Exhibit 10.3
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SEVERANCE AND CHANGE OF CONTROL AGREEMENT
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THIS AGREEMENT is made as of March 31, 2005 by and between Packaging
Dynamics Corporation (the "Company") and Xx. Xxxxx X. Xxxxxxx(the
"Executive").
The parties hereto, intending to be legally bound hereby, agree as
follows:
1. Position and Compensation. The Executive currently is serving as
Vice President, Finance and Corporate Controller of the Company and is
receiving the following compensation (the "Compensation") for his services:
(a) the base salary in effect on the date hereof (which amount may be
increased as the Company may determine and such increased rate of base salary
shall thereafter constitute the Executive's base salary for all purposes of
this Agreement), (b) an annual performance bonus under the Company's Senior
Management Incentive Compensation Plan equal to the percentage (in effect on
the date hereof) of the Executive's base salary, and (c) participation in all
of the Company's employee benefits plans, including without limitation,
retirement and pension plans, incentive compensation plans (including the 2002
Long-Term Incentive Stock Compensation Plan), life insurance plans, dental
plans, medical plans and automobile allowance plans which are, from time to
time, made available by the Company to its executive officers, subject to the
terms of such plans, with the Executive's participation to be on terms no less
favorable to the Executive than the terms provided to other similar
executives.
2. Compensation Upon Termination. The Executive shall be entitled to
the following Compensation from the Company upon termination of employment:
(a) Termination for "Cause" or without "Good Reason". In the
event of a termination of the Executive's employment by the Company for
"Cause" or by the Executive without "Good Reason", the Executive shall be
entitled to receive the Compensation specified in Section 1 through the date
of termination plus any unpaid performance bonus for any prior fiscal year.
(b) Upon Termination "Without Cause" or for "Good Reason".
In the event that the Executive's employment is terminated by the Company
"Without Cause" or by the Executive for "Good Reason", then the Executive
shall be entitled to receive:
(i) Compensation due the Executive through the date
of termination (including, without limitation, any unpaid performance bonus for
the prior fiscal year);
(ii) a lump sum payable on the date of termination
equal to one half (1/2) times the sum of the Executive's base salary as in
effect immediately prior to the date of termination (or, if higher, in effect
immediately prior to the first occurrence or circumstance constituting Good
Reason);
(iii) the continuation for the Executive and his
dependents of the medical and dental benefits described in Section 1(c) or the
provision of equivalent benefits until the earlier of (x) the six month
anniversary of the date of termination or (y) with respect to the medical
benefits, the date upon which the Executive begins to be covered by medical
insurance with a new employer; provided, that the Executive's medical coverage
with the Company shall be discontinued upon subsequent employment only to the
extent that any pre-existing medical conditions are covered under the new
employer's medical plan (for purposes of determining the period of continuation
coverage to which the Executive or any of his dependents is entitled pursuant
to Section 4980B of the Code (or any successor provision thereto) under any
group health plan maintained by the Company or its Affiliates, the Executive
shall be considered to have remained employed until the first anniversary of
his Termination Date);
(iv) if such termination occurs on or after (or
within close proximity of) a Change Of Control, the acceleration of vesting
under the Company's 2002 Long-Term Incentive Compensation Plan; and
(v) if such termination occurs on or after (or
within close proximity of) a Change Of Control, outplacement services for a
period of six (6) months, or, if earlier, until the first acceptance by the
Executive of an offer of employment, in an amount not to exceed $12,500.
3. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement in connection with or
following termination of employment by seeking other employment or otherwise,
nor shall any amounts provided herein be reduced by any compensation earned by
the Executive as the result of employment by another employer after
termination of the Executive's employment hereunder.
4. Non-Compete Covenants. (a) In consideration of the premises and
the mutual covenants contained herein, the Executive shall not during the
Restricted Period (as hereinafter defined), in the United States, Canada or
any other place where the Company and its affiliates conduct substantial
manufacturing operations relating to the Company's businesses, directly or
indirectly (except in the Executive's capacity as an officer of the Company or
any of its affiliates), (i) engage or participate in any of the Company's
principal businesses; (ii) enter the employ of, or render any other services
to, any person engaged in any of the Company's principal businesses; or (iii)
become interested in any such person in any capacity, including, without
limitation, as an individual, partner, shareholder, lender, officer, director,
principal, agent, consultant, advisor or trustee; provided, however, that the
Executive may own, directly or indirectly, solely as an investment, securities
of any person traded on any national securities exchange or listed on the
National Association of Securities Dealers Automated Quotation System if the
Executive is not a controlling person of, or a member of a group which
controls, such person and the Executive does not, directly or indirectly, own
five percent (5.0%) or more of any class of equity securities, or securities
convertible into or exercisable or exchangeable for five percent (5.0%) or
more of any class of equity securities, of such person. As used herein, the
"Restricted Period" shall mean a period commencing on the date hereof and
terminating upon the first anniversary date of such termination of employment.
