-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CIjrDAoAY0JLNoorenst4PVLl3ICyk39+StgzMlUeSyrz/I+f4BqScgrE7ZZGvga VMA0QYXiKvYp065UNdZ6WQ== 0000064394-99-000013.txt : 19990811 0000064394-99-000013.hdr.sgml : 19990811 ACCESSION NUMBER: 0000064394-99-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990704 FILED AS OF DATE: 19990810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEAD CORP CENTRAL INDEX KEY: 0000064394 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 310535759 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02267 FILM NUMBER: 99682086 BUSINESS ADDRESS: STREET 1: MEAD WORLD HEADQUARTERS STREET 2: COURTHOUSE PLZ NORTHEAST CITY: DAYTON STATE: OH ZIP: 45463 BUSINESS PHONE: 5134956323 10-Q 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 4, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________ Commission File No. 1-2267 THE MEAD CORPORATION (Exact name of registrant as specified in its charter) Ohio 31-0535759 (State of Incorporation) (I.R.S. Employer Identification No.) MEAD WORLD HEADQUARTERS COURTHOUSE PLAZA NORTHEAST DAYTON, OHIO 45463 (Address of principal executive offices) Registrant's telephone number, including area code: 937-495-6323 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ . The number of Common Shares outstanding at July 4, 1999 was 102,341,053. ============================================================================== THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES --------------------------------------------------- QUARTERLY PERIOD ENDED JULY 4, 1999 ----------------------------------- PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS -------------------- THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- BALANCE SHEETS - -------------- (All amounts in millions) July 4, Dec. 31, 1999 1998 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 36.0 $ 102.0 Accounts receivable 568.7 414.7 Inventories 481.6 479.5 Other current assets 88.1 90.2 -------- -------- Total current assets 1,174.4 1,086.4 Investments and other assets: Investees 134.4 127.5 Other assets 581.3 555.6 -------- -------- 715.7 683.1 Property, plant and equipment 5,773.5 5,741.8 Less accumulated depreciation and amortization (2,473.8) (2,369.1) -------- -------- 3,299.7 3,372.7 -------- -------- Total assets $5,189.8 $5,142.2 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Accounts payable $ 256.4 $ 275.9 Accrued liabilities 409.8 395.7 Current maturities of long-term debt 27.1 7.9 -------- -------- Total current liabilities 693.3 679.5 Long-term debt 1,346.1 1,367.4 Commitments and contingent liabilities Deferred items 854.7 843.3 Shareowners' equity: Common shares 152.7 151.9 Additional paid-in capital 108.3 66.3 Retained earnings 2,078.5 2,076.9 Other comprehensive loss (43.8) (43.1) -------- -------- 2,295.7 2,252.0 -------- -------- Total liabilities and shareowners' equity $5,189.8 $5,142.2 ======== ======== See notes to financial statements. THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF EARNINGS - ---------------------- (All amounts in millions, except per share amounts)
Second Quarter Ended First Half Ended --------------------- --------------------- July 4, June 28, July 4, June 28 1999 1998 1999 1998 -------- -------- -------- -------- Net sales $1,004.8 $1,050.9 $1,868.0 $1,889.9 Cost of products sold 823.7 853.4 1,528.2 1,514.4 -------- -------- -------- -------- Gross profit 181.1 197.5 339.8 375.5 Selling and administrative expenses 102.5 101.3 207.8 197.6 -------- -------- -------- -------- Earnings from operations 78.6 96.2 132.0 177.9 Other revenues 4.8 1.6 8.8 4.2 Interest and debt expense (25.1) (28.9) (51.8) (55.4) -------- -------- -------- -------- Earnings from continuing operations before income taxes 58.3 68.9 89.0 126.7 Income taxes 21.0 28.2 32.1 49.4 -------- -------- -------- -------- Earnings from continuing operations before equity in net earnings (loss) of investees 37.3 40.7 56.9 77.3 Equity in net earnings (loss) of investees 7.5 (.5) 10.8 (3.5) -------- -------- -------- -------- Earnings from continuing operations 44.8 40.2 67.7 73.8 Discontinued operations (25.0) (28.0) -------- -------- -------- -------- Net earnings $ 44.8 $ 15.2 $ 67.7 $ 45.8 ======== ======== ======== ======== Per common share - basic: Earnings from continuing operations $ .44 $ .39 $ .66 $ .71 Discontinued operations (.24) (.27) -------- -------- -------- -------- Net earnings $ .44 $ .15 $ .66 $ .44 ======== ======== ======== ======== Per common share - assuming dilution: Earnings from continuing operations $ .43 $ .38 $ .65 $ .70 Discontinued operations (.24) (.27) -------- -------- -------- -------- Net earnings $ .43 $ .14 $ .65 $ .43 ======== ======== ======== ======== Cash dividends per common share $ .16 $ .16 $ .32 $ .32 ======== ======== ======== ======== Weighted-average number of common shares outstanding - basic 102.2 103.9 101.9 103.9 ======== ======== ======== ======== Weighted-average number of common shares outstanding - assuming dilution 105.1 105.8 104.8 105.8 ======== ======== ======== ========
