1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Shorewood Packaging Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1/)
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedules or Registration Statement No.:
(3) Filing party:
(4) Date filed:
-------------------
(1/) Set forth the amount on which the filing fee is calculated and state
how it was determined.
2
SHOREWOOD PACKAGING CORPORATION
277 PARK AVENUE
NEW YORK, NEW YORK 10172-0124
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 30, 1997
------------------------
TO THE STOCKHOLDERS OF SHOREWOOD PACKAGING CORPORATION
NOTICE is hereby given that the Annual Meeting (the "Meeting") of
Stockholders of SHOREWOOD PACKAGING CORPORATION (the "Company"), a Delaware
corporation, will be held at The Chase Manhattan Bank, 270 Park Avenue, 11th
Floor, Room A, New York, New York, on October 30, 1997 at 9:30 A.M. for the
following purposes:
1. To elect three directors comprising the Class II Directors to serve
until the 2000 Annual Meeting of Stockholders.
2. To consider and vote upon proposed amendments to the Company's 1993
Incentive Program.
3. To ratify the selection of Deloitte & Touche LLP as the independent
auditors of the Company for the fiscal year ending May 2, 1998.
4. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
All of the above matters are more fully described in the accompanying Proxy
Statement.
The Board of Directors has fixed the close of business on September 23,
1997 as the date for the determination of stockholders entitled to notice of,
and to vote at, the Meeting. A list of stockholders entitled to vote at the
Meeting will be open to examination by stockholders during ordinary business
hours for a period of ten (10) days prior to the Meeting at the executive
offices of the Company, 277 Park Avenue, New York, New York 10172-0124.
By order of the Board of Directors,
Andrew N. Shore
Secretary
New York, New York
September 26, 1997
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE
MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
3
SHOREWOOD PACKAGING CORPORATION
277 PARK AVENUE
NEW YORK, NEW YORK 10172-0124
------------------------
ANNUAL MEETING OF STOCKHOLDERS
------------------------
PROXY STATEMENT
APPROXIMATE DATE OF MAILING: SEPTEMBER 26, 1997
The enclosed Proxy is solicited on behalf of the Board of Directors (the
"Board" or the "Board of Directors") of Shorewood Packaging Corporation (the
"Company") for use at the Annual Meeting of Stockholders to be held at the time
and place set forth in the foregoing notice and at any adjournment thereof (the
"Meeting"). Only stockholders of record (the "Stockholders") of the Company's
common stock, $.01 par value per share (the "Common Stock"), at the close of
business on September 23, 1997 are entitled to notice of, and to vote at, the
Meeting. Proxies in the accompanying form, which are properly executed and duly
returned to the Company and not revoked prior to exercise, will be voted in
accordance with the instructions contained therein. If a Proxy is executed and
returned without instructions as to how it is to be voted, such Proxy will be
voted in favor of all proposals contained in this Proxy Statement. Each Proxy
granted pursuant to this solicitation is revocable and may be revoked at any
time prior to its exercise provided written notice of revocation is received by
the Secretary of the Company prior to the Meeting. A Stockholder who attends the
Meeting in person may, if he or she wishes, vote by ballot at the Meeting,
thereby canceling any Proxy previously given by such Stockholder.
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting, present in person or
represented by proxy, shall constitute a quorum at the Meeting. Any Stockholder
present in person or by proxy who abstains from voting on any particular matter
described herein will be counted for purposes of determining a quorum. For
purposes of voting on the matters described herein, (i) directors shall be
elected by a plurality of the voting power present in person or represented by
proxy at the Meeting and entitled to vote and (ii) the other matters shall be
determined by the affirmative vote of the majority of the voting power present
in person or represented by proxy at the Meeting and entitled to vote on the
matter. With respect to the election of directors, only shares that are voted in
favor of a particular nominee will be counted towards such nominee's achievement
of a plurality. Shares present at the Meeting that are not voted for a
particular nominee, shares present by proxy where the Stockholder properly
withholds authority to vote for such nominee and broker non-votes will not be
counted towards such nominee's achievement of a plurality. With respect to any
of the other matters to be voted upon, if the Stockholder abstains from voting
or directs his or her proxy to abstain from voting, the shares are considered
present at the Meeting for such matter but, since they are not affirmative votes
for the matter, they will have the same effect as votes against the matter. With
respect to broker non-votes on any such matter, the shares are not considered
present at the Meeting for such matter and they are, therefore, not counted in
respect of such matter. Provided that a quorum is otherwise present, such broker
non-votes do have the practical effect of reducing the number of affirmative
votes required to achieve a majority for such matter by reducing the total
number of shares from which the majority is calculated.
4
PRINCIPAL STOCKHOLDERS
The outstanding voting stock of the Company as of September 15, 1997
consisted of 18,143,772 shares of Common Stock, with each share entitled to one
vote. Beneficial ownership has been determined for purposes herein in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), under which a person is deemed to be the beneficial owner of
securities if such person has or shares voting power or investment power in
respect of such securities or has the right to acquire beneficial ownership
within 60 days. So far as is known to the Company, the following were the only
beneficial owners of more than 5% of the outstanding Common Stock of the Company
on such date:
NAME AND ADDRESS AMOUNT OF SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
----------------------------------------------------------- ------------------ --------
Marc P. Shore(1)........................................... 3,429,608 18.71%
c/o Shorewood Packaging Corporation
277 Park Avenue
New York, NY 10172-0124
Ariel Capital Management, Inc.(2).......................... 2,440,705 13.45%
307 North Michigan Avenue
Chicago, Illinois 60601
Franklin Resources, Inc.(3)................................ 1,007,135 5.55%
777 Mariners Island Blvd.
San Mateo, California 94404
- ---------------
(1) Marc P. Shore is the President, Chairman and Chief Executive Officer of
Company. The shares reflected in this column consist of: (1) 855,401 shares
owned outright by Marc P. Shore, of which 17,100 shares are restricted
shares awarded pursuant to the Company's Long Term Incentive Program and
are subject to forfeiture (for a description of the restricted shares, see
"Executive Compensation -- Summary Compensation Table -- Footnote (3)");
(2) 190,107 shares which could be acquired on or within 60 days after
September 15, 1997 upon the exercise of stock options granted under the
Company's incentive and stock option plans (collectively, the "Incentive
Plans"); (3) 495,900 shares held by the Estate of Paul B. Shore (the
"Estate") (see discussion below); (4) 1,800,000 shares held by the Shore
Family Partnership, L.P., a California limited partnership (the "Family
Partnership") (see discussion below); and (5) 88,200 shares held by the
Shore Trust (the "Family Trust", see discussion below).
Pursuant to the terms of the will of Paul B. Shore, the founder of the
Company who passed away in December 1995, Marc P. Shore has sole
decision-making power with respect to all shares of Common Stock included
in the Estate. The Estate held 495,900 shares of Common Stock as of
September 15, 1997. Marc P. Shore disclaims beneficial ownership with
respect to 495,900 of such shares.
The Family Partnership is an investment partnership for the benefit of Marc
P. Shore and the other children of Paul B. Shore. The Family Partnership
terminates on January 1, 2030, subject to earlier termination by operation
of law or under the terms of the Limited Partnership Agreement. By virtue
of his control over the Shore Family LLC, which is the sole general partner
of the Family Partnership, Marc P. Shore has effective decision-making
power with respect to all shares of Common Stock owned by the Family
Partnership. The Family Partnership owned 1,800,000 shares of Common Stock
as of September 15, 1997. Marc P. Shore disclaims beneficial ownership as
to 1,639,980 of such shares.
2
5
Marc P. Shore serves as co-trustee of a trust which holds 88,200 shares of
Common Stock for the benefit of one other child of Paul B. Shore. As
co-trustee, Marc P. Shore shares decision-making authority with respect to
any shares of Common Stock held by the trust. Marc P. Shore disclaims
beneficial ownership of all of such shares.
(2) Represents shares held by investment advisory clients of Ariel Capital
Management, Inc. This information is based solely upon the contents of
filings under Section 13 of the Exchange Act made by Ariel Capital
Management, Inc.
(3) Represents shares held by open or closed-end investment companies or other
managed accounts which are advised by direct and indirect investment
advisory subsidiaries of Franklin Resources, Inc. This information is based
solely upon the contents of filings under Section 13 of the Exchange Act
made by Franklin Resources, Inc.
EXECUTIVE OFFICERS
The executive officers of the Company are identified in the table below.
Each executive officer of the Company serves at the pleasure of the Board of
Directors.
YEAR
BECAME AN
EXECUTIVE
NAME AGE OFFICER POSITIONS
-------------------------------- --- --------- --------------------------------
Marc P. Shore................... 43 1982 Chairman of the Board, Chief
Executive Officer and President
Floyd S. Glinert................ 68 1968 Executive Vice President --
Marketing and Director
Howard M. Liebman............... 55 1994 Executive Vice President, Chief
Financial Officer and Director
Charles Kreussling.............. 68 1966 Executive Vice President --
Manufacturing
Kenneth M. Rosenblum............ 54 1988 Senior Vice President -- Sales
William H. Hogan................ 38 1995 Vice President -- Finance/
Corporate Controller
Andrew N. Shore................. 44 1996 Vice President, General Counsel
and Secretary
ELECTION OF DIRECTORS
At the Meeting, three directors comprising the Class II Directors are to be
elected for three-year terms expiring in 2000 and until their successors are
elected and qualified. The Board of Directors has designated R. Timothy
O'Donnell, Kevin J. Bannon and William P. Weidner as nominees. Proxies received
from Stockholders will be voted, unless authority to so vote is withheld, for
the election of the nominees identified in the following table. Authority to
vote for any or all of the nominees may be withheld in the manner indicated on
the enclosed Proxy. If for any reason any of the nominees becomes unavailable
for election, the Proxies solicited will be voted for such other nominees as are
selected by the Board of Directors. The Board of Directors has no reason to
believe that any of the nominees will not be available or will not serve if
elected. Set
3
6
forth in the following table is certain information with respect to (i) each
nominee nominated to serve as a Class II Director for a term to expire in 2000
and (ii) the Class I Directors and the Class III Directors whose terms expire in
1999 and 1998, respectively. Each nominee described is presently a director of
the Company.
Howard M. Liebman, Executive Vice President and Chief Financial Officer of
the Company, was elected by the Board as a Class III Director to serve the
remainder of the term of Paul B. Shore, a Class III Director who passed away on
December 10, 1995. Each nominee for director at the Meeting and, except for Mr.
Liebman, each director in office after the Meeting, was previously elected to
the Board by the Stockholders of the Company.
