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EMPLOYMENT AGREEMENT
SHOREWOOD PACKAGING CORPORATION
WITH
XXXX X. XXXXX
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, Xxx Xxxx 00000 (herein called the
"Corporation") and XXXX X. XXXXX, currently residing at 00 Xxxxxxx Xxxx,
Xxxxxxxx, Xxx Xxxx 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 January 25, 1996 and made effective as of May 1, 1995
(the "Prior Employment Agreement"), which provides for the employment of the
Executive by the Corporation upon the terms and conditions set forth therein.
The Corporation and the Executive desire to enter into a new
employment agreement upon the terms and conditions hereinafter set forth, which
employment agreement will supersede and replace the Prior Employment Agreement
in its entirety.
The Corporation recognizes that the longer the Executive
remains in the full time active employ of the Corporation, the more valuable
will be any consultative and advisory services that the Executive may provide
during his full time employment by the Corporation.
The Corporation recognizes that the possibility of a proposal
from a third person, whether solicited by the Corporation or unsolicited,
concerning a possible business combination with the Corporation, including the
acquisition of a substantial share of the equity or voting securities of the
Corporation, may be unsettling to the Executive and deter him from continuing
full time employment with the Corporation.
This Agreement is intended to help assure a continuing
dedication by the Executive to his duties to the Corporation notwithstanding the
possibility or occurrence of a business combination proposal.
The Corporation and the Executive believe it imperative that
should the Corporation receive proposals from third parties with respect to its
future, the Executive should, without being influenced by the uncertainties of
his own situation, assess and advise the Corporation whether such proposals
would be in the best interest of the Corporation and its stockholders and take
such other action regarding such proposals as the Corporation might determine to
be appropriate.
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Accordingly, the parties desire to and do hereby enter into
this Agreement as of the date first set forth above.
NOW, THEREFORE,
1. EMPLOYMENT; TERM. Subject to the terms hereof, the term of
this Agreement shall be from May 3, 1998 through and including May 2, 2003. The
Corporation agrees to and does hereby employ the Executive as Chief Executive
Officer and President for the period commencing May 3, 1998 and terminating May
2, 2003 (the "Employment Period") and the Executive agrees that he shall serve
as Chief Executive Officer and President of the Corporation during the
Employment Period. The foregoing notwithstanding, in the event of any "Change in
Control" (as hereinafter defined) of the Corporation at any time during the last
two fiscal years of the Corporation beginning prior to May 2, 2003, the
Employment Period hereunder shall be automatically extended through and
including May 2, 2005.
2. DUTIES. Except as hereinafter provided, the Executive shall
during the Employment Period perform the executive and administrative duties and
functions and shall have the powers and privileges of the Chief Executive
Officer and President of the Corporation, as such duties, functions, powers and
privileges are defined in the By-Laws of the Corporation in effect on the date
hereof and as currently interpreted, and, to the extent not defined therein, as
the same are customarily performed and exercised by a Chief Executive Officer or
a President of a publicly owned corporation incorporated in one of the states of
the United States of America. The Executive shall serve as the Chairman of the
Board of Directors (and a member of the Executive Committee or any similar
committee having powers of the Board of Directors now in existence or hereafter
created) of the Corporation without any additional compensation for such
services for so long as the Executive is elected to serve on the Board, the
Executive Committee or any similar committee. As used in this Agreement, the
term "Corporation" includes each Subsidiary of the Corporation. So long as he is
an officer of the Corporation, the Executive agrees to devote substantially all
his business time to the business and affairs of the Corporation, and to exert
his best efforts in the performance of his duties as an officer, director and
member of any committee of the Board of Directors of the Corporation to which he
may be elected, so as to promote the profit, benefit and advantage of the
business to the Corporation. The Executive agrees to accept the payments to be
made to him under this Agreement as full and complete compensation for the
services required to be performed by him under this Agreement.