See notes to financial statements. THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- STATEMENTS OF CASH FLOWS - ------------------------ (All amounts in millions) First Half Ended -------------------- July 4, June 28, 1999 1998 ------- ------- Cash flows from operating activities: Net earnings $ 67.7 $ 45.8 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and depletion of property, plant and equipment 135.6 125.7 Depreciation and amortization of other assets 20.3 20.9 Deferred income taxes (3.9) (6.5) Investees-earnings and dividends (2.8) 4.4 Discontinued operations 28.0 Other 14.0 14.4 Change in current assets and liabilities: Accounts receivable (159.8) (160.0) Inventories (9.4) (67.7) Other current assets 11.7 (12.7) Accounts payable and accrued liabilities (6.0) 90.1 Cash (used in) discontinued operations (22.8) ------ ------ Net cash provided by operating activities 67.4 59.6 ------ ------ Cash flows from investing activities: Capital expenditures (90.5) (192.1) Additions to equipment rented to others (13.6) (14.8) Proceeds from sale of assets 21.4 Payment for acquired business (13.6) Other (24.3) (21.8) ------ ------ Net cash (used in) investing activities (107.0) (242.3) ------ ------ Cash flows from financing activities: Additional borrowings 15.0 140.5 Payments on borrowings (18.1) (191.9) Notes payable 273.8 Cash dividends paid (32.7) (33.3) Common shares issued 45.1 12.7 Common shares purchased (35.7) (17.4) ------ ------ Net cash provided by (used in) financing activities (26.4) 184.4 ------ ------ Increase (decrease) in cash and cash equivalents (66.0) 1.7 Cash and cash equivalents at beginning of year 102.0 29.5 ------ ------ Cash and cash equivalents at end of half $ 36.0 $ 31.2 ====== ====== See notes to financial statements. THE MEAD CORPORATION AND CONSOLIDATED SUBSIDIARIES - -------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - ----------------------------- (All dollar amounts in millions) A - FINANCIAL STATEMENTS The balance sheet at December 31, 1998, is condensed financial information taken from the audited balance sheet. The interim financial statements are unaudited. In the opinion of management, all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the interim periods presented have been made. B - ACCOUNTING POLICIES On an interim basis, all costs subject to recurring year-end adjustments have been estimated and allocated ratably to the quarters. Income taxes have been provided based on the estimated tax rate for the respective years after excluding infrequently occurring items whose specific tax effect is reported during the same interim period as the related transaction. C - INVENTORIES The amount of inventories is (principally last-in, first-out method): July 4, Dec. 31, 1999 1998 ------- ------- Finished and semi-finished products $304.5 $295.0 Raw materials 102.3 109.2 Stores and supplies 74.8 75.3 ------ ------ $481.6 $479.5 ====== ====== D - INVESTEES The summarized operating data for all investees is presented in the following table: Second Quarter Ended First Half Ended -------------------- ---------------------- July 4, June 28, July 4, June 28, 1999 1998 1999 1998 ------- ------- ------- ------- Revenues $196.1 $181.4 $369.1 $357.8 ====== ====== ====== ====== Gross profit $ 32.6 $ 11.1 $ 54.0 $ 12.7 ====== ====== ====== ====== Net earnings $ 21.1 $ 4.3 $ 32.4 $ 1.8 ====== ====== ====== ====== E - ASSET WRITEDOWNS AND EMPLOYEE TERMINATIONS During the second quarter of 1999, the company recorded a pre- tax charge of $15.6 million for asset write-offs and severance costs related to the shutdown of four uncoated paper machines in its mill in Rumford, Maine. The charges were comprised of $7.9 million to write down fixed assets to be shutdown, $3.8 million in severance costs for salaried personnel notified during the quarter; $2.6 million to write off other assets; and $1.3 million to write down stores and supplies inventory associated exclusively with the four machines. Of the above charge, $14.2 million is included in cost of sales and $1.4 million is included in selling and administrative expenses. The $3.8 million in severance costs relates to 52 salaried employees and includes medical, dental and other benefits, none of which were paid at the end of the second quarter. The shutdown is expected to be completed and all personnel terminated by December 31, 1999, although some severance and benefit payments may be made thereafter. In the third quarter of 1998, the company adopted a plan to make organizational changes and reduce its overall workforce, and recorded a charge for employee severance and related costs. The following is a summary of the remaining accrual at July 4, 1999 (in millions): Balance at December 31, 1998 $9.9 Used for intended purpose (4.1) ---- Balance at July 4, 1999 $5.8 ==== F - SHAREOWNERS' EQUITY During the second quarter of 1999, the company repurchased approximately 500,000 common shares on the open market. The company has outstanding authorization from the Board of Directors to repurchase up to ten million common shares, of which 9.8 million shares have been repurchased as of the end of the first half of 1999. Comprehensive earnings for the half years ended July 4, 1999 and June 28, 1998, were $67.0 million and $43.0 million. Comprehensive earnings for the quarters ended July 4, 1999 and June 28, 1998, were $41.9 million and $16.3 million. G - ADDITIONAL INFORMATION ON CASH FLOWS
First Half Ended ------------------- July 4, June 28, 1999 1998 ------- ------- Cash paid for: Interest $ 51.1 $ 56.7 ====== ====== Income taxes $ 31.2 $ 20.0 ====== ======
H - SEGMENT INFORMATION
Second Quarter Ended First Half Ended -------------------- ------------------ July 4, June 28, July 4, June 28, 1999 1998 1999 1998 -------- -------- ------- ------- Net sales: Industry segments: Paper $ 433.8 $ 445.2 $ 887.7 $ 879.1 Packaging and Paperboard 403.7 408.5 751.4 751.4 School and Office Products 167.3 197.2 228.9 259.4 -------- -------- -------- -------- Total $1,004.8 $1,050.9 $1,868.0 $1,889.9 ======== ======== ======== ======== Earnings (loss) from Continuing Operations Before Income Taxes: Industry segments: Paper $ 15.2 $ 47.0 $ 61.3 $ 106.7 Packaging and Paperboard 59.3 37.8 83.9 67.2 School and Office Products 22.4 31.6 23.8 38.3 Corporate and Other (1) (38.6) (47.5) (80.0) (85.5) -------- -------- -------- -------- Total $ 58.3 $ 68.9 $ 89.0 $ 126.7 ======== ======== ======== ======== (1) Corporate and other includes the following: Other revenue $ 5.3 $ 1.5 $ 9.3 $ 4.5 Interest expense (25.1) (28.9) (51.8) (55.4) Other expense (18.8) (20.1) (37.5) (34.6) --------- --------- -------- --------- Total $ (38.6) $ (47.5) $ (80.0) $ (85.5) ========= ========= ======== =========