YEAR FIRST
BECAME
NAME AGE A DIRECTOR
------------------------------------------------------------ --- ----------
NOMINEES
CLASS II: NEW TERM TO EXPIRE IN 2000
R. Timothy O'Donnell........................................ 42 1991
Kevin J. Bannon............................................. 45 1992
William P. Weidner.......................................... 52 1993
DIRECTORS CONTINUING IN OFFICE
CLASS I: TERM TO EXPIRE IN 1999
Melvin L. Braun............................................. 75 1987
Floyd S. Glinert............................................ 68 1968
CLASS III: TERM TO EXPIRE IN 1998
Howard M. Liebman........................................... 55 1996
Marc P. Shore............................................... 43 1982
Seymour Leslie.............................................. 74 1985
The Board of Directors recommends a vote FOR each of the nominees for
election as CLASS II DIRECTORS.
BIOGRAPHICAL INFORMATION
Certain information about the executive officers and directors of the
Company is set forth below. This information has been furnished to the Company
by the individuals named.
Marc P. Shore was elected Chairman of the Board and Chief Executive Officer
of the Company in January 1996 following the passing of his father, Paul B.
Shore, the founder of the Company. He has served as the President of the Company
since October 1991, and has been employed by the Company in various executive
capacities since 1982.
Howard M. Liebman joined the Company as Executive Vice President and Chief
Financial Officer in June 1994. He was elected as a director of the Company in
January 1996 to fill the vacancy created by the passing of Paul B. Shore. Mr.
Liebman is a Certified Public Accountant. Prior to joining the Company, Mr.
Liebman had been an audit partner for more than twenty years at the accounting
firm of Deloitte & Touche LLP, where he was actively involved in the Company's
account.
4
7
Floyd S. Glinert has been employed by the Company since 1968. Mr. Glinert
is responsible for certain aspects of the Company's marketing management
including advertising, sales promotion and public relations. In addition, he is
responsible for the development and planning of new packaging opportunities.
Melvin L. Braun was a partner of Touche Ross & Co. (now known as Deloitte &
Touche LLP), New York, New York, and predecessor firms from 1950 until he
retired on September 1, 1987. Mr. Braun currently serves as a special assistant
to the Chairman and as a director of Conair Corp. He also acts as an independent
consultant to Euro-Russian Banking Corp. and its subsidiaries.
R. Timothy O'Donnell is the President of Jefferson Capital Group, Ltd., an
investment banking firm located in Richmond, Virginia. He has served in that
capacity since August 1989. Mr. O'Donnell also serves on the boards of directors
of All American Communications, Inc. and Cinergi Pictures, Inc.
Kevin J. Bannon is an Executive Vice President and Chief Investment Officer
of The Bank of New York. From April 1979 to the present date, Mr. Bannon has
held various management positions with The Bank of New York. He is a Chartered
Financial Analyst.
Seymour Leslie has served as Chairman of the Leslie Group, Inc., an
investment company, from March 1978 to the present date and as Co-Chairman of
Leslie/Linton Entertainment, Inc., an investment and consulting firm, from March
1990 until the present date. Both companies are located in New York, New York.
Mr. Leslie is also a director of Allied Digital Technologies, Inc.
William P. Weidner is the President of LVSI Development, Inc., a developer
of hotel and casino properties based in Las Vegas, Nevada. He assumed that
position in December 1995. Previously, from 1985 until December 1995, he served
as the President and Chief Operating Officer of Pratt Hotel Corporation, a
worldwide operator and developer of casino and resort properties. He also served
as the President of Hollywood Casino-Aurora, Inc., an operator of riverboat
casinos, from 1992 until December 1995.
Charles Kreussling has been employed by the Company since its inception in
1966 and has been an Executive Vice President of the Company since 1979. Mr.
Kreussling is responsible for the Company's overall manufacturing and plant
administration. From 1967 until 1979, he was the Plant Manager of the Company's
Farmingdale, New York facility. Prior to joining the Company, he was employed in
various capacities in the printing and paperboard packaging industry.
Kenneth M. Rosenblum joined the Company in 1969 as an account executive for
the music industry. From 1970 until 1993, Mr. Rosenblum served as Vice
President-Sales of the Company. In 1993, he was promoted to Senior Vice
President -- Sales, Home Entertainment. In that capacity, he is responsible for
all sales to video, music and computer software accounts.
William H. Hogan joined the Company as Corporate Controller in June 1995,
and in October 1996 was elected Vice President-Finance of the Company. Mr.
Hogan, a Certified Public Accountant, was a senior manager with the accounting
firm of Grant Thornton, LLP, from 1994 to 1995. From 1981 until 1994, Mr. Hogan
was employed by the accounting firm of Deloitte & Touche LLP, where he was
actively involved in servicing the Company. He was a senior manager with
Deloitte & Touche LLP from 1989 until 1994.
Andrew N. Shore joined the Company as General Counsel in June 1996. Mr.
Shore was elected Secretary of the Company in August 1996 and was appointed a
Vice President of the Company in November 1996. From May 1994 until May 1996,
Mr. Shore practiced law as a solo practitioner in Los Angeles,
5
8
California, concentrating in the areas of real estate finance and commercial
law. During such time, he performed legal services for the Company. From April
1988 until May 1994, Mr. Shore was employed as an associate attorney with the
law firm Karno, Schwartz & Friedman, where he concentrated in the areas of real
estate finance and commercial law.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Executive Committee which is composed of Messrs. Marc P.
Shore, Seymour Leslie and Melvin L. Braun. The Executive Committee has the
responsibility, between meetings of the Board, to take all actions with respect
to the management of the Company's business that require action by the Board,
except for certain specified matters that by law must be approved by the entire
Board. The Executive Committee also coordinates and implements financial and
other policies and reviews the status of all operational activities.
In addition, the Company has an Audit Committee which is composed of
Messrs. Seymour Leslie, Melvin L. Braun and R. Timothy O'Donnell, each of whom
is not an officer or employee of the Company or its subsidiaries. The Audit
Committee has the responsibility of recommending the Company's outside auditors,
reviewing the scope and results of audits, and examining procedures for ensuring
compliance with the Company's policies on conflicts of interest.
The Company has a Compensation and Stock Option Committee (the "Committee"
or the "Compensation Committee") which currently consists of Messrs. William P.
Weidner, Kevin J. Bannon and R. Timothy O'Donnell. In addition, Mr. Seymour
Leslie currently serves as an alternate member with respect to any matter in
connection with which a regular member is by statute or regulation deemed not to
be disinterested. No member or alternate member of the Compensation Committee is
a current or former officer or employee of the Company or any of its
subsidiaries. The Compensation Committee works closely with the Board in
establishing and implementing the Company's compensation policies and practices.
See "Report of Compensation Committee." Additionally, it administers the
Company's bonus and other compensation programs and the Company's Incentive
Programs under which employees of the Company are eligible to receive stock
options, restricted stock and other benefits.
The Company does not have a nominating committee.
MEETINGS OF THE BOARD
During the fiscal year ended May 3, 1997 ("fiscal year 1997"), the Board of
Directors held seven meetings, of which two meetings were held by telephone
conference call, the Audit Committee held one meeting and the Compensation
Committee held three meetings. During fiscal year 1997, each of the directors
attended at least 75% of the aggregate of (1) the total number of meetings of
the Board (held during the period that such director served) and (2) the total
number of meetings held by all committees of the Board on which such director
served (during the period that he served). In addition, during fiscal year 1997,
the Compensation Committee acted three times by written consent of its members.
The Company's directors discharge their responsibilities throughout the year,
not only at Board of Directors' and committee meetings, but also through
personal meetings and other communications, including telephone contacts with
the Chairman and others.
6
9
EQUITY SECURITIES BENEFICIALLY OWNED BY THE DIRECTORS AND NAMED EXECUTIVE
OFFICERS
According to information furnished to the Company as of September 15, 1997,
the directors of the Company, the Company's "named executive officers" (the
"Named Executive Officers") within the meaning of Item 402(a)(3) of Regulation
S-K of the Securities Act of 1933, as amended (the "Act"), and all directors and
executive officers as a group, beneficially owned shares of Common Stock of the
Company as set forth below. Beneficial ownership has been determined for
purposes herein in accordance with Rule 13d-3 of the Exchange Act under which a
person is deemed to be the beneficial owner of securities if such person has or
shares voting power or investment power in respect of such securities or has the
right to acquire beneficial ownership within 60 days.
AMOUNT OF SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED OF CLASS
--------------------------------------------------------- ---------------- ---------
Marc P. Shore(1)......................................... 3,429,608 18.71%
Charles Kreussling(2).................................... 218,475 1.20%
Floyd S. Glinert(3)...................................... 174,800 (5)
Seymour Leslie(4)........................................ 176,074 (5)
R. Timothy O'Donnell(6).................................. 144,146 (5)
Howard M. Liebman(7)..................................... 76,866 (5)
Melvin L. Braun(8)....................................... 23,356 (5)
William P. Weidner(9).................................... 26,400 (5)
Kevin J. Bannon(9)....................................... 11,900 (5)
Kenneth M. Rosenblum (10)................................ 78,261 (5)
All directors and executive officers as a group (12
persons)(11)(12)....................................... 4,477,086 24.25%
- ---------------
(1) See "Principal Stockholders -- Footnote (1)."
(2) Includes 60,000 shares owned by Charles Kreussling's wife, as to which Mr.
Kreussling disclaims beneficial ownership. The table does not include 500
shares owned by one of Mr. Kreussling's adult children who shares the same
household.
(3) Includes 3,000 shares owned by Floyd S. Glinert's wife, as to which Mr.
Glinert disclaims beneficial ownership.
(4) Includes: (i) 150,818 shares held by the Leslie Group, Inc., of which
Seymour Leslie is Chairman of the Board and a principal stockholder; and
(ii) 7,400 shares which could be acquired on or within 60 days after
September 15, 1997 upon the exercise of options granted under the Company's
Incentive Plans. (See "Executive Compensation -- Compensation of
Directors").
(5) Less than 1%.
(6) Includes: (i) 300 shares owned by Mr. O'Donnell's wife as custodian for
their three minor children; (ii) 14,821 shares owned by Jefferson Capital
Group, Ltd. (of which Mr. O'Donnell is the President and a principal
stockholder); (iii) 25,000 shares which could be acquired on or within 60
days after September 15, 1997 upon the exercise of an option granted to
Jefferson Capital Group, Ltd.; and (iv) 9,400 shares which could be
acquired on or within 60 days after September 15, 1997 upon the
7
10
exercise of options granted under the Company's Incentive Plans. (See
"Executive Compensation -- Compensation of Directors").
(7) Includes (i) 54,063 shares which could be acquired on or within 60 days
after September 15, 1997 upon the exercise of stock options granted under
the Company's Incentive Plans (see "Executive Compensation -- Aggregated
Option Exercises and Fiscal Year-End Option Values"); and (ii) 9,401 shares
of restricted stock awarded under the Company's Long-Term Incentive
Program, all of which are subject to forfeiture. (See "Executive
Compensation -- Summary Compensation Table -- Footnote (3)").
