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Exhibit 10-121
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated
as of October 30, 1998, by and among the signatories listed on the signature
page of this Agreement (each, a "Stockholder" and, collectively, the
"Stockholders"), and Shorewood Packaging Corporation, a Delaware corporation
(the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of a Purchase and Sale Agreement (the
"Purchase Agreement") dated October 30, 1998 among the Company and the Sellers,
the Company is issuing to the Stockholders an aggregate of 1,000,000 shares (the
"Shares"), of the Company's common stock, par value $.01 per share (the "Common
Stock"); and
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Purchase Agreement that the Stockholders and
the Company enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is hereby agreed as follows:
ARTICLE I. INVESTMENT UNDERTAKINGS OF STOCKHOLDERS
In consideration of the Stockholders' receipt of the Shares under the
Purchase Agreement, each Stockholder hereby represents, warrants and covenants
with the Company as follows:
Section 1.1 No Third Party Interest. No other person or entity has any
direct or indirect beneficial interest in the Shares to be received by such
Stockholder under the Purchase Agreement.
Section 1.2 Unregistered Securities. Such Stockholder understands and
agrees that (i) the Shares are "restricted securities" under the Securities Act
of 1933, as amended (the "Securities Act"), because they are being acquired from
the Company in a transaction not involving a public offering, and that, under
such laws and applicable regulations, such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection, each Stockholder represents that he or she is familiar with and
understands the resale limitations imposed upon him or her by Rule 144 under the
Securities Act.
Section 1.3 Purchase for Investment, etc. That: (i) he or she is
acquiring the Shares for his or her own account for investment only and not with
a view to, or for sale in connection with, a distribution within the meaning of
the Securities Act; (ii) he or she has no present intention of selling or
otherwise disposing of any portion of the Shares being acquired by such
Stockholder; (iii) he or she is familiar with the financial condition, product
lines and present and prospective business affairs and prospects of the Company;
(iv) he or she, or his or her
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representatives or agents, has had access to all information regarding the
Company and its present and prospective business, assets, liabilities and
financial condition and the backgrounds of the principals of the Company as he
or she has deemed material to making the decision to acquire the Shares and has
been afforded the opportunity to ask questions of and receive answers from the
Company's senior management concerning present and prospective business
prospects of the Company; (v) he or she has fully considered this information in
valuing the Company and assessing the merits of the transactions contemplated by
this Agreement and the Purchase Agreement; (vi) he or she recognizes that an
investment in the Shares involves special, speculative and substantial risk
because, among other things, the Company may pursue risky business strategies,
the Shares are subject to significant legal and contractual restrictions upon
resale and, in any case, there may be not a future market for resale of the
Shares; (vii) he or she is able to fend for himself or herself in the
transactions contemplated by this Agreement and the Purchase Agreement, and is,
on his or her own or through his or her professional advisors, knowledgeable in
business and financial matters; specifically, he or she is a senior level
executive in the packaging industry with intimate knowledge of the economic
condition and competitive factors affecting the industry and thus is uniquely
capable of evaluating and has evaluated the affairs and prospectus of the
Company and the merits of an investment in the Shares; (viii) he or she has made
the determination to enter into this Agreement and the Purchase Agreement based
upon his or her own independent evaluation and assessment of the value of the
Company and its present and prospective business prospects and has not relied
on, or been induced to enter into this Agreement or the Purchase Agreement on
account of, any representation or warranty of any kind or nature, whether oral
or written, express or implied, except for such representations and warranties
of the Company as are specifically set forth in the Purchase Agreement; (ix) he
or she is financially capable of bearing a total loss of his or her investment
in the Shares; and (x) at no time was he or she presented with or solicited by
any publicly issued or circulated newspaper, magazine, mail, radio or television
or any other form of general advertising or solicitation in connection with the
acquisition of the Shares.
Section 1.4 Residency. For purposes of the application of state
securities laws, that he or she is a resident of the state set forth in such
Stockholder's address on the signature page hereto.
Section 1.5 No Governmental Approval. Such Stockholder understands that
no government agency has passed upon such Shares or made any finding or
determination as to the fairness of the investment or any recommendation or
endorsement of such Shares.