Identifiable assets have not changed significantly at July 4, 1999, compared to December 31, 1998. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- RESULTS OF OPERATIONS - --------------------- During the second quarter, Mead recorded a pre-tax charge of $15.6 million or $.09 per share for asset write-offs and severance costs related to the shutdown of four uncoated paper machines in its mill in Rumford, Maine. Mead expects to take additional charges in the second half of 1999 in line with the company's announcement to take total pre-tax charges of approximately $25 million associated with the shutdown. Net Sales - --------- Second quarter 1999 net sales of $1.00 billion decreased slightly from $1.05 billion in the second quarter of 1998. For the first half, net sales were $1.87 billion in 1999 compared to $1.89 billion in 1998. The decline resulted primarily from lower prices for paper and lower prices and volume for school and office products. During the quarter, average selling prices were lower for coated paper, uncoated paper and carbonless paper and for coated paperboard and pulp. The decline in prices more than offset higher sales volume of paper and corrugated medium compared to the second quarter of 1998. Operating Costs and Expenses - ---------------------------- Gross profit as a percentage of sales decreased to 18.0% from 18.8% in the second quarter of 1998. Likewise, this percentage was 18.2% for the first half compared with 19.9% in the same period of last year. Selling and administrative expenses of $102.5 million were up from $101.3 million in the second quarter of 1998. First half 1999 selling and administrative expenses of $207.8 million were up from $197.6 million for the same period of 1998 largely due to expenses related to the initial phase of implementation of the company's enterprise resource planning system and development of the company's financial services center. The levels of gross profit and selling and administrative expenses were negatively affected by special items during the second quarters of both 1999 and 1998. In 1999's second quarter, a charge of $15.6 million was recorded for costs related to the shutdown of four uncoated paper machines at the company's Rumford, Maine, facility. The $15.6 million charge included: $7.9 million to write-down fixed assets to be shutdown; $3.8 million in severance costs for salaried personnel notified during the quarter; $2.6 million to write off other assets; $1.3 million to write down stores and supplies inventory associated exclusively with the four machines. In 1998, a charge of $31.5 million for asset write downs was recorded to reduce the carrying value of stores and supplies inventory, assets of a Japanese packaging operation, certain equipment replaced by new equipment and certain capitalized software made obsolete by a decision to move to an enterprise resource planning system. Other Revenue - ------------- Other revenue of $8.8 million and $4.8 million in 1999 increased from $4.2 million and $1.6 million in the first half and second quarter of 1998, respectively. These increases are the result of a gain on the sale of non-strategic real estate. Interest and Debt Expense - ------------------------- In the second quarter of 1999, interest and debt expense of $25.1 million decreased from $28.9 million in the second quarter of 1998 as a result of lower debt levels. Similarly, first half 1999 interest and debt expense of $51.8 million decreased from $55.4 million in 1998. Income Taxes - ------------ The effective tax rate was 36.0% for the second quarter of 1999 compared to 40.9% for the second quarter of 1998. In 1998, the income tax rate was higher as a result of the effect of a non-deductible portion of asset write downs taken during the second quarter of that year. For the half, this rate was 36.1% in 1999 and 39.0% in 1998. Equity in Net Earnings (Loss) of Investees - ------------------------------------------ Mead's investees earned $7.5 million in the second quarter compared to a loss of $.5 million in the second quarter of 1998. For the first half, Mead's share of earnings was $10.8 million in 1999 compared to a loss of $3.5 million posted for 1998. The increase was primarily a result of higher shipments and prices for wood products at Mead's 50%-owned Northwood companies. Shipments and prices were higher for lumber, oriented structural board (OSB) and plywood. Shipments and prices were lower for pulp compared to the first half of 1998. During the first half, the pulp mill took 13 days of maintenance downtime. Earnings from Continuing Operations - ----------------------------------- Earnings from continuing operations for the second quarter of 1999 were $44.8 million compared to $40.2 million in the second quarter of 1998. For the first half of 1999, earnings from continuing operations were $67.7 million compared to $73.8 million in 1998. Financial Data by Business - -------------------------- Paper segment
Second Quarter First Half ------------------------ ------------------------ 1999 1998 % Change 1999 1998 % Change ---- ---- -------- ---- ---- -------- (All dollar amounts in millions) Net sales (to unaffiliated customers) $433.8 $445.2 (3)% $887.7 $879.1 1% Segment earnings before taxes 15.2 47.0 (68)% 61.3 106.7 (43)%