3. COMPENSATION. As compensation for the services to be
rendered by the Executive pursuant to this Agreement, subject to the conditions
herein stated, the Corporation agrees to pay to the Executive all of the
following:
(a) BASE SALARY. Beginning May 3, 1998 and until the
expiration of the Employment Period, the Corporation shall pay to the Executive
a base salary (the "Base Salary") at a minimum rate of $800,000 per year,
payable in weekly or bi-weekly installments as nearly equal as may be
practicable or otherwise in accordance with the Corporation's customary payroll
practices for its Executives. Executive's Base Salary shall be reviewed annually
and may be increased at the Corporation's discretion. This Agreement shall not
be deemed abrogated or
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terminated if the Corporation, in its discretion, shall determine to increase
the compensation of the Executive for any period of time or if the Executive
shall accept such increase; but, nothing herein shall be deemed to obligate the
Corporation to make any such increase.
(b) BONUS. The Corporation shall pay to the Executive
a signing bonus in an aggregate amount of $1,000,000, payable in full although
earned ratably over the five-year Employment Period if Executive continues to be
employed by the Corporation at the end of each such year. In addition, during
the Employment Period the Executive shall be entitled to receive annual
performance bonuses in accordance with the terms and conditions of the
Corporation's Amended and Restated 1995 Performance Bonus Plan (the "Bonus
Plan") in the form annexed hereto as Exhibit I, as same may be amended from time
to time hereafter in accordance with its terms. The provisions of the Bonus Plan
shall govern the award of performance bonuses by the Corporation to Executive
under the Bonus Plan, and, to that extent, shall supersede any inconsistent or
contrary provisions contained in the main body of this Agreement. The
Corporation may in its discretion award bonuses to Executive outside of the
scope of the Bonus Plan; but, nothing herein shall be deemed to obligate the
Corporation to award any such bonuses.
(c) PARACHUTE EFFECTIVE DATE. Notwithstanding the
present effectiveness of this Agreement, the provisions of Sections 3(g), (h),
(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 provision 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
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the election of directors of the Corporation, for any merger or consolidation of
the Corporation, or for any other matter; or
(iii) During any period of twenty-four (24)
consecutive months, the individuals who at the beginning of such period
constitute the Board of Directors of the Corporation or any individuals who
would be "Continuing Directors" (as hereinafter defined) cease for any reason to
constitute at least a majority thereof; or
(iv) The Corporation shall cease to meet the
basic conditions of listing on the New York Stock Exchange (or any other
securities exchange on which the Corporation's Common Stock, as hereinafter
defined, is listed for trading) in respect of the number of shares of the
Corporation's Common Stock held by the public; or
(v) There shall be consummated (A) any
consolidation, merger or recapitalization of the Corporation or any similar
transaction involving the Corporation, whether 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) of any person who is the
beneficial owner, directly or indirectly, of securities representing ten percent
(10%) or more of the combined voting power of the Corporation's outstanding
securities then entitled ordinarily to vote for the election of directors.
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(e) TERMINATION RIGHTS UNCHANGED. Except as provided
in Section 3(f) below, nothing in this Agreement shall affect any right which
the Executive may otherwise have to terminate his employment by the Corporation
or a Subsidiary, nor shall anything in this Agreement affect any right which the
Corporation or any Subsidiary may have to terminate the Executive's employment
at any time in any lawful manner, subject to the provision that in the 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 or its efforts to effect a Change in Control or until a Change in Control
has occurred. Should the Executive voluntarily terminate his employment before
any such effort to effect a Change in Control of the Corporation has commenced,
or after any such effort has been abandoned or terminated without effecting a
Change in Control and no such effort is then in process, this Agreement shall
lapse and be of no further force or effect. Should the Executive voluntarily
terminate his employment with the Corporation or any of its Subsidiaries during
such time as any person or organization has commenced, but has not yet
abandoned, any steps designed to effect a Change in Control of the Corporation,
but at a time when a Change in Control has not been effected, the Executive
shall not be entitled to receive any of the benefits of Sections 3(g) and 3(n)
hereof.