ARTICLE II. RESTRICTIONS ON TRANSFER
Section 2.1 Restrictions on Transfer. Each of the Stockholders hereby
covenants to the Company and agrees that, from the date hereof until the second
anniversary of the Closing Date (the "Restricted Period"), he or she will not
transfer, sell, assign, hypothecate, encumber, pledge, grant a security interest
in, dispose of or otherwise alienate for consideration, by gift or otherwise,
any of the Shares, other than according to the terms of this Agreement or with
the prior consent of the Board of Directors of the Company. Any transfer of
Shares in violation of this Section 2.1, whether voluntary or involuntary, shall
be void and of no force and effect and shall transfer no right, title, or
interest in
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or to those Shares to the purported transferee, buyer, assignee, pledgee, or
encumbrance holder of such Shares.
Section 2.2 Exceptions to Restrictions on Transfer. (a) The
restrictions on transfers of the Shares provided for in Section 2.1 shall not
prohibit the transfer by any Stockholder of any or all of the Shares owned by
such Stockholder (i) to any person by his or her last will and testament duly
admitted to probate, or pursuant to applicable laws of intestacy, (ii) to the
parents, spouse, siblings, nieces or nephews of the Stockholder or his or her
spouse or a trust for the benefit of any or all of such persons, (iii) to one or
more of his or her lineal descendants or their respective spouses or to a
trustee or guardian for the benefit of such lineal descendant(s) or his or her
spouse, (iv) into a trust for the benefit of such Stockholder and the members of
his or her immediate family, (v) to any affiliate of such Stockholder directly
or indirectly wholly-owned and controlled by him or her or (vi) to any other
Stockholder; provided, however, that in all cases, the Shares so transferred
will continue to be subject to all of the terms, covenants and conditions of
this Agreement (other than Article IV) except that the provisions of this
Article II shall not apply to such Shares if the Restricted Period has expired
or if the provisions of this Article II have terminated pursuant to Section 5.1
hereof.
(b) In each such case, the Stockholder will, prior to or
simultaneously with the transfer, inform the transferee of, and make available a
copy of, this Agreement. Acceptance by the transferee of the Shares being
transferred shall be deemed an agreement by the transferee to be bound by all of
the terms, covenants and provisions of this Agreement to the same extent as if
an initial signatory hereto (other than Article IV). Additionally, the
Stockholder shall cause the transferee to execute and deliver an instrument
agreeing to be bound by this Agreement. Unless and until the transferee delivers
the instrument, the Company shall have the right to withhold the distribution of
any dividends or distributions in respect of the transferred Shares to such
transferee and to pay the same to the transferor of such Shares in full and
complete satisfaction of the Company's obligation to pay or otherwise make such
dividends or distributions. For purposes of this Agreement, any assignee or
transferee of Shares pursuant to this Section 2.2 shall thereafter be deemed a
"Stockholder" for all purposes of this Agreement (other than Article IV).
Section 2.3 Agreement Available for Inspection. An original copy of
this Agreement duly executed by the Company and each Stockholder shall be
delivered to the Secretary of the Company and maintained by the Secretary at the
principal office of the Company available for inspection by any authorized
person requesting to see it.
Section 2.4 Legend on Shares. Each certificate representing Shares
shall bear the following legends:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAW, AND NO
INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN
EFFECTIVE
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REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (ii) THIS CORPORATION RECEIVES AN OPINION OF LEGAL
COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO
THIS CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION, OR (iii) THIS CORPORATION OTHERWISE SATISFIES
ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
ADDITIONALLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE PROVISIONS OF A STOCKHOLDERS AND
REGISTRATION RIGHTS AGREEMENT, DATED ____, 1998, BY AND
BETWEEN THIS CORPORATION, THE HOLDER HEREOF AND CERTAIN OTHER
PARTIES RESTRICTING THE TRANSFER THEREOF. A COPY OF SAID
AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL OFFICE OF THE
CORPORATION.
The second legend set forth above shall be removed and the
Company shall issue a certificate without such legend to the holder of the
Shares to which it is stamped upon (i) the expiration of the Restricted Period,
or (ii) the termination of this Agreement or the provisions of this Article II
pursuant to Section 5.1 hereof.