First half net sales for the paper segment were slightly ahead of last year's levels, though sales for the second quarter were down. Earnings for the first half of 1999 were $61.3 million compared to $106.7 million in 1998. The weakness in selling prices sharply affected the first half results of the paper segment. Earnings for the segment decreased from the second quarter of 1998 affected in part by charges of $15.6 million for special items related to the shutdown of four uncoated paper machines at the Rumford, Maine paper mill. Excluding special items, earnings were $30.8 million in the second quarter of 1999 compared to segment earnings before special items of $59.1 million in the second quarter of 1998. (In the second quarter of 1998, earnings of $47.0 million included $12.1 million in charges related to the write down of certain assets.) Earnings in the second quarter of 1999 were lower as a result of lower average selling prices for paper. For example, coated and uncoated paper prices were down more than 10% from the same quarter last year, carbonless paper prices were down 5% from prior year. In the second quarter of 1999, shipment volume increased for coated and uncoated paper. The mills generally operated well, taking some scheduled maintenance downtime in pulping operations. As previously announced, the company took 25,000 tons of market-related downtime in coated paper production during the quarter. Paper inventories declined from the levels of the prior quarter and were about even with the level of the second quarter of 1998. Packaging and Paperboard segment
Second Quarter First Half ------------------------ ----------------------- 1999 1998 % Change 1999 1998 % Change ---- ---- -------- ---- ---- -------- (All dollar amounts in millions) Net sales (to unaffiliated customers) $403.7 $408.5 (1)% $751.4 $751.4 -- Segment earnings before taxes 59.3 37.8 57% 83.9 67.2 25%
Net sales for the packaging and paperboard segment were even with last year although slightly down for the quarter. Earnings for the first half increased 25% to $83.9 million from $67.2 million for the same period in 1998. Segment earnings for the quarter of $59.3 million improved 6% from $55.9 million in the second quarter of 1998, before $18.1 million in charges related to the write down of certain assets in 1998. The improvement in earnings in the first half of 1999 came primarily from higher shipments of corrugating medium from the company's expanded mill in Stevenson, Alabama. Shipments of medium increased 27% during the second quarter of 1999 from the second quarter of last year. Prices for medium recovered during the quarter bringing average selling prices to the level of last year's second quarter. Ongoing operational difficulties in the mill's new chemical recovery and conversion systems and production issues on the number two paper machine led to costs that, while below last year, were higher than expected. The company estimates this had a negative impact on earnings of approximately $5 million or $.03 per share during the quarter. Within the Coated Board System, which includes the Packaging and Coated Board divisions, sales of beverage packaging were ahead for the first half and even with the second quarter of 1998. Shipments of coated paperboard to the company's packaging business and to open market customers declined slightly from the second quarter of 1998. Prices and shipments of wood products at the Coated Board division's two sawmills were higher than the same quarter last year. Production of coated paperboard at the Mahrt mill continued at very strong levels during the quarter, and the mill enhanced its cost position compared to the second quarter of 1998. In the third quarter of 1999, the mill plans to take approximately 25,000 tons of market-related downtime to help manage its inventory levels, which are higher than the level of the second quarter last year. School and Office Products segment
Second Quarter First Half ------------------------ --------------------------- 1999 1998 % Change 1999 1998 % Change ---- ---- -------- ---- ---- -------- (All dollar amounts in millions) Net sales (to unaffiliated customers) $167.3 $197.2 (15)% $228.9 $259.4 (12)% Segment earnings before taxes 22.4 31.6 (29)% 23.8 38.3 (38)%
Sales and earnings for the School and Office Products segment declined in the first half and second quarter of 1999 compared to the first half and second quarter of 1998 due to several factors affecting price and volume. These factors include lower selling prices for paper-based products compared to prior year. They also include shifts in the way mass retailers are managing inventories leading to an overall reduction in the inventory levels they hold; increased foreign competition in commodity-based and some value-added products; and a lack of strong new products for the back-to-school selling season. The company does not expect School and Office Products to make up its shortfall in sales and earnings by the end of 1999. The segment under the direction of new division management has begun to strengthen its efforts in new product development and sales growth for future years. During the quarter, the division's converting facilities operated well. The division shipped product to customers for the back-to- school selling season on a timely basis. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital on July 4, 1999 was $481 million compared to $407 million on December 31, 1998. The current ratio was 1.7 at the end of the second quarter and was 1.6 on December 31, 1998. Consistent with Mead's highly seasonal School and Office Products business, inventories and receivables increased during the first half. During the quarter, inventories of coated and uncoated paper declined slightly from the level of the first quarter and were equal to second quarter 1998. Inventories of coated paperboard decreased from the first quarter but were higher than the level of the second quarter 1998. The paper segment took market-related downtime in the second quarter and is expected to take market related downtime in the second half. Market-related downtime will be taken in the second half in coated paperboard to help manage the company's inventory levels. Borrowed capital (long-term debt) as a percentage of total capital (long-term debt plus shareowners' equity) was 37.0% on July 4, 1999, and was 37.8% on December 31, 1998. Capital expenditures totaled $91 million in the first half of 1999 compared to $192 million in the first half of 1998. The company expects its full year 1999 capital expenditures to be in the range of $200 million to $225 million. Proceeds for the sale of assets were $21.4 million in the first half of 1999, including $13.6 million in the first quarter and $7.8 million in the second quarter. Under a Board of Directors authorization, Mead repurchased approximately 500,000 shares of its capital stock in the second quarter of 1999. The 10 million share repurchase authorization was 98% completed by the end of the second quarter 1999. At the end of the second quarter, Mead paid a fixed rate or capped rate on 78% of its debt and paid a floating rate of interest on the remainder. A change of 1% in the floating rate, on an annual basis, would result in a $.02 change in earnings per share for the year. The estimated market value of long-term debt, excluding capital leases, was $23.5 million more than the book value at the end of the second quarter 1998. OUTLOOK Year 2000 Readiness Disclosure - ------------------------------ The Year 2000 issue concerns the inability of computerized information and process control systems to properly recognize and process date-sensitive information as the year 2000 approaches. Mead expects costs associated with the Year 2000 issue will not have a material adverse impact on results of operations, liquidity or capital resources. Mead is making progress as it works through a five-step process in dealing with the Year 2000 issue: inventory; assessment; corrective action; testing; and implementation. With regard to its Information Technology (IT) systems corrective action is essentially completed for the company's corporate functions and its three business segments: Paper, Packaging and Paperboard, and School and Office Products. Testing and implementation are underway or have been completed in each of these areas. The company expects the risk to be low that its IT systems will be disrupted by Year the 2000 issue. Non-IT systems include process control systems in manufacturing and converting facilities for monitoring and regulating power, production, emissions and safety equipment. At the end of the second quarter, approximately 88% of the company's process control systems were Year 2000 ready, 6% were being fixed or replaced and 6% were in the process of being reviewed. Mead has engaged a third-party consultant to assist in this process. More specifically, within Mead's business segments, corrective action and testing will be essentially complete in the Paper segment in the third quarter. Within the Packaging and Paperboard segment, corrective action and testing have been essentially completed for the Packaging division's domestic and international operations. Completion is expected in the second half for the Containerboard and Coated Board divisions, some during periods of normal maintenance downtime. In the School and Office Products segment, corrective action and testing of non-IT systems will be completed by year-end or by the first quarter of 2000. Year-end completion of corrective action and testing of non-IT systems is not as critical to School & Office Products given the seasonal nature of its business with most orders produced and shipped in the second and third quarters of the year. Mead fully expects to complete corrective action and testing of all critical non-IT systems within its three business segments in 1999. The company expects the risk to be low that its non-IT systems will be disrupted by the Year 2000 issue. Mead has initiated both internal and external reviews of non-IT systems to provide an independent assessment of its Y2K readiness. The costs associated with the company's remediation of the Year 2000 issue include amounts for upgrading and replacing non-compliant software and hardware systems and the costs related to the use of third-party solution providers. Through the second quarter of 1999, the total cost of remediation was $21 million. This total includes approximately $12 million in repair costs and $9 million in replacement costs. The total cost Mead expects to incur between 1997 and 2000 related to the Year 2000 issue is $30 million to $35 million, a reduction from original estimates of $35 million to $45 million. The majority of the remaining costs relate to replacement or modification of process control systems. These costs will be expensed as incurred, except for new systems that would be capitalized. Mead has completed a detailed review of its critical suppliers of raw materials, energy, equipment, supplies and transportation to determine their level of Year 2000 readiness. Based on this review, the company expects there is a low level of risk related to Year 2000 readiness with over 90% of these suppliers and medium level of risk with remaining suppliers. The company is developing plans for alternative sources of supply where it believes it is necessary. Significant interruptions caused by suppliers could affect Mead's operations overall and its ability to deliver products and services to its customers. The company has prepared contingency plans within each of its businesses for addressing the greatest areas of risk of noncompliance or threats to business operations or company assets related to the Year 2000 issue. The company expects to continue to refine these plans in the second half of 1999. The company believes that the greatest risk to company assets from Year 2000 issues would most likely come from the failure of third-parties, including government agencies, to deliver utilities or fuel to operate the boiler systems of the company's major paper and paperboard mills during a severe winter. The