Exhibit 10.20
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MANAGEMENT EQUITY AGREEMENT
AMONG
PACKAGING CORPORATION OF AMERICA
AND
EACH OF THE PERSONS
LISTED ON THE
SIGNATURE PAGES HERETO
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DATED AS OF JUNE 1, 1999
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THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER STATE SECURITIES LAWS.
THE SECURITIES ARE BEING SOLD IN RELIANCE UPON EXEMPTIONS FROM SUCH REGISTRATION
AND QUALIFICATION REQUIREMENTS. THE SECURITIES CANNOT BE SOLD, TRANSFERRED,
ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE RESTRICTIONS ON
TRANSFERABILITY SET FORTH IN THIS AGREEMENT AND APPLICABLE FEDERAL AND STATE
SECURITIES LAWS.
TABLE OF CONTENTS
Page
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1. Purchase and Sale of Common Stock . . . . . . . . . . . . . . . . . . . 1
2. Grant and Exercise of Option . . . . . . . . . . . . . . . . . . . . . . 2
3. Representations and Warranties; Acknowledgments . . . . . . . . . . . . 4
4. Repurchase Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . . . . 7
6. Additional Restrictions on Transfer. . . . . . . . . . . . . . . . . . . 8
7. Sale of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
9. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
11. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . .14
12. Code Section 280G . . . . . . . . . . . . . . . . . . . . . . . . . . .15
13. Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
ANNEX A - 1999 Management Equity Compensation Plan
ANNEX B - Form of Section 83(b) Election
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MANAGEMENT EQUITY AGREEMENT
THIS MANAGEMENT EQUITY AGREEMENT (this "AGREEMENT") is made as of
June 1, 1999, among Packaging Corporation of America, a Delaware corporation
(the "COMPANY"), and each of the persons identified on the signature pages
attached hereto (each an "EXECUTIVE").
The Company and each Executive desire to enter into an agreement
pursuant to which such Executive shall purchase, and the Company shall sell,
certain shares of the Company's Common Stock, par value $.01 per share (the
"COMMON STOCK"), and the Company shall grant to such Executive an option to
acquire shares of Common Stock (an "OPTION"), on the terms and subject to the
conditions set forth in this Agreement. The Common Stock and Option to be
acquired by any Executive hereunder are being issued pursuant to the Packaging
Corporation of America 1999 Management Equity Compensation Plan, a copy of which
is attached as ANNEX A hereto (the "MANAGEMENT EQUITY PLAN"). Capitalized terms
not otherwise defined herein have the meanings set forth in PARAGRAPH 9 of this
Agreement.
The parties hereto agree as follows:
1. PURCHASE AND SALE OF COMMON STOCK.
(a) PURCHASE AND SALE. Upon execution of this Agreement, each
Executive shall purchase, and the Company shall sell, the number of shares of
Common Stock set forth on such Executive's signature page attached hereto, at a
price of $1,000 per share. The Company shall deliver to each Executive a copy
of, and a receipt for, the certificate representing such shares of Common Stock
purchased by such Executive, and such Executive shall deliver to the Company a
cashier's or certified check or wire transfer of funds in the aggregate amount
set forth on such Executive's signature page attached hereto.
(b) SECTION 83(b) ELECTION. Within 30 days after each Executive
purchases any Executive Stock from the Company, such Executive shall make an
effective election with the Internal Revenue Service under Section 83(b) of the
Code in the form of ANNEX B attached hereto.
(c) VESTING OF EXECUTIVE STOCK.
(i) Except as otherwise provided in CLAUSE (ii) below, each
Executive's Executive Stock shall become vested in accordance with the
following schedule, if as of each such date such Executive is and has
continued to be employed by the Company or any of its Subsidiaries:
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Cumulative Percentage of
Vesting Date Executive Stock Vested
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June 1, 2000 20%
June 1, 2001 20%
June 1, 2002 20%
June 1, 2003 20%
June 1, 2004 20%
(ii) Shares of Executive Stock which have become vested are
referred to herein as "VESTED SHARES," and all other shares of Executive
Stock are referred to herein as "UNVESTED SHARES." If any Executive
ceases to be employed by the Company or its Subsidiaries on any date other
than any Vesting Date set forth above prior to June 1, 2004, the
cumulative percentage of such Executive's Executive Stock to become vested
shall be determined on a pro rata basis according to the number of days
elapsed since the immediately preceding Vesting Date.
(iii) Upon the occurrence of a Sale of the Company or a Public
Offering, all shares of Executive Stock which have not yet become vested
shall become vested at the time of such event; provided that in the event
of a Sale of the Company, as a condition to each Executive's Unvested
Shares becoming vested upon such event, such Executive shall, if requested
by the purchaser of the Company and for no additional consideration
therefor, agree to continued employment for up to 12 months following such
Sale of the Company so long as such Executive's compensation package and
job description immediately following such Sale of the Company is
reasonably similar with respect to remuneration, scope of duties,
responsibility and job location to such Executive's compensation package
and job description immediately prior to such event; it being understood
that the foregoing proviso shall not prohibit an Executive who is
otherwise eligible for retirement during such period from retiring so long
as such Executive enters into a one year non-compete agreement with the
Company in a form satisfactory to the Company. In the event of the death
or permanent disability of an Executive, the number of shares of Executive
Stock which have not then vested but would have become vested during the
six months following such Executive's death or the determination of such
Executive's permanent disability (as the case may be) shall become vested
at the time of such event. For purposes of this Agreement, the
determination of any Executive's permanent disability shall be made in
good faith by the Company's Board of Directors (the "BOARD").