Section 2.5 Rights as a Shareholder. Except as set forth in Section
2.1, each Stockholder shall have full rights as a shareholder of the Company
with respect to the Shares owned of record by him or her including, without
limitation, the right to vote such Shares and the right to receive dividends and
non-cash distributions with respect to such Shares.
Section 2.6 Adjustments to Number of Shares. This Article II shall
apply to the Shares and to any stock or other securities issued on account
thereof, i.e., as a result of a stock split or stock dividend, and to any stock
or other securities into which such Shares shall have hereafter been changed,
converted or exchanged, unless such securities have been received as the result
of a Capital Transaction (as defined in Section 5.1 hereof).
ARTICLE III. REGISTRATION RIGHTS
Section 3.1 Certain Definitions. As used in this Article III, the
following initially capitalized terms shall have the following meanings:
Person: A corporation, an association, a limited liability company, a
partnership, an organization, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.
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Registrable Securities: The Shares and any stock or other securities
into which such Shares shall have hereafter been changed, converted or exchanged
and all securities issued on account thereof, i.e., as a result of a stock split
or stock dividend, which are held by the Stockholders; provided, however, that
any such securities shall cease to be Registrable Securities with respect to a
proposed offer or sale thereof (i) when a registration statement with respect to
the sale of such securities shall have become effective under the Securities Act
and such securities shall have been disposed of in accordance with the plan of
distribution set forth in such registration statement, or (ii) to the extent
that such securities, in the opinion of counsel to the Company, are permitted to
be distributed pursuant to Rule 144(k) or otherwise pursuant to Rule 144 without
regard to any volume limitation (or if the volume limitation would permit
distribution and sale of all securities of the Company held by a Stockholder and
all other Persons with whom sales of the securities of the Company would be
aggregated under Rule 144 in a single three-month period).
Registration Expenses: All expenses incident to the Company's and the
Stockholders' performance of or compliance with this Article III, including
without limitation all registration and filing fees, including fees with respect
to filings required to be made with the National Association of Securities
Dealers, Inc., fees and expenses of compliance with securities or blue sky laws,
costs of preparing registration statements, prospectuses and supplements
thereto, including, without limitation, all word processing, duplicating and
printing expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company and of the Company's independent
certified public accountants (including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance); provided
however, that Registration Expenses shall not include (i) any underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities; (ii) any fees of legal counsel for the sellers of Registrable
Securities; or (iii) any transfer taxes applicable to the sale of Registrable
Securities.
Rule 144: Rule 144 promulgated under the Securities Act, or any
successor rule to similar effect.
SEC: The United States Securities and Exchange Commission.
Termination Date: The date the Stockholders no longer hold any
Registrable Securities.
Section 3.2 Mandatory Registration.
(a) At any time following the expiration or termination of the
Restricted Period and prior to the Termination Date (the "Registration Rights
Period"), upon written demand (a "Demand") for registration by the holders of a
minimum of 50% of the Registrable Securities, the Company shall promptly give
written notice ("Notice of Demand") of the Demand to each Person who then holds
Registrable Securities. Each recipient of a Notice of Demand may, for a period
of thirty (30) days after the giving of the Notice of Demand, deliver to the
Company a notice (a "Response Demand") demanding registration of the Registrable
Securities held by such recipient.
(b) In the event of a Demand pursuant to Section 3.2(a), the
Company shall prepare and file with the SEC as soon as commercially practicable,
but in no event later than sixty (60) days after the date on which the Demand is
received, a Registration Statement on Form S-3 or
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equivalent form with respect to all Registrable Securities for which demand for
registration has been made pursuant to a Demand or Response Demand and shall
comply with the further registration procedures described in Section 3.4 below.
(c) The Company may include in the registration pursuant to
this Section 3.2 securities issued in connection with any acquisition not
otherwise registered on an S-4 Registration Statement.
(d) Notwithstanding anything contained in this Section 3.2,
the Company shall not be required to prepare and file a registration statement
in accordance with this Section 3.2 more than once.
Section 3.3 Incidental Registration.