greatest risk of interruption to the manufacturing process would be the failure of suppliers to deliver raw materials for an extended period of time. The company could supply customers from finished inventory for a period of time. If customers were to experience Year 2000 interruptions in their own operations, it could result in reduced sales for Mead. THE ESTIMATES AND CONCLUSIONS STATED HERE CONTAIN FORWARD- LOOKING STATEMENTS AND ARE BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS ASSOCIATED WITH THE COMPLETION OF THE PLAN INCLUDE THE CONTINUED AVAILABILITY OF RESOURCES FROM SUPPLIERS AND THIRD-PARTY CONTRACTORS, THE ABILITY OF SUPPLIERS AND CUSTOMERS TO BE Y2K COMPLIANT, AND THE ABILITY TO IDENTIFY AND COMPLETE CONTINGENCY PLANS FOR SYSTEMATIC FAILURES NOT UNDER COMPANY CONTROL. CERTAIN STATEMENTS IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER. CERTAIN FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER ARE DESCRIBED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31 1998 AND IN QUARTERLY REPORTS ON FORM 10-Q FILED IN 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- No material changes occurred to information previously provided in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. PART II - OTHER INFORMATION --------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- (a) The Annual Meeting of Shareholders of Mead was held on April 22, 1999. (b) Proxies were solicited for the meeting pursuant to Regulation 14A. There was no solicitation in opposition to management's nominees listed in the proxy statement, and John C. Bogle, John G. Breen, William E. Hoglund, James G. Kaiser, Robert J. Kohlhepp, John A. Krol, Susan J. Kropf, Charles S. Mechem, Jr., Lee J. Styslinger, Jr., Jerome F. Tatar and J. Lawrence Wilson were elected. (c) The results of the election of directors are as follows:
Number of Votes --------------- Nominee For Withheld Abstentions Broker Non-Votes ------- --- -------- ----------- ---------------- John C. Bogle 91,501,198 548,216 -0- -0- John G. Breen 91,505,006 544,407 -0- -0- William E. Hoglund 91,508,647 540,767 -0- -0- James G. Kaiser 91,536,677 512,736 -0- -0- Robert J. Kohlhepp 90,832,949 1,216,464 -0- -0- John A. Krol 91,237,623 811,791 -0- -0- Susan J. Kropf 91,529,735 519,679 -0- -0- Charles S. Mechem, Jr. 91,497,454 551,960 -0- -0- Lee J. Styslinger, Jr. 91,525,531 523,882 -0- -0- Jerome F. Tatar 91,472,726 576,687 -0- -0- J. Lawrence Wilson 91,526,897 522,516 -0- -0-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits (10) Material Contracts: (1) 1984 Stock Option Plan of the Registrant as amended through June 24, 1999. (2) 1991 Stock Option Plan of the Registrant as amended through June 24, 1999. (3) 1996 Stock Option Plan of the Registrant as amended through June 24, 1999. (4) Form of Indemnification Agreement between Registrant and each of John C. Bogle, John G. Breen, Duane E. Collins, William E. Hoglund, James G. Kaiser, Robert J. Kohlhepp, John A. Krol, Susan J. Kropf, Charles S. Mechem, Jr., Heidi G. Miller, Lee J. Styslinger, Jr., Jerome F. Tatar and J. Lawrence Wilson. (5) 1987 Restricted Stock Plan of the Registrant as amended through June 24, 1999. (27) Financial Data Schedule Quarter 2, 1999. (b) No current reports on Form 8-K were filed with the Commission in the second quarter of 1999. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 10, 1999 THE MEAD CORPORATION - -------------------- (Registrant) By: TIMOTHY R. MCLEVISH __________________________________ Timothy R. McLevish Vice President, Finance and Treasurer (Chief Accounting Officer) EX-10.1 2 Exhibit 10.1 THE MEAD CORPORATION 1984 STOCK OPTION PLAN ---------------------- COMPOSITE --------- 06/24/99 Section 1. Purposes. - ---------- --------- The purposes of this 1984 Stock Option Plan (the "Plan") are (i) to provide incentives to officers and other key employees of the Company upon whose judgment, initiative and efforts the long-term growth and success of the Company is largely dependent; (ii) to assist the Company in attracting and retaining key employees of proven ability; and (iii) to increase the identity of interests of such key employees with those of the Company's shareholders by providing such employees with options to acquire Common Shares of the Company. Section 2. Definitions. - --------- ----------- For purposes of the Plan: (a) "Acquisition Transaction" means a transaction of the type described in Section 8(b) (ii). (b) "Affiliate" means a person controlling, controlled by or under common control with the Company. (c) "Board of Directors" means the Board of Directors of the Company. (d) "Change in Composition of the Board" means an event of the type described in Section 8(b) (iv). (e) "Change in Control" means a transaction of the type described in Section 8(b) (iii). (f) "Committee" means the committee referred to in Section 4. (g) "Code" means the Internal Revenue Code of 1954, as amended. (h) "Company" means The Mead Corporation; when used in the Plan with reference to employment, "Company" shall include any Subsidiary of the Company. (i) "Designation of Beneficiary" means such person(s) or entity whom the Option Holder has designated by a transfer on death or other designation of beneficiary to receive the Holder's Option on the Holder's death in accordance with such procedures established from time to time by the Committee. (j) "Fair Market Value" means the highest sale price of a Share on the date the value of a Share is to be determined, as reported on the New York Stock Exchange- Composite Transactions Tape or, if no sale is reported for such date, then on the next preceding date for which a sale is reported. (k) "Grantee" means the employee who received the option from the Company. (l) "Holder" means the person(s) or entity who owns the option, whether Grantee, Transferee, heir or other