purchased, appropriately endorsed or executed
by the Optionee or the applicable Permitted Transferee. The Company may
choose to have a designee purchase any securities elected to be sold to it
hereunder so long as the Company shall bear any reasonable costs and
expenses of the Optionee and his or her Permitted Transferees in connection
with the sale to such designee that would not have otherwise been
27
incurred by him or her in connection with a sale to the Company. All
references to the Company in this Section 3B shall refer to such designee
as the context requires.
C. PUT RIGHT. Following the Put Date (as defined below) the Optionee
shall have the right (the "Put Right") to require the Company to purchase
from the Optionee or any Permitted Transferee (as defined pursuant to the
Stockholders' Agreement) of any Option Stock (i) all Options (whether or
not vested) held by such Optionee and any Option Stock held by such
Optionee or Permitted Transferee at an aggregate purchase price equal to
the Option Call Price and (ii) all Option Stock then held by such Optionee
or his or her Permitted Transferees at an aggregate purchase price equal to
the Fair Market Value of such shares of Option Stock on the date the right
to put hereunder is exercised. For the purposes hereof the "Put Date" shall
mean the first to occur of (i) the one year anniversary of the last day
pursuant to Section 6(c) that Redemption Securities can be redeemed and
(ii) the date upon which both (A) no shares of Convertible Participating
Preferred Stock remain outstanding and Vestar ceases to own any Redemption
Securities (as defined in the Stockholders' Agreement) of the Company and
(B) either (I) the Optionee's employment is terminated (other than by the
Company for Cause) or (II) the sixtieth day prior to the Expiration Date.
The Optionee shall have a period from the Put Date until the first to occur
of (i) the Expiration Date and (ii) the date upon which such options cease
to be exercisable in accordance with Section 3D hereof in which to give
notice in writing to the Company of his or her election to exercise the
rights pursuant to this Section 3C (the "Put Notice"); provided, however,
that in no event shall the Optionee be permitted to exercise the put right
granted hereby at any time during the period beginning on or after the 6th
anniversary of the Original Issuance Date and ending on the 90th day
following the 7th anniversary of the Original Issuance Date. The completion
of the purchases pursuant to the foregoing shall take place at the
principal office of the Company within the later of (A) the tenth business
day after the giving of the Put Notice or (B) ten (10) business days after
the receipt of all necessary regulatory approvals (including but not
limited to the expiration or termination of the waiting periods under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, if
applicable). The price payable as described herein shall be paid by
delivery to the Optionee or his or her Permitted Transferees against
delivery of certificates or other instruments representing this Option or
the Option Stock so purchased, appropriately endorsed or executed by the
Optionee or the applicable Permitted Transferee. The Company may choose to
have a designee purchase any securities elected to be sold to it hereunder
so long as the Company shall bear any reasonable costs and expenses of the
Optionee and his or her Permitted Transferees in connection with the sale
to such designee that would not have otherwise been incurred by him or her
in connection with a sale to the Company. All references to the Company in
this Section 3C shall refer to such designee as the context requires.
28
D. POST-TERMINATION EXERCISE. In the event that the Optionee ceases to be
employed by the Company, the Option (to the extent then outstanding) shall
terminate as follows:
(i) TERMINATION FOR CAUSE. If Optionee's employment is terminated
by the Company for Cause, all vested and unvested portions of the
Option shall immediately expire and terminate on termination of
employment.
(ii) TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE, DEATH OR
DISABILITY OR BY THE OPTIONEE FOR GOOD REASON. If (a) Optionee's
employment is terminated by the Company other than for Cause, death or
Disability, or by the Optionee for Good Reason, or (b) the Company
fails to renew the term of the
Employment Agreement, then (a) all
vested portions of the Option shall remain exercisable for three years
following termination of employment but in no event after the
Expiration Date and (b) any unvested portion of the Option shall
expire on termination of employment.
(iii) TERMINATION BY OPTIONEE OTHER THAN FOR GOOD REASON. If the
Optionee's employment is terminated by the Optionee other than for
Good Reason, then (a) any outstanding vested portion of the Option
shall remain exercisable for thirty days following termination of
employment (but in no event past the Expiration Date); and (b) any
unvested portion of the Option shall expire on termination of
employment.