The Company and the Executive hereby agree that the non-compete obligations
contained in this Section 4(a) shall supercede and control over any other
similar obligations contained in any other agreements or documents which such
other obligations shall have no force or effect.
(b) The Executive acknowledges that the Company has a
legitimate and continuing proprietary interest in the protection of its
confidential information and that it has invested substantial sums and will
continue to invest substantial sums to develop, maintain and protect such
confidential information. The Executive agrees that during and after the
Restricted Period, the Executive shall keep secret and retain in strictest
confidence and shall not use for the benefit of himself or others all
confidential information directly relating to the Company's businesses learned
by the Executive heretofore or hereafter, unless otherwise in the public
domain other than as a result of disclosure by the Executive or previously
known by the Executive or obtained by the Executive independent of the
Company's confidential information.
(c) The Executive acknowledges that all memoranda, notes,
lists, records, engineering drawings, technical specifications and related
documents and other documents or papers (and all copies thereof) relating to
the Company, including such items stored in computer memories, microfiche or
by any other means relating to the Company and its affiliates, made or
compiled by or on behalf of the Executive during his employment or made
available to the Executive relating to the Company, its affiliates or any
entity which may hereafter become an affiliate thereof, shall be the property
of the Company and shall be delivered to the Company promptly upon the
termination of the Executive's employment with the Company or at any other
time upon request.
(d) The Executive agrees that any inventions, discoveries,
improvements, ideas, concepts or original works of authorship relating
directly to the Company's businesses, including without limitation, computer
apparatus, programs and manufacturing techniques, whether or not protectable
by patent or copyright, that have been originated, developed or reduced to
practice by the Executive alone or jointly with others during the Executive's
employment with the Company shall be the property of and belong exclusively to
the Company. The Executive shall promptly and fully disclose to the Company
the origination or development by the Executive of any such material and shall
provide the Company with any information that it may reasonably request about
such material.
(e) During the Restricted Period, the Executive shall not,
directly or indirectly, (i) hire or solicit, or cause others to hire or
solicit, for employment by any person other than the Company, or retain as a
consultant, advisor, agent, representative or in any other capacity
whatsoever, or cause others to do any of the foregoing, any person employed by
the Company or its affiliates or successors within the two (2) years preceding
the Executive's hiring or retention of such person or solicitation of such
person, or (ii) encourage any such employee to leave his employment.
(f) During the Restricted Period, the Executive shall not,
except by reason of and in his capacity as an officer of the Company, directly
or indirectly request or advise a customer of the Company or its subsidiaries
to curtail or cancel such customer's business relationship with the Company.
(g) If the Executive breaches, or threatens to commit a
breach of, any of the provisions contained in this Section (the "Restrictive
Covenants"), the Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of, any
other rights and remedies available to the Company under law or in equity:
(i) the right and remedy to have the Restrictive
Covenants specifically enforced by any court of competent jurisdiction, it
being agreed that any breach or threatened breach of the Restrictive Covenants
would cause irreparable injury to the Company and that money damages would not
provide an adequate remedy to the Company; and
(ii) the right and remedy to require the Executive
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by the Executive as
the result of any action constituting a breach of the Restrictive Covenants.
5. Miscellaneous.
(a) Definitions. For purposes of this Agreement, the terms
"Cause", "Without Cause", "Good Reason", "Change Of Control" and "Disability"
shall have the meaning set forth in Exhibit A attached hereto.
(b) Certain Additional Payments by the Company. The Company
hereby agrees to the terms and conditions of Exhibit B attached hereto.
(c) Successors; Binding Agreement. In the event of any
merger, consolidation or transfer of assets, the provision of this Agreement
shall bind and inure to the benefit of the surviving or resulting corporation,
or the corporation to which such assets have been transferred, as the case may
be. The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by written agreement, to expressly
assume 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. The Company's failure to obtain such agreement prior to the
effectiveness of any such succession shall entitle the Executive to terminate
his employment hereunder for Good Reason.
(d) Attorney's Fees. All reasonable legal fees and costs
incurred by the Executive in connection with the resolution of any dispute or
controversy under or in connection with this Agreement shall be reimbursed by
the Company promptly upon the Executive's incurrence thereof plus interest at
ten percent (10.0%) per annum from the date of any such incurrence; provided,
however, that the Company shall not be obligated to make such payment where
the dispute or controversy is finally determined in favor of the Company.
Also, until paid, all past due amounts required to be paid by the Company
hereunder shall bear interest at a rate of ten percent (10.0%) per annum.