(a) Right to Include the Registrable Securities. If the
Company, at any time before the Termination Date, proposes to register
securities for sale for its own account under the Securities Act by registration
on Forms ▇-▇, ▇-▇ or S-3 or any successor or similar form(s) (but excluding
registrations on Forms S-4 or S-8 or any successor or similar forms), the
Company will give at least ten (10) business days written notice each such time
to the Stockholders of its intention to do so. Upon the written request of a
Stockholder holding Registrable Securities (specifying the intended method of
disposition of the Registrable Securities and exercisable by each Stockholder
only twice before the Termination Date), made within 10 business days after the
receipt of any such notice, the Company will include in its proposed
registration all Registrable Securities held by such Stockholder on the same
terms and conditions as the securities of other stockholders participating in
such registration will be included, subject to the priorities set forth in
Section 3.3(b) below, if any. If the Company thereafter determines for any
reason not to register or to delay registration of the Company's offering of its
securities, the Company may, at its election, give written notice of such
determination to the Stockholders who chose to participate in such registration
and, thereupon, (i) in the case of a determination not to register, shall be
relieved of the obligation to register such Registrable Securities in connection
with such registration (but not from any obligation of the Company to pay the
Registration Expenses in connection therewith or to register Registrable
Securities in the future), and (ii) in the case of a determination to delay
registration, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registration of such other securities. The
Company will pay all Registration Expenses in connection with the registration
of Registrable Securities requested pursuant to this Section 3.3. All other cost
and expenses incurred by the Stockholders in connection with such registration
will be borne by the Stockholders on the basis of the percentage that the
Registrable Securities which are being offered by each of them bears to the
total number of Registrable Securities sought to be registered in such
negotiation.
(b) Priority in Incidental Registration Rights. If the
managing underwriter(s) in connection with a registration advise(s) the Company
(and the other stockholders participating therein) in writing that in their good
faith opinion such offering would be adversely affected by the inclusion therein
of the total number of Registrable Securities, the Company shall include in such
registration: (1) first, all securities the Company proposes to sell for its own
account (the "Company Securities"), and (2) second, the securities requested to
be registered by stockholders of the Company
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(including, without limitation, the Stockholders) entitled to participate in the
registration, drawn from them pro rata based on the number each has requested to
be included in such registration.
(c) Limitations; Exceptions. The Company shall not be required
to effect any registration of Registrable Securities under this Section 3.3
incidental to the registration of any of the securities in connection with
mergers, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock option or other employee benefit plans.
(d) Number of Incidental Registrations; Effective Registration
Statement. Each Stockholder may exercise his right to incidental registration
under this Section 3.3 only twice before the Termination Date; provided, that no
Stockholder may exercise his right to incidental registration under this Section
3.3 with respect to less than the lesser of: (x) 10,000 shares of Common Stock
(or Registrable Securities having a total market value of less than $100,000 if
the Registrable Securities are of any class other than Common Stock), (y) 25% of
the total number of shares of Registrable Securities then held by all
Stockholders and (z) 50% of the total number of shares of Registrable Securities
then held by such Stockholder. Any registration requested pursuant to Section
3.2 or this Section 3.3 shall not be deemed to have been effected and will not
be considered one of the registrations which may be requested by Stockholders
(i) unless a registration statement with respect thereto has become effective,
(ii) if, after it has become effective, it does not remain effective and
available to Stockholders for resale for a period of at least ninety (90) days
(unless the Registrable Securities registered thereunder have been sold or
disposed of prior to the expiration of such 90-day period) or such registration
is interfered with by any stop order, injunction or other order or requirement
of the SEC or other governmental agency or court for any reason and has not
thereafter become effective, or (iii) if, after it has become effective,
Stockholders receive notice from the Company of the happening of any event of
the kind described in Section 3.4(e)(ii), (iii) or (iv) or Section 3.4(g)
hereof, and are forced to discontinue disposition of Registrable Securities
pursuant to Section 3.5(b) hereof, prior to the expiration of a resale period of
at least ninety (90) days (unless the Registrable Securities registered
thereunder have been sold or disposed of prior to the expiration of such 90-day
period).