(8) Includes 9,400 shares which could be acquired on or within 60 days after
September 15, 1997 upon the exercise of options granted under the Company's
Incentive Plans. (See "Executive Compensation -- Compensation of
Directors").
(9) Includes 5,400 shares which could be acquired on or within 60 days after
September 15, 1997 upon the exercise of options granted under the Company's
Incentive Plans. (See "Executive Compensation -- Compensation of
Directors").
(10) Includes: (i) 10,406 shares which could be acquired on or within 60 days
after September 15, 1997 upon the exercise of stock options granted under
the Company's Incentive Plans. (See "Executive Compensation -- Aggregated
Option Exercises and Fiscal Year-End Option Values"); and (ii) 3,452 shares
of restricted stock awarded under the Company's Long-Term Incentive
Program, all of which are subject to forfeiture. (See "Executive
Compensation -- Summary Compensation Table -- Footnote (3)").
(11) The total number of directors and executive officers of the Company
includes two executive officers who were not included as Named Executive
Officers for fiscal year 1997.
(12) Includes 321,576 shares subject to stock options which could be acquired on
or within 60 days after September 15, 1997 and 29,953 shares of restricted
stock awarded pursuant to the Company's Long-Term Incentive Program, all of
which are subject to forfeiture.
8
11
EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
concerning the compensation of the Named Executive Officers for each of the
three fiscal years during the period ending May 3, 1997.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION ALL OTHER
COMPENSATION(1) AWARDS COMPENSATION(6)
----------------- ------------------------- ---------------
OPTIONS TO
RESTRICTED PURCHASE
NAME AND PRINCIPAL SALARY BONUS STOCK AWARDS SHARES(4)
POSITION YEAR* ($) ($) ($)(3) (#) ($)
- ------------------------- ------------ -------- ------- ------------ ---------- ---------------
Marc P. Shore............ Fiscal 1997 815,385 450,000(2) -- 179,710(5) 155,520(7)
Chairman of the Board, Fiscal 1996 700,000 50,000 -- 29,710 11,720
Chief Executive Officer Fiscal 1995 500,000 225,000 607,068 29,708 9,078
and President
---------------------------------------------------------------------------------
Floyd S. Glinert......... Fiscal 1997 305,757 -- -- -- 16,938
Executive Vice Fiscal 1996 299,988 -- -- -- 16,041
President -- Marketing Fiscal 1995 299,988 -- -- -- 17,990
and Director
---------------------------------------------------------------------------------
Charles Kreussling....... Fiscal 1997 215,385 125,000 -- -- 18,449
Executive Vice Fiscal 1996 200,000 100,000 -- -- 16,623
President -- Fiscal 1995 200,000 70,000 -- -- 17,889
Manufacturing
---------------------------------------------------------------------------------
Howard M. Liebman........ Fiscal 1997 331,250 100,000 -- 17,825 164,670(8)(9)
Executive Vice
President, Fiscal 1996 275,000 100,000 -- 17,825 41,626(8)
Chief Financial Officer Fiscal 1995 249,616 78,000 333,753 57,824 22,484(8)
and Director
---------------------------------------------------------------------------------
Kenneth M. Rosenblum..... Fiscal 1997 154,903 100,000 -- 29,005 5,895
Senior Vice
President -- Fiscal 1996 134,992 -0- -- 4,005 3,512
Sales Fiscal 1995 134,992 75,000 122,564 4,004 6,363
---------------------------------------------------------------------------------
- ---------------
* 1997 was a 53-week year
(1) The aggregate amount of perquisites and other personal benefits for each of
the Named Executive Officers did not equal or exceed the lesser of either
$50,000 or 10% of the total of such individual's base salary and bonus, as
reported herein for the applicable fiscal years, and is not reflected in the
table.
(2) In fiscal 1997, Marc P. Shore received a $450,000 bonus. Mr. Shore was
entitled to receive a cash bonus in excess of $1.2 million in fiscal 1997
under a five-year bonus plan of the Company (the "Bonus Plan"); however, Mr.
Shore waived such bonus and accepted the $450,000 bonus.
(3) In July 1994, the Compensation Committee awarded shares of restricted stock
(the "Restricted Shares") to certain key employees and executives pursuant
to the Company's Long-Term Incentive Program. The values reported in this
column were calculated by multiplying the closing market price of the Common
Stock as reported on NASDAQ on the date of grant by the respective number of
Restricted Shares granted, without any adjustment for forfeiture or
termination contingencies. The Restricted Shares were subject to a three
year performance vesting requirement or, alternatively, an eight year
employment
9
12
vesting requirement. One-half of the Restricted Shares vested on April 30,
1997 and the remainder of the Restricted Shares are due to vest on April 30,
2002. If the grantee's employment terminates prior to vesting, the
Restricted Shares awarded to him or her are forfeited. During the vesting
period, the recipient may not dispose of, but may vote, the Restricted
Shares and is entitled to receive any dividends paid on such Shares.
The number and value of the aggregate Restricted Share holdings of each
Named Executive Officer as of May 3, 1997 are set forth below. Values were
calculated by multiplying the closing price of the Common Stock as reported
on NASDAQ on May 2, 1997 (the last trading day in the fiscal year) by the
respective number of Shares.
NAMED EXECUTIVE OFFICER SHARES(#) VALUE($)
-------------------------------------------------------- --------- -------
Marc P. Shore(a)........................................ 17,100 312,075
Howard M. Liebman(b).................................... 9,401 171,568
Kenneth M. Rosenblum(c)................................. 3,452 62,999
-----------------------
(a) In July 1994, 34,201 shares of Restricted Common Stock were granted
to Mr. Shore, 17,101 of which vested on April 30, 1997.
(b) In July 1994, 18,803 shares of Restricted Common Stock were granted
to Mr. Liebman, 9,402 of which vested on April 30, 1997.
(c) In July 1994, 6,905 shares of Restricted Common Stock were granted
to Mr. Rosenblum, of which 3,453 vested on April 30, 1997.
(4) Stock options are granted under the terms and provisions of the Company's
Incentive Plans. For a description of the stock options awarded in fiscal
year 1997, see "Option Grants in Last Fiscal Year -- Footnote (3)".
(5) In fiscal 1997, Marc P. Shore was awarded non-qualified stock options to
purchase 150,000 shares of the Company's Common Stock. In addition, in
fiscal 1997 Mr. Shore was granted 29,710 options under the Company's 1993
Incentive Program (the "1993 Program"). (See "Option Grants in Last Fiscal
Year -- Footnote (2)").
10
13
(6) Amounts reported under this column include the dollar value of the
following:
CONTRIBUTIONS
VALUE OF LIFE- TO 401(K)
INSURANCE EMPLOYEE CONTRIBUTIONS TO
PREMIUMS(A) SAVINGS PLAN(B) PROFIT-SHARING
NAME YEAR ($) ($) PLAN(C)($)
-------------------------------- ------------ -------------- --------------- ----------------
Marc P. Shore................... Fiscal 1997 19,070 8,395 --
Fiscal 1996 7,895 3,825 --
Fiscal 1995 700 6,878 1,500
-----------------------------------------------------------------
Floyd S. Glinert................ Fiscal 1997 10,538 6,400 --
Fiscal 1996 10,538 5,503 --
Fiscal 1995 10,538 5,952 1,500
-----------------------------------------------------------------
Charles Kreussling.............. Fiscal 1997 11,841 6,608 --
Fiscal 1996 13,145 3,478 --
Fiscal 1995 11,417 4,972 1,500
-----------------------------------------------------------------
Howard M. Liebman............... Fiscal 1997 13,281 8,449 --
Fiscal 1996 8,981 3,506 --
Fiscal 1995 8,981 -- --
-----------------------------------------------------------------
Kenneth M. Rosenblum............ Fiscal 1997 1,800 4,095 --
Fiscal 1996 1,800 3,512 --
Fiscal 1995 1,800 4,563 --
-----------------------------------------------------------------
--------------------
(a) Reflects life-insurance premiums paid by the Company on behalf of the
Named Executive Officer.
(b) Reflects contributions to the Company's tax-qualified 401(k) Employee
Savings Plan that covers all employees who have completed 1,000 hours
of service and one year of employment.
(c) Reflects contributions to the Company's profit-sharing plan, which is
maintained as a qualified plan under the Internal Revenue Code of 1986,
as amended.
(7) Includes (i) $121,417 which represents the Company's share of premiums that
were paid in fiscal 1997 under a Split Dollar Life Insurance Arrangement for
the benefit of Marc P. Shore whereby the Company will generally recover in
full its share of the premiums upon the cancellation, or purchase by Mr.
Shore, of the life insurance policy or the payment of death benefits under
the life insurance policy and (ii) $6,638 which represents disability
premiums paid by the Company in fiscal 1997 on behalf of Marc P. Shore.
(8) Includes $53,586 earned in fiscal 1997, $29,139 earned in fiscal 1996 and
$13,503 earned in fiscal 1995 by a trust established by the Company,
pursuant to which income earned on the trust principal is accumulated for
payment to Mr. Liebman upon his retirement from the Company. For a
description of the trust, see "Employment Agreements with Named Executive
Officers".
(9) Includes $89,354 which represents the Company's share of premiums that were
paid in fiscal 1997 under a Split Dollar Life Insurance Arrangement for the
benefit of Howard M. Liebman whereby the Company will generally recover in
full its share of the premiums upon the cancellation, or purchase by Mr.
Liebman, of the life insurance policy or the payment of death benefits under
the life insurance policy.
11
14
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain summary information concerning
individual grants of stock options made to Named Executive Officers during the
fiscal year ended May 3, 1997 under the Company's Incentive Plans. Except as set
forth in the table below, during fiscal year 1997, the Company did not grant any
stock options under the Company's Incentive Plans to any of the Named Executive
Officers.
POTENTIAL REALIZABLE
VALUE AT ASSUMED RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SHARES OPTIONS GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION
NAME GRANT(#) FISCAL YEAR(%) ($) DATE 5% ($) 10% ($)
- ---------------------------- ---------- ------------------ -------- ---------- ---------- ----------
Marc P. Shore............... 150,000(2) 33.34% 18.125 4/17/07 1,709,807 4,332,987
29,710(3) 6.60% 17.00 5/01/06 317,636 804,952
Howard M. Liebman........... 17,825(3) 3.96% 17.00 5/01/06 190,571 482,944
Kenneth M. Rosenblum........ 25,000(3) 5.56% 16.50 6/05/06 259,419 657,419
4,005(3) .89% 17.00 5/01/06 42,818 108,510
- ---------------
(1) Amounts represent hypothetical gains that could be achieved from the
exercise of the respective stock options and the subsequent sale of the
Common Stock underlying such options if the options were exercised at the
end of the option terms. The gains are based upon assumed rates of stock
price appreciation of 5% and 10% compounded annually from the date the
respective options were granted. The rates of appreciation are mandated by
the rules of the Exchange Act and do not represent the Company's estimate or
projection of the future Common Stock price.