2. GRANT AND EXERCISE OF OPTION.
(a) GRANT. The Company shall grant to each Executive an Option to
purchase the number of shares of Common Stock set forth on such Executive's
signature page attached hereto (the"OPTION SHARES") at a price of $1,000 per
share (the "EXERCISE PRICE"), payable upon exercise thereof as set forth in
PARAGRAPH 2(b) below. Each Executive's Option shall expire at the close of
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business on June 1, 2009 (the "EXPIRATION DATE"), subject to earlier expiration
as provided in PARAGRAPH 2(e) below or upon termination of such Executive's
employment as provided in PARAGRAPH 2(d) below. The Options are not intended to
be "incentive stock options" within the meaning of Section 422A of the Code.
(b) EXERCISABILITY/VESTING. Each Option may be exercised only to
the extent it has become vested. Subject to PARAGRAPHS 2(c) AND 2(d), each
Option shall become vested in five equal annual installments on the Vesting
Dates set forth in PARAGRAPH 1(c)(i) above. Any Option Shares issued upon
exercise of an Option shall be considered to be both Executive Stock and Vested
Shares for purposes of this Agreement.
(c) ACCELERATION OF VESTING. Notwithstanding the provisions of
PARAGRAPH 2(b), upon the occurrence of a Sale of the Company or a Public
Offering, all or any portion of each Executive's Option which has not previously
vested shall become vested and exercisable upon the occurrence of such event;
provided that in the case of a Sale of the Company, as a condition to such
accelerated vesting of such Executive's Option, such Executive shall, if
requested by the purchaser of the Company and for no additional consideration
therefor, agree to continued employment for up to 12 months following such Sale
of the Company so long as such Executive's compensation package and job
description immediately following such Sale of the Company is reasonably similar
with respect to remuneration, scope of duties, responsibility and job location
to such Executive's compensation package and job description immediately prior
to such event.
(d) EFFECT OF TERMINATION ON VESTING. Unless otherwise determined
by the Board, if an Executive's employment with the Company terminates for any
reason, such Executive's Option shall be vested and fully exercisable with
respect to that portion of such Executive's Option that was vested and
exercisable on the date of such termination (such Executive's "TERMINATION
DATE"), and any portion of such Executive's Option that was not vested and
exercisable as of such Executive's Termination Date shall be forfeited as of
such date. Notwithstanding anything to the contrary herein, the number of
Option Shares with respect to which an Executive's Option may be exercised shall
not increase once such Executive ceases to be employed by the Company.
(e) EXPIRATION. In no event shall any portion of any Executive's
Option be exercisable after the Expiration Date. Upon termination of an
Executive's employment with the Company, any portion of such Executive's Option
that is not vested and exercisable as of such Executive's Termination Date shall
expire on such date. In the case of an Executive's death or permanent
disability, the portion of such Executive's Option that is vested and
exercisable as of the date of such death or permanent disability shall expire
180 days from the date of such Executive's death or permanent disability, but in
no event after the Expiration Date. If an Executive is terminated for Cause,
then all of such Executive's Option not previously exercised (whether or not
vested) shall expire on such Executive's Termination Date. If an Executive
resigns or is discharged other than for Cause, the portion of such Executive's
Option that is vested and exercisable but has not been previously exercised
shall expire 90 days from such Executive's Termination Date, but in no event
after the Expiration Date. Notwithstanding the foregoing, in the event of a
Sale of the
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Company, the Board may provide, in its discretion, that any Option
shall terminate if not exercised as of the closing of the Sale of the Company or
other prescribed period of time.
(f) EXERCISE PROCEDURES. An Executive may exercise all or any
portion of his or her Option, to the extent it has vested and is outstanding, at
any time and from time to time prior to its expiration. As a condition to any
exercise of an Executive's Option, such Executive shall make all investment
representations which the Company requires. An Executive shall effect such
exercise by delivering (i) written notice of such exercise to the Company (to
the attention of the Company's Chief Executive Officer or Secretary), together
with such Executive's written acknowledgment that he or she has read and has
been afforded an opportunity to ask questions of management of the Company
regarding all financial and other information provided to or requested by such
Executive regarding the Company and (ii) payment of an amount (the "OPTION
PRICE") equal to the product of (A) the Exercise Price multiplied by (B) the
number of Option Shares to be acquired upon such exercise. Payment of the
Option Price shall be made in cash (including check, bank draft or money order)
or, in the sole discretion of the Board, by delivery of a promissory note (if in
accordance with policies approved by the Board).
3. REPRESENTATIONS AND WARRANTIES; ACKNOWLEDGMENTS.
(a) In connection with the purchase and sale of Executive Stock,
each Executive represents and warrants as follows:
(i) Executive Stock being acquired by such Executive
pursuant to this Agreement shall be acquired for such Executive's own
account and not with a view to, or the intention of, distribution thereof
in violation of the 1933 Act, or any applicable state securities laws, and
Executive Stock so acquired shall not be disposed of in contravention of
the 1933 Act or any applicable state securities laws.