(iv) TERMINATION BECAUSE OF DEATH OR DISABILITY. If Optionee's
employment is terminated by reason of Optionee's death or Disability,
then (a) any outstanding vested portion of the Option shall remain
exercisable until the Expiration Date; and (b) any unvested portion of
the Option shall expire on termination of employment.
4. RIGHTS AS STOCKHOLDER.
Optionee shall not have voting rights as a shareholder (in any and all
matters whatsoever) until the date as of which the holder is registered as the
owner of the Common Shares, in the Company's register and solely to the extent
provided by the Stockholders' Agreement.
5. ADJUSTMENTS.
In the event of a reorganization, recapitalization, stock dividend or stock
split, or combination or other change in the Common Shares, the Board shall, in
order to prevent the dilution or enlargement of rights under the Option, make
such equitable adjustments in the Fair Market Value of the Option and in the
number of Common Shares or other securities subject to the Option and the Option
Exercise Price as the Board in its sole discretion may determine.
29
6. NON-TRANSFERABILITY OF OPTION.
The Option may not be transferred other than by will or the laws of descent
and distribution, and during the Optionee's lifetime shall be exercisable only
by that Optionee, except as follows. The Optionee may transfer the Option to any
Family Member (as defined in the Stockholders' Agreement) (to the extent that
such Family Member is a trust, in all events only where such transferee trust or
other entity is established and maintained for estate planning purposes and
conducts no business other than holding passive investments) and any such
transferee shall be bound by all of the terms and conditions applicable to such
transferee's transferor Optionee.
7. ENTIRE AGREEMENT; GOVERNING LAW.
The Plan is incorporated herein by reference. The Plan and this Award
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and the Optionee. This Award Agreement
is governed exclusively in accordance with the laws of the State of Delaware,
without regard to its conflict of laws rules and principles.
8. NO GUARANTEE OF CONTINUED EMPLOYMENT.
Nothing in the Plan or in this Award Agreement hereunder shall confer any
right on the Optionee to continue in the employ of the Company or shall
interfere in any way with the right of the Company to terminate the Optionee at
any time.
By the Optionee's signature and the signature of the Company's
representative below, the Optionee and the Company agree that this Option is
granted under and governed by the terms and conditions of the Plan and this
Award Agreement. The Optionee has reviewed the Plan and this Award Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Award Agreement and fully understands all provisions of the Plan
and Award Agreement. The Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
9. SECURITIES LAWS REQUIREMENTS; LEGEND ON CERTIFICATES; STOCKHOLDERS'
AGREEMENT. The certificates representing the Option Shares (as such term is
defined in the Stockholders' Agreement) shall be subject to such stop transfer
orders and other restrictions as the Committee may deem reasonably advisable
under the Plan or the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which such Option
Shares may be or are listed, any applicable federal or state laws and the
Company's Articles of Incorporation and Bylaws, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions. Upon the acquisition of any Option Shares, the
Optionee will make or enter into such written representations, warranties and
agreements as the Committee may reasonably
30
request in order to comply with applicable securities laws or with this Award
Agreement.
By entering into this Award Agreement, the Optionee agrees and acknowledges
that the Participant has received and read a copy of the Plan and the
Stockholders' Agreement. The Options and the Option Shares received upon
exercise of the Options are subject to the Plan and the Stockholders' Agreement.
The terms and provisions of the Plan and the Stockholders' Agreement as it may
be amended from time to time are hereby incorporated by reference.
10 WITHHOLDING OF TAXES. The Company may require the Optionee to tender the
amount of any such taxes to the Company prior to the issuance of Option Shares
to the Participant upon exercise or payment of other amounts due under this
Award Agreement. In the alternative the Company may, but shall not be required
to withhold a portion of the Common Shares otherwise to be issued upon the
exercise or other settlement of the Option equal in value to the minimum amount
required to be withheld under applicable law in respect of any income,
employment or other taxes required to be paid by virtue of the Optionee
receiving an Option under this Award Agreement. In no event shall the Company be
liable for any of a Optionee's income tax obligations.