(e) Governing Law. This Agreement shall be governed,
construed, interpreted, and enforced in accordance with the substantive laws
of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
PACKAGING DYNAMICS CORPORATION
By: /s/ Xxxxx X. Xxxxxxx
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Xxxxx X. Xxxxxxx
/s/ Xxxxx X. Xxxxxxx
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Xxxxx X. Xxxxxxx
Exhibit A
to
Severance and Change Of Control Agreement
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The term "Cause" shall mean and include (a) chronic
alcoholism or drug addition, (b) deliberate misappropriation of any material
amount of money or other assets or properties of the Company or any affiliate
or successor thereof, (c) except where the nonperformance is caused by the
illness or other similar incapacity or disability of the Executive, gross and
continuing neglect in the substantial performance of duties reasonably
assigned to the Executive that is not corrected promptly upon receipt by the
Executive of written notice delivered at the direction of the Company
specifically identifying the manner in which it is alleged that the Executive
has not substantially performed his duties, (d) any willful and material
breach of any of the terms of this Agreement except where the breach is caused
by the illness or other similar incapacity or disability of the Executive, (e)
conviction of a misdemeanor involving moral turpitude or conviction of a
felony, (f) death of the Executive, or (g) a permanent disability of the
Executive that entitles the Executive to receive benefits under the Company's
disability insurance program ("Disability").
The term "Without Cause" shall mean termination by the
Company for any reason other than "Cause".
The term "Good Reason" shall mean the continuation of any of
the following (without the Executive's express prior written consent) after
written notice provided by the Executive and the failure by the Company to
remedy such event or condition within thirty (30) days after receipt of such
notice:
(a) A reduction in the Executive's base salary, as in effect
pursuant to Section 1(a);
(b) A reduction of or failure by the Company to pay to the
Executive any bonus which is payable pursuant to Section 1(b);
(c) A failure by the Company to provide, on terms no less
favorable to the Executive than the terms offered to other senior executives
of the Company, any benefit or compensation plan (including any pension,
profit sharing, life insurance, health, accidental death or dismemberment or
disability plan), or any substantially similar benefit or compensation plan,
which has been made available to such other senior executives; provided,
however, that nothing herein shall be construed to mean that the Company shall
be constrained from amending or eliminating any benefit or compensation plan
as such is applied to the Executive and to other senior executives of the
Company;
(d) The assignment to the Executive of any duties materially
inconsistent with the Executive's current position with the Company or the
material reduction or elimination of any of the Executive's duties which has
the effect of diminishing the Executive's responsibilities or authority;
(e) A change in the Executive's title;
(f) Failure by the Company to obtain, in accordance with
Section 5(c), the written agreement of any successor in interest to the
business of the Company to assume and perform the obligations of the Company
under this Agreement;
(g) The relocation of the Executive's principal place of
employment to a location more than fifty miles from the Executive's currently
existing place of employment; or
(h) Any other material breach of this Agreement by the
Company.
The term "Change Of Control" shall mean the acquisition by
any person of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of fifty percent (50%) or more of the
outstanding interests or outstanding voting securities of the Company;
provided, however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change Of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (D)
any acquisition by Packaging Investors, L.L.P., DCBS Investors, L.L.P., CB
Investors, L.L.P. or any of their direct or indirect partners, members,
shareholders or affiliates or any entity controlled by any one or more of
them.
Exhibit B
to
Severance and Change Of Control Agreement
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(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Exhibit B) (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or if any
interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
being hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) below, all
determinations required to be made under this Exhibit B, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized certified public accounting firm designated by
the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within fifteen (15)
business days of the receipt of notice from the Executive that there has been
a Payment, or such earlier time as is requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting a Change of Control, the Executive may
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). The Accounting Firm shall
assist the Executive with the preparation and filing of any income tax return
required of the Executive which relates to the period or periods in which
Executive received a Payment or a Gross-Up Payment. All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Exhibit B, shall be paid by the
Company to the Executive within five (5) days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
paragraph (c) below and the Executive thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of the
thirty (30)-day period following the date on which the Executive gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) Give the Company any information reasonably
requested by the Company relating
to such claim,
(ii) Take such action in connection with contesting
such claim as the Company shall
reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) Cooperate with the Company in good faith in
order effectively to contest such
claim, and
(iv) Permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this paragraph (c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and xxx for a refund or contest
the claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs the Executive
to pay such claim and xxx for a refund, the Company shall advance the amount
of such payment to the Executive on an interest-free basis and shall indemnify
and hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (c) above, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of paragraph (c)
above) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to paragraph (c) above, a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be required
to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of any Gross-Up Payment required to be paid.