(ii) Such Executive is sophisticated in financial matters and
is able to evaluate the risks and benefits of the investment in the
Executive Stock.
(iii) Such Executive is able to bear the economic risk of such
Executive's investment in Executive Stock acquired hereunder for an
indefinite period of time and acknowledges that the Executive Stock has
not been registered under the 1933 Act and, therefore, cannot be sold
unless subsequently registered under the 1933 Act or an exemption from
such registration is available.
(iv) Such Executive has had an opportunity to ask questions
of and receive answers concerning the terms and conditions of the offering
of Executive Stock. Such Executive has been advised of certain risks
associated with such Executive's purchase of Executive Stock and has had
full access to such other requested information concerning the Company.
Such Executive has reviewed, or has had an opportunity to review, the
following documents: (A) the Company's Certificate of Incorporation and
By-laws, and any
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amendment or restatement thereto; (B) the Offering Memorandum, dated as of
March 30, 1999, relating to the issuance of the Company's 95/8% senior
subordinated notes due 2009 and 12 3/8% senior exchangeable preferred stock
due 2010 and describing the transactions contemplated by and related to the
Contribution Agreement, dated January 25, 1999, among PCA Holdings LLC
("PCA HOLDINGS"), Tenneco Packaging Inc. (each an "INVESTOR" and
collectively, the "INVESTORS") and the Company; (C) the Company's pro forma
balance sheet and statement of income, each dated as of December 31, 1998;
and (D) the Management Equity Plan.
(v) This Agreement constitutes the legal, valid and binding
obligation of such Executive, enforceable in accordance with its terms,
and the execution, delivery and performance of this Agreement by such
Executive do not and will not conflict with, violate or cause a breach of
any agreement, contract or instrument to which such Executive is a party
or any judgment, order or decree to which such Executive is subject.
(b) As an inducement to the Company to issue Executive Stock
hereunder to each Executive, and as a condition thereto, each such Executive
acknowledges and agrees that:
(i) neither the issuance of the Executive Stock hereunder to
such Executive nor any provision contained herein shall entitle such
Executive to remain in the employment of the Company or its Subsidiaries
or affect the right of the Company to terminate such Executive's
employment at any time; and
(ii) the Company shall have no duty or obligation to disclose
to such Executive, and such Executive shall have no right to be advised
of, any material information regarding the Company and its Subsidiaries at
any time prior to, upon or in connection with the repurchase of Executive
Stock upon the termination of such Executive's employment with the Company
and its Subsidiaries, the transfer of Executive Stock pursuant to
PARAGRAPHS 4, 5 or 7 hereto, the exercise of an Option granted hereunder
or as otherwise provided hereunder.
4. REPURCHASE OPTION.
(a) In the event any Executive ceases to be employed by the
Company or its Subsidiaries for any reason (such Executive's "TERMINATION"), all
of such Executive's Executive Stock (whether held by such Executive or one or
more of such Executive's transferees) shall be subject to repurchase by the
Company and the Investors pursuant to the terms and conditions set forth in this
PARAGRAPH 4 (the "REPURCHASE OPTION").
(b) In the case of any Termination other than a termination of an
Executive's employment for Cause, the purchase price for each Unvested Share
shall be such Executive's Original Cost for such share, and the purchase price
for each Vested Share shall be the Fair Market Value for such share. In the
event of an Executive's termination for Cause, the purchase price for
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each Unvested Share and each Vested Share shall be the lower of (i) the Fair
Market Value of such share and (ii) the Original Cost for such share.
(c) The Company may elect to purchase all or any portion of an
Executive's Unvested Shares and Vested Shares by delivering written notice (the
"REPURCHASE NOTICE") to the holder or holders of such Executive's Executive
Stock within 90 days after such Executive's Termination (180 days in the case of
such Executive's Termination upon death or disability). The Repurchase Notice
shall set forth the number of Unvested Shares and Vested Shares to be acquired
from each holder of such Executive's Executive Stock, the aggregate
consideration to be paid for such shares and the time and place for the closing
of the transaction. The number of shares to be repurchased by the Company shall
first be satisfied to the extent possible from the shares of Executive Stock
held by such Executive at the time of delivery of the Repurchase Notice. If the
number of shares of Executive Stock then held by such Executive is less than the
total number of shares of Executive Stock the Company has elected to purchase,
the Company shall purchase the remaining shares elected to be purchased from the
other holder(s) of such Executive's Executive Stock under this Agreement, pro
rata according to the number of shares of such Executive's Executive Stock held
by such other holder(s) at the time of delivery of such Repurchase Notice
(determined as close as practicable to the nearest whole shares). The number of
Unvested Shares and Vested Shares to be repurchased hereunder shall be allocated
among such Executive and the other holders of such Executive's Executive Stock
(if any) pro rata according to the number of shares of such Executive's
Executive Stock to be purchased from such persons.
(d) If for any reason following an Executive's Termination, the
Company does not elect to purchase all of such Executive's Executive Stock
pursuant to the Repurchase Option, the Investors shall be entitled to exercise
the Repurchase Option for the shares of Executive Stock the Company has not
elected to purchase in accordance with PARAGRAPH 4(c) (the "AVAILABLE SHARES").