(g) TERMINATION FOLLOWING CHANGE IN CONTROL. If a
Change in Control of the Corporation shall have occurred, then Executive shall
be entitled to the benefits provided in Section 3(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 (as defined herein) less
any benefits as may be received by him under the Corporation's or
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Subsidiary's disability plan until his employment is terminated for Disability,
and shall be entitled to the most favorable other benefits applicable under the
Corporation's policies during the period commencing one year prior to the
initiation of actions that resulted in the Change in Control.
(i) 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 through
the Date of Termination (as defined herein) at the rate in effect at the time
Notice of Termination (as defined herein) 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 with the
Corporation for six (6) consecutive months and, within thirty (30) days after
Notice of Termination is given to the Executive, he has not returned to the
full-time performance of his duties. Any question as to the existence of
Disability shall be determined by a qualified independent physician selected by
the Executive (or, if he is unable to make such selection, such selection shall
be made by any adult member of the Executive's family) and approved by the
Corporation. The written determination of such physician shall be final and
conclusive for purposes of this Agreement.
(ii) "Retirement" shall mean that the
Executive shall have retired after reaching the earliest normal or early
retirement date provided in the Corporation's retirement plans as then in effect
(or if Executive retires after a Change in Control of the Corporation, as in
effect on the date of the Change in Control).
(iii) "Cause" shall mean:
(A) The willful and continued
failure by the Executive to perform substantially his duties with the
Corporation (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or anticipated
failure resulting from termination by the Executive for Good Reason) which is
not cured within thirty (30) days after a written demand for substantial
performance is delivered to the Executive by the Board of Directors, which
demand specifically identifies the manner in which the Board of Directors
believes that the Executive has not substantially performed his duties; or
(B) The willful engagement in
conduct by the Executive which is demonstrably and materially injurious to the
Corporation, monetarily or otherwise, which is not discontinued within five (5)
days after written demand to cease and desist from such conduct is delivered to
the Executive by the Board of Directors, which demand specifically identifies
the conduct which the Board of Directors believes is injurious to the
Corporation; or
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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 Executive'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
(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 plans 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 option plans, incentive plans, group life insurance
plans, medical, health, accident, disability and
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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 12 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 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 Termination is given, the party who receives such Notice of
Termination notifies the other party that a Dispute (as
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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(l) 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
the 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 through the
Date of Termination, any existing fringe benefits (including medical benefits)
and incentive compensation for the fiscal year in which the termination occurs
in accordance with any arrangements then existing with the Executive and
proportionate to the period of the fiscal year which has expired prior to the
termination; and
(ii) a lump sum severance payment equal to
2.99 times the Executive's average annual compensation during the Base Period
(as hereinafter defined) (subject to any applicable payroll or other taxes and
charges required to be withheld computed at the rate for supplemental payments)
provided that in no event shall "Total Payments" (as hereinafter
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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 of the Code, or would cause, directly or
indirectly, an "excess parachute payment" to exist within
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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 Procedures; 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.
4. BENEFITS. (a) The Executive shall be entitled to
participate in any life, accident, disability and health insurance,
hospitalization or any other plan or benefits afforded by the Corporation to its
executives generally, if and to the extent that the Executive is eligible to
participate in accordance with the provisions of any such plan or for such
benefits. Nothing herein is intended, or shall be construed, to require the
Corporation to institute any, or any particular, plan or benefits. In addition,
the Executive shall be furnished with an automobile lease allowance of $[2,250]
per month during the Employment Period plus reimbursement for reasonable
insurance, maintenance, gasoline and parking expenses incurred in furtherance of
the Corporation's business.
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(b) The Corporation shall maintain in effect
during the Employment Period a term life insurance policy on the life of
Executive in a declining amount equal at any one time to the aggregate Base
Salary payable hereunder over the then unexpired balance of the Employment
Period. In addition, the Corporation shall maintain in effect during the
Employment Period disability insurance for the benefit of Executive covering, in
the event this Agreement is terminated on account of Executive's Disability,
100% of Executive's Base Salary through the end of the Employment Period less
any benefits as may be received by him during such time under the Corporation's
other disability plans. In connection therewith, Executive shall, at such time
or times and at such place or places as the Corporation may reasonably direct,
subject himself to such physical examinations and execute and deliver such
documents as the Corporation may deem necessary.
