AMERICAN PAD & PAPER COMPANY
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
I. PURPOSE.
The purpose of American Pad & Paper Company Non-Employee Director Stock
Option Plan (the "Plan") is to promote the interests of American Pad & Paper
Company, a Delaware corporation (the "Company") by providing an inducement to
obtain and retain the services of qualified persons as members of the Company's
Board of Directors (the "Board") and to align more closely the interests of such
persons with the interests of the Company's stockholders by providing a
significant portion of the compensation provided to such persons in the form of
equity securities of the Company. The definitions for certain capitalized terms
used herein are set forth in Section V of this Plan.
II. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall have
full power to construe and interpret the Plan and Options granted hereunder, to
establish and amend rules for its administration and to correct any defect or
omission and to reconcile any inconsistency in the Plan or in any Option granted
hereunder to the extent the Committee deems desirable to carry the Plan or any
Option granted hereunder into effect. Any decisions of the Committee in the
administration of the Plan shall be final and conclusive. The Committee may
authorize any one or more of its members, the secretary of the Committee or any
officer of the Company to execute and deliver documents on behalf of the
Committee. Each member of the Committee, and, to the extent provided by the
Committee, any other person to whom duties or powers shall be delegated in
connection with the Plan, shall incur no liability with respect to any action
taken or omitted to be take in connection with the Plan and shall be fully
protected in relying in good faith upon the advice of counsel, to the fullest
extent permitted under applicable law.
III. ELIGIBILITY.
Each Non-Employee Director shall be eligible to participate in the Plan.
IV. LIMITATION ON AGGREGATE SHARES.
A. Maximum Number of Shares. The aggregate maximum number of Shares that
may be issued upon exercise of Options granted pursuant to the Plan shall be
350,000 shares. Such maximum number of Shares is subject to adjustment under the
provisions of Section IV.B. The Shares issued upon exercise of Options may be
authorized but unissued Shares or Shares previously issued which have been
reacquired by the Company. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
Shares subject to such Option but not purchased thereunder shall be available
for future Options to be granted under the Plan.
B. Adjustment. The maximum number of Shares referred to in Section IV.A
of the Plan, the number of Options granted pursuant to Section VI of the Plan
and the option price and the number of Shares which may be purchased under any
outstanding Option granted under Section VI of the Plan shall be proportionately
adjusted for any increase or decrease in the number of issued and outstanding
Shares as the result of (i) the declaration and payment of a dividend payable in
Common Stock, or the division of the Common Stock outstanding at the date hereof
(or the date of the grant of any such outstanding Option, as applicable) into a
greater number of Shares without the receipt of consideration therefor by the
Company, or any other increase in the number of such Shares of the Company
outstanding at the date hereof (or the date of the grant of any such outstanding
Option, as applicable) which is effective without the receipt of consideration
therefor by the Company (exclusive of any Shares granted by the Company to
employees of the Company or any of its Subsidiaries without receipt of separate
consideration by the Company), or (ii) the consolidation of the Shares
outstanding at the date hereof (or the date of the grant of any such outstanding
Option, as applicable) into a smaller number of Shares without the payment of
consideration thereof by the Company, or any other decrease in the number of
such Shares outstanding at the date hereof (or the date of the grant of any such
outstanding Option, as applicable) effected without the payment of consideration
by the Company; provided, however, that the total option price for all Shares
which may be purchased upon the exercise of any Option granted pursuant to the
Plan (computed by multiplying the number of Shares originally purchasable
thereunder, reduced by the number of such Shares which have theretofore been
purchased thereunder, by the original option price per share before any of the
adjustments herein provided for) shall not be changed.
In the event of a change in the Common Stock as presently constituted which
is limited to a change of the Company's authorized shares with a par value into
the same number of shares with a different par value or without par value, the
shares resulting from any such change will be deemed to be the Common Stock
within the meaning of this Plan and no adjustment will be required pursuant to
this Section IV.B.
The foregoing adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided in this Section IV.B, a Non-Employee Director shall have no
rights by reason of any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class.
V. DEFINITIONS.
The following terms shall have the meanings set forth below when used
herein:
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board, any successor
committee of the Board performing similar functions or, in the absence of such a
committee, the Board.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
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"Disability" means a mental or physical condition which, in the opinion of
the Committee, renders a Non-Employee Director unable or incompetent to carry
out his or her duties as a member of the Board and which is expected to be
permanent or for an indefinite duration.