Section 3.4 Registration Procedures. Subject to the other terms and
conditions hereof whenever any Stockholder has issued a Demand or a Response
Demand pursuant to Section 3.2 above or has requested an incidental registration
pursuant to Section 3.3 above, the Company shall, as soon as reasonably
possible:
(a) Use its reasonable best efforts to cause the applicable
registration statements to become effective within any applicable time frames
prescribed herein;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statements and the prospectus(es) used in
connection therewith, which prospectus(es) are to be filed pursuant to Rule 424
under the Securities Act, as may be necessary to keep such registration
statements effective for a period of ninety (90) days or until such securities,
in the opinion of counsel to the Company, are permitted to be distributed
pursuant to Rule 144(k) or otherwise pursuant to Rule 144 without regard to any
volume limitation (or if the volume limitation would permit distribution and
sale of all securities of the Company held by a Stockholder in a single
three-
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month period) and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statements
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statements or supplements to such
prospectuses. In the event sales of Registrable Securities of the Stockholders
are suspended as provided in Section 3.5(b), the 90-day period during which a
registration statement must be kept effective shall be extended for the total
number of days during which sales are suspended;
(c) Furnish to the Stockholders without charge, such number of
copies of such registration statements, each amendment and supplement thereto,
the prospectus(es) included in such registration statements, and such other
documents as the Stockholders may reasonably request in order to facilitate the
disposition of the Registrable Securities (the Company consents to the use of
such prospectuses or any amendment or supplement thereto by the Stockholders in
connection with the offering and sale of the Registrable Securities covered by
such prospectuses or any amendment or supplement thereto); and furnish to the
Stockholders, without charge, at least one conformed copy of the registration
statement or statements and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(d) Use its reasonable efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as the Stockholders reasonably request and do any and all other
acts and things which may be reasonably necessary or advisable to (i) keep such
registration or qualification effective during the period such registration
statement is required to be kept effective and (ii) enable the Stockholders to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by the Stockholders;
(e) Notify the Stockholders, promptly, and if requested,
confirm such advice in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and, with respect to a
registration statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC for amendments or supplements to a
registration statement or related prospectus or for additional information,
(iii) of the existence of material information that has not been disclosed to
the public and included in the registration statement if it is necessary to
amend the registration statement or the prospectus included in such registration
statement, and, at the request of the Stockholders, the Company will, as soon as
reasonably practicable, prepare a supplement or amendment to such registration
statement or prospectus so that such registration statement or prospectus will
not contain any untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in light of the
circumstances then existing (provided, that in the case of a shelf registration
on Form S-3 or equivalent form the foregoing shall not obligate the Company to
disclose any fact or circumstance earlier than it would have been disclosed by
the Company in the ordinary course of business absent this Agreement or any
similar obligation or to amend to the registration statement during any time
when the Company's officers and directors are prohibited from buying or selling
the Company's Common Stock pursuant to the Company's ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ policy),
and (iv) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
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(f) Cause all such Registrable Securities to be listed on each
securities exchange and inter-dealer quotation system on which similar
securities issued by the Company are then listed and pay all fees and expenses
in connection therewith; and
(g) Advise the Stockholders promptly after the Company shall
have received notice or obtained knowledge of (i) the issuance of any stop order
by the SEC suspending the effectiveness of such registration statements or the
initiation or threatening of any proceeding for such purposes and will use its
reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued, or (ii) the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purposes and will
promptly use its reasonable efforts to prevent such suspension or have such
suspension lifted if it should be effected.
Section 3.5 The Stockholders' Covenants.
(a) Each Stockholder shall furnish to the Company in writing
such information relating to him as the Company may reasonably request in
writing in connection with the preparation of registration statements pursuant
to this Agreement, and each Stockholder agrees to notify the Company as promptly
as practicable of any inaccuracy or change in information he has previously
furnished to the Company or of the happening of any event, in either case as a
result of which any prospectus relating to such registrations contains an untrue
statement of a material fact regarding the Stockholder or the distribution of
such Registrable Securities or omits to state any material fact regarding the
Stockholder or the distribution of such Registrable Securities required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and to promptly furnish to the Company
any additional information required to correct and update any previously
furnished information or required such that such prospectus shall not contain,
with respect to the Stockholder or the distribution of such Registrable
Securities, an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
(b) Each Stockholder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3.4(e)(ii), (iii) or (iv) or Section 3.4(g) hereof, the Stockholders will
forthwith discontinue disposition of such Registrable Securities covered by such
registration statement or prospectus until the Stockholders' receipt of the
copies of the supplemented or amended prospectus relating to such registration
statement or prospectus, or until it is advised in writing by the Company that
the use of the applicable prospectus may be resumed, and has received copies of
any additional or supplemental filings which are incorporated by reference in
such prospectus, and, if so directed by the Company, the Stockholders will
deliver to the Company all copies, other than permanent file copies then in the
Stockholders' possession, of the prospectus covering the Registrable Securities
current at the time of receipt of such notice.
