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EMPLOYMENT AGREEMENT
SHOREWOOD PACKAGING CORPORATION
WITH
XXXXXX X. XXXXXXX
AGREEMENT made effective as of May 3, 1998, among SHOREWOOD
PACKAGING CORPORATION, a Delaware corporation having its principal executive
offices at 000 Xxxx Xxxxxx, Xxx Xxxx, X.X. 00000-0000 (herein called the
"Corporation"), and XXXXXX X. XXXXXXX, currently residing at 0000 Xxxxx Xxxxx,
Xxxxxxx Xxxxxx, X.X. 00000 (herein called the "Executive").
W I T N E S S E T H:
The Corporation and the Executive entered into that certain
Employment Agreement dated as of May 16, 1994 (the "Prior Employment
Agreement"), which provides for the employment of the Executive by the
Corporation upon the terms and conditions set forth therein.
The Corporation and the Employee desire to enter into a new
employment agreement upon the terms and conditions hereinafter set forth, which
employment agreement will supersede and replace the Prior Employment Agreement
in its entirety.
The Corporation recognizes that the longer the Executive
remains in the full time active employ of the Corporation, the more valuable
will be any consultative and advisory services that the Executive may provide
during his full time employment by the Corporation.
The Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, may be unsettling to the Executive and deter him from continuing
full time employment with the Corporation.
This Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation notwithstanding the
possibility or occurrence of a business combination proposal.
The Corporation and the Executive believe it imperative that
should the Corporation receive proposals from third parties with respect to its
future, the Executive should, without being influenced by the uncertainties of
his own situation, assess and advise the Corporation whether such proposals
would be in the best interest of the Corporation and its
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stockholders and take such other action regarding such proposals as the
Corporation might determine to be appropriate.
Accordingly, the parties desire to and do hereby enter into
this Agreement as of the date first set forth above.
NOW, THEREFORE,
1. EMPLOYMENT; TERM. Subject to the terms hereof, the term of this
Agreement shall be from May 3, 1998 through and including May 2, 2003. The
Corporation agrees to and does hereby employ the Executive as Chief Financial
Officer and an Executive Vice President for the period commencing May 3, 1998
and terminating May 2, 2003 (the "Employment Period") and the Executive agrees
that he shall serve as an Executive Vice President and the Chief Financial
Officer of the Corporation during the Employment Period. The foregoing
notwithstanding, in the event of any "Change in Control" (as hereinafter
defined) of the Corporation at any time during the last two fiscal years of the
Corporation beginning prior to May 2, 2003, the Employment Period hereunder
shall be automatically extended through and including May 2, 2005.
2. DUTIES. Except as hereinafter provided, the Executive shall during
the Employment Period perform the executive and administrative duties and
functions and shall have the powers and privileges of an Executive Vice
President and the Chief Financial Officer of the Corporation, as such duties,
functions, powers and privileges are defined in the By-Laws of the Corporation
in effect on the date hereof and as currently interpreted, and, to the extent
not defined therein, as the same are customarily performed and exercised by a
Chief Financial Officer or an Executive Vice President of a publicly owned
corporation incorporated in one of the states of the United States of America.
The Executive shall serve as a member of the Board of Directors (and of the
Executive Committee or any similar committee having powers of the Board of
Directors now in existence or hereafter created) of the Corporation without any
additional compensation for such services for so long as the Executive is
elected to serve on the Board, the Executive Committee or any similar committee.
As used in this Agreement, the term "Corporation" includes each Subsidiary of
the Corporation. So long as he is an officer of the Corporation, the Executive
agrees to devote substantially all his business time to the business and affairs
of the Corporation, and to exert his best efforts in the performance of his
duties as an officer, director and member of any committee of the Board of
Directors of the Corporation to which he may be elected, so as to promote the
profit, benefit and advantage of the business to the Corporation. The Executive
agrees to accept the payments to be made to him under this Agreement as full and
complete compensation for the services required to be performed by him under
this Agreement.
3. COMPENSATION. As compensation for the services to be rendered by the
Executive pursuant to this Agreement, subject to the conditions herein stated,
the Corporation agrees to pay to the Executive all of the following:
(a) BASE SALARY. Beginning May 3, 1998 and until the
expiration of the Employment Period, the Corporation shall pay to the Executive
a base salary (the "Base
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Salary") at a minimum rate of $450,000 per year, payable in weekly or bi-weekly
installments as nearly equal as may be practicable or otherwise in accordance
with the Corporation's customary payroll practices for its Executives.
Executive's Base Salary shall be reviewed annually and may be increased at the
Corporation's discretion. This Agreement shall not be deemed abrogated or
terminated if the Corporation, in its discretion, shall determine to increase
the compensation of the Executive for any period of time or if the Executive
shall accept such increase; but, nothing herein shall be deemed to obligate the
Corporation to make any such increase.