"Effective Date" shall mean the date upon which the following conditions
are satisfied: (i) this Plan is adopted by the stockholders of the Company and
(ii) the Company's Registration Statement on Form S-1 relating to the initial
public offering of its Common Stock is declared effective by the Securities and
Exchange Commission.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of any Share means, as of any applicable date, the mean
between the high and low prices of the Shares as reported on the New York Stock
Exchange-Composite Tape, or if no such reported sale of the Shares shall have
occurred on such date, on the next succeeding date on which there was such a
reported sale.
"Initial Election Date" means, for each Non-Employee Director, the later to
occur of (i) the date the Plan is approved and adopted by the Company's
stockholders pursuant to Section XIII of the Plan, and (ii) the date of such
member's initial election or appointment to the Board.
"Non-Employee Director" means each member of the Board who is not an
officer or employee of the Company or any of its Subsidiaries.
"Option" means an option to purchase shares of Common Stock.
"Shares" means shares of Common Stock.
"Subsidiary" means any partnership, corporation, association, limited
liability company, joint stock company, trust, joint venture, unincorporated
organization or other business entity of which (i) if a corporation, a majority
of the total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
the Company or one or more of the other Subsidiaries of the Company or a
combination thereof, or (ii) if a partnership, association, limited liability
company, joint stock company, trust, joint venture, unincorporated organization
or other business entity, a majority of the partnership or other similar equity
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by the Company or one or more Subsidiaries of the Company or a
combination thereof. For purposes hereof, the Company or a Subsidiary shall be
deemed to have a majority ownership interest in a partnership, association,
limited liability company, joint stock company, trust, joint venture,
unincorporated organization or other business entity if the Company or such
Subsidiary shall be allocated a majority of partnership, association, limited
liability company, joint stock company, trust, joint venture, unincorporated
organization or other business entity gains or losses or shall be or control the
managing director, the trustee, the manager or the general partner of such
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partnership, association, limited liability company, joint stock company, trust,
joint venture, unincorporated organization or other business entity.
VI. FORMULA STOCK OPTION GRANTS FOR NON-EMPLOYEE DIRECTORS.
A. Annual Grant of Options. Each Non-Employee Director serving on the
Board of Directors on the Effective Date shall automatically be granted Options
to purchase 2,000 Shares beginning on the fourth anniversary of the Effective
Date and continuing on each subsequent anniversary thereof. Each Non-Employee
Director that was elected or appointed to the Board after the Effective Date
shall automatically be granted Options to purchase 2,000 Shares beginning on the
fourth anniversary of such Non-Employee Director's election or appointment to
the Board and continuing on each subsequent anniversary thereof.
B. Grant for Newly Appointed Directors. All Non-Employee Directors
serving on the Board on the Effective Date shall automatically be granted, as of
such date, Options to purchase 25,000 Shares. Any Non-Employee Director that is
initially elected or appointed to the Board after the Effective Date shall
automatically be granted, on the date he or she joins the Board, Options to
purchase 25,000 Shares.
C. Option Exercise Price. The exercise price per Share for each Option
shall be 100% of the Fair Market Value of a Share on the date of grant, subject
to Section IV.B.
D. Term of Options. Each Option shall be exercisable for ten years after
the date of grant, subject to Section VI.F.
E. Conditions and Limitations on Exercise.
(i) Vesting. Each Option granted pursuant to Section VI.A shall vest
in three equal installments on the first, second and third anniversaries of
the date of grant. Each Option granted pursuant to Section VI.B shall vest
in three installments, with 50% of the Shares vesting on the first
anniversary of the date of grant and 25% of the Shares vesting on each of
the second and third anniversaries of the date of grant. Upon the
termination of a Non-Employee Director's tenure for any reason (including
termination due to death or Disability), other than such Non-Employee
Director's voluntary registration from the Board, the unvested portions of
any outstanding Options held by such Non-Employee Director shall become
fully vested.
(ii) Exercise. Each Option shall be exercisable in one or more
installments and shall not be exercisable for less than 100 Shares, unless
the exercise represents the entire remaining exercisable balance of a grant
or grants. Each Option shall be exercised by delivery to the Company of
written notice of intent to purchase a specific number of Shares subject to
the Option. The option price of any Shares as to which an Option shall be
exercised shall be paid in full at the time of the exercise. Payment may,
at the election
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of the Non-Employee Director, be made in any one or any combination of the
following forms:
(a) check or wire transfer of funds in such form as may be
satisfactory to the Committee;
(b) delivery of Shares valued at their Fair Market Value on the
date of exercise or, if the date of exercise is not a business day,
the next succeeding business day;
(c) through simultaneous sale through a broker of unrestricted
Shares acquired on exercise, as permitted under Regulation T of the
Federal Reserve Board; or
(d) by authorizing the Company in his or her written notice of
exercise to withhold from issuance a number of Shares issuable upon
exercise of such Option which, when multiplied by the Fair Market
Value of the Common Stock on the date of exercise (or, if the date of
exercise is not a business day, the next succeeding business day), is
equal to the aggregate exercise price payable with respect to the
Option so exercised.