11. COUNTERPARTS. This Award Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement. Any
counterpart or other signature hereupon delivered by facsimile shall be deemed
for all purposes as constituting good and valid execution and delivery of this
Award Agreement by such party.
12. CERTAIN DEFINITIONS. For purposes of this Award Agreement following
definitions shall apply:
(i) "Cause" shall have the meaning assigned to such term in the
Optionee's
Employment Agreement, or, if not defined therein or if there is no
such agreement, "Cause" means (a) Optionee's willful failure to perform
Optionee's duties (other than as a result of total or partial incapacity due to
physical or mental illness) which is not cured following written notice, (b)
Optionee's conviction of, or plea of NOLO CONTENDERE to, a crime constituting
(I) a felony under the laws of the United States or any state thereof or (II) a
misdemeanor involving moral turpitude, (c) Optionee's willful malfeasance or
willful misconduct in connection with Optionee's duties which is materially
injurious to the financial condition or business reputation of the Company or
any of its affiliates, (d) Optionee's breach of any non-competition,
non-solicitation or confidentiality provisions to which the Optionee is subject
(other than disclosure of confidential information made by the Optionee in the
ordinary course of business so long as the Optionee reasonably believes that
such disclosure is in furtherance of the Company's business), or (e) any
material breach by the Optionee of the
Employment Agreement; PROVIDED that the
Company provides written notice to the Optionee within 60 days of its knowledge
that such a breach has occurred; and PROVIDED FURTHER that the Optionee shall
have 10 business days following actual receipt of such notice to cure such
breach.
31
(ii) "Good Reason" shall have the meaning assigned to such term in the
Employment Agreement, or, if not defined therein or if there is no such
agreement, "Good Reason" shall mean (a) a substantial diminution in Optionee's
position or duties or assignment of duties materially inconsistent with the
Optionee's position, (b) any reduction in Optionee's base salary, except if such
reduction is part of an across-the-board reduction similarly affecting other
executives, (c) appointment of anyone other than a Hulseman family member or the
Executive as CEO of the Company, or (d) any material breach by the Company of
the
Employment Agreement; provided that the Company shall have 30 business days
following receipt of written notice of the existence of Good Reason to cure such
breach; provided, further, that in each case, "Good Reason" will cease to exist
for an event on the 60th day following the later of its occurrence or the
Optionee's knowledge thereof, unless the Optionee has given the Company written
notice thereof prior to such date. In addition, a Good Reason termination shall
include termination by the Optionee for any reason or no reason at any time
during the 30 day period commencing one year after a Change of Control (as
defined in the Stockholders' Agreement).
32
IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date first above written
SOLO CUP INVESTMENT CORPORATION
By:
---------------------------
Title:
------------------------
The undersigned hereby acknowledges having read this Stock Option Award
Agreement and the Plan and hereby agrees to be bound by all provisions set forth
herein and in the Plan.
------------------------------------
XXXXXX X. XXXXXX
33
EXHBIT A
PERFORMANCE OPTIONS VESTING CRITERIA
Performance Cumulative EBITDA(1) Cumulative Debt
Period Target Level Paydown
--------- ------------ -------
Series A 2004 fiscal year. . . . . $ 205.5 million $ 63.0 million
Series B 2005 fiscal year. . . . . $ 442.3 million $ 145.5 million
Series C 2006 fiscal year. . . . . $ 706.7 million $ 250.8 million
Series D 2007 fiscal year. . . . . $ 984.0 million $ 367.5 million
Series E 2008 fiscal year. . . . . $ 1,274.3 million $ 495.5 million
----------
(1) EBITDA shall have the meaning set forth in the "Consolidated EBITDA"
definition set forth in the Company's revolving credit agreement. Note also
that all EBITDA target numbers shall be calculated after payment of
bonuses.
34
EXHIBIT B
SOLO CUP COMPANY
2004 MANAGEMENT INVESTMENT
AND INCENTIVE COMPENSATION PLAN
EXERCISE NOTICE
[Insert Address]
Attention [ ]:
I hereby elect to exercise the Option granted to me on February [ ], 2004,
under the Solo Cup Investment Corporation 2004 Management Investment and
Incentive Compensation Plan, with respect to _____ Common Shares at the exercise
price of $47.32 per share for a total purchase price of $__________.