beneficiary. (m) "Incentive Stock Option" means an option granted under the Plan which qualifies as an incentive stock option under Section 422 of the Internal Revenue Code of 1954, as amended. (n) "Limited Right" means a right granted under Section 8 of the Plan. (o) "Nonqualified Option" means an option granted under the Plan which does not qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1954, as amended. (p) "Share" or "Shares" means the Common Shares, without par value, of the Company. (q) "Subsidiary" means any company 50% or more of the voting stock of which is owned or controlled, directly or indirectly, by the Company. (r) "Tax Date" means the date as of which the amount of the withholding tax payment with respect to the exercise of a Nonqualified Option is calculated. (s) "Tender Offer" means a tender offer or a request or invitation for tenders or an exchange offer subject to regulation under Section 14(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as the same may be amended, modified or superseded from time to time. (t) "Transferee" means the person who received the option from the Grantee during the Grantee's lifetime. Section 3. Shares Subject to the Plan. - ---------- --------------------------- (a) Number of Shares. Subject to adjustment ---------------- as provided in Section 10, the maximum number of Shares that may be issued and/or delivered under the Plan upon the exercise of options is 1,700,000. Such Shares may be either authorized and unissued or treasury Shares. Any Shares subject to an option which for any reason has terminated or expired or has been cancelled prior to being fully exercised may again be subject to option under the Plan. (b) The maximum number of Limited Rights which may be granted under the Plan is 1,700,000. Any Limited Rights granted under the Plan which for any reason terminate or expire or have been cancelled prior to being fully exercised may again be granted under the Plan. Section 4. Administration. - ---------- -------------- The Plan shall be administered by a Committee of the Board of Directors, consisting of three or more directors, who shall from time to time be appointed by, and serve at the pleasure of, the Board of Directors. No director shall serve as a member of the Committee if he is then, or was at any time within one year prior to his appointment, eligible for selection as a person to whom stock may be allocated or to whom stock options or stock appreciation rights may be granted pursuant to the Plan or any other plan of the Company or any Affiliate entitling the participants therein to acquire stock, stock options or stock appreciation rights of the Company or any Affiliate. The Committee shall have and exercise all the power and authority granted to it under the Plan. Subject to the provisions of the Plan, the Committee shall in its sole discretion determine the persons to whom, and the times at which, Incentive Stock Options, Nonqualified Options and Limited Rights shall be granted; the number of Shares to be subject to each option; the option price per Share; and the term of each option. In making such determinations, the Committee may take into consideration each employee's present and/or potential contribution to the success of the Company and its Subsidiaries and any other factors which the Committee may deem relevant and proper. Subject to the provisions of the Plan, the Board of Directors or the Committee shall also interpret the Plan; prescribe, amend and rescind rules and regulations relating to the Plan; correct defects, supply omissions and reconcile any inconsistencies in the Plan; and make all other determinations necessary or advisable for the administration of the Plan. Such determinations of the Board of Directors, or of the Committee (to the extent not reversed or modified by the Board of Directors), shall be conclusive. A majority of the Committee shall constitute a quorum for meetings of the Committee, and the act of a majority of the Committee at a meeting, or an act reduced to or approved in writing by all members of the Committee, shall be the act of the Committee. Section 5. Eligibility. - ---------- ----------- From time to time during the term of the Plan, the Committee may grant one or more Incentive Stock Options and/or Nonstatutory Options to any person who is then an officer or other key employee of the Company. A director who is not also an employee of the Company shall not be eligible to receive options granted under the Plan. Section 6. Terms and Conditions of Options. - --------- ------------------------------- (a) Written Agreement. The terms of each ------------------ option granted under the Plan shall be set forth in a written agreement, the form of which shall be approved by the Committee. (b) Terms and Conditions of General -------------------------------- Application. The following terms and provisions shall apply - ----------- to all optionsgranted under the Plan: (1) No option may be granted under the Plan at an option price per Share which is less than the Fair Market Value of a Share on the date of grant. (2) No option may be exercised more than ten years after the date of grant. (3) No option shall be exercisable within one year after the date of grant. At the time an option is granted, the Committee may provide that after such one year period, the option may be exercised with respect to all Shares subject thereto, or may be exercised with respect to only a specified number of Shares over a specified period or periods. (4) Except as provided in Sections 6(b) (5) and 6(b) (6), an option may be exercised only if the Grantee thereof has been continuously employed by the Company since the date of grant. Whether authorized leave of absence or absence for military or governmental service shall constitute a termination of employment shall be determined by the