(b) BONUS. Within ninety (90) days after the end of each
fiscal year of the Corporation during the Employment Period, the Corporation
shall pay to the Executive a cash bonus in an amount determined by the Chairman
of the Board of Directors and the President of the Corporation in their sole
discretion, but not less than $________ per year (the "Guaranteed Bonus"),
pro-rated if the Executive's employment year and the Corporation's fiscal year
do not end simultaneously.
(c) PARACHUTE EFFECTIVE DATE. Notwithstanding the present
effectiveness of this Agreement, the provisions of Sections 3(g), (h), (i), (k),
(l) and (n) of this Agreement shall become operative only when, as and if there
has been a "Change in Control" of the Corporation. For purposes of this
Agreement, the terms "Subsidiary" and "Subsidiaries" shall mean each corporation
of which more than 50% of the outstanding capital stock entitled to vote for
directors is owned directly or indirectly by the Corporation and a "Change in
Control" of the Corporation shall be deemed to have occurred upon the occurrence
of any of the following events:
(i) A change in control of the direction and
administration of the Corporation's business of a nature that if any securities
of the Corporation were registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), would be required to be reported in response to
(a) Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange
Act, or (b) Item 1(a) of Form 8-K under the Exchange Act as each is in effect on
the date hereof and any successor provisions of such regulations under the
Exchange Act, whether or not the Corporation is then subject to such reporting
requirements; or
(ii) Any "person" or "group" (as such term is used in
connection with Section 13(d) and 14(d)(2) of the Exchange Act) but excluding
any employee benefit plan of the Corporation or any "affiliate" or "associate"
of the Corporation (as defined in Regulation 12b-2 under the Exchange Act) (a)
is or becomes the "beneficial owner" (as defined in rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing fifty percent (50%) or more of the combined voting power of the
Corporation's outstanding securities then entitled ordinarily (and apart from
rights accruing under special circumstances) to vote for the election of
directors or (b) acquires by proxy or otherwise 50% or more of the combined
voting securities of the Corporation having the right to vote for the election
of directors of the Corporation, for any merger or consolidation of the
Corporation, or for any other matter; or
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(iii) During any period of twenty-four (24)
consecutive months, the individuals who at the beginning of such period
constitute the Board of Directors of the Corporation or any individuals who
would be "Continuing Directors" (as hereinafter defined) cease for any reason to
constitute at least a majority thereof; or
(iv) The Corporation shall cease to meet the basic
conditions of listing on the New York Stock Exchange (or any other securities
exchange on which the Corporation's Common Stock, as hereinafter defined, is
listed for trading) in respect of the number of shares of the Corporation's
Common Stock held by the public; or
(v) There shall be consummated (A) any consolidation,
merger or recapitalization of the Corporation or any similar transaction
involving the Corporation, whether or not the Corporation is the continuing or
surviving corporation, pursuant to which shares of the Corporation's common
stock, par value $.01 per share ("Common Stock"), would be converted into cash,
securities or other property, other than a merger of the Corporation in which
the holders of Common Stock immediately prior to the merger have the same
proportion and ownership of common stock of the surviving corporation
immediately after the merger, (B) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Corporation or (C) the adoption of a
plan of complete liquidation of the Corporation (whether or not in connection
with the sale of all or substantially all of the Corporation's assets) or a
series of partial liquidations of the Corporation that is de jure or de facto
part of a plan of complete liquidation of the Corporation; provided, that the
divestiture of less than substantially all of the assets of the Corporation in
one transaction or a series of related transactions, whether effected by sale,
lease, exchange, spin-off, sale of the stock or merger of a Subsidiary or
otherwise, or a transaction solely for the purpose of reincorporating the
Corporation in another jurisdiction, shall not constitute a "Change-in-Control";
or
(vi) The Board of Directors of the Corporation shall
approve any merger, consolidation, or like business combination or
reorganization of the Corporation, the consummation of which would result in the
occurrence of any event described in Section 3(c)(i), (ii) or (v) above.
(d) DEFINITION OF "CONTINUING DIRECTORS". For purposes of this
Agreement, "Continuing Directors" shall mean the directors of the Corporation in
office on the date hereof and any successor to any such director and any
additional director who after the date hereof (i) was nominated or selected by a
majority of the Continuing Directors in office at the time of his nomination or
selection and (ii) who is not an "affiliate" or "associate" (as defined in
Regulation 12b-2 under the Exchange Act) or any person who is the beneficial
owner, directly or indirectly, of securities representing ten percent (10%) or
more of the combined voting power of the Corporation's outstanding securities
then entitled ordinarily to vote for the election of directors.