(2) In fiscal 1997, Marc P. Shore was awarded non-qualified stock options to
purchase 150,000 shares of the Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date of grant (April 17,
1997). The options vested immediately and terminate ten years after the
grant date.
(3) The stock options reported were awarded pursuant to the 1993 Program at
exercise prices equal to the fair market value of the Common Stock on the
date of grant. The options vest ratably over a five-year period and
terminate ten years after the grant date, subject to early termination in
the event of death or termination of the optionee's employment for any
reason. Payment for options exercised may be in cash or shares of Common
Stock, the fair market value of which is determined by the Compensation
Committee in accordance with the terms of the 1993 Program.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides certain summary information concerning stock
option exercises during the fiscal year ended May 3, 1997 by the Named Executive
Officers and the value of unexercised stock options held by the Named Executive
Officers as of May 3, 1997.
12
15
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED "IN THE MONEY"
NUMBER OF OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR END(1)(#) YEAR END(2)($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- -----------
Marc P. Shore............... 60,000 361,575 216,430 67,698 384,850 185,414
Floyd S. Glinert............ 30,000 256,875 -0- -0- -0- -0-
Charles Kreussling.......... 25,000 201,875 -0- -0- -0- -0-
Howard M. Liebman........... -- -- 39,607 53,867 39,955 61,345
Kenneth M. Rosenblum........ 13,000 134,775 12,706 34,308 79,522 76,398
- ---------------
(1) Represents the aggregate number of stock options held as of May 3, 1997
which could and could not be exercised on that date pursuant to the terms of
the stock option agreements related thereto and the Incentive Plans.
(2) Values were calculated by multiplying the closing market price of the Common
Stock as reported on NASDAQ on May 2, 1997 (the last trading day of the
fiscal year), by the respective number of shares and subtracting the
exercise price per share, without any adjustment for any termination or
vesting contingencies.
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
Marc P. Shore
Marc P. Shore, the Company's Chairman, Chief Executive Officer and
President, and the Company entered into a five-year employment agreement
effective as of May 1, 1995. If a "change in control" of the Company, as defined
in the agreement, occurs at any time during the last two years of the agreement,
the term of the agreement will be automatically extended for an additional two
years. The agreement grants Mr. Shore an annual base salary of $600,000 per
annum, subject to periodic increases at the discretion of the Board of
Directors. Mr. Shore's annual base salary is currently $800,000. Mr. Shore is
also entitled to participate in the Company's Bonus Plan, a five-year plan,
pursuant to which he is eligible to receive performance bonuses of up to $2
million per covered year if certain pre-established thresholds are met. The
agreement also authorizes the Company to grant Mr. Shore discretionary bonuses
outside of the scope of the Bonus Plan. If Mr. Shore's employment by the Company
is terminated in connection with a "change in control" of the Company, as
defined in the agreement, he would be entitled to a lump sum payment equal to
approximately three times his average annual compensation, as defined in the
agreement, during the Base Period. The agreement requires the Company to
maintain term life insurance on the life of Mr. Shore and to carry supplemental
disability insurance for his benefit. Mr. Shore was entitled to receive a bonus
in excess of $1.2 million under the Bonus Plan on account of fiscal year 1997.
However, he elected to forego that bonus and accepted a bonus of $450,000. (See
"Executive Compensation -- Summary Compensation Table").
Howard M. Liebman
The Company and Howard M. Liebman entered into a five-year employment
agreement on June 3, 1994, pursuant to which Mr. Liebman currently receives an
annual base salary of $325,000, subject to periodic increases at the discretion
of the Board. The agreement provides that if Mr. Liebman's employment by the
Company is terminated in connection with a "change in control" of the Company,
as defined in the agreement, Mr. Liebman will be entitled to receive a lump sum
payment equal to approximately three times
13
16
his average annual compensation, as defined in the agreement, during the Base
Period. The Company has also established a trust, pursuant to which income
earned on the trust principal fund of $300,000 is accumulated for payment to Mr.
Liebman upon his retirement from the Company, with the principal fund then being
returned to the Company. However, the assets of the trust are subject to claims
of creditors of the Company in the event of its insolvency. The trust earned
$53,586 in fiscal year 1997.
COMPENSATION OF DIRECTORS
During the fiscal year ended May 3, 1997, each director who was not an
officer or an employee of the Company (an "Outside Director") received a
director's fee of $8,000 per annum plus $2,000 for attendance at each meeting of
the Board of Directors and $1,000 for attendance at each meeting of a committee
of the Board of Directors, other than Board or committee meetings held by
telephone conference call. All directors of the Company are also reimbursed for
expenses. Under the 1993 Program, as amended in fiscal year 1997, the full Board
of Directors, in its discretion, is authorized to grant to each Outside Director
options to purchase shares of the Company's Common Stock, at option prices equal
to the fair market value of the Company's Common Stock on the date of grant.
During fiscal year 1997, each Outside Director received an option to purchase
4,000 shares of Common Stock pursuant to the 1993 Program. The vesting of the
options and certain other terms of the options are determined by the full Board
of Directors in its discretion. Typically, the terms of the options provide that
the options are exercisable in full immediately upon the death of the grantee or
retirement from the Board by reason of disability or upon a "change of control"
of the Company (as defined in the 1993 Program). The options have a term of ten
years, subject to early termination in the event the grantee retires or is
removed from the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. William P.
Weidner, Kevin J. Bannon and R. Timothy O'Donnell. No member of the Company's
Compensation Committee is a current or former officer or employee of the Company
or any of its subsidiaries. There are no compensation committee interlocks
between the Company and any other entities involving any of the executive
officers or directors of such other entities.
Jefferson Capital Group, Ltd. ("Jefferson Capital"), an investment banking
firm of which R. Timothy O'Donnell is the President and a principal stockholder,
has served as an investment advisor to the Company on various matters. During
fiscal year 1997, the Company's stockholders approved the fiscal 1996 grant of
an option to Jefferson Capital for the purchase of 25,000 shares of the
Company's Common Stock in recognition of its services.
The Bank of New York, of which Kevin J. Bannon is an Executive Vice
President, is a participant in the Company's lending syndicate. The aggregate
amount of The Bank of New York's participation in the Company's outstanding
borrowings pursuant to credit facilities as at the end of fiscal year 1997 was
approximately $14,850,000. The Bank of New York also acts as the Company's
transfer agent.
CERTAIN TRANSACTIONS
In May 1995, the Company loaned $2.0 million to Marc P. Shore, the
Chairman, Chief Executive Officer and President of the Company. The loan is due
on May 4, 2000 and bears interest payable quarterly at the
14
17
Applicable Federal Rate, as defined (6.09% at May 3, 1997), adjusted monthly.
Mandatory prepayments of the loan are required if Mr. Shore's compensation
exceeds certain specified thresholds. The Compensation Committee waived the
required prepayment for 1997. The aggregate principal amount outstanding under
this loan as at the end of fiscal year 1997 was $2.0 million.
In March 1996, the Company loaned an additional $800,000 to Marc P. Shore
pursuant to a promissory note which bore interest at the rate of 6% per annum.
The loan was repaid on December 30, 1996.
In May 1997, the Company guaranteed a portion of an $8.5 million loan made
by The Chase Manhattan Bank to Marc P. Shore in connection with his purchase of
certain real estate. The Company's maximum liability under the guaranty is $3.0
million. The guaranty will terminate at such time as $4.3 million of the loan
has been repaid by Mr. Shore, provided that: i) the unpaid portion of the loan
is less than 75% of the then fair market value of the related real estate which
was mortgaged to secure the loan; ii) Mr. Shore's annual compensation meets or
exceeds the level of annual compensation at the date of the guaranty; and iii)
there are no defaults under the loan agreement. Pursuant to the terms of the
loan agreement, a prepayment of $2.0 million is required in each of November
1997, February 1998 and May 1998 and the remaining balance is due in August
1998. In consideration for the Company's guaranty, Mr. Shore agreed to pay to
the Company a monthly fee of 1% per annum of the outstanding guaranty amount and
to reimburse the Company for expenses incurred in connection with the guaranty.
Bryan Shore Resnick, the sister of Marc P. Shore and Andrew N. Shore, is a
travel agent with Reliable Travel, a travel agency which provides travel
services to the Company. Based upon information provided to the Company by
Reliable Travel, in fiscal year 1997, Reliable Travel earned approximately
$106,000 in commissions of which approximately $53,000 was paid to Bryan Shore
Resnick. Such commissions were earned in the ordinary course of business and, to
the best knowledge of the Company, the services performed were at terms no less
favorable to the Company than had the services been provided by an unrelated
third party.
SECTION 16(a) REPORTING UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of the Common Stock of
the Company to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and the exchange on which the Common Stock is
listed for trading. Executive officers, directors and more than ten percent
stockholders are required by regulations promulgated under the Exchange Act to
furnish the Company with copies of all Section 16(a) reports filed. Based solely
on the Company's review of copies of the Section 16(a) reports filed for the
fiscal year ended May 3, 1997, the Company believes that all reporting
requirements applicable to its executive officers, directors, and more than ten
percent stockholders were complied with for the fiscal year ended May 3, 1997,
except that (i) Mr. Charles Kreussling failed to timely file a report in respect
of the exercise of stock options to purchase 10,000 shares of Common Stock in
February 1997 and the sale of 10,000 shares of Common Stock in April 1997; and
(ii) Mr. Andrew N. Shore failed to timely file a report in respect of becoming a
Vice President and the General Counsel of the Company.
15
18
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the Company's cumulative stockholder return on the Common Stock for the last
five years with the cumulative total return during the same period of (i) the
Russell 2000 Index, (ii) a peer group selected by the Compensation Committee
consisting of: R.R. Donnelley & Sons Co., Federal Paper Board Company, Gibraltar
Packaging Group, Graphic Industries, Sonoco Products, Co., Union Camp
Corporation and Westvaco Corporation (the "Old Peer Group"), and (iii) a peer
group identical to the Old Peer Group, except that International Paper Co. is
included instead of Federal Paper Board Company because International Paper Co.
acquired Federal Paper Board Company in April 1996 (the "New Peer Group").
The Company has a 52-53 week fiscal year ending on the Saturday closest to
April 30th of each fiscal year. Accordingly, for purposes of the line graph, the
Company has selected as the "measurement period" the period beginning on May 2,
1992 and ending on May 3, 1997.