In the event a Non-Employee Director elects to pay the exercise price
payable with respect to an Option pursuant to clause (b) above, (i) only a whole
number of Share(s) (and not fractional Shares) may be tendered in payment, (ii)
such Non-Employee Director must present evidence acceptable to the Company that
he or she has owned any such Shares tendered in payment of the exercise price
(and that such Shares tendered have not been subject to any substantial risk of
forfeiture) for at least six months prior to the date of exercise, and (iii) the
certificate(s) for all such Shares tendered in payment of the exercise price
must be accompanied by duly executed instruments of transfer in a form
acceptable to the Company. When payment of the Option exercise price is made by
the tender of Shares, the difference, if any, between the aggregate exercise
price payable with respect to the Option being exercised and the Fair Market
Value of the Share(s) tendered in payment (plus any applicable taxes) shall be
paid by check or wire transfer of funds. No Non-Employee Director may tender
Shares having a Fair Market Value exceeding the aggregate exercise price payable
with respect to the Option being exercised.
In the event a Non-Employee Director elects to pay the exercise price
payable with respect to an Option pursuant to clause (d) above, (i) only a whole
number of Share(s) (and not fractional Shares) may be withheld in payment and
(ii) such Non-Employee Director must present evidence acceptable to the Company
that he or she has owned a number of Shares at least equal to the number of
Shares to be withheld in payment of the exercise price (and that such owned
Shares have not been subject to any substantial risk of forfeiture) for at least
six months prior to the date of exercise. When payment of the Option exercise
price is made by the withholding of Shares, the difference, if any, between the
aggregate exercise price payable with respect to the Option being exercised and
the Fair Market Value of the Share(s) withheld in payment (plus any applicable
taxes) shall be paid by check or wire transfer of funds. No Non-Employee
Director may authorize the withholding of Shares having a Fair Market Value
exceeding the aggregate
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exercise price payable with respect to the Option being exercised. Any withheld
Shares shall no longer be issuable under such Option.
F. Additional Provisions.
(i) Expiration of Options Upon Termination of Directorship. Upon the
termination of a Non-Employee Director's tenure for any reason (including
termination due to death or Disability), each outstanding vested and
previously unexercised Option (after giving effect to any vesting of the
Option upon such termination pursuant to Section VI. E hereof) shall expire
two years after the date of such termination. In no event shall the
provisions of this Section VI.F operate to extend the original expiration
date of any Option.
(ii) Sale of the Company. In the event of a merger of the Company
with or into another corporation constituting a change of control of the
Company, a sale of all or substantially all of the Company's assets or a
sale of a majority of the Company's outstanding voting securities (a "Sale
of the Company"), the Options may be assumed by the successor corporation
or a parent of such successor corporation or substantially equivalent
options may be substituted by the successor corporation or a parent of such
successor corporation, and if the successor corporation does not assume the
Options or substitute options, then all outstanding and unvested Options
shall become immediately exercisable and all outstanding Options shall
terminate if not exercised as of the date of the Sale of the Company (or
other prescribed period of time). The Company shall provide at least 30
days prior written notice of the Sale of the Company to the holders of all
outstanding Options, which notice shall state whether (a) the Options will
be assumed by the successor corporation or substantially equivalent options
will be substituted by the successor corporation, or (b) the Options are
thereafter vested and exercisable and will terminate if not exercised as of
the date of the Sale of the Company (or other prescribed period of time).
(iii) Liquidation or Dissolution. In the event of the liquidation or
dissolution of the Company, Options shall terminate immediately prior to
the liquidation or dissolution.
G. Non-Qualified Stock Options. All Options granted under the Plan shall
be non-qualified options not entitled to special tax treatment under Code
Section 422, as may be amended from time to time.
VII. MISCELLANEOUS PROVISIONS.
A. Rights of Non-Employee Directors. No Non-Employee Director shall be
entitled under the Plan to voting rights, dividends or other rights of a
stockholder prior to the issuance of the Common Stock. Neither the Plan nor any
action taken hereunder shall be construed as giving any Non-Employee Director
any right to be retained in the service of the Company.
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B. Limitations on Transfer and Exercise. All Options granted under the
Plan shall not be transferable by the Non-Employee Director, other than by will
or the laws of descent and distribution or pursuant to a qualified domestic
relations order, as defined by (S)1 et seq, of the Code, Title I of ERISA or the
rules and regulations thereunder, and shall be exercisable during the Non-
Employee Director's lifetime only by such Non-Employee Director or by such Non-
Employee Director's guardian or other legal representative.