Section 3.8 Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Stockholders and their
respective counsel and accountants such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
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independent public accountants who have certified its financial statements as
shall be necessary to conduct a reasonable investigation within the meaning of
the Securities Act.
Section 3.7 Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any Registrable Securities under the Securities Act, the Company
will, and hereby does, indemnify and hold harmless, to the fullest extent
permitted by law, each Stockholder against any and all judgments, fines,
penalties, charges, costs, amounts paid in settlement, losses, claims, damages,
liabilities, expenses, or attorney fees, joint or several, incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not the Stockholder is or may be
a party thereto ("Indemnified Damages"), to which such Stockholder may become
subject under the Securities Act or any other statute or common law, insofar as
any such Indemnified Damages arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement relating to the sale of such securities or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under blue sky or other securities laws of
jurisdictions in which the Registrable Securities are offered ("Blue Sky
Filing"), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in the final prospectus (as amended or supplemented if
the Company shall have filed with the SEC any amendment thereof or supplement
thereto) if used within the period during which the Company is required to keep
the registration statement to which such prospectus relates current, or the
omission or alleged omission to state therein (if so used) a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the
indemnification agreement contained herein shall not apply to such Indemnified
Damages to any Stockholder arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission or alleged omission,
if such statement or omission: (i) was made in reliance upon and in conformity
with written information furnished to the Company by the Stockholder for use in
connection with preparation of the registration statement, any prospectus
contained in the registration statement, any such amendment or supplement
thereto or any Blue Sky Filing; or (ii) was included in a registration
statement, prospectus contained therein or any amendment or supplement thereto,
and prior to the use thereof, the Company had given notice to the Stockholder of
the happening of one or more events of the kind described in Section 3.4(e)(ii),
(iii) or (iv) or Section 3.4(g) hereof. Furthermore, the indemnification
agreement contained herein shall not apply to any Indemnified Damages to any
Stockholder arising out of, or based upon, the Stockholder's or any of his
representatives', failure to deliver a prospectus, including any amendments or
supplements thereto, in connection with any sale thereunder in accordance with
the rules and regulations of the SEC (provided that the Stockholder had notice
of any such amendment or supplement and received a copy of such amendment or
supplement in accordance with the terms of this Agreement).
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(b) Indemnification by the Stockholders. Each Stockholder
will, if Registrable Securities are included in the securities to which such
registration is being effected, indemnify and hold harmless (in the same manner
and to the same extent as set forth in subdivision (a) of this Section 3.7) the
Company, its officers and directors and each officer of the Company and each
other Person, if any, who controls the Company within the meaning of the
Securities Act with respect to any untrue statement or alleged untrue statement
in, or omission or alleged omission from, such registration statement, any
prospectus contained therein, or any amendment or supplement thereto, if such
statement or omission (i) arises from information relating to any Stockholder
and was made in reliance upon written information any Stockholder furnished to
the Company for use in the preparation of such registration statement,
prospectus, amendment or supplement on Blue Sky Filing, or (ii) was included in
a registration statement, prospectus contained therein or any amendment or
supplement thereto, and prior to the use thereof, the Company had given notice
to the Stockholders of the happening of one or more events of the kind described
in Section 3.4(e)(ii), (iii) or (iv) or Section 3.4(g) hereof. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling Person
and shall survive the transfer of such securities by the Stockholders. The
Stockholders' indemnity as described in this Section 3.7(b) shall be limited to
the dollar amount of the proceeds of the Registrable Securities actually sold by
each Stockholder pursuant to such registration statement.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 3.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 3.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, the indemnifying
party shall be entitled to participate in and, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. If the indemnifying party does not
assume such defense, the indemnified party shall keep the indemnifying party
apprised as to the status of the defense; provided, however, that the failure to
keep the indemnifying party so informed shall not affect the obligations of the
indemnifying party hereunder. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected
12
without its written consent, provided, however, that the indemnifying party
shall not unreasonably withhold, delay or condition its consent. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the indemnified party
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made.