(e) TERMINATION RIGHTS UNCHANGED. Except as provided in
Section 3(f) below, nothing in this Agreement shall affect any right which the
Executive may otherwise have to terminate his employment by the Corporation or a
Subsidiary, nor shall anything in this
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Agreement affect any right which the Corporation or any Subsidiary may have to
terminate the Executive's employment at any time in any lawful manner, subject
to the provision that in the event of termination of the Executive's employment
under the circumstances specified in Sections 3(g) and 3(n) below following a
Change in Control, the Corporation will provide to the Executive the payments
and benefits described in Sections 3(g) and 3(n) of this Agreement.
(f) VOLUNTARY TERMINATION. In the event any person or
organization commences a tender or exchange offer, circulates a proxy statement
to the Corporation's stockholders, or takes other steps designed to effect a
Change in Control of the Corporation, the Executive agrees that in order to
receive the benefits provided by this Agreement, he will not voluntarily leave
the employ of the corporation or any of its Subsidiaries, and will continue to
perform his regular duties and to render the services specified in the recitals
of this Agreement, until such person or organization has abandoned or terminated
his efforts to effect a Change in Control or until a Change in Control has
occurred. Should the Executive voluntarily terminate his employment before any
such effort to effect a Change in Control of the Corporation has commenced, or
after any such effort has been abandoned or terminated without effecting a
Change in Control and no such effort is then in process, this Agreement shall
lapse and be of no further force or effect. Should the Executive voluntarily
terminate his employment with the Corporation or any of its Subsidiaries during
such time as any person or organization has commenced, but has not yet
abandoned, any steps designed to effect a Change in Control of the Corporation,
but at a time when a Change in Control has not been effected, the Executive
shall not be entitled to receive any of the benefits of Sections 3(g) or 3(n)
hereof.
(g) TERMINATION FOLLOWING CHANGE OF CONTROL. If a Change in
Control of the Corporation shall have occurred, then Executive shall be entitled
to the benefits provided in Section 3(n) hereof upon the subsequent termination
of his employment within the applicable period set forth in Section 3(n) hereof
following such Change in Control, unless such termination is (i) due to the
Executive's death or voluntary Retirement (as defined herein) or (ii) by the
Corporation or a Subsidiary by reason of the Executive's Disability (as defined
herein) or for Cause (as defined herein) or (iii) by the Executive other than
for Good Reason, as such term is defined in Section 3(j)(iv) hereof.
(h) TERMINATION BY REASON OF DEATH OR DISABILITY. If the
Executive's employment is terminated by reason of his death or Disability during
the two (2) years following a Change in Control, the Executive shall be entitled
to death or long-term disability benefits, as the case may be, from the
Corporation no less favorable than the most favorable benefits to which he would
have been entitled had the death or termination for Disability occurred at any
time during the period commencing one year prior to the initiation of actions
that resulted in a Change in Control. If prior to any such termination for
Disability during the two (2) years following a Change in Control, the Executive
fails to perform his duties as a result of incapacity due to physical or mental
illness, he shall continue to receive his Base Salary and Guaranteed Bonus (as
herein defined) less any benefits as may be received by him under the
Corporation's or Subsidiary's disability plan until his employment is terminated
for Disability, and shall be entitled to the most favorable other benefits
applicable under the
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Corporation's policies during the period commencing one year prior to the
initiation of actions that resulted in the Change in Control.
(i) TERMINATION FOR CAUSE. If the Executive's employment shall
be terminated by the Corporation for Cause or by the Executive other than for
Good Reason during the two (2) years following a Change in Control, the
Corporation shall pay to the Executive his full Base Salary and Guaranteed
Bonus, pro-rated through the Date of Termination (as defined herein), at the
rate in effect at the time Notice of Termination is given and any amounts to be
paid to the Executive pursuant to any deferred compensation or other employee
benefit plan or program, and the Corporation shall have no further obligations
to the Executive under this Agreement.
(j) DEFINITIONS. For purposes of this Agreement:
(i) "Disability" shall mean that, as a result of the
Executive's incapacity due to physical or mental illness, the Executive has been
absent from the full-time performance of his duties (as described in Section 2
hereof) with the Corporation for six (6) consecutive months and, within thirty
(30) days after Notice of Termination is given to the Executive, he has not
returned to the full-time performance of his duties (as described in Section 2
hereof). Any question as to the existence of Disability shall be determined by a
qualified independent physician selected by the Executive (or, if he is unable
to make such selection, such selection shall be made by any adult member of the
Executive's family) and approved by the Corporation. The written determination
of such physician shall be final and conclusive for purposes of this Agreement.
(ii) "Retirement" shall mean that the Executive shall
have retired after reaching the earliest normal or early retirement date
provided in the Corporation's retirement plans as then in effect (or if
Executive retires after a Change in Control of the Corporation, as in effect on
the date of the Change in Control).