As soon as practicable after the Company has determined that there will be
Available Shares, but in any event within 45 days after such Executive's
Termination, the Company shall give written notice (the "REPURCHASE OPTION
NOTICE") to the Investors setting forth the number of Available Shares and the
aggregate purchase price therefor. The Investors may elect to purchase any or
all of the Available Shares by giving written notice to the Company within 30
days after the Repurchase Option Notice has been given by the Company. If the
Investors elect to purchase an aggregate number of shares greater than the
number of Available Shares, the Available Shares shall be allocated among the
Investors pro rata (based upon the number of shares of Executive Stock requested
to be purchased by each Investor). As soon as practicable, and in any event
within ten days after the expiration of the 30-day period set forth above, the
Company shall notify each holder of Executive Stock as to the number of shares
being purchased from such holder hereunder by the Investors (the "SUPPLEMENTAL
REPURCHASE NOTICE"). At the time the Company delivers the Supplemental
Repurchase Notice to the holder(s) of Executive Stock, the Company shall also
deliver written notice to each Investor setting forth the number of shares such
Investor is entitled to purchase, the aggregate purchase price and the time and
place of the closing of the transaction. The number of Unvested Shares and
Vested Shares to be repurchased under PARAGRAPH 4(c) and this
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XXXXXXXXX 4(d) shall be allocated among the Company and the Investors pro rata
according to the number of shares of Executive Stock to be purchased by each of
them.
(e) The closing of the purchase and sale of the Executive Stock
pursuant to the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice or Supplemental Repurchase Notice (as the case
may be), which date shall not be more than 60 days nor less than five days after
the delivery of the later of either such notice to be delivered. The Company
and/or the Investors shall pay for the Executive Stock to be purchased pursuant
to the Repurchase Option by delivery of a check or wire transfer of funds in the
aggregate amount of the purchase price for such shares. In addition, the
Company may pay the purchase price for such shares by offsetting any bona fide
debts owed by such Executive to the Company or guaranteed by the Company on
behalf of such Executive and any payments received by such Executive hereunder
shall be applied first to repayment of any obligations of such Executive (or his
or her affiliates or family members) to the Company or for which the Company may
be responsible. The purchasers of Executive Stock hereunder shall be entitled
to receive customary representations and warranties from the sellers regarding
such sale of shares (including representations and warranties regarding good
title to such shares free and clear of any liens or encumbrances) and to require
all sellers' signatures be guaranteed by a national bank or reputable securities
broker.
(f) The right of the Company and the Investors to repurchase
Vested Shares pursuant to this PARAGRAPH 4 shall terminate upon the first to
occur of (i) a Sale of the Company or (ii) a Public Offering.
(g) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Executive Stock by the Company shall be subject to
applicable restrictions contained in the Delaware General Corporation Law and in
the Company's and its Subsidiaries' debt and equity financing agreements. If
any such restrictions prohibit the repurchase of Executive Stock hereunder which
the Company is otherwise entitled or required to make, the time periods provided
in this PARAGRAPH 4 shall be suspended, and the Company may make such
repurchases as soon as it is permitted to do so.
5. RESTRICTIONS ON TRANSFER.
(a) TRANSFER OF EXECUTIVE STOCK. No Executive shall sell,
transfer, assign, pledge or otherwise dispose of (whether with or without
consideration and whether voluntarily or involuntarily or by operation of law)
(a "TRANSFER") any interest in any shares of Executive Stock, except pursuant to
the provisions of PARAGRAPH 4 hereof, this PARAGRAPH 5 or in connection with a
Sale of the Company, unless otherwise agreed to by the Company.
(b) CERTAIN PERMITTED TRANSFERS. The restrictions contained in
this PARAGRAPH 5 shall not apply with respect to transfers of shares of
Executive Stock (i) pursuant to applicable laws of descent and distribution or
(ii) among an Executive's family group; provided that such restrictions shall
continue to be applicable to shares of such Executive Stock after any such
transfer and the
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transferees of such Executive Stock shall have agreed in writing to be bound by
the provisions of this Agreement. An Executive's "FAMILY GROUP" means such
Executive's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of such Executive and/or such Executive's spouse and/or
descendants.
(c) PARTICIPATION RIGHTS. At least 30 days prior to any sale by
PCA Holdings of Common Stock (other than a Public Sale or any Transfer to any of
its members or affiliates or their members, partners, shareholders or
affiliates), PCA Holdings shall deliver written notice (the "SALE NOTICE") to
each Executive specifying in reasonable detail the identity of the prospective
transferee(s), the number of shares to be sold and the terms and conditions of
the proposed Transfer. Each Executive may elect to participate in the
contemplated Transfer at the same price per share and on the same terms by
delivering written notice to PCA Holdings within 30 days after delivery of the
Sale Notice. If any Executive has elected to participate in such Transfer, each
of PCA Holdings and each such Executive shall be entitled to sell in the
contemplated Transfer, at the same price and on the same terms, a number of
shares of Common Stock equal to the product of (i) the quotient determined by
dividing (A) the percentage of shares of Common Stock owned by such person by
(B) the aggregate percentage of shares of Common Stock collectively owned by all
persons participating in such Transfer and (ii) the aggregate number of shares
of Common Stock to be sold in the contemplated Transfer.
