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Exhibit 7
SHOREWOOD PACKAGING CORPORATION
1993 INCENTIVE PROGRAM
AS AMENDED MAY 4, 1995
The 1993 Incentive Program, as amended (the "Program") of Shorewood
Packaging Corporation (the "Company") authorizes the Compensation and Stock
Option Committee of the Board of Directors (the "Committee") to provide
officers, directors, key executives, employees, consultants and advisors of the
Company and its direct or indirect subsidiaries with 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 benefitting its stockholders.
1. ADMINISTRATION.
The Program shall be administered and interpreted by a
Committee or Committees consisting of not less than two persons appointed by
the Board of Directors of the Company from among its members. The Board may
appoint different Committees to handle different administrative duties under
the Program. The Committee or Committees with respect to directors and
officers subject to the reporting requirements of Section 16 (the "Reporting
Persons") promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), must be constituted in such manner as to permit the
Program and transactions thereunder to comply with Rule 16b-3 under the
Exchange Act. The Committee shall determine the fair market value of the
Common Stock for purposes of the Program in accordance with the provisions of
Section 10(i) hereof. Subject to the requirements of Rule 16b-3 under the
Exchange Act, the decisions of the Board of Directors or Committee designated
by the Board of Directors 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 Committee deems
appropriate. The Committee 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.
3. ELIGIBILITY FOR GRANTS.
Grants may be made to any employee of the Company or any of
its subsidiaries who is an officer or other key executive, director,
professional or administrative employee or a consultant or advisor to the
Company or any of its subsidiaries ("Eligible Employee"). The Committee shall
select the persons to receive Grants ("Grantees") from among the Eligible
Employees and determine the number of shares subject to any particular Grant.
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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 Program
is 1,000,000 Shares, plus 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"). The Shares may be authorized but
unissued Shares or treasury 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. 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 10(b) below)
assumed by the Company upon or in connection with the acquisition of 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
Committee 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) or 8. The Committee 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 Committee 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 (other
than Director 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 Committee'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 Committee shall have the right to take
whatever action it deems appropriate, including 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 Committee may prescribe such other
or different exercise or payment terms as it may deem appropriate.
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(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 Committee 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 Committee'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 Committee 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
Committee 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
Committee may provide for partial or complete exceptions to this requirement as
it deems equitable.
(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
Committee. Fair Market Value shall be determined as of the date of exercise.
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(e) Expiration and Termination. Each SAR shall expire on
a date determined by the Committee 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 Committee 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
Committee 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 10(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. DIRECTOR STOCK OPTIONS.
(a) Eligible Directors. This Section 8 provides for the
automatic Grant of NQOs (the "Director Options") to directors of the Company
who are neither employees nor officers of the Company or any of its
subsidiaries (the "Eligible Directors"). All powers vested in the Committee in
respect of the administration and interpretation of the Program and the Grants
made under it shall, solely in respect of this Section 8, be vested in an
alternate committee appointed by the Board (the "Alternate Committee")
consisting of two or more directors not eligible to receive Director Options.
All terms and conditions of Director Options not specifically set forth in this
Section 8 shall be determined by the Alternate Committee.
(b) Shares Subject to Issuance or Transfer. Subject to
adjustment as provided in Section 4(b), the aggregate number of Shares that may
be issued or transferred under Section 8 of the Program is up to, but not in
excess of, 100,000, plus 10% of any Incremental Amount.
(c) Non-Qualified Options. All options granted under this
Section 8 shall be NQOs not entitled to special tax treatment under Section 422
of the Code.
(d) Grant of Options. Director Options shall be granted
automatically on the date of adoption of the Program by the stockholders of the
Company and on January 2 (or if January 2 is not a business day, on the next
succeeding business day) of each calendar year following the year in which this
Program is adopted (each, a "Program Year"). The number of Shares subject to
Director Options
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granted pursuant to this Section 8 to any Eligible Director shall be equal to
the nearest number of whole shares determined in accordance with the following
formula:
Annual Retainer Number
-------------------------------- = of
Fair Market Value - $_____ Shares
"Annual Retainer" shall mean the dollar amount set by the Board for the
relevant Program Year, prior to the commencement of such Program Year, and
shall include all fees for attendance at meetings of the Board or any committee
of the Board or for any other services to be provided to the Company. The
Annual Retainer may be zero in any year. "Fair Market Value" shall mean the
Fair Market Value of the Common Stock on January 2 of the applicable year,
determined in accordance with Section 10(i) hereof. Notwithstanding the
foregoing, the maximum number of Shares subject to Director Options granted in
any year pursuant to this Section 8 shall not exceed 10,000 per director. The
exercise price of the Shares subject to Director Options shall be equal to the
Fair Market Value of the Common Stock on the date of grant of the Director
Options. The amount, price and timing of awards of Director Options are fixed
by the terms of this paragraph and are not intended to be subject to the
discretion of any person or committee. The award of Director Options is not
intended to preclude the Company from awarding other compensation to Eligible
Directors outside of the Program for attendance at meetings of the Board or any
committee of the Board or for any other services provided or to be provided to
the Company.