(iii) "For Cause" shall mean:
(A) The willful and continued failure by the
Executive to substantially perform his duties with the Corporation (other than
any such failure resulting from the Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure resulting from
termination by the Executive for Good Reason) which is not cured within thirty
(30) days after a written demand for substantial performance is delivered to the
Executive by the Board of Directors, which demand specifically identifies the
manner in which the Board of Directors believes that the Executive has not
substantially performed his duties; or
(B) The willful engagement in conduct by the
Executive which is demonstrably and materially injurious to the Corporation,
monetarily or otherwise, which is not discontinued within five (5) days after
written demand to cease and desist from such conduct is delivered to the
Executive by the Board of Directors, which demand specifically identifies the
conduct which the Board of Directors believes is injurious to the Corporation;
or
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(C) Conviction for a felony or other crime
punishable by imprisonment for more than one (1) year, or the entering of a plea
of nolo contendere thereto.
Notwithstanding any of the foregoing, the Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to the Executive a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the Board of
Directors (other than the Executive) at a meeting called and held for such
purpose (after reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Board of
Directors), finding that in the good faith opinion of the Board of Directors the
Executive was guilty of conduct set forth above in clause (A), (B) or (C) and
specifying the particulars thereof in detail.
(iv) "Good Reason" shall mean:
(A) The assignment by the Corporation or a
Subsidiary to the Executive of duties which (i) are inconsistent with, or
require travel significantly more time-consuming or extensive than, the
Employee's duties and business travel obligations immediately prior to the
Change in Control, or (ii) result, without the Executive's express written
consent, in a significant reduction in the Executive's authority and
responsibility when compared to the highest level of authority and
responsibility assigned to the Executive at any time during the six (6) month
period prior to the Change in Control; or
(B) A reduction by the Corporation or a
Subsidiary of the Executive's Base Salary, as the same may be increased from
time to time hereafter or the Executive's Guaranteed Bonus; or
(C) A change of the Executive's assigned
site location without the Executive's express written consent, or in the event
of any relocation of the Executive with his express written consent, the failure
by the Corporation to pay (or reimburse the Executive for) all reasonable moving
expenses incurred by the Executive and relating to a change of his principal
residence, and to indemnify the Executive against any loss realized by the
Executive and/or the Executive's spouse in the sale of the Executive's principal
residence in connection with any such change of residence, all to the effect
that the Executive shall incur no loss on an after-tax basis; or
(D) The failure of the Corporation to
continue to provide the Executive with substantially the same level of
retirement and welfare benefits (which for purposes of this Agreement shall mean
benefits under all welfare plans as that term is defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended) and perquisites
(including participation on a comparable basis in the Corporation's retirement
plans, stock option plans, incentive plans, group life insurance plans, medical,
health, accident, disability and other plan in which employees of the
Corporation of comparable title and salary grade participate) and any other
material benefits hereunder, as were provided to the Executive immediately prior
to such Change in Control, or with a package of retirement and welfare benefits
and perquisites that, though one or more such benefits or perquisites (including
participation on a comparable basis in the Corporation's or a Subsidiary's
retirement plans, stock
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option plans, incentive plans, group life insurance plans, medical, health,
accident, disability and other plans) may vary from those provided before such
Change in Control, is substantially comparable in all material respects when
taken as a whole to such retirement and welfare benefits and perquisites
provided prior to the Change in Control; or
(E) The failure by the Corporation to obtain
the express written assumption of and agreement to perform this Agreement by any
successor as contemplated in Section 3(n)(viii) hereof; or
(F) Any purported termination of the
Executive's employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 3(k) hereof.
For purposes of this Section 3(j), no act, or failure to act,
on the Executive's part shall be considered "willful" unless done, or omitted to
be done, by him knowing and with the intent that such action or inaction would
not be in the best interests of the Corporation or otherwise was done or omitted
to be done in bad faith.
(v) "Base Salary" shall mean the annual base salary
paid to the Executive immediately prior to the Change in Control of the
Corporation (provided that such amount shall in no event be less than the annual
Base Salary paid to the Executive during the one (1) year period immediately
prior to the Change in Control).
(k) NOTICE OF TERMINATION. Any purported termination of
employment by the Corporation by reason of the Executive's Disability or for
Cause, or by the Executive for Good Reason, shall be communicated by written
Notice of Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a notice given by the Executive or by the
Corporation or a Subsidiary, as the case may be, which shall indicate the
specific basis for termination and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for determination of any
payments under this Agreement; provided, however, that (i) the Executive shall
not be entitled to give a Notice of Termination that he is terminating his
employment with the Corporation or a Subsidiary for Good Reason after the
expiration of six (6) months following the last to occur of the events specified
by him to constitute Good Reason and (ii) the Corporation shall not be entitled
to give a Notice of Termination that it is terminating Executive's employment
hereunder with the Corporation or a Subsidiary by reason of Executive's
Disability or for Cause after the expiration of six (6) months following the
last to occur of the events specified by it to constitute Good Reason or
Disability.