(d) Indemnification Payments. The indemnification required by
this Section 3.7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.
(e) Contribution. If the indemnification provided for in this
Section 3.7 shall for any reason be held by a court to be unavailable to an
indemnified party under subparagraph (a) or (b) hereof in respect of any
Indemnified Damages, then, in lieu of the amount paid or payable under
subparagraph (a) or (b) hereof, the indemnified party and the indemnifying party
under subparagraph (a) or (b) hereof shall contribute to the aggregate
Indemnified Damages, in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party with respect
to the statements or omissions which resulted in such Indemnified Damages, as
well as any other relevant equitable considerations. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The obligations of the Stockholders
to contribute as provided in this subparagraph (e) shall be in proportion to the
relative value of his Registrable Securities covered by such registration
statement in relation to all securities covered by such registration statement.
In addition, no Person shall be obligated to contribute hereunder any amounts in
payment for any settlement of any action or claim effected without such Person's
consent, which consent shall not be unreasonably withheld.
(f) Other Rights; Liabilities. The indemnity agreements
contained herein shall be in addition to (i) any cause of action or similar
right of the indemnified party against the indemnifying party or others, and
(ii) any liabilities the indemnifying party may be subject to pursuant to the
law.
ARTICLE IV. BOARD REPRESENTATION
The Stockholders, collectively, shall have the right to
designate either ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇▇, as they may choose, for
election to the Company's board of directors by such board at the closing of the
transactions contemplated by the Purchase Agreement, to serve until the next
annual meeting of the stockholders of the Company. Thereafter, if any one of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇▇ (i) holds at least 400,000 shares of Common
Stock (which threshold number of shares shall automatically be adjusted from
time to time to reflect increases, decreases or exchanges in, or the
distribution of additional or different securities in respect of, the Common
Stock as a result of any recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other similar transaction) and (ii) is
either an employee of the Company or is subject to the noncompetition covenants
of Article VII of the Purchase
13
Agreement or Section 7 of the Employment Agreement of even date herewith between
him and the Company ((i) and (ii) above, the "Board Qualifications"), the
Company agrees to cause such Stockholder to be included in management's slate of
nominees for election at each annual meeting of the stockholders of the Company
at the expiration of his term, for so long as such Stockholder meets the Board
Qualifications. If, however, both ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ meet the
Board Qualifications, the Stockholders shall choose one of them to be nominated
for election to the Company's Board of Directors and the Company agrees to cause
such Stockholder so chosen to be included in management's slate of nominees for
election at each annual meeting of the stockholders of the Company at the
expiration of his term, for so long as such Stockholder meets the Board
Qualifications. Further, for so long as the Stockholders collectively own in the
aggregate not less than 800,000 shares of Common Stock (which threshold number
of shares shall automatically be adjusted from time to time to reflect
increases, decreases or exchanges in, or the distribution of additional or
different securities in respect of, the Common Stock as a result of any
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction), the Company agrees to cause whichever of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ is not a member of the Company's Board of
Directors to be invited to attend meetings of the Company's Board of Directors
as an observer (so long as he is either an employee of the Company or is subject
to the noncompetition covenants of Article VII of the Purchase Agreement or
Section 7 of the Employment Agreement of even date herewith between him and the
Company), unless the Board of Directors of the Company determines as to any
particular meeting or meetings that considerations of confidentiality make such
attendance inappropriate.
ARTICLE V. MISCELLANEOUS
Section 5.1 Termination. This Agreement shall terminate in the event of
the bankruptcy or insolvency of the Company. The provisions of solely Articles
II and IV of this Agreement shall terminate upon the occurrence of a Capital
Transaction (as defined below) or upon any Change in Control (as defined below).