Cumulative total returns are calculated assuming that $100 was invested on
May 2, 1992 in each of the Common Stock, the Russell 2000 Index, the Old Peer
Group and the New Peer Group, and that all dividends were reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG SHOREWOOD PACKAGING CORPORATION, RUSSELL 2000 INDEX
AND SELECTED PEER GROUPS
INDEXED RETURNS FOR THE FIVE-YEAR PERIOD ENDED MAY 3, 1997
MEASUREMENT PERIOD SHOREWOOD RUSSELL 2000
(FISCAL YEAR COVERED) PACKAGING CORP INDEX PEER GROUP-OLD PEER GROUP-NEW
5/2/92 100.00 100.00 100.00 100.00
5/1/93 122.58 115.77 95.95 95.79
4/30/94 187.10 132.93 94.21 95.56
4/29/95 203.23 142.51 119.75 118.12
4/27/96 222.58 189.53 134.66 128.79
5/3/97 245.16 189.62 128.08 133.62
16
19
REPORT OF COMPENSATION COMMITTEE
OVERALL POLICY
The Company's executive compensation program is designed to be closely
linked to corporate performance and the total return to stockholders over the
long-term. To that end, the Company has developed an overall compensation
strategy and specific compensation plans which tie executive compensation to the
Company's success in meeting specified objectives and to appreciation in the
Company's stock price. The overall objectives are to attract and retain the best
possible executive talent, motivate key executives to achieve the goals inherent
in the Company's business strategy, link executive and stockholder interests
through participation in the Company's Long Term Incentive Plan (the "LTIP") and
provide a compensation package that recognizes individual contributions as well
as overall business results.
Each year the Compensation Committee conducts a review of the Company's
executive compensation program. The review includes a comparison of the
Company's executive compensation, corporate performance, stock price
appreciation and total return to stockholders with a peer group of public
corporations that represent the Company's direct competitors for executive
talent. The annual compensation reviews permit an ongoing evaluation of the link
between the Company's performance and its executive compensation in the context
of the compensation programs of other companies. The peer group presently
utilized by the Compensation Committee is the Peer Group. See "Stock Performance
Graph."
The Compensation Committee approves the compensation of executive officers
of the Company, including the individuals whose compensation is detailed in this
Proxy Statement. In reviewing the individual performance of the executive
officers of the Company whose compensation is detailed in this Proxy Statement,
the Compensation Committee takes into account the views of Mr. Marc P. Shore,
the Chairman and Chief Executive Officer of the Company, and the other members
of the Board of Directors.
The key elements of the Company's executive compensation during the last
fiscal year consisted of base salary, an annual bonus and grants of stock
options under the LTIP. The Compensation Committee's policies with respect to
each of these elements, are discussed below. In addition, while the elements of
compensation described below are considered separately, the Compensation
Committee takes into account the full compensation package afforded by the
Company to each individual.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION PLANS
It is the policy of the Compensation Committee to have the executive
compensation plans of the Company treated as fully tax deductible under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code") whenever,
in the judgment of the Committee, to do so would be consistent with the business
objectives of those plans. All compensation paid during fiscal year 1997 was, in
fact, fully tax deductible. The Compensation Committee, however, has granted
awards which will not be fully tax deductible, and reserves the right to grant
future compensation awards in such amounts as it may deem appropriate in the
exercise of its business judgment, notwithstanding whether those awards are
fully tax deductible.
17
20
BASE SALARIES AND ANNUAL BONUSES
Base salaries and annual bonuses for executive officers are determined by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for executive
talent, including a comparison of base salaries for comparable positions at
other companies in the Peer Group. Annual salary adjustments and bonuses, if
any, are determined by evaluating the performance of the Company and of each
executive officer, and by taking into account added responsibilities. The
Compensation Committee, where appropriate, also considers non-financial
performance measures. These include increases in market share, manufacturing
efficiency gains, improvements in product quality and improvements in relations
with customers, suppliers and employees. These factors are afforded varying
levels of significance by the Committee depending upon the circumstances. All
final determinations are subjective.
In establishing the annual base salary of Marc P. Shore, the Company's
Chairman and Chief Executive Officer, the Committee also took into account a
comparison of base salaries of chief executive officers of the Peer Group, the
Company's results of operations, the performance of the Company's Common Stock
and the subjective assessment by the members of the Committee of Mr. Shore's
individual performance.
The Committee has established, with the approval of the Board and the
Stockholders, a performance Bonus Plan for the benefit of Marc P. Shore, for the
five fiscal years beginning in fiscal year 1996. The Bonus Plan provides for the
grant of graduated performance bonuses, up to $2 million per annum, to Mr. Shore
based upon yearly comparisons of the Company's earnings from operations plus
depreciation and amortization. Bonuses pursuant to the Bonus Plan are payable
only if certain pre-established thresholds are met. The Bonus Plan is based
solely upon the performance criteria described above. Mr. Shore was entitled to
receive a bonus in excess of $1.2 million under the Bonus Plan on account of
fiscal year 1997. In addition to the Bonus Plan, the Committee may grant general
discretionary bonuses to Mr. Shore. In fiscal year 1997, Mr. Shore elected to
forego his bonus under the Bonus Plan and accepted a bonus of $450,000. (See
"Executive Compensation -- Summary Compensation Table").
LONG TERM INCENTIVE PLANS
Pursuant to the 1993 Incentive Program, approved by the Stockholders in
1993, the Committee adopted the LTIP which allows various types of awards keyed
to corporate performance, including stock options (focus on absolute growth in
shareholder value) and Restricted Shares (focus on relative growth in
shareholder value), subject to performance-based contingencies, which are made
available in amounts which the Committee determines to be competitive based on
the competitive market analyses described above.
STOCK OPTIONS
Under the LTIP and the Company's other Incentive Plans, stock options are
periodically granted to the Company's employees, including executive officers.
The Compensation Committee sets guidelines for the size of the stock option
awards based on similar factors, including competitive compensation data, as are
used to determine base salaries and bonuses, if any. In the event of poor
corporate performance, the Compensation Committee can elect not to award stock
options. Final determinations are subjective.
Stock options are designed to align the interests of executives with those
of the stockholders. Stock options are granted with an exercise price equal to
the market price of the Common Stock on the date of grant and generally vest in
increments over a period of four or five years. This approach is designed to
incentivize the
18
21
creation of stockholder value over the long term since the full benefit of the
compensation package cannot be realized by the option recipients unless stock
price appreciation occurs over a number of years.
In fiscal 1997, Mr. Marc P. Shore was awarded non-qualified stock options
to purchase 150,000 shares of the Company's Common Stock. In addition, in fiscal
1997 Mr. Shore was granted 29,710 options under the 1993 Program. See "Executive
Compensation -- Summary Compensation Table -- Footnote (5)" and "Option Grants
in Last Fiscal Year -- Footnote (2)."
PERFORMANCE BASED RESTRICTED STOCK
Under the LTIP, awards of Restricted Shares are made preceding a three-year
performance period. The Committee, together with the Company's Chief Executive
Officer, determine the size of the awards based on the same competitive
compensation data as are used to determine base salaries and bonuses. Final
determinations are subjective. At the end of the three-year performance period,
some or all of the shares may vest depending upon the Company's relative
shareholder growth compared to that of the Peer Group over the same period. The
Peer Group consists of the same companies that make up the peer group for the
stock performance graph. See "Stock Performance Graph." Shares that do not vest,
due to relative shareholder performance, will vest at the end of eight years
assuming continued employment. Initial grants of Restricted Shares were made
during fiscal year 1995. The first performance based vesting opportunity arose
in April 1997. See "Executive Compensation -- Summary Compensation
Table -- Footnote (3)."
Compensation Committee
KEVIN J. BANNON
R. TIMOTHY O'DONNELL
WILLIAM P. WEIDNER
19
22
APPROVAL OF AMENDMENTS TO 1993 INCENTIVE PROGRAM
The Board has adopted certain amendments to the Company's 1993 Incentive
Program, as amended on May 4, 1995 and August 8, 1996 (the "Program"), subject
to the approval by the Company's Stockholders at the Meeting. The complete text
of the Program, as amended, is attached as Exhibit A to this Proxy Statement and
the amendments for which stockholder approval is being sought are described
below. The following summary of the Program and these amendments are qualified
by reference to the text of the Program.
PROPOSED AMENDMENTS
The following is a summary of the amendments to the Program for which
stockholder approval is being sought.
Increase in Number of Shares
The Board has amended the Program to increase the number of shares that may
be issued pursuant to benefit awards under the Program from (a) 1,000,000 plus
(i) any Incremental Amount (as defined in the Program), plus (ii) the number of
shares repurchased by the Company in the open market and otherwise with an
aggregate price no greater than the cash proceeds received by the Company from
the sale of shares under the Program, plus (iii) any shares surrendered to the
Company in payment of the exercise price of options issued under the Program, to
(b) 2,000,000 plus (i) any Incremental Amount, plus (ii) the number of shares
repurchased by the Company in the open market and otherwise with an aggregate
price no greater than the cash proceeds received by the Company from the sale of
shares under the Program, plus (iii) any shares surrendered to the Company in
payment of the exercise price of options issued under the Program. However, in
no event may the number of shares issued under the Program exceed 3,000,000
shares, subject to dilution or adjustment in the event of a merger,
recapitalization or the like.
Limitation on Grants
The Board has amended the Program to provide that the maximum number of
shares for which stock options may be granted under the Program to any
individual during any calendar year is 250,000.
SUMMARY OF PROGRAM
1. Purpose
The purpose of the Program is to attract, retain, motivate, and reward
officers, directors, key executives, employees, consultants and advisors of the
Company and its direct and indirect subsidiaries (the "Eligible Grantees") who
contribute to the management, growth and profitability of the business of the
Company, and to strengthen the mutuality of interests between such individuals
and the Company's stockholders by offering them equity or equity-based
incentives. The number of shares of Common Stock that may be issued pursuant to
Program awards is 2,000,000 plus (i) any Incremental Amount, plus (ii) the
number of shares repurchased by the Company in the open market and otherwise
with an aggregate price no greater than the cash proceeds received by the
Company from the sale of shares under the Program, plus (iii) any shares
surrendered to the Company in payment of the exercise price of options issued
under the Program. However, in no event may the number of shares issued under
the Program exceed 3,000,000 shares, subject to dilution or adjustment in the
event of a merger, recapitalization or the like.
20
23
As of September 15, 1997, there were seven executive officers, five Outside
Directors (defined below) and an indeterminate number of other key executives
and employees eligible to participate in the Program. The number of consultants
and advisors of the Company who may be eligible to participate in the Program
also is not currently determinable.