FOR EXAMPLE, if the Sale Notice contemplated a sale of
100 shares of Common Stock, and if PCA Holdings at such
time owns 40% of all shares of Common Stock and if an
Executive elects to participate and such Executive owns
2% of all shares of Common Stock and if other persons
owning an aggregate of 10% of all shares of Common Stock
elect to participate in the contemplated sale, PCA
Holdings would be entitled to sell 76.9 shares
(40% DIVIDED BY 52% x 100 shares), such Executive would
be entitled to sell 3.9 shares (2% DIVIDED BY 52% x
100 shares) and the other persons would be entitled to
sell 19.2 shares in the aggregate (10% DIVIDED BY 52% x
100 shares) .
Each person transferring shares of Common Stock pursuant to this
PARAGRAPH 5(c) shall pay his, her or its pro rata share (based on the number of
shares of Common Stock to be sold) of the expenses incurred by the persons
transferring shares in connection with such Transfer and shall be obligated to
join in any indemnification or other obligations that PCA Holdings agrees to
provide in connection with such Transfer (other than any such obligations that
relate specifically to another person such as indemnification with respect to
representations and warranties given by such other person regarding such other
person's title to and ownership of shares of Common Stock).
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(d) TERMINATION OF RESTRICTIONS.
(i) The restrictions on Transfer of shares of
Executive Stock set forth in this PARAGRAPH 5 shall continue with
respect to each share of Executive Stock following any Transfer
thereof.
(ii) Notwithstanding any provision in this Agreement to
the contrary, the restrictions on Transfer of shares of an
Executive's Executive Stock set forth in this PARAGRAPH 5 shall
terminate (i) with respect to 50% of such Executive's Executive
Stock, on the 180th day following consummation of a Public Offering
and (ii) with respective to the remaining 50% of such Executive's
Executive Stock, on a pro rata basis over the twelve-month period
following such 180-day period.
FOR EXAMPLE, if a Public Offering occurs on November 30,
1999 and an Executive holds 120 shares of Executive
Stock as of such date, 60 of such Executive's shares
(50% x 120 = 60) will be transferrable on May 29, 2000
and an additional 5 of such Executive's shares (1/12 x
60 = 5) will become transferable on the last day of the
month for each month from June 2000 to May 2001.
6. ADDITIONAL RESTRICTIONS ON TRANSFER.
(a) The certificates representing Executive Stock shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED ON ___________________, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A MANAGEMENT EQUITY AGREEMENT
BETWEEN THE COMPANY AND CERTAIN OF ITS EMPLOYEES DATED AS OF JUNE 1,
1999, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S
PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) The certificates representing Executive Stock to be purchased
by any resident of the State of Georgia shall bear the following additional
legend:
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"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT
OF 1973 AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION
WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER SUCH ACT."
(c) No holder of Executive Stock may Transfer any Executive Stock
(except pursuant to an effective registration statement under the 1933 Act)
without first delivering to the Company an opinion of counsel (reasonably
acceptable in form and substance to the Company) that neither registration nor
qualification under the 1933 Act and applicable state securities laws is
required in connection with such transfer.
(d) Each holder of Executive Stock agrees not to effect any public
sale or distribution of any Executive Stock or other equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
any of the Company's equity securities, during the seven days prior to and the
180 days after the effectiveness of any underwritten public offering, except as
part of such underwritten public offering or if otherwise permitted by the
Company.
7. SALE OF THE COMPANY.
(a) If the Board and the holders of a majority of the Common Stock
approve a Sale of the Company (the "APPROVED SALE"), all holders of Executive
Stock shall consent to and raise no objections against the Approved Sale, and if
the Approved Sale is structured as a sale of stock, the holders of Executive
Stock shall agree to sell their shares of Executive Stock on the terms and
conditions approved by the Board and the holders of a majority of the Common
Stock. The holders of Executive Stock shall take all necessary and desirable
actions in connection with the consummation of the Approved Sale.
(b) The obligations of the holders of Executive Stock with respect
to the Approved Sale are subject to the satisfaction of the following
conditions: (i) upon the consummation of the Approved Sale, all of the holders
of the Common Stock shall receive the same form and amount of consideration per
share of the Common Stock, or if any holders of the Common Stock are given an
option as to the form and amount of consideration to be received, all holders
shall be given the same option; and (ii) all holders of then currently
exercisable rights to acquire shares of the Common Stock shall be given an
opportunity to either (A) exercise such rights prior to the consummation of the
Approved Sale and participate in such sale as holders of the Common Stock or
(B) upon the consummation of the Approved Sale, receive in exchange for such
rights consideration equal to the amount determined by multiplying (1) the same
amount of consideration per share of the Common Stock received by the holders of
the Common Stock in connection with the Approved Sale less the exercise price
per share of the Common Stock of such rights to acquire the Common Stock by
(2) the number of shares of the Common Stock represented by such rights.
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(c) If the Company or the holders of the Company's securities
enter into any negotiation or transaction for which Rule 506 (or any similar
rule then in effect) promulgated by the Securities Exchange Commission may be
available with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), the holders of Executive Stock shall, at
the request of the Company, appoint a "purchaser representative" (as such term
is defined in Rule 501) reasonably acceptable to the Company. If any holder of
Executive Stock appoints a purchaser representative designated by the Company,
the Company shall pay the fees of such purchaser representative. However, if
any holder of Executive Stock declines to appoint the purchaser representative
designated by the Company, such holder shall appoint another purchaser
representative (reasonably acceptable to the Company), and such holder shall be
responsible for the fees of the purchaser representative so appointed.