(l) DATE OF TERMINATION. For purposes of this Agreement, "Date
of Termination" shall mean (i) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided that
the Executive shall not have returned to the full-time performance of his duties
(as described in Section 2 hereof) during such thirty (30) day period) and (ii)
if the Executive's employment is terminated for Cause or Good Reason, the date
specified in the Notice of Termination, which shall be not more than ninety (90)
days after such Notice of Termination is given. If within thirty (30) days after
any Notice of
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Termination is given, the party who receives such Notice of Termination notifies
the other party that a Dispute (as hereinafter defined) exists, the parties
agree to pursue promptly the resolution of such Dispute with reasonable
diligence. Pending the resolution of any such Dispute, the Corporation or a
Subsidiary shall make the payments and provide the benefits provided for in
Section 3(n) hereof to the Executive. In the event that it is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected), that a challenged
termination by the Corporation or a Subsidiary by reason of the Executive's
Disability or for Cause was justified, or that a challenged termination by the
Executive for Good Reason was not justified, then all sums paid by the
Corporation or a Subsidiary to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution of the Dispute
pursuant to this Section 3(l) shall be repaid promptly by the Executive to the
Corporation or a Subsidiary, with interest at the base rate charged from time to
time by the Corporation's principal commercial bank. In the event that it is
finally determined that a challenged termination by the Corporation or a
Subsidiary by reason of the Executive's Disability or for Cause was not
justified, or that a challenged termination by the Executive for Good Reason was
justified, then the Executive shall be entitled to retain all sums paid to the
Executive pending resolution of the Dispute.
(m) DEFINITION OF "DISPUTE". For purposes of this Agreement,
"Dispute" shall mean (i) in the case of the Executive's termination as an
Executive with the Corporation or a Subsidiary for Disability or Cause, that the
Executive challenges the existence of Disability or Cause and (ii) in this case
of the Executive's termination as an Executive with the Corporation or a
Subsidiary by the Executive for Good Reason, that the Corporation or a
Subsidiary challenges the existence of Good Reason.
(n) PARACHUTE PAYMENTS UPON TERMINATION. If within two (2)
years after a Change in Control of the Corporation, the Corporation or a
Subsidiary shall terminate the Executive's employment other than by reason of
the Executive's death, Disability, voluntary Retirement or for Cause or if the
Executive shall terminate his employment for Good Reason then, in any such
event, and subject in each case to Section 3(l) hereof, the Corporation or a
Subsidiary will pay to the Executive as compensation for services rendered,
beginning not later than the fifth business day following completion of the
"Parachute Procedure" (as hereinafter defined) if the Corporation elects to
follow such procedure and not later than the fifteenth day after the Date of
Termination otherwise:
(i) the Executive's Base Salary and Guaranteed Bonus
through the Date of Termination, any existing fringe benefits (including medical
benefits) and incentive compensation for the fiscal year in which the
termination occurs in accordance with any arrangements then existing with the
Executive and proportionate to the period of the fiscal year which has expired
prior to the termination; and
(ii) a lump sum severance payment equal to 2.99 times
the Executive's average annual compensation during the Base Period (as
hereinafter defined) (subject to any applicable payroll or other taxes and
charges required to be withheld computed at the rate
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for supplemental payments) provided that in no event shall "Total Payments" (as
hereinafter defined) exceed 2.99 times the Executive's "Base Amount", as such
term is defined in Section 28OG of the Internal Revenue Code (the "Code"). The
Executive's Base Amount shall be determined in accordance with temporary or
final regulations promulgated under section 28OG of the Code then in effect, if
any. In the absence of such regulations, if the Executive was not employed by
the Corporation (or any corporation or partnership affiliated with the
Corporation (an "Affiliate") within the meaning of Section 1504 of the Code or a
predecessor of the Corporation) during the entire five calendar years (the "Base
Period") preceding the calendar year in which a Change in Control of the
Corporation occurred, the Executive's average annual compensation for the
purposes of such determination shall be the lesser of (1) the average of the
Executive's annual compensation for the complete calendar years during the Base
Period during which the Executive was so employed or (2) the average of the
Executive's annual compensation for both complete and partial calendar years
during the Base Period during which the Executive was so employed, determined by
annualizing any compensation (other than nonrecurring items) includible in the
Executive's gross income for any partial calendar year or (3) the annual average
of the Executive's total compensation for the Base Period during which the
Executive was so employed, determined by dividing such total compensation by the
number of whole and fractional years included in the Base Period. Compensation
payable to the Executive by the Corporation or any Affiliate or predecessor of
the Corporation shall include every type and form of compensation includible in
the Executive's gross income in respect of the Executive's employment by the
Corporation or any Affiliate or predecessor of the Corporation, including
compensation income recognized as a result of the Executive's exercise of stock
options or sale of the stock so acquired, except to the extent otherwise
provided in temporary or final regulations promulgated under Section 28OG of the
Code. For purposes of this Section 3(n), a "change in control of the
Corporation" shall have the meaning set forth in Section 28OG of the Code and
any temporary or final regulations promulgated thereunder, subject to the
limitation stated in Section 3(n)(iii) below; and
(iii) (A) Notwithstanding anything to the contrary
contained herein, in the event that any portion of the aggregate payments and
benefits (the "Total Payments") received or to be received by the Executive,
whether paid or payable pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Corporation, a subsidiary or any other
person or entity, would not be deductible in whole or in part by the
Corporation, a Subsidiary or by such other person or entity in the calculation
of its Federal income tax by reason of section 28OG of the Code, the Total
Payments payable shall be reduced by the least amount necessary so that no
portion of the Total Payments would fail to be deductible by reason of being an
"excess parachute payment."