2. Summary
The Program may be administered either by the full Board or by one or more
committees of the Board appointed by the full Board of Directors of the Company
(referred to herein as the "Plan Administrator"); provided, however, that only
the full Board of Directors may grant awards under the Program to directors of
the Company who are neither employees nor officers of the Company or any of its
subsidiaries (the "Outside Directors"). Under the Program, the Plan
Administrator may grant incentive stock options, non-qualified stock options,
stock appreciation rights in tandem with stock options or freestanding, and
restricted stock grants (the "Benefits") to Eligible Grantees. A summary of the
principal characteristics of various types of Benefits that may be granted under
the Program is set forth below.
Stock Options
Two types of stock options may be granted under the Program: (i) stock
options intended to qualify for special tax treatment (referred to herein as
"Incentive Stock Options" or "ISOs") under Section 422 of the Code and (ii)
options not intended to so qualify (referred to herein as "Non-Qualified Stock
Options" or "NQOs"). The option price, term and other conditions of Stock
Options awarded under the Program are determined by the Plan Administrator,
subject, in the case of Stock Options intended to qualify as "Incentive Stock
Options", to the requirements of Section 422 of the Code.
Restored Options
The Program permits the Plan Administrator to grant "Restored Options" to a
participant in the Program. This feature enables a participant who exercises an
option by exchanging (either actually or constructively) previously-acquired
shares of Common Stock to receive a new option, exercisable at the then market
value, for the same number of shares as were exchanged in payment. In addition,
to the extent that shares are withheld by the Company in a stock-for-stock
exercise in satisfaction of a participant's tax obligations, the Company, at its
discretion, may issue a new option equal to the number of shares so withheld
which are exercisable at the then fair market value of a share of Common Stock.
Thus, a participant may make a stock-for-stock exercise without losing the
potential for appreciation in value of the shares surrendered. Restored Options
are exercisable beginning immediately on the date of grant. Except for the
exercise price, a Restored Option has terms substantially similar to the terms
of the original option (including having a term equal to the remaining term of
the original option).
Stock Appreciation Rights
A Stock Appreciation Right is the right to receive an amount equal to the
appreciation, if any, in the fair market value of one share of Common Stock from
the time the Stock Appreciation Right is granted until the time the grantee
elects to receive payment from the Company. Participants who elect to receive
payment of Stock Appreciation Rights shall receive payment in cash, in Common
Stock or in any combination of cash and Common Stock, as determined by the Plan
Administrator. When Stock Appreciation Rights are granted in
21
24
tandem with an Incentive Stock Option, the Stock Appreciation Rights must
contain such terms and conditions as are necessary for the related option to
qualify as an Incentive Stock Option. In addition, if Stock Appreciation Rights
are granted in tandem with a stock option, the exercise of the option shall
cause a correlative reduction in the Stock Appreciation Rights standing to the
participant's credit that were granted in tandem with the option; and the
payment of Stock Appreciation Rights shall cause a correlative reduction of the
shares under the option. Unless waived in whole or in part by the Company, Stock
Appreciation Rights may be exercised only while the grantee is employed by the
Company.
Restricted Stock
Restricted Stock is Common Stock that is subject to forfeiture until a
period of time has elapsed or certain conditions have been fulfilled, as
determined by the Plan Administrator and set forth in the instrument of grant.
Unless waived in whole or in part by the Plan Administrator, if employment of a
holder of Restricted Stock terminates prior to vesting, all shares of Restricted
Stock held by him or her and still subject to restriction will be forfeited and
reacquired by the Company. Certificates representing shares of Restricted Stock
shall bear a legend referring to the Program, noting the risk of forfeiture of
the shares and stating that such shares are non-transferable until all
restrictions have been satisfied and the legend has been removed. As of the date
Restricted Stock is granted, the grantee shall be entitled to full voting and
dividend rights with respect to all shares of such stock. However, the Plan
Administrator may, in its sole discretion, require that the stock certificates
representing such shares of Restricted Stock be placed into escrow with the
Company until vesting.
TERMINATION
The Board may amend the Program at any time. However, the Board may not
amend the Program without Stockholder approval if such amendment (i) would
increase the maximum number of shares in the aggregate which may be sold
pursuant to options intended to qualify as Incentive Stock Options, (ii) would
change the manner of determining the minimum option price of Incentive Stock
Options, other than to change the manner of determining the fair market value of
any shares underlying the options to conform to any applicable provisions of the
Code or regulations thereunder, (iii) would increase the periods during which
Incentive Stock Options may be granted or exercised under the Program, (iv)
would change the employees or class of employees eligible to receive Incentive
Stock Options under the Program, or (v) would violate applicable law. The
Program will terminate on the tenth anniversary of its effective date unless
terminated earlier by the Board or unless extended.
FEDERAL INCOME TAX CONSEQUENCES UNDER THE PROGRAM
The following is a summary of the Federal income tax consequences of the
issuance and exercise of Stock Options under the Program, based upon current
income tax laws, regulations and rulings.
Incentive Stock Options. Subject to the effect of the Alternative Minimum
Tax, discussed below, an optionee does not recognize income on the grant of an
Incentive Stock Option. If an optionee exercises an Incentive Stock Option in
accordance with the terms of the option and does not dispose of the shares
acquired within two years from the date of the grant of the option nor within
one year from the date of exercise, the optionee will not realize any income by
reason of the exercise, and the Company will be allowed no deduction by reason
of the grant or exercise. The optionee's basis in the shares acquired upon
exercise will be the amount
22
25
paid upon exercise. Provided the optionee holds the shares as a capital asset at
the time of sale or other disposition of the shares, his gain or loss, if any,
recognized on the sale or other disposition will be capital gain or loss. The
amount of his gain or loss will be the difference between the amount realized on
the disposition of the shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise ("Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition, which will equal the excess, if any, of the lesser of (i) the
amount realized on the Early Disposition, or (ii) the fair market value of the
shares on the date of exercise, over the optionee's basis in the shares. The
Company will be entitled to a deduction in an amount equal to such income in the
same year that the income is recognized. The excess, if any, of the amount
realized on the Early Disposition of such shares over the fair market value of
the shares on the date of exercise will be long-term or short-term capital gain,
depending upon the holding period of the shares, provided the optionee holds the
shares as a capital asset at the time of Early Disposition. If an optionee
disposes of such shares for less than his basis in the shares, the difference
between the amount realized and his basis will be a long-term or short-term
capital loss, depending upon the holding period of the shares, provided the
optionee holds the shares as a capital asset at the time of disposition. The
excess of the fair market value of the shares at the time the Incentive Stock
Option is exercised over the exercise price for the shares is treated as an item
of tax preference ("Stock Option Preference").
Non-Qualified Stock Options. Non-Qualified Stock Options do not qualify
for the special tax treatment accorded to Incentive Stock Options under the
Code. Although an optionee does not recognize income at the time of the grant of
the option, he recognizes ordinary income upon the exercise of a Non-Qualified
Option in an amount equal to the difference between the fair market value of the
stock on the date of exercise of the option and the amount of cash paid for the
stock. As a result of the optionee's exercise of a Non-Qualified Stock Option,
the Company will be entitled to deduct as compensation an amount equal to the
amount included in the optionee's gross income. The Company's deduction will be
taken in the Company's taxable year in which the option is exercised.
The excess of the fair market value of the stock on the date of exercise of
a Non-Qualified Stock Option over the exercise price is not a Stock Option
Preference.
Taxation of Preference Items. Section 55 of the Code imposes an
Alternative Minimum Tax equal to the excess, if any, of (i) 26% of the
optionee's "alternative minimum taxable income" up to $175,000 ($87,500 in the
case of married taxpayers filing separately) and 28% of "alternative minimum
taxable income" over $175,000 ($87,500 in the case of married taxpayers filing
separately) over (ii) his "regular" federal income tax. Alternative minimum
taxable income is determined by adding the optionee's Stock Option Preference
and any other items of tax preference to the optionee's adjusted gross income
and then subtracting certain allowable deductions and an exemption amount. The
exemption amount is $33,750 for single taxpayers, $45,000 for married taxpayers
filing jointly and $22,500 for married taxpayers filing separately. However,
these exemption amounts are phased out beginning at certain levels of
alternative minimum taxable income.
The foregoing statement is only a general summary of the principal federal
income tax consequences of the exercise and issuance of Stock Options under the
Program and is based on the Company's understanding of present federal tax laws
and regulations. Since tax regulations may change or interpretations may differ,
23
26
each optionee should consult his tax advisor regarding the tax consequences
related to participation in the Program.
MARKET VALUE
The shares of Common Stock issuable under the Program may be either
authorized or unissued shares or treasury shares. The market value of the
Company's Common Stock was $21 7/8 on September 15, 1997.
REASONS FOR AMENDMENTS
The amendment increasing the number of shares that may be issued pursuant
to benefit awards under the Program will enable the Company to continue to use
the Program as an incentive for its employees to promote the long term success
of its business.
In order for non-qualified stock options granted at current fair market
value to qualify for the performance-based exception to the $1 million
limitation on executive compensation deductions imposed by the Code, the Program
must set forth the maximum number of shares with respect to which options may be
granted to any individual during a specified period of time. For this reason,
the Board of Directors has amended the Program, subject to Stockholder approval,
to provide such a limitation.
If the Stockholders fail to approve the proposed amendments to the Program,
such amendments will not become effective.
The Board recommends a vote FOR approval of the proposed amendments to the
Program.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, certified public accountants, have been appointed by
the Board of Directors, upon recommendation of the Audit Committee of the Board
of Directors, as independent auditors for the Company to examine and report on
its financial statements for the fiscal year ending May 2, 1998, which
appointment is being submitted to the Stockholders for ratification at the
Meeting. Representatives of Deloitte & Touche LLP are expected to be present at
the Meeting, with the opportunity to make a statement if they desire to do so,
and to be available to respond to appropriate questions. The appointment of the
independent auditors will be ratified if it receives the affirmative vote of the
holders of a majority of shares of the Common Stock of the Company present at
the Meeting, in person or by proxy. Submission of the appointment of the
auditors to the Stockholders for ratification will not limit the authority of
the Board of Directors to appoint another accounting firm to serve as
independent auditors if the present auditors resign or their engagement is
otherwise terminated.
The Board of Directors recommends a vote FOR the appointment of Deloitte &
Touche LLP as independent auditors for the fiscal year ending May 2, 1998.
24
27
STOCKHOLDERS' PROPOSALS
Any proposal by a Stockholder of the Company intended to be presented at
the 1998 Annual Meeting of Stockholders must be received by the Company at its
principal executive office not later than April 30, 1998 for inclusion in the
Company's proxy statement and form of proxy relating to that meeting. Any such
proposal must also comply with the other requirements of the proxy solicitation
rules of the Securities and Exchange Commission.