(d) Each holder of Executive Stock shall bear his or her pro rata
share (based upon the number of shares sold) of the costs of any sale of
Executive Stock pursuant to an Approved Sale to the extent such costs are
incurred for the benefit of all holders of the Common Stock and are not
otherwise paid by the Company or the acquiring party. Costs incurred by each
such holder of Executive Stock on his or her own behalf shall not be considered
costs of the transaction hereunder.
8. VOTING AGREEMENT. So long as the Investors hold any equity
securities of the Company, each holder of Executive Stock shall vote all of his
or her shares of Executive Stock (and, in the event such holder is entitled to
vote any of the Company's other securities for the election of directors, such
holder shall vote all such securities) and take all other necessary or desirable
actions (whether in such holder's capacity as a stockholder, director or officer
of the Company) as are requested by the Investors in order to cause the
representatives to be elected as members of the Board as directed by the
Investors, for so long as the applicable provision of Section 3.3 of the
Stockholders Agreement, dated April 12, 1999, among the Company and the
Investors is effective and enforceable against the parties thereto and has not
terminated or expired (whether by its terms, by agreement of the parties thereto
or by operation of law) and then as directed by PCA Holdings. In addition, each
holder shall not vote his or her shares of Executive Stock (or such other
securities) in connection with the removal of any of the Investors' designees as
a director unless and until the Investors direct such holder how to vote on such
removal. Except as otherwise provided herein, each holder of Executive Stock
shall at all times retain the right to vote his or her Executive Stock (and such
other securities) in his or her sole discretion on all other matters presented
to the Company's stockholders for a vote, including the election and removal of
directors to be determined by the holders of the Common Stock other than the
Investors' designees.
9. DEFINITIONS.
(a) "1933 ACT" means the Securities Act of 1933, as amended from
time to time.
(b) "CAUSE" shall mean (i) an Executive's theft or embezzlement,
or attempted theft or embezzlement, of money or property of the Company or its
Subsidiaries, perpetration or attempted perpetration of fraud, or participation
in a fraud or attempted fraud, on the Company or
-11-
its Subsidiaries or unauthorized appropriation of, or attempt to misappropriate,
any tangible or intangible assets or property of the Company or its
Subsidiaries, (ii) any act or acts of disloyalty, misconduct or moral turpitude
by an Executive injurious to the interest, property, operations, business or
reputation of the Company or its Subsidiaries or conviction of an Executive of a
crime the commission of which results in injury to the Company or its
Subsidiaries or (iii) an Executive's failure or inability (other than by reason
of his or her permanent disability) to carry out effectively his or her duties
and obligations to the Company or its Subsidiaries or to participate effectively
and actively in the management of the Company or its Subsidiaries, as determined
in the reasonable judgment of the Board.
(c) "CODE" shall mean the Internal Revenue Code of 1986 and the
regulations promulgated thereunder, as it may be amended from time to time.
(d) "EXECUTIVE STOCK" shall mean all shares of Common Stock issued
hereunder or acquired hereinafter by any Executive (including any Option Shares
issued upon exercise of any Executive's Option granted hereunder). Executive
Stock shall continue to be Executive Stock in the hands of any holder other than
an Executive (except for the Company and the Investors and except for
transferees in a Public Sale), and except as otherwise provided herein, each
such other holder of Executive Stock shall succeed to all rights and be subject
to all and obligations attributable to an Executive as a holder of Executive
Stock hereunder. Executive Stock shall also include shares of the Company's
capital stock and other securities issued with respect to Executive Stock by way
of a stock split, stock dividend or other recapitalization. Notwithstanding the
foregoing, all Unvested Shares and Vested Shares shall remain Executive Stock
after any Transfer thereof.
(e) "FAIR MARKET VALUE" of each share of Executive Stock means the
average of the closing prices of the sales of the Common Stock on all securities
exchanges on which the Common Stock may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day the Common Stock is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or,
if on any day the Common Stock is not quoted in the NASDAQ System, the average
of the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Market Value
is being determined and the 20 consecutive business days prior to such day. If
at any time the Common Stock is not listed on any securities exchange or quoted
in the NASDAQ System or the over-the-counter market, the Fair Market Value shall
be the fair value of the Common Stock determined in good faith by the Board
(without taking into account the effect of any contemporaneous repurchase of
Unvested Shares under PARAGRAPH 4 hereof).
(f) "INDEPENDENT THIRD PARTY" means any person who, immediately
prior to the contemplated transaction, does not own in excess of 5% of the
Company's Common Stock on a fully-diluted basis, who is not controlling,
controlled by or under common control with any such 5%
-12-
owner of the Company's Common Stock and who is not the spouse or descendent (by
birth or adoption) of any such 5% owner of the Company's Common Stock.
(g) "ORIGINAL COST" of each share of Common Stock purchased
hereunder shall be equal to $1,000 (as proportionately adjusted for all
subsequent stock splits, stock dividends and other recapitalizations).