(B) At the option of the Corporation, no payments
shall be made pursuant to this section until the procedure described in this
Section 3(n)(iii) is completed (the "Parachute Procedure"). If the Corporation
elects to comply with such procedure, the Corporation shall cause its
independent auditors to deliver to the Executive, within fifteen (15) days after
the Date of Termination, a statement which shall indicate whether payment to the
Executive of the Total Payments would cause any portion of the Total Payment not
to be deductible in whole or part in the calculation of Federal income tax by
reason of Section 28OG
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of the Code, or would cause, directly or indirectly, an "excess parachute
payment" to exist within the meaning of Section 28OG of the Code. Such statement
shall set forth the value, calculated in accordance with the principles of
Section 28OG of the Code and any temporary or final regulations promulgated
thereunder, of any non-cash benefits or any deferred or contingent payment or
benefit payable pursuant to the terms of this Agreement or any other plan,
arrangement or benefit, together with sufficient information to enable the
Corporation to determine the payments that may be made to the Executive without
resulting in a loss of deduction under Section 28OG of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 28OG of the
Code. The Corporation warrants to the Executive the accuracy of all information
and calculations supplied to the Executive in such statement. If such statement
indicates that payment of the Total Payments would result in a loss of a
deduction by reason of Section 28OG of the Code or would cause an "excess
parachute payment" to exist within the meaning of Section 28OG of the Code, the
Executive shall, within thirty (30) days after receipt of the statement, deliver
to the Corporation a statement indicating which of the payments and benefits
specified in such auditor's statement the Executive elects to receive; provided,
however, that the payments and benefits selected by the Executive shall not
result in a loss of deduction under Section 28OG of the Code or an "excess
parachute payment" to the Executive within the meaning of Section 28OG of the
Code and, provided, further, however, that if the Corporation does not comply
with the Parachute Procedure, it shall deliver the payments required by this
Section 3(n) within fifteen (15) days after the Date of Termination. Delivery of
the statement by the Executive to the Corporation shall constitute completion of
the Parachute Procedure; and
(iv) The Corporation shall contest any improper
assessment of an excise or other tax imposed as a result of determination that
an "excess parachute payment" has been made to the Executive within the meaning
of Section 28OG of the Code. If it is established pursuant to a final
determination of a court of competent jurisdiction or an Internal Revenue
Service proceeding that an "excess parachute payment" does in fact exist, within
the meaning of Section 28OG of the Code, then the Executive shall pay to the
Corporation, upon demand, an amount not to exceed the sum of (i) the excess of
the aggregate Total Payments over the aggregate Total Payments that would have
been paid without any portion of such payment being deemed an "excess parachute
payment" within the meaning of Section 28OG of the Code and (ii) interest on the
amount set forth in clause (i) above at the applicable federal rate specified in
Section 1274(d) of the Code from the date of receipt by the Executive of such
excess until the date of such repayment.
(v) If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation shall indemnify the
Executive for his attorneys' fees and disbursements incurred in such litigation
and pay prejudgment interest on any money judgment obtained by the Executive
calculated at the base rate of interest charged from time to time from the date
that payment should have been made under this Agreement; provided, however, that
the Executive shall not have been found by the court to have had no cause to
bring the action, or to have acted in bad faith, which findings must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
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(vi) The Corporation's obligation to pay the
Executive the compensation and to make the arrangements provided herein shall be
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, any setoff, counterclaim, recoupment, defense or
other right which the Corporation may have against the Executive or anyone else.
All amounts payable by the Corporation hereunder shall be paid without notice or
demand.
(vii) Except as expressly provided herein, the
Corporation waives all rights it may now have or may hereafter have conferred
upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement
in whole or in part. Except as otherwise provided herein, each and every payment
made hereunder by the Corporation shall be final and the Corporation will not
seek to recover for any reason all or any part of such payment from the
Executive or any person entitled thereto. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment, and if Executive obtains such other employment, any
compensation earned by Executive pursuant thereto shall not be applied to
mitigate any payment made to Executive pursuant to this Agreement.