I wish to make payment of the exercise price as indicated below (check one
or more boxes):
/ / cash;
/ / certified check; or
/ / other (subject to approval by the Company), please specify:
___________________________________________________________.
I understand that I may suffer adverse tax consequences as a result of my
purchase of the Common Shares. I have consulted with any tax consultants I deem
advisable in connection with my purchase of the Common Shares and I am not
relying on Solo Cup Investment Corporation for any tax advice. I authorize the
Company to deduct all amount necessary to satisfies any withholding obligations
the Company may incur in connection with this exercise. If requested by the
Company, I agree to tender the amount of any required withholdings to the
Company prior to the payment of any amounts due under this Award Agreement.
Signature:
----------------------
Printed Name:
----------------------
Address:
----------------------
----------------------
----------------------
Dated:
----------------------
35
EXHIBIT C
[SEE ATTACHED]
36
CONVERTIBLE PREFERRED UNIT
AWARD AGREEMENT
THIS CONVERTIBLE PREFERRED UNIT AWARD AGREEMENT dated as of February 27,
2004 is entered into by and between Solo Cup Investment Corporation, a Delaware
corporation (the "Company"), and Xxxxxx X. Xxxxxx (the "Executive").
RECITALS
WHEREAS, the Company has entered into the Convertible Participating
Preferred Stock Purchase Agreement by and among the Company, Vestar Capital
Partners IV, L.P., Vestar Cup Investment, LLC and Vestar Cup Investment II, LLC,
dated February 27, 2004 (the "Stock Purchase Agreement"); and
WHEREAS, the Solo Cup Company and the Executive have previously entered
into an
employment agreement, dated August 4, 1999, pursuant to which Solo Cup
Company is obligated to maintain a deferred compensation account for the
Executive (the "Prior Agreement"); and
WHEREAS, the Company and the Executive have agreed to enter into a new
Employment Agreement as of the Closing Date which will supercede the Prior
Agreement in its entirety and which will be effective as of the Closing Date;
and
WHEREAS, the Company has adopted the Solo Cup Investment Corporation 2004
Management Investment and Incentive Plan, the terms of which shall be deemed to
be incorporated herein; and
WHEREAS, the Company and the Executive agree that, as of the Closing Date,
the balance of the Executive's deferred compensation account shall be converted
into a number of Convertible Preferred Units under the Plan (equal to the number
of shares of Convertible Participating Preferred Stock that could have been
purchased with such balance at a purchase price of $1,000.00 per share) and
credited to the Executive's Account under the Plan;
WHEREAS, the Company and the Executive agree that the value of the
Executive's Account shall be paid to the Executive in accordance with the terms
and conditions set forth in this Convertible Preferred Unit Award Agreement and
in the Plan; and
WHEREAS, the Executive is a party to the Stockholders' Agreement and has
agreed to be bound by its terms;
NOW, THEREFORE, the Company and Executive hereby agree as follows:
37
1. COMPANY'S AGREEMENT. In consideration of the services to be rendered
for the Company by the Executive, the Company hereby agrees that it shall pay to
the Executive, as deferred compensation, the Executive's Plan Amount at the
time, in the manner, and subject to the terms and conditions hereinafter set
forth. The Executive's Account shall be credited with 1,907 Convertible
Preferred Units as of the date hereof.
2. NATURE OF PLAN AMOUNT. The Company's agreement pursuant to Section 1
is solely a deferred obligation to distribute shares of Convertible
Participating Preferred Stock to Executive (together with any rights or amounts
awarded or paid in connection with such deferred obligation) and confers upon
Executive no rights of ownership with respect to the Company's Convertible
Participating Preferred Stock or other voting equity interests, except as
expressly provided herein. Notwithstanding the foregoing, the Convertible
Preferred Units (hereinafter, "CPUs") credited to the Executive's Account shall,
on a one-for-one basis, entitle the Executive to participate in distributions,
sales proceeds, redemption events, preferences and priorities and conversion
rights to the same extent as the underlying Convertible Participating Preferred
Shares, as provided by the Stockholders' Agreement and Certificate of
Designations.