(h) "PERMITTED TRANSFEREE" means any holder of Executive Stock who
acquired such stock pursuant to a transfer permitted by PARAGRAPH 5(b).
(i) "PUBLIC OFFERING" means the sale, in an underwritten public
offering registered under the 1933 Act, of shares of the Company's Common Stock.
(j) "PUBLIC SALE" means any sale pursuant to a registered public
offering under the 1933 Act or any sale to the public pursuant to Rule 144 (or
similar rule then in effect) promulgated under the 1933 Act effected through a
broker, dealer or market maker.
(k) "SALE OF THE COMPANY" means the sale of the Company to an
Independent Third Party or affiliated group of Independent Third Parties
pursuant to which such party or parties acquire (i) capital stock of the Company
possessing the voting power to elect a majority of the Company's board of
directors (whether by merger, consolidation or sale or transfer of the Company's
capital stock) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis.
(l) "SUBSIDIARY" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
10. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested), sent by reputable overnight
courier service (charges prepaid) or sent by facsimile (hard copy to follow) to
the recipient at the address or facsimile number indicated below:
TO THE COMPANY:
PACKAGING CORPORATION OF AMERICA
0000 Xxxx Xxxxx Xxxxx
Xxxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: Chief Executive Officer
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WITH COPIES TO:
XXXXXXXX & XXXXX
000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxx, P.C.
TO EXECUTIVE:
At the address listed below Executive's signature on the signature
page attached hereto.
TO THE INVESTORS:
PCA HOLDINGS LLC
c/o Madison Dearborn Partners, Inc.
Three First Xxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxx
TENNECO PACKAGING INC.
0000 Xxxx Xxxxx Xxxxx
Xxxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: President
General Counsel
or such other address or facsimile number or to the attention of such other
person as the recipient party shall have specified by prior written notice to
the sending party. Any notice under this Agreement shall be deemed to have been
given when so delivered or sent or, if mailed, five days after deposit in the
U.S. mail.
11. GENERAL PROVISIONS.
(a) TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or
attempted Transfer of any Executive Stock in violation of any provision of this
Agreement shall be void, and the Company
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shall not record such Transfer on its books or treat any purported transferee of
such Executive Stock as the owner of such stock for any purpose.
(b) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) COMPLETE AGREEMENT. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by each
Executive, the Company, the Investors and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be assignable
except in connection with a permitted transfer of Executive Stock hereunder.
(f) CHOICE OF LAW. The corporate law of the State of Delaware
shall govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits hereto shall
be governed by the internal law, and not the law of conflicts, of the State of
Illinois.
(g) REMEDIES. Each of the parties to this Agreement (including
the Investors) shall be entitled to enforce its rights under this Agreement
specifically, to recover damages and costs (including reasonable attorney's
fees) caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages would not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
-15-
(h) AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended and waived with respect to any Executive only with the prior written
consent of the Company and such Executive; provided that this Agreement may be
amended and waived with respect to the Investors' rights under PARAGRAPHS 4 and
8 only with the prior written consent of each Investor that then owns Common
Stock.
(i) THIRD-PARTY BENEFICIARIES. Certain provisions of this
Agreement are entered into for the benefit of and shall be enforceable by the
Investors as provided herein.
(j) BUSINESS DAYS. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief executive office is located, the time
period shall be automatically extended to the business day immediately following
such Saturday, Sunday or holiday.
(k) RIGHTS OF THE COMPANY. Nothing in this Agreement shall
interfere with or limit in any way the right of the Company to terminate an
Executive's employment at any time (with or without cause), nor confer upon any
Executive any right to continue in the employ of the Company for any period of
time or to continue his or her present (or any other) rate of compensation, and
in the event of his or her termination of employment (including, but not limited
to, termination by the Company without cause) any portion of such Executive's
Option that was not previously vested and exercisable shall be forfeited.
Nothing in this Agreement shall confer upon any Executive any right to be
selected again as a Management Equity Plan participant.
(l) ADJUSTMENTS. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Common Stock, the Board may, in order to prevent the dilution
or enlargement of rights under Options granted hereunder, make such adjustments
in the number and type of shares authorized by the Management Equity Plan, the
number and type of shares covered by each Option granted hereunder and the
Exercise Price specified herein as may be determined to be appropriate and
equitable.
12. CODE SECTION 280G. Notwithstanding any provision of this
Agreement to the contrary, if all or any portion of the payments or benefits
received or realized by any Executive pursuant to this Agreement either alone or
together with other payments or benefits which such Executive receives or
realizes or is then entitled to receive or realize from the Company or any of
its affiliates would constitute an "excess parachute payment" within the meaning
of Section 280G of the Code and/or any corresponding and applicable state law
provision, such payments or benefits provided to such Executive shall be reduced
by reducing the amount of payments or benefits payable to such Executive to the
extent necessary so that no portion of such payments or benefits shall be
subject to the excise tax imposed by Section 4999 of the Code and any
corresponding and/or applicable state law provision; provided that such
reduction shall only be made if, by reason of such reduction, such Executive's
net after tax benefit shall exceed the net after tax benefit if such reduction
were not made. For purposes of this paragraph, "net after tax benefit" shall
mean the sum of (i) the total amount received or realized by such Executive
pursuant to this Agreement that would
-16-
constitute a "parachute payment" within the meaning of Section 280G of the Code
and any corresponding and applicable state law provision, plus (ii) all other
payments or benefits which such Executive receives or realizes or is then
entitled to receive or realize from the Company and any of its affiliates that
would constitute a "parachute payment" within the meaning of Section 280G of the
Code and any corresponding and applicable state law provision, less (iii) the
amount of federal or state income taxes payable with respect to the payments or
benefits described in (i) and (ii) above calculated at the maximum marginal
individual income tax rate for each year in which payments or benefits shall be
realized by such Executive (based upon the rate in effect for such year as set
forth in the Code at the time of the first receipt or realization of the
foregoing), less (iv) the amount of excise taxes imposed with respect to the
payments or benefits described in (i) and (ii) above by Section 4999 of the Code
and any corresponding and applicable state law provision.