(viii) The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Corporation, by
written agreement to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Corporation would be required to
perform it if no such succession had taken place. As used in this Agreement, the
term "Corporation" shall mean the Corporation as hereinbefore defined and any
successor to or assignee of its business and/or assets as aforesaid which
executes and delivers the agreement required by this Section 3(n)(viii), or
which otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law.
(ix) This Agreement shall constitute the entire
agreement between the Executive and the Corporation concerning the Executive's
termination subsequent to a Change in Control as provided herein, and
performance of its obligations hereunder by the Corporation shall constitute
full settlement and release of any claim or cause of action, of whatsoever
nature, which the Executive might otherwise assert or claim against the
Corporation or any of its directors, stockholders, officers or employees on
account of such termination. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and an authorized officer of the
Corporation. No waiver by either party hereto at any time of any breach by the
other party hereto of compliance with any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of any
similar or dissimilar provision or condition at such same or at any prior or
subsequent time. No assurances or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. However, this
Agreement is in addition to and not in lieu or any other plan providing for
payments to or benefits for the Executive or any agreement now existing or which
hereafter may be entered into between the Corporation and the Executive,
provided that, notwithstanding anything to the contrary contained
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in the terms of any such plan or agreement, in the event of Executive's
termination, within two (2) years after a Change in Control as provided herein,
of Executive's employment, this Agreement shall govern the rights and the
obligations of the Corporation and the Executive.
4. BENEFITS. The Executive shall be entitled to participate in any
life, accident and health insurance, hospitalization or any other plan or
benefits afforded by the Corporation to its executives generally, if and to the
extent that the Executive is eligible to participate in accordance with the
provisions of any such plan or for such benefits. Nothing herein is intended, or
shall be construed, to require the Corporation to institute any, or any
particular, plan or benefits. In addition, the Executive shall be furnished with
an automobile lease allowance of $[1,000] per month during the Employment Period
plus reimbursement for reasonable insurance, maintenance, gasoline and parking
expenses incurred in furtherance of the Corporation's business.
5. EARLY TERMINATION; NO CHANGE OF CONTROL. If prior to the expiration
of this Agreement or a Change in Control of the Corporation, (a) the Executive
fails because of Disability to perform services of the character contemplated by
Section 2 of this Agreement; or (b) if the Corporation's Board of Directors
determines that the Executive has been negligent in the performance of his
duties, has willfully neglected his duties, has been dishonest, has willfully
disobeyed the Corporation's rules, instructions or orders or has breached any of
his covenants herein contained (any such conduct, to be referred to as
"Objectionable Conduct"); then, the Corporation may by written "Notice of
Termination" (defined below) terminate Executive's employment herein. In
addition, this Agreement shall terminate immediately upon the death or
Retirement of Executive. Upon any termination of the Executive's employment
under this Section 5, the Executive shall be deemed removed from all positions
held by him with the Corporation, its subsidiaries and affiliates, effective as
of the "Date of Termination" (defined below). Upon any termination of the
Executive's employment under this Section 5, the Executive shall be entitled to
receive solely all amounts and benefits to be paid or provided by the
Corporation under Sections 3(a), 3(b) and 4 of this Agreement up to the Date of
Termination, except that a "Proportionate Part" (hereinafter defined) of the
Guaranteed Bonus is payable under Section 3(b) of this Agreement. The provisions
of this Section 5 shall terminate and cease to be of any force or effect
immediately upon any Change in Control of the Corporation. For purposes of this
Section 5 only, (i) "Date of Termination" shall mean, (x) in respect of any
termination of Executive's employment by reason of death or retirement, the
effective date of Retirement or the date of death, as the case may be, (y) in
respect of any termination of Executive's employment by reason of Disability,
thirty (30) days after the Notice of Termination is given to Executive (provided
that Executive shall not have returned to the full-time performance of his
duties during such thirty (30) day period) and (z) in respect of any termination
of Executive's employment by reason of Objectionable Conduct, fifteen (15) days
after the Notice of Termination is delivered to Executive (provided that
Executive shall not have cured and/or ceased, as appropriate, such conduct
within such fifteen (15) day period; (ii) "Notice of Termination" shall mean a
notice given by the Company to Executive which shall indicate the specific basis
for termination and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for determination of any payments due
under this Agreement; provided, however, that the Company shall not be entitled
to give a Notice of Termination that it is terminating Executive's
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employment after the expiration of six (6) months following the last to occur of
the events constituting the basis for such termination.; and (iii) a
"Proportionate Part" shall be the amount determined by multiplying the
Guaranteed Bonus by a fraction the numerator of which shall be the number of
days of an Employment Year which have elapsed prior to the date of the
termination of the Executive's employment and the denominator of which is three
hundred and sixty-five (365).
6. (a) COMPLETE PAYMENT. Upon the payment of the amounts provided
in this Agreement, the Corporation shall have no further liability of any kind
or nature whatsoever to the Executive under this Agreement, except such
liability, if any, as may continue under any plan or for the benefits (in
accordance with the express terms hereof) referred to in Section 4 hereof.