Committee, after consideration of the provisions of Section 1.421-7(h) of the regulations issued under the Code, if appropriate. (5) At the time an option is granted, or at such other time as the Committee may determine, the Committee may provide that, if the Grantee of the option ceases to be employed by the Company for any reason (including retirement or disability) other than death, the option will continue to be exercisable by the Holder (to the extent it was exercisable on the date the Holder ceased to be employed) for such additional period (not to exceed the remaining term of such option) after such termination of employment as the Committee may provide. (6) At the time an option is granted, the Committee may provide that, if the Grantee of the option dies while employed by the Company or while entitled to the benefits of any additional exercise period established by the Committee with respect to such option in accordance with Section 6 (b) (S), then the option will continue to be exercisable (to the extent it was exercisable on the date of death) by the person or persons (including the Holder's estate) to whom the Holder's rights with respect to such option shall have passed by will or by the laws of descent and distribution (or in accordance with the procedures set forth in Section 9 hereof) for such additional period after death (not to exceed the remaining term of such option) as the Committee may provide. (7) At the time an option is granted, the Committee may provide for any restriction or limitation on the exercise of such option and/or for any restriction or limitation on the transferability of the Shares issuable upon the exercise of such option as it may deem appropriate. (c) Additional Provisions Applicable to ----------------------------------- Incentive Stock Options. The following additional terms and - ------------------------ provisions shall apply to Incentive Stock Options granted under the Plan, notwithstanding any provision of Section 6(b) to the contrary: (1) By its terms, an Incentive Stock Option granted prior to January 1, 1987 shall not be exercisable if the Holder thereof holds another outstanding option which was granted by the Company (or a Subsidiary or a parent corporation or predecessor corporation of the Company) at an earlier date and which is an Incentive Stock Option within the meaning of Section 422 of the Code. For purposes of this paragraph, an option which is an Incentive Stock Option shall be treated as outstanding until such option is exercised in full or expires by reason of lapse of time or expires as the result of the exercise of a related Limited Right. (2) No Incentive Stock Option shall be granted to an officer or other employee who possesses directly or indirectly (within the meaning of Section 424(d) of the Code) at the time of grant more than 10% of the voting power of all classes of shares of the Company or of any parent corporation or any Subsidiary of the Company unless the option price is at least 110% of the Fair Market Value of the Shares subject to the option on the date the option is granted and the option is not exercisable after the expiration of five years from the date of grant. (3) With respect to Incentive Stock Options granted on or after January 1, 1987, no Incentive Stock Option granted under the Plan and under all other plans of the Company and any parent corporation or any Subsidiary of the Company is exercisable for the first time by a Holder in an amount in excess of $100,000 (based on Fair Market Value at the time the option is granted) during any calendar year in accordance with Section 422(b) (7) of the Code, as added by the Tax Reform Act of 1986 and thereafter amended. (d) Waiver of Terms. Subject to the ten- --------------- year limitation in Section 6(b) (3), the Committee may waive or modify at any time, either before or after the granting of an option, any condition or restriction with respect to the exercise of such option imposed by or pursuant to this Section 6 in such circumstances as the Committee may deem appropriate (including, without limitation, in the event the Grantee retires with the approval of the Company, or in the event of a proposed Acquisition Transaction, a Change in Control, Tender Offer for Shares, or other similar transaction involving the Company). (e) Acceleration Upon Certain Events. In --------------------------------- the event of a Tender Offer (other than an offer by the Company) for Shares, if the offeror acquires Shares pursuant thereto, an Acquisition Transaction, a Change in Control or a Change in Composition of the Board, all outstanding options granted hereunder shall become exercisable in full (whether or not otherwise exercisable, but subject, however, to the one year limitation set forth in Section 6(b) (3) and, in the case of Incentive Stock Options granted prior to January 1, 1987, to the limitation on exercise set forth in Section 6 (c) (1)), effective on the date of the first purchase of Shares pursuant to the Tender Offer, or the date of shareholder approval of the Acquisition Transaction, or the date of filing of the Schedule 13D or shareholder approval of the control share acquisition giving rise in either case to the Change in Control, or the date of the Change in Composition of the Board, as the case may be (the occurrence of any such event is hereinafter referred to as an "Acceleration"). Section 7. Exercise of Options. - ---------- ------------------- (a) Notice of Exercise. The Holder of an ------------------- option granted under the Plan may exercise all or part of such option by giving written notice of exercise to the Committee or its designee; provided, however, that an option may not be exercised for a fraction of a Share. No Holder of an option nor such Holder's legal representatives, legatees, Transferees, distributees, or