C. Compliance with Laws. No shares of Common Stock shall be issued
hereunder unless counsel for the Company shall be satisfied that such issuance
will be in compliance with applicable federal, state, local and foreign
securities, securities exchange and other applicable laws and requirements. Each
Option granted pursuant to Section VI shall be subject to the requirement that
if at any time the Committee shall determine, in its discretion, that the
listing, registration or qualification of the Shares subject to the Option upon
any securities exchange or under any state or federal securities or other law or
regulation, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition to or in connection with the granting of
such Option or the issuance or purchase of Shares thereunder, no Option may be
exercised or paid in shares of Common Stock, in whole or in part, unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee. The
holder of such Option will supply the Company with such certificates,
representations and information as the Company shall request and shall otherwise
cooperate with the Company in obtaining such listing, registration,
qualification, consent or approval. The Committee may at any time impose any
limitations upon the exercise of an Option or the sale of the Common Stock
issued upon exercise of an Option that, in the Committee's discretion, are
necessary or desirable in order to comply with Section 16(b) of the Exchange Act
and the rules and regulations thereunder. The Committee may at any time impose
additional limitations, or may amend or delete the existing limitations, upon
the exercise of Options by the tender or withholding of Shares in accordance
with Section VI.E (including an amendment or deletion of the related ownership
period for Shares specified in such Section), if such additional, amended or
deleted limitations are necessary, desirable or no longer required (as the case
may be) to remain in compliance with applicable accounting pronouncements
relating to the treatment of the plan as a fixed plan for accounting purposes.
D. Payment of Withholding Tax. Whenever Shares are to be issued upon
exercise of Options issued pursuant to Section VI of the Plan, the Company shall
be entitled to require as a condition of delivery (i) that the participant remit
an amount sufficient to satisfy all federal, state and local withholding tax
requirements related thereto, (ii) the withholding of Shares due to the
participant under the Plan with a Fair Market Value equal to such amount, or
(iii) any combination of the foregoing.
E. Expenses. The expenses of the Plan shall be borne by the Company and
its Subsidiaries.
F. Deemed Acceptance, Ratification and Consent. By accepting any shares
of Common Stock hereunder or other benefit under the Plan, each Non-Employee
Director and each person claiming under or through him or her shall be
conclusively deemed to have indicated his
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or her acceptance and ratification of, and consent to, any action taken under
the Plan by the Company, the Board or the Committee.
G. Securities Act Registration. The Company shall use its best efforts to
cause to be filed under the Securities Act of 1933, as amended, a registration
statement covering the Shares issuable upon exercise of Options granted under
the Plan.
H. Governing Law. The provisions of the Plan shall be governed by and
construed in accordance with the laws of the State of Delaware.
I. Headings; Construction. Headings are given to the sections of the Plan
solely as a convenience to facilitate reference. Such headings, numbering and
paragraphing shall not in any case be deemed in any way material or relevant to
the construction of the Plan or any provisions hereof. The use of the singular
shall also include within its meaning the plural, where appropriate, and vice
versa.
VIII. AMENDMENT.
The Plan may be amended at any time and from time to time by resolution of
the Board as the Board shall deem advisable; provided, however, that no
amendment shall become effective without stockholder approval if such
stockholder approval is required by law, rule or regulation; and provided
further, that to the extent required by Rule 16b-3 under Section 16 of the
Exchange Act, Plan provisions shall not be amended more than once every six
months, except that the foregoing shall not preclude any amendment to comport
with changes in the Code, ERISA or the rules thereunder. No amendment of the
Plan shall materially and adversely affect any right of any participant with
respect to any Options theretofore granted under the Plan without such
participant's written consent, except for any modifications required to maintain
compliance with any federal or state statute or regulation.
IX. TERMINATION.
The Plan shall terminate upon the earlier of the following dates or events
to occur :
(i) upon the adoption of a resolution of the Board terminating the
Plan; and
(ii) ten years from the date the Plan is initially approved and
adopted by the stockholders of the Company in accordance with Article X.
Except as specifically provided herein, no termination of the Plan shall
materially and adversely affect any of the rights or obligations of any person
without his or her consent with respect to any Options theretofore granted under
the Plan.
X. STOCKHOLDER APPROVAL AND ADOPTION.
The Plan is dated June 22, 1996, which is the date upon which the Board
adopted the Plan. The Plan shall be submitted to the stockholders of the Company
for their approval. The
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stockholders shall be deemed to have approved and adopted the Plan only if it is
approved and adopted by vote taken in the manner required by the laws of the
State of Delaware.
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