Notwithstanding the foregoing, Executive expressly reserves any rights he may
have at law, equity or otherwise in the event that his employment by the
Corporation is terminated in contravention of this Agreement.
(b) ON-COMPETITION. The Executive expressly covenants and
agrees that during the term of this Agreement he will not, directly or
indirectly, own, manage, operate, join, control or participate in or be
connected with as an officer, employee, partner, stockholder, or otherwise, any
business, individual, partnership, firm or corporation (other than a parent of
the Corporation or a subsidiary or affiliate of such parent), which is at the
time engaged wholly or partly, in the business of manufacturing and marketing
packaging products or in any business which is directly in competition with the
then business of the Corporation or any subsidiary or affiliate of the
Corporation (as defined in the General Rules and Regulations promulgated under
the Securities and Exchange Act of 1934), or any firm, partnership or
corporation which shall succeed to all or a substantial part of the business of
the Corporation, or any such subsidiary or affiliate.
(c) INVESTMENTS. Nothing in this Agreement is intended, or
shall be construed, to prevent the Executive during the term of his employment
hereunder from investing in the stock or other securities listed on a national
securities exchange or actively traded on the over-the-counter market of any
corporation which is at the time engaged wholly or partly in any business which
is, directly or indirectly, at the time, in competition with the business of the
Corporation or any such subsidiary or affiliate, or any firm, partnership, or
corporation which shall succeed to all or a substantial part of the business of
the Corporation, or any such subsidiary or affiliate, provided that the
Executive and direct members of his family living in the same household as the
Executive shall not directly or indirectly, hold, beneficially or otherwise, in
the aggregate, more than three percent of any issue of such stock or other
securities of any one such corporation.
(d) CONFIDENTIAL INFORMATION. The Executive expressly
covenants and agrees that he will not at any time, during the term of his
employment hereunder or thereafter and without regard to when or for what
reason, if any, such employment shall terminate, directly or indirectly, use or
permit the use of any trade secrets, customers' lists or other information of,
or relating to, the Corporation, or any Subsidiary or affiliate, in connection
with any activity of business, except the business of the Corporation of any
Subsidiary or affiliate of the Corporation,
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and will not divulge such trade secrets, customers' lists, and information to
any person, firm, or corporation whatsoever, except as may be necessary in the
performance of his duties hereunder.
(e) REMEDIES. It is expressly understood and agreed that the
services to be rendered hereunder by the Executive are special, unique, and of
extraordinary character, and in the event of the breach by the Executive of any
of the terms and conditions of this Agreement on his part to be performed
hereunder, or in the event of the breach or threatened breach by the Executive
of the terms and provisions of paragraphs (b) or (d) of this Section, then the
Corporation shall be entitled, if it so elects, to institute and prosecute any
proceedings in any court of competent jurisdiction, either in law or equity, for
such relief as it deems appropriate, including, without limiting the generality
of the foregoing, any proceedings, to obtain damages for any breach of this
Agreement, or to enforce the specific performance thereof by the Executive or to
enjoin the Executive from performing services for any other person, firm or
corporation.
7. SEVERABILITY. The invalidity or unenforceability of any provisions
of this Agreement in any circumstance shall not affect the validity or
enforceability of such provision in any other circumstance or the validity or
enforceability of any other provision of this Agreement, and except to the
extent such provision is invalid or unenforceable, this Agreement shall remain
in full force and effect. Any provision in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof in such jurisdiction, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail, to
his then residence in the case of the Executive or to its principal office in
the case of the Corporation, and shall be deemed given when deposited in the
United States mails, postage prepaid.
9. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of
the parties and supersedes all prior agreements between the parties with respect
to the subject matter hereof. It may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification, extension or discharge is sought.
10. WAIVER. The waiver by the Corporation of a breach of any provision
of this Agreement by the Executive shall not operate or be construed as a waiver
of any subsequent breach by the Executive. The waiver by the Executive of a
breach of any provisions of this Agreement by the Corporation shall not operate
or be construed as a waiver of any subsequent breach by the Corporation
11. GOVERNING LAW. This Agreement shall be subject to, and governed by,
the laws of the State of New York.
12. SUCCESSORS. The rights and obligations of the Corporation under
this Agreement shall inure to the benefit of and shall be binding upon any
successor of the
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Corporation or to the business of the Corporation. Neither this Agreement or any
rights or obligations of the Executive hereunder shall be transferable or
assignable by the Executive; provided, however, that this Agreement shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would still
be payable to the Executive hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee or other designee
or, if there be no such designee, to the Executive's estate.
IN WITNESS WHEREOF, the parties hereto have duly signed this
Agreement in duplicate original effective as of May 3, 1998.
SHOREWOOD PACKAGING CORPORATION
By:
-----------------------------
Name:
Title:
--------------------------------
XXXXXX X. XXXXXXX
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