3. FORM OF PAYMENT WITH RESPECT TO CONVERTIBLE PREFERRED UNITS. The
payment of the Executive's Plan Amount shall be made in shares of Convertible
Participating Preferred Stock equal to the number of CPUs credited to the
Executive's Account immediately prior to the Distribution Date (as defined
below). In the event that the Convertible Participating Preferred Stock of the
Company is to be converted into the right to receive cash or marketable
securities of another corporation or entity in connection with a transaction
constituting a Liquidity Event, or is to be converted into Common Stock of the
Company in connection with an IPO, each CPU held by the Executive shall also be
converted into such right, without the intervening need to distribute the
underlying Convertible Participating Preferred Stock to the Executive.
4. DISTRIBUTION EVENTS.
(a) The Executive's Plan Amount shall promptly be distributed
to the Executive by the Company (or any successor) upon the occurrence of a
Liquidity Event, or as soon as practicable thereafter.
(b) In the event that the Executive's employment is terminated for
any reason prior to the occurrence of a Liquidity Event, the Executive shall be
entitled to receive a distribution of the Executive's Plan Amount in (i) cash
equal to the Fair Market Value of the CPUs credited to the Executive's Account
(which shall be equal to the Fair Market Value of the same number of Convertible
Participating Preferred Shares) on the date of such termination unless otherwise
mutually agreed or (ii) a number of Convertible Participating Preferred Shares
equal to the number of CPUs credited to the Executive's Account on the date of
such termination, in the discretion of the Company. No dividend equivalents paid
or accrued with respect to the Convertible Preferred Units credited to the
Executive's Account shall be credited to the Executive during the period
following his termination of employment with the Company.
38
(c) In order to effectuate the intent of Section 2, the Executive and
the Company further agree that the CPUs credited to the Executive's Account
shall be distributed to him in the form of cash upon or coincident with any of
the occurrences set forth in Sections 6(a), 6(b), 6(c), 6(d) and Section 6(f) of
the Certificate of Designations in an amount calculated based upon the
percentage of outstanding Convertible Participating Preferred Shares being
redeemed pursuant to any of the foregoing subsections to Section 6 of the
Certificate of Designations and the applicable redemption price. For purposes of
this Convertible Preferred Unit Award Agreement, the date as of which the
Executive becomes entitled to a distribution of the Convertible Participating
Preferred Shares underlying the CPUs credited to his Account shall be referred
to as the "Distribution Date". In order to effectuate the intent of Section 2,
the Executive and the Company further agree that the CPUs credited to the
Executive's Account shall be distributed to him in the same type and amount as
would be distributed on account of the underlying Convertible Preferred Shares
upon or coincident with a "Liquidation".
(d) In the event of Transfer by a Transferring VCP Stockholder or
Transferring LLC Stockholder (each as defined pursuant to the Stockholders'
Agreement) which gives rise to tag along rights pursuant to either Section
3.5(a) or Section 3.5(b) of the Stockholders' Agreement, the Executive shall
receive a distribution of Convertible Participating Preferred Shares (or, if
applicable, Common Stock) equal to the maximum number of Convertible
Participating Preferred Shares (or, if applicable shares, of Common Stock) which
Executive would be entitled to sell pursuant thereto in excess of the number of
shares of Purchased Equity Shares (as defined in the Stockholders' Agreement)
then owned by Executive.
(e) In the event that pursuant to Section 3.1(b) of the Stockholders'
Agreement the Executive is entitled to require SCC Holdings LLC to purchase any
Equity Securities (as defined in the Stockholders' Agreement), the Executive
shall receive a distribution of Convertible Participating Preferred Shares (or,
if applicable, Common Stock) equal to the maximum number of Convertible
Participating Preferred Shares (or, if applicable, shares of Common Stock) which
Executive would be entitled to sell pursuant thereto in excess of the number of
shares of Purchased Equity Shares then owned by Executive.
(f) In the event that, pursuant to the Registration Rights Agreement,
the Executive has the right to require that the Company include Common Stock
held by such Executive in a registration statement filed in accordance
therewith, the Executive shall receive a distribution of Convertible
Participating Preferred Stock in the amount necessary to result in such
Executive, upon conversion thereof, owning that number of shares of Common Stock
permitted to be included in such registration statement pursuant to the
Registration Rights Agreement.