5. EARLY TERMINATION; NO CHANGE OF CONTROL. If prior to the expiration
of this Agreement or a Change in Control of the Corporation, (a) the Executive
fails because of Disability to perform services of the character contemplated by
Section 2 of this Agreement; or (b) if the Corporation's Board of Directors
determines that the Executive 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), and shall be entitled to receive
solely all amounts and benefits to be paid or provided by the Corporation under
Sections 3(a), 3(b) and 4 of this Agreement up to the Date of Termination and
any other amounts to be paid thereafter to Executive or his beneficiaries
pursuant to any deferred compensation plan or other employee benefit plan or
program in effect on the Date of Termination, to the extent he remains eligible
to participate thereunder under the terms of the Corporation's applicable
policies and plans. The provisions of this Section 5 shall terminate and cease
to be of any force or effect immediately upon any Change in Control of the
Corporation. 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); and (ii) "Notice of Termination" shall mean a notice given by the
Corporation to Executive which shall indicate the specific basis for termination
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for determination of any payments due under this Agreement;
provided, however, that the Corporation shall not be entitled to give a Notice
of
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Termination that it is terminating Executive's employment after the expiration
of six (6) months following the last to occur of the events constituting the
basis for such termination.
6. (a) COMPLETE PAYMENT. Upon the payment of the amounts provided in
this Agreement, the Corporation shall have no further liability of any kind or
nature whatsoever to the Executive under this Agreement, except such liability,
if any, as may continue under any plan or for the benefits (in accordance with
the express terms hereof) referred to in Section 4 hereof. Notwithstanding the
foregoing, Executive expressly reserves any rights he may have at law, equity or
otherwise in the event that his employment by the Corporation is terminated in
contravention of this Agreement.
(b) NON-COMPETITION. The Executive expressly covenants and agrees
that during the term of this Agreement he will not, directly or indirectly, own,
manage, operate, join, control or participate in or be connected with as an
officer, employee, partner, stockholder, or otherwise, any business, individual,
partnership, firm or corporation (other than a parent of the Corporation or a
subsidiary or affiliate of such parent), which is at the time engaged wholly or
partly, in the business of manufacturing and marketing packaging products or in
any business which is directly in competition with the then business of the
Corporation or any subsidiary or affiliate of the Corporation (as defined in the
General Rules and Regulations promulgated under the Securities and Exchange Act
of 1934), or any firm, partnership or corporation which shall succeed to all or
a substantial part of the business of the Corporation, or any such subsidiary or
affiliate.
(c) INVESTMENTS. Nothing in this Agreement is intended, or shall be
construed, to prevent the Executive during the term of his employment hereunder
from investing in the stock or other securities listed on a national securities
exchange or actively traded on the over-the-counter market of any corporation
which is at the time engaged wholly or partly in any business which is, directly
or indirectly, at the time, in competition with the business of the Corporation
or any such subsidiary or affiliate, or any firm, partnership, or corporation
which shall succeed to all or a substantial part of the business of the
Corporation, or any such subsidiary or affiliate, provided that the Executive
and direct members of his family living in the same household as the Executive
shall not directly or indirectly, hold, beneficially or otherwise, in the
aggregate, more than three percent of any issue of such stock or other
securities of any one such corporation.
(d) CONFIDENTIAL INFORMATION. The Executive expressly covenants and
agrees that he will not 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 or
business, except the business of the Corporation or any Subsidiary or affiliate
of the Corporation, and will not divulge such trade secrets, customers' lists,
and information to any person, firm, or corporation whatsoever, except as may be
necessary in the performance of his duties hereunder.