(e) Terms. Director Options shall become exercisable
over five (5) years from the date of grant with installments of 20% of the
total number of underlying shares vesting on each of the first five (5)
anniversaries of the date of grant; provided, however, that Director Options
shall become exercisable in full for a period of 90 days following (i) the
death of the Grantee director or retirement from the Board because of total and
permanent disability, or (ii) a Change in Control of the Company (as that term
is defined in Section 10(j)).
(f) Exercise of Director Options. A Director Option
shall be exercised by delivering a notice of exercise to the Company,
accompanied by a certified check in the amount of, or 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
aggregate amount of the exercise price. If the Grantee fails to comply with
this paragraph, the Alternate Committee shall have the right to take such
action as it deems appropriate, including voiding the option exercise. The
Company shall not issue or transfer Shares of Common Stock upon exercise of a
Director Option until the exercise price has been paid in full.
(g) Termination. All rights of an Eligible Director
in a Director Option, to the extent that they have not been previously
exercised, shall terminate upon the expiration of ten (10) years from the date
of grant or, if sooner, two (2) years after such director's termination as a
director of the Company for any reason, except that, if a director is removed
for cause, all of his Director Options then outstanding hereunder shall
terminate immediately upon such removal. Notwithstanding the foregoing, if an
Eligible Director dies during his tenure on the Board, all of his Director
Options then outstanding shall terminate upon the failure of his designated
representative to exercise said options within the time period provided in
Section 8(e). In the event that an Eligible Director ceases to be a member of
the Board for any reason, the number of Shares subject to the Director Option
issued to him or her in respect of the Program Year in which such termination
occurs shall, effective as of the date of such termination, be reduced in the
same proportion that the unearned portion of such Director's Annual Retainer
for the relevant Program Year bears to the aggregate Annual Retainer set by the
Board for that Program Year.
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(h) Death of Director. Any Director Option granted
to an Eligible Director under this Section 8 and outstanding on the date of
such director's death may be exercised by the personal representative of the
deceased director or the person or persons to whom the Option shall have been
transferred by the director's will in accordance with the laws of descent and
distribution at any time prior to the termination of such Option in accordance
with the terms of Section 8(g).
(i) Restriction on Amendments. Notwithstanding anything
to the contrary contained in this Program, the provisions of Section 8 shall
not be amended more than once every 6 months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act, or the rules
thereunder.
9. AMENDMENT AND TERMINATION OF THE PROGRAM.
(a) Amendment. Subject to Section 8(i) above, 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.
(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 Committee acts under Section 10(e). The termination of
the Program shall not impair the power and authority of the Committee with
respect to outstanding Grants. Whether or not the Program has terminated, an
outstanding Grant may be terminated or amended under Section 10(e) or may be
amended by agreement of the Company and the Grantee consistent with the
Program.
10. GENERAL PROVISIONS.
(a) Prohibitions Against Transfer. Only a Grantee or his
authorized representative may exercise rights under a Grant. Except as
provided herein, a Grantee may not transfer rights under a Grant, except upon
the express written consent of the Company, which may be granted or denied in
the Company's discretion. 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 Committee 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
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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 Committee shall prescribe the exact
provisions of the Substitute Grant, preserving where possible the provisions of
the Substitute Stock Incentive. The Committee 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 Committee or Alternate Committee
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
Committee or Alternate Committee 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 Committee 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.
(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
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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 Committee 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 Committee 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 Committee 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 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) Further Restrictions Applicable to Reporting Persons.
Common Stock acquired by a Reporting Person pursuant to the Program shall in no
event be transferable until six (6) months have elapsed from the date of Grant
of the Common Stock or, in the case of Shares acquired pursuant to a stock
option awarded under the Program, at least six (6) months have elapsed from the
date of Grant of the stock option to the date of disposition of the Common
Stock underlying such option.
(m) Program Controls. In the case of any conflict
between the term of this Program and the terms of any instrument of Grant, the
terms of this Program will control.
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