13. PUBLIC OFFERING. In the event that the Board and the holders
of a majority of the shares of Common Stock (voting as a single class) then
outstanding approve a Public Offering, each Executive shall take all necessary
or desirable actions in connection with the consummation of the Public Offering
as requested by the Company. In the event that such Public Offering is an
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the capital stock structure would adversely affect
the marketability of the offering, each Executive shall consent to and vote for
a recapitalization, reorganization and/or exchange of Common Stock into
securities that the managing underwriters, the Board and the holders of a
majority of the shares of Common Stock then outstanding (voting as a single
class) find acceptable, and each Executive shall take all necessary or desirable
actions in connection with the consummation of the recapitalization,
reorganization and/or exchange as requested by the Company; provided that the
resulting securities reflect and are consistent with the rights and preferences
set forth in the Company's Certificate of Incorporation as in effect immediately
prior to such Public Offering.
* * * * *
-17-
IN WITNESS WHEREOF, this Management Equity Agreement has been executed as
of the date first written above.
Packaging Corporation of America
By:
--------------------------------------
Its:
--------------------------------------
-------------------------------------------
[EXECUTIVE]
Shares of Common Stock
Purchased.
----------
Aggregate Purchase Price
for Common Stock.
----------
Option to Purchase Aggregate
Number of Shares of Common
Stock.
----------
Executive's Address:
--------------------------------------------
--------------------------------------------
--------------------------------------------
CONSENT
The undersigned spouse of Executive hereby acknowledges that I have
read the foregoing Management Equity Agreement and that I understand its
contents. I am aware that the Agreement provides for the repurchase of my
spouse's shares of Common Stock under certain circumstances and imposes other
restrictions on the transfer of such Common Stock. I agree that my spouse's
interest in the Common Stock is subject to this Agreement and any interest I may
have in such Common Stock shall be irrevocably bound by this Agreement and
further that my community property interest, if any, shall be similarly bound by
this Agreement.
-------------------------------
Spouse
-------------------------------
Witness
(SIGNATURE PAGE TO MANAGEMENT EQUITY AGREEMENT)
ANNEX B
ELECTION TO INCLUDE STOCK IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased shares of Common Stock, par value $.01 per
share (the "SHARES"), of Packaging Corporation of America, a Delaware
corporation (the "COMPANY"), on June 1, 1999. Under certain circumstances, the
Company has the right to repurchase the Shares at cost from the undersigned (or
from the holder of the Shares, if different from the undersigned) should the
undersigned cease to be employed by the Company or its subsidiaries. Hence, the
Shares are subject to a substantial risk of forfeiture and are nontransferable.
The undersigned desires to make an election to have the Shares taxed under the
provision of Code Section 83(b) at the time he or she purchased the Shares.
Therefore, pursuant to Code Section 83(b) and Treasury Regulation
Section 1.83-2 promulgated thereunder, the undersigned hereby makes an election,
with respect to the Shares (described below), to report as taxable income for
calendar year 1999 the excess (if any) of the Shares' fair market value on
June 1, 1999 over the purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation Section 1.83-2(e):
1. The name, address and social security number of the undersigned:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
2. A description of the property with respect to which the election
is being made: _____________ shares of Packaging Corporation of America Common
Stock, par value $.01 per share.
3. The date on which the property was transferred: June 1, 1999.
The taxable year for which such election is made: calendar 1999.
4. The restrictions to which the property is subject: One-fifth of
the Shares shall become vested shares on each of the first five anniversary
dates of the purchase of the Shares. If during the first five years after the
purchase of the Shares the undersigned ceases to be employed by the Company or
any of its subsidiaries, the unvested portion of the Shares shall be subject to
repurchase by the Company at cost; and if at any time prior to a public offering
by the Company or a sale of the Company the undersigned ceases to be employed by
the Company or any of its subsidiaries, the vested portion of the Shares shall
be subject to repurchase by the Company at fair market value, except that in the
event that the undersigned is terminated for cause, the purchase price for the
vested and unvested portion of the Shares shall be the lower of fair market
value and original cost.
-1-
5. The fair market value on June 1, 1999 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $1,000.00 per share of Common Stock.
6. The amount paid for such property: $1,000.00 per share of Common
Stock.
A copy of this election has been furnished to the Secretary of the
Company pursuant to Treasury Regulations Section 1.83-2(e)(7).
Dated: June 1, 1999 ----------------------------------
Executive
-2-