ANNUAL REPORT
Concurrently with the mailing of these Proxy Materials, the Company is
mailing a copy of its Annual Report to Stockholders for the fiscal year ended
May 3, 1997. Such Annual Report is not to be regarded as proxy solicitation
material.
UPON WRITTEN REQUEST BY A STOCKHOLDER ENTITLED TO VOTE AT THE 1997 ANNUAL
MEETING, THE COMPANY WILL FURNISH THAT PERSON WITHOUT CHARGE WITH A COPY OF THE
FORM 10-K ANNUAL REPORT FOR 1997 WHICH IS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO. If the
person requesting the report was not a Stockholder of Record on September 23,
1997, the request must contain a good faith representation that the person
making the request was a beneficial owner of the Common Stock of the Company at
the close of business on such date. Requests should be addressed to Shorewood
Packaging Corporation, Investor Relations Department, 277 Park Avenue, New York,
New York 10172-0124.
OTHER BUSINESS
Management does not know of any other matters to be brought before the
Meeting except those set forth in the notice thereof. If other business is
properly presented for consideration at the Meeting, it is intended that the
proxies will be voted by the persons named therein in accordance with their
judgment on such matters.
25
28
SOLICITATION AND EXPENSES OF SOLICITATION
Officers and employees of the Company may solicit proxies. Proxies may be
solicited by personal interview, mail, telegraph and telephone. No compensation
will be paid by the Company to any person in connection with the solicitation of
proxies. Brokers, bankers and other nominees will be reimbursed for
out-of-pocket and other reasonable clerical expenses incurred in obtaining
instructions from beneficial owners of the Company's stock. The cost of
preparing this Proxy Statement and all other costs in connection with
solicitation of proxies for the Annual Meeting of Stockholders are being borne
by the Company.
Even if you plan to attend the Meeting in person, please sign, date and
return the enclosed proxy promptly. If you attend the Meeting, your proxy will
be voided at your request and you can vote in person. A postage-paid
return-addressed envelope is enclosed for your convenience.
Your cooperation in giving this matter your immediate attention and in
returning your proxies will be appreciated.
By order of the Board of Directors,
Andrew N. Shore
Secretary
September 26, 1997
26
29
EXHIBIT A
SHOREWOOD PACKAGING CORPORATION
1993 INCENTIVE PROGRAM
AS AMENDED
The 1993 Incentive Program, as amended (the "Program") of Shorewood
Packaging Corporation (the "Company") provides for the grant to officers,
directors, key executives, employees, consultants and advisors of the Company
and its direct or indirect subsidiaries of certain rights to acquire shares of
the Company's common stock (the "Common Stock"). The Company believes that this
Program will cause those persons to contribute materially to the growth of the
Company, thereby benefiting its stockholders.
1. ADMINISTRATION.
The Program shall be administered and interpreted either by the full Board
of Directors of the Company or by one or more committees of the Board consisting
of not less than two persons appointed by the full Board of Directors of the
Company (the committee(s) and the full Board of Directors are collectively
referred to herein as the "Plan Administrator"); provided, however, that only
the full Board of Directors may grant awards under the Program to Outside
Directors. The Board of Directors may appoint different Committees to handle
different duties under the Program. The Plan Administrator shall determine the
fair market value of the Common Stock for purposes of the Program in accordance
with the provisions of Section 9(i) hereof. The Plan Administrator's decisions
shall be final and conclusive with respect to the interpretation and
administration of the Program and any Grant made under it.
2. GRANTS.
Grants under the Program shall consist of incentive stock options,
non-qualified stock options, stock appreciation rights in tandem with stock
options or freestanding, restricted stock grants, and Restored Options (any of
the foregoing, in any combination, collectively, "Grants"). All Grants shall be
subject to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Program as the Plan Administrator deems
appropriate. The Plan Administrator shall approve the form and provisions of
each Grant. Grants under a particular section of the Program need not be
uniform, and Grants under two or more sections may be combined in one
instrument. Notwithstanding anything contained herein to the contrary, Grants
under the Program to directors of the Company who are neither officers nor
employees of the Company or any of its subsidiaries shall be made by the full
Board of Directors.
3. ELIGIBILITY FOR GRANTS.
Grants may be made to any employee, officer, key executive, director,
professional or administrative employee, consultant or advisor to the Company or
any subsidiary of the Company selected by the Plan Administrator to receive
Grants under the Program ("Grantees"). The Plan Administrator shall determine
the number of shares subject to any particular Grant.
4. SHARES AVAILABLE FOR GRANT.
(a) Shares Subject to Issuance or Transfer. Subject to adjustment as
provided in Section 4(b), the aggregate number of shares of Common Stock (the
"Shares") that may be issued or transferred under the
30
Program is 2,000,000 Shares, plus (i) 10% of any increase (excluding any
increase relating to or arising out of the conversion or exercise of any
convertible securities, options or warrants issued and outstanding as of the
date the Program was adopted by the Board) in the number of shares issued and
outstanding over the number of Shares issued and outstanding on the date the
Program was adopted by the Board (the "Incremental Amount"), plus (ii) the
number of Shares repurchased by the Company in the open market and otherwise
with an aggregate price no greater than the cash proceeds received by the
Company from the sale of Shares under the Program, plus (iii) any Shares
surrendered to the Company in payment of the exercise price of options issued
under the Program. The Shares may be authorized but unissued Shares or treasury
Shares. However, no award may be issued that would bring the total of all
outstanding awards under the Program to greater than 3,000,000 shares. The
number of Shares available for Grants at any given time shall be reduced by the
aggregate of all Shares previously issued or transferred plus the aggregate of
all Shares which may become subject to issuance or transfer under
then-outstanding and then-currently exercisable Grants. The maximum number of
Shares for which stock options may be granted under the Program to any
individual during any calendar year is 250,000. For purposes of this Section 4,
the number of Shares outstanding at any time shall not include Grants under the
Program but shall include Shares issuable under Substituted Stock Incentives (as
defined in Section 9(b) below) assumed by the Company upon or in connection with
an acquisition or a merger with another corporation.
(b) Recapitalization Adjustment. If any subdivision or combination of
shares of Common Stock or any stock dividend, capital reorganization,
recapitalization, consolidation, or merger in which the Company is the surviving
corporation occurs after the adoption of the Program, the Plan Administrator
shall make such proportional adjustments as it determines appropriate in the
number of shares of Common Stock that may be issued or transferred thereafter
under Section 4(a). The Plan Administrator shall similarly adjust the number of
Shares subject to such stock option and option price in all outstanding Grants
made before the event within 60 days of the event.
5. STOCK OPTIONS.
The Plan Administrator may grant options qualifying as incentive stock
options ("ISOs") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options ("NQOs") not entitled to
special tax treatment under the Code or Restored Options (collectively, "Stock
Options"). The following provisions are applicable to Stock Options:
(a) Exercise of Option. A Grantee may exercise a Stock Option by
delivering a notice of exercise to the Company, either with or without
accompanying payment of the option price. The notice of exercise, once
delivered, shall be irrevocable.
(b) Satisfaction of Option Price. The Grantee shall pay the option price
(the "Option Price") in cash, or with the Plan Administrator's permission, by
delivering shares of Common Stock already owned by the Grantee, held by the
Grantee for a minimum of six (6) months and having a Fair Market Value on the
date of exercise equal to the Option Price, or a combination of cash and Shares.
The Grantee shall pay the Option Price not later than thirty (30) days after the
date of a statement from the Company following exercise setting forth the Option
Price, Fair Market Value of Common Stock on the exercise date, the number of
Shares that may be delivered in payment of the Option Price, and the amount of
withholding tax due, if any. If the Grantee fails to pay the Option Price within
the period and in the manner prescribed in the specific instrument of Grant, the
Plan Administrator shall have the right to take whatever action it deems
appropriate, including
2
31
voiding the option exercise. The Company shall not issue or transfer Shares upon
exercise of a Stock Option until the Option Price is fully paid. The Plan
Administrator may prescribe such other or different exercise or payment terms as
it may deem appropriate.
(c) Price; Term and Conditions. The exercise price per share, term and
other provisions of stock options granted hereunder shall be specified by the
Grant, as limited, in the case of ISOs, by the provisions of paragraph (d)
below. In addition, the Plan Administrator may prescribe such other conditions
as it may deem appropriate, which conditions shall be specified by the Grant.
(d) Limits on the ISOs. The aggregate Fair Market Value of the stock
covered by ISOs granted under the Program or any other stock option plan of the
Company or any subsidiary or parent of the Company that becomes exercisable for
the first time by any Grantee in any calendar year shall not exceed $100,000.
The aggregate Fair Market Value will be determined at the time of grant. The
period of exercise of an ISO shall not exceed ten (10) years from the date of
Grant (or five (5) years if the Grantee is also a 10% stockholder). The price at
which Common Stock may be purchased by the Grantee under an Incentive Stock
Option shall be the Fair Market Value (or 110% of the Fair Market Value if the
Grantee is a 10% stockholder) of Common Stock on the date of the Grant.
(e) Restored Options. Stock Options granted under the Program may, with
the Plan Administrator's permission, include the right to acquire a restored
option (a "Restored Option"). If a Stock Option grant contains a Restored Option
and if a Grantee pays all or part of the Option Price of the Stock Option with
shares of Common Stock held by the Grantee, then upon exercise of the Stock
Option the Grantee shall be granted a Restored Option to purchase, at the fair
market value as of the date of the grant of the Restored Option, the number of
shares of Common Stock of the Company equal to the sum of the number of whole
shares used by the Grantee in payment of the Option Price and the number of
whole shares, if any, withheld by the Company as payment for withholding taxes.
A Restored Option may be exercised between the date of grant and the date of
expiration, which will be the same as the date of expiration of the Stock Option
to which a Restored Option is related.
6. STOCK APPRECIATION RIGHT.
The Plan Administrator may grant a Stock Appreciation Right ("SAR") either
independently or in conjunction with any Stock Option granted under the Program
either at the time of grant of the option or thereafter. The following
provisions are applicable to each SAR:
(a) Options to Which Right Relates. Each SAR which is issued in
conjunction with a Stock Option shall specify the Stock Option to which the SAR
is related, together with the Option Price and number of option shares subject
to the SAR at the time of its grant.
(b) Requirement of Employment. Each SAR may be exercised only while the
Grantee is in the employment of the Company, provided that the Plan
Administrator may provide for partial or complete exceptions to this requirement
as it deems equitable.
(c) Exercise. A Grantee may exercise each SAR in whole or in part by
delivering a notice of exercise to the Company, except that the Plan
Administrator may provide for partial or complete exceptions to this requirement
as it deems equitable.