5. DIVIDEND EQUIVALENTS. The Executive shall be entitled to receive
dividend equivalents with respect to each CPU credited to his Account with
respect to any dividends that are paid or accrued or would be paid or accrued if
the shares were then
39
outstanding on shares of Convertible Participating Preferred Stock or any other
securities underlying the Award to the extent set forth in this Section 5. If
and when cash dividends are paid on the Convertible Participating Preferred
Stock or any other securities which are then underlying the award, the Executive
shall receive a current cash payment equal in amount to such cash dividend with
respect to each CPU then credited to the Executive's Account. In the event that
there are accrued and unpaid dividends at the time that the Convertible
Participating Preferred Shares or any other securities are distributed to the
Executive in respect of the CPUs credited to his Account, such Convertible
Participating Preferred Shares or other securities shall be deemed to have
accrued and unpaid dividends with respect thereto in the aggregate amount of
such accrued and unpaid dividends. The Company will report any such dividend
equivalents paid on the CPUs as income to the Executive when paid.
6. CERTAIN RIGHTS IN CONNECTION WITH AN INITIAL PUBLIC OFFERING. Following
an IPO, the Executive shall, on the first anniversary of the IPO, receive a
distribution of Common Shares with respect to one-eighth (1/8th) of the CPUs
credited to his Account, and with respect to an additional one-eighth (1/8th)of
such CPUs at the beginning of each calendar quarter thereafter. The Executive
shall have the rights to Transfer (as defined in the Stockholders' Agreement)
the Common Shares so distributed to him as provided in the Stockholders'
Agreement.
7. EQUITABLE ADJUSTMENTS. Notwithstanding anything to the contrary
contained herein, the Committee may, in order to prevent the dilution or
enlargement of rights underlying the CPUs and to maintain their direct relation
with the economic rights associated with the Convertible Participating Preferred
Shares or other securities that underlie the CPUs, make such adjustments to CPUs
and in the number of Convertible Participating Preferred Shares or other
securities underlying the CPUs due upon conversions or distribution as the
Committee in its sole discretion may determine to maintain such rights.
8. CONFORMITY WITH THE PLAN. This Convertible Preferred Unit Award Unit
Agreement is intended to conform in all respects with, and are subject to all
applicable provisions of, the Plan (which is incorporated herein by reference).
To the extent that there are inconsistencies between this Convertible Preferred
Unit Award Agreement and the Plan, the provisions of the Plan shall govern. By
executing and returning the enclosed copy of this Convertible Preferred Unit
Award Agreement, the Executive hereby acknowledges his receipt of this agreement
and the Plan, acknowledges that he has read and understands this agreement and
the Plan and acknowledges his agreement to be bound by all of the terms of this
Convertible Preferred Unit Award Agreement and the Plan. Capitalized terms that
are used, but are not defined herein, shall have the meaning ascribed to such
terms in the Plan.
9. STOCKHOLDERS' AGREEMENT. The CPUs and any related Convertible
Participating Preferred Stock shall be subject to the Stockholders' Agreement
including, without limitation, Sections 3.5, 3.6, 3.7 and 3.8 thereof. In this
connection, the Executive would be entitled to participate with respect to the
same proportion of CPUs credited to his
40
Account as Vestar participates with respect to its Convertible Participating
Preferred Shares held by such entity.
10. WITHHOLDING. The Company may require the Executive to tender the amount
of any taxes to the Company prior to the issuance of Convertible Participating
Preferred Stock or Common Stock in connection with a distribution event
described in this Agreement.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement. Any
counterpart or other signature hereupon delivered by facsimile shall be deemed
for all purposes as constituting good and valid execution and delivery of this
Agreement by such party.
41
IN WITNESS WHEREOF, Executive and the Company have executed this Agreement as of
the date first above written
SOLO CUP INVESTMENT CORPORATION
By:
---------------------------
Title:
------------------------
The undersigned hereby acknowledges having read this Convertible
Preferred Unit Award Agreement and the Plan and hereby agrees to be bound by all
provisions set forth herein and in the Plan.
---------------------------
XXXXXX X. XXXXXX
42