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(e) REMEDIES. It is expressly understood and agreed that the
services to be rendered hereunder by the Executive are special, unique, and of
extraordinary character, and in the event of the breach by the Executive of any
of the terms and conditions of this Agreement on his part to be performed
hereunder, including, but not limited to, the terms and provisions of
subparagraphs (b) or (d) of this Section, then the Corporation shall be
entitled, if it so elects, to institute and prosecute any proceedings in any
court of competent jurisdiction, either in law or equity, for such relief as it
deems appropriate, including, without limiting the generality of the foregoing,
any proceedings, to obtain damages for any breach of this Agreement, or to
enforce the specific performance thereof by the Executive or to enjoin the
Executive from performing services for any other person, firm or corporation.
7. SEVERABILITY. The invalidity or unenforceability of any provisions
of this Agreement in any circumstance shall not affect the validity or
enforceability of such provision in any other circumstance or the validity or
enforceability of any other provision of this Agreement, and except to the
extent such provision is invalid or unenforceable, this Agreement shall remain
in full force and effect. Any provision in this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof in such jurisdiction, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered mail, to
his then residence in the case of the Executive or to its principal office in
the case of the Corporation, and shall be deemed given when deposited in the
United States mails, postage prepaid.
9. SUCCESSORS. The rights and obligations of the Corporation under this
Agreement shall inure to the benefit of and shall be binding upon any successor
of the Corporation or to the business of the Corporation. Neither this Agreement
or any rights or obligations of the Executive hereunder shall be transferable or
assignable by the Executive; provided, however, that this Agreement shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would still
be payable to the Executive hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee or other designee
or, if there be no such designee, to the Executive's estate.
10. ATTORNEYS' FEES. 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
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the action, or to have acted in bad faith, which findings must be final
with the time to appeal therefrom having expired and no appeal having been
taken.
11. OBLIGATION TO PAY COMPENSATION. The Corporation's obligation to pay
the Executive the compensation and to make the arrangements provided herein
shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, any setoff, counterclaim,
recoupment, defense or other right which the Corporation may have against the
Executive or anyone else. All amounts payable by the Corporation hereunder shall
be paid without notice or demand. Except as expressly provided herein, the
Corporation waives all rights it may now have or may hereafter have conferred
upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement
in whole or in part. Except as otherwise provided herein, each and every payment
made hereunder by the Corporation shall be final and the Corporation will not
seek to recover for any reason all or any part of such payment from the
Executive or any person entitled thereto. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment, and if Executive obtains such other employment, any
compensation earned by Executive pursuant thereto shall not be applied to
mitigate any payment made to Executive pursuant to this Agreement.
12. SUCCESSORS BOUND BY AGREEMENT. The Corporation shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation, by written agreement, to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform it if no such succession had taken place. As used in this
Agreement, the term "Corporation" shall mean the Corporation as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement required by this Section 12, or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
13. ENTIRE AGREEMENT. This Agreement shall constitute the entire
agreement between the Executive and the Corporation concerning the subject
matter hereof and supersedes all prior agreements between the parties with
respect thereto. In the event that Executive's employment is terminated
subsequent to a Change in Control as provided herein, performance by the
Corporation of its obligations hereunder shall constitute full settlement and
release of any claim or cause of action, of whatsoever nature, which the
Executive might otherwise assert or claim against the Corporation or any of its
directors, stockholders, officers or employees on account of such termination.
No provisions of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing, signed by the
Executive and an authorized officer of the Corporation. No waiver by either
party hereto at any time of any breach by the other party hereto of compliance
with 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
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benefits for the Executive or any agreement now existing or which hereafter may
be entered into between the Corporation and the Executive, provided that,
notwithstanding anything to the contrary contained in the terms of any such plan
or agreement, in the event of Executive's termination, within two (2) years
after a Change in Control as provided herein, of Executive's employment, this
Agreement shall govern the rights and the obligations of the Corporation and the
Executive. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York without giving
effect to the provisions, principles, or policies thereof relating to choice or
conflict of laws.
14. MISCELLANEOUS. The masculine or neuter gender shall include the feminine
gender. This Agreement may be executed in more than one counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly signed this
Agreement in duplicate original effective as of May 3, 1998.
SHOREWOOD PACKAGING CORPORATION
By:
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Xxxxxx X. Xxxxxxx
Executive Vice President
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Xxxx X. Xxxxx
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