3
32
(d) Payment and Form of Settlement. If a Grantee exercises any SAR
which is issued in conjunction with a Stock Option, the grantee shall
receive the aggregate of the excess of the fair market value of each share
of Common Stock with respect to which the SAR is being exercised over the
Option Price of each such share. Payment, in any event, may be made in
cash, Common Stock or a combination of the two, in the discretion of the
Plan Administrator. Fair Market Value shall be determined as of the date of
exercise.
(e) Expiration and Termination. Each SAR shall expire on a date
determined by the Plan Administrator at the time of grant. If a Stock
Option is exercised in whole or in part, any SAR related to the Shares
purchased in connection with such exercise shall terminate immediately.
7. RESTRICTED STOCK GRANTS.
The Plan Administrator may issue or transfer Shares ("Restricted
Stock") to a Grantee under a Restricted Stock Grant. Upon the issuance or
transfer, the Grantee is entitled to vote the Shares and to receive any
dividends paid. The following provisions are applicable to Restricted Stock
Grants:
(a) Requirement of Employment. If the Grantee's employment terminates
during the period designated in the Grant as the "Restriction Period", the
Restricted Stock Grant terminates and the shares of Common Stock must be
returned immediately to the Company. However, the Plan Administrator may
provide for partial or complete exceptions to this requirement as it deems
equitable.
(b) Restrictions of Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge,
or otherwise dispose of the Shares of Restricted Stock except to a
Successor Grantee under Section 9(a). Each certificate for shares issued or
transferred under a Restricted Stock Grant shall contain a legend giving
appropriate notice of the restrictions applicable to the Grant.
(c) Lapse of Restrictions. All restrictions imposed under any
Restricted Stock Grant shall lapse upon the fulfillment of the conditions
for vesting set forth in the instrument of Grant provided that all of the
conditions stated in Sections 7(a) and (b) have been met as of the date of
such lapse. The Grantee shall then be entitled to have the legend removed
from the certificate.
8. AMENDMENT AND TERMINATION OF THE PROGRAM.
(a) Amendment. The Board of Directors may amend the Program except
that it may not, with respect to ISOs granted hereunder, (i) increase the
maximum number of Shares in the aggregate which may be sold pursuant to
such options granted hereunder; (ii) change the manner of determining the
minimum option prices, other than to change the manner of determining the
fair market value of any Shares underlying the option to conform to any
than applicable provisions of the Code or regulations thereunder, (iii)
increase the periods during which such options may be granted or exercised
or (iv) change the employees or class of employees eligible to receive such
options hereunder. In any event, no termination, suspension, modification
or amendment of the Program may adversely affect the rights of any Grantee
without his consent.
(b) Termination of the Program. The Program shall terminate on the
tenth anniversary of its effective date unless terminated earlier by the
Board or unless extended by the Board.
4
33
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Program that occurs after a Grant is made shall not result
in the termination or amendment of the Grant unless the Grantee consents or
unless the Plan Administrator acts under Section 9(e). The termination of
the Program shall not impair the power and authority of the Plan
Administrator with respect to outstanding Grants. Whether or not the
Program has terminated, an outstanding Grant may be terminated or amended
under Section 9(e) or may be amended by agreement of the Company and the
Grantee consistent with the Program.
9. GENERAL PROVISIONS.
(a) Prohibitions Against Transfer. Except as otherwise expressly
provided herein or in the instrument of grant, when a Grantee dies, the
personal representative or other person entitled under a prior Stock Option
or a Grant under the Program to succeed to the rights of the Grantee
("Successor Grantee") may exercise the rights. A Successor Grantee must
furnish proof satisfactory to the Company of his or her right to receive
the Grant under the Grantee's will or under the applicable laws of descent
and distribution.
(b) Substitute Grants. The Plan Administrator may make a Grant (a
"Substitute Grant") to an employee of another corporation who becomes an
Eligible Employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or liquidation involving
the Company in substitution for a stock option, stock appreciation right,
performance award, or restricted stock grant granted by such corporation
("Substituted Stock Incentive"). The terms and conditions of the Substitute
Grant may vary from the terms and conditions required by the Program and
from those of the Substituted Stock Incentive. The Plan Administrator shall
prescribe the exact provisions of the Substitute Grant, preserving where
possible the provisions of the Substitute Stock Incentive. The Plan
Administrator shall also determine the number of shares of Common Stock to
be taken into account under Section 4.
(c) Subsidiaries. The term "subsidiary" means an affiliated
corporation controlled by the Company directly or indirectly through one or
more intermediaries.
(d) Fractional Shares. Fractional shares shall not be issued or
transferred under a Grant, but the Plan Administrator may pay cash in lieu
of a fraction or round the fraction.
(e) Compliance with Law. The Program, the exercise of Grants, and the
obligations of the Company to issue or transfer shares of Common Stock
under Grants shall be subject to all applicable laws and to approvals by
any governmental or regulatory agency as may be required. The Plan
Administrator may revoke any Grant if it is contrary to law or modify a
Grant to bring it into compliance with any valid and mandatory government
regulation. The Plan Administrator may also adopt rules regarding the
withholding of taxes on payment to Grantees.
(f) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a stockholder of the Company with respect to any Shares covered
by a Grant until the Shares are issued or transferred to the Grantee or
Successor Grantee on the Company's books.
(g) No Right to Employment. The Program and the Grants under it shall
not confer upon any Grantee the right to continue in the employment of the
Company or affect in any way the right of the Company to terminate the
employment of a Grantee at any time.
5
34
(h) Effective Date of the Program. The Program shall become effective
upon its approval by the Company's stockholders entitled to vote thereon.
(i) Fair Market Value. For the purposes of the Program, the term
"Fair Market Value" means, as of any date, the closing price of a share of
Common Stock of the Company on such date. The closing price shall be (i) if
the Common Stock is then listed or admitted for trading on any national
securities exchange or, if not so listed or admitted for trading, is listed
or admitted for trading on the Nasdaq National Market, the last sale price
of the common stock, regular way, or the mean of the bid and asked prices
thereof for any trading day on which no such sale occurred, in each case as
officially reported on the principal securities exchange on which the
common stock is listed or admitted for trading or on the Nasdaq National
Market, as the case may be, or (ii) if not so listed or admitted for
trading on a national securities exchange or the Nasdaq National Market,
the mean between the closing high bid and low asked quotations for the
Common Stock in the over-the-counter market as reported by Nasdaq, or any
similar system for the automated dissemination of securities prices then in
common use, if so quoted, as reported by any member firm of the New York
Stock Exchange selected by the Company; provided, however, that if, by
reason of extended or continuous trading hours on any exchange or in any
market or for any other reason, the time, with respect to any trading day,
of the close of trading for the purpose of determining the "last sale
price" or the "closing" bid and asked prices is not objectively
determinable, the time on such trading day used for the purpose of
reporting any compilation of last sale prices or closing bid and asked
prices in The Wall Street Journal shall be the time on such trading day as
of which the "last sale price" or "closing" bid and asked prices are
determined for purposes of this definition. If the Common Stock is quoted
on a national securities or central market system in lieu of a market or
quotation system described above, the closing price shall be determined in
the manner set forth in clause (i) of the preceding sentence if actual
transactions are reported, and in the manner set forth in clause (ii) of
the preceding sentence if bid and asked quotations are reported but actual
transactions are not. If on the date in question, there is no exchange or
over-the-counter market for the Common Stock, the "fair market value" of
such Common Stock shall be determined by the Plan Administrator acting in
good faith.
(j) Change in Control. For purposes of the Program, the term "Change
of Control" means: the acquisition, without the approval of the Board, by
any person or entity, other than the Company and certain related entities,
of more than 20% of the outstanding shares of Common Stock through a tender
offer, exchange offer, or otherwise; the liquidation or dissolution of the
Company following a sale or other disposition of all or substantially all
of its assets; a merger or consolidation involving the Company that results
in the Company not being the surviving parent corporation; or a change in
the majority of the members of the Board during any two-year period that is
not approved by at least two-thirds of the members of the Board who were
members at the beginning of the two year period.
(k) Withholding. The Plan Administrator may, in its discretion and
subject to such rules as it may adopt, permit or require a Grantee to
satisfy, in whole or in part, any withholding tax obligation which may
arise in connection with the distribution to him or her of Shares of Common
Stock or cash pursuant to the Program by authorizing the Company to
withhold from such distribution cash or Shares having a Fair Market Value
equal to the amount of the withholding tax. Notwithstanding the foregoing,
the Plan Administrator shall require, as a condition to the distribution of
any cash or Shares of Common Stock to any Reporting Person, that the
Company withhold from such distribution cash or Shares having an
6
35
aggregate Fair Market Value equal to the amount of the Grantee's liability
for any and all taxes required by law to be withheld.
(l) Program Controls. In the case of any conflict between the terms
of this Program and the terms of any instrument of Grant, the terms of this
Program will control.
7
36
_____________________________________________________________________________
[ ]
1. The election of all nominees for directors listed below.
FOR all nominees listed below [ ]
WITHHOLD AUTHORITY to vote for all nominees listed below [ ]
EXCEPTIONS [ ]
Nominees: R. Timothy O'Donnell, Kevin J. Bannon and William P. Weidner
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write the nominee's name in the space provided below.)
Exceptions ___________________________________________________________________
2. The approval of amendments to the Company's 1993 Incentive Program.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. The ratification of the selection of Deloitte & Touche LLP as the
independent auditors of the Company for the fiscal year ending May 2, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. In accordance with their best judgment with respect to any other business
that may properly come before the meeting.
Change of address
and or Comments, [ ]
mark here
(Please sign exactly as name appears hereon.
Proxies should be dated when signed. When shares
are held by joint tenants both should sign. When
signing as attorney, as executor, administrator,
trustee or guardian, please give full title as
such. Only authorized officers should sign for a
corporation. If shares are registered in more
than one name, each joint owner should sign.)
Dated: __________________________, 1997
______________________________________
(Signature)
______________________________________
(Signature if held jointly)
Votes must be indicated
(x) in Black or Blue Ink. [ ]
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
______________________________________________________________________________
______________________________________________________________________________
SHOREWOOD PACKAGING CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
October 30, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints MARC P. SHORE and ANDREW N. SHORE or
either of them, each with full power of substitution, proxies of the
undersigned to vote all shares of Common Stock, par value $.01 per share, of
Shorewood Packaging Corporation (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held on the 30th day of October 1997 at 9:30 a.m. at The Chase Manhattan Bank,
270 Park Avenue, 11th Floor, Room A, New York, New York, and at all
adjournments thereof, as fully and with the same force and effect as the
undersigned might or could do if personally present thereat. Said proxies are
instructed to vote as follows.
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS INDICATED, IT WILL BE VOTED FOR ALL OF THE ABOVE PROPOSALS.
SHOREWOOD PACKAGING CORPORATION
P.O. BOX 11344
NEW YORK, N.Y. 10203-0344
______________________________________________________________________________