Upon any termination of this Agreement or Articles II and IV as provided above,
the Company shall, if a Stockholder so requests, remove from each certificate
representing shares of Common Stock then owned by the Stockholder any legend
which refers to this Agreement and/or any of the restrictions on transfer
contained herein. For purposes of this Section 5 .1, "Capital Transaction"
means, with respect to the Company the transaction underlying any of the
following events: (i) the stockholders of the Company approve a merger,
consolidation or other combination of the Company with any other company, other
than (1) a merger, consolidation or other combination which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger, consolidation or other combination or
(2) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or (ii) the stockholders of the Company
approve an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets and properties to any
14
Person (as defined in Article III hereof) which is not an Affiliate (as defined
below) of the Company; or (iii) the stockholders of the Company approve any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property of another Person which is not an Affiliate
of the Company or (iv) the Board of Directors of the Company approves any
exchange or tender offer for outstanding Common Stock by any Person which is not
an Affiliate of the Company if, upon consummation of such exchange or tender
offer, the offeror would become the beneficial owner of fifty percent (50%) or
more of the voting stock of the Company. For purposes of this Section 5.1,
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Person referred to, and in this definition, "control" means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of securities, by
contract, or otherwise. For purposes of this Section 5.1, "Change in Control"
means (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportion as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
40% or more of the combined voting power of the Company's then outstanding
securities without the approval of the Board of Directors of the Company; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board, and any new director whose election by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved cease for any reason to
constitute at least a majority thereof, or (iii) if ▇▇▇▇ ▇▇▇▇▇, together with
his immediate family members and all Affiliates of ▇▇▇▇ ▇▇▇▇▇ and/or his
immediate family members, either individually or acting as a group, cease to own
at least 15% of the outstanding Common Stock of the Company.
Section 5.2 Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns. The Company may not assign
its obligations hereunder except that the Company shall at any time upon notice
to the Stockholders assign all or a portion of its rights and duties hereunder
(to the extent the same have not terminated pursuant to Section 5.1 above) to
(i) an entity which results from any merger, consolidation or other
reorganization to which the Company is the non-surviving party or (ii) a buyer
of all or substantially all of the Company's assets, provided that, with respect
to Article III above, the assignee or its parent is publicly traded and the
assignee or its parent shall agree in writing to fully and faithfully perform
all of the Company's obligations hereunder. Without the prior written consent of
the Company, no Stockholder may assign his rights hereunder or otherwise provide
to any third party the benefits granted to such Stockholder hereunder.
Section 5.3 Severability. If any term or provision of this Agreement is
held by a court of competent jurisdiction to be invalid, void, or unenforceable,
the remainder of the terms and provisions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
15
alternative means to achieve the same or substantially the same result as that
contemplated by such term or provision.
Section 5.4 Further Assurances. Subject to the specific terms of this
Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
Section 5.5 Waivers, Etc. No failure or delay on the part of either
party hereto (or the intended third party beneficiaries referred to herein) in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement nor
consent to any departure therefrom shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
Section 5.6 Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof. The
section headings contained in this Agreement are solely for the purpose of
reference, and shall not in any way affect the meaning or interpretation of this
Agreement.
Section 5.7 Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original but all of which together shall be one and the same
instrument.
Section 5.8 Notices. All notices, consents, demands, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by electronic facsimile equipment, provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
If to the Company: Shorewood Packaging Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Vice
President, General Counsel
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
16
If to the Stockholders: at the respective addresses set
forth on the signature page hereto
With a copy to: ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Constant & ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ________________________
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Section 5.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws.
Section 5.10 Amendments. This Agreement may be amended only by a
written agreement signed by the Company and the Stockholders.
Section 5.11 Blue-Penciling. If any court determines that any provision
of this agreement regarding restrictions on transfer or other restrictive
covenants, or any part thereof, is invalid or unenforceable, such court shall
have the power to reduce the duration or scope of such provision, as the case
may be, and, in its reduced form, such provision shall then be enforceable
IN WITNESS WHEREOF, the Company and the Stockholders have caused this
Agreement to be duly executed as of the date first above written.
SHOREWOOD PACKAGING CORPORATION
By: ___________________________________
Name:
Title:
STOCKHOLDERS:
_______________________________________
Name:
Residential Address:
_______________________________________
Name:
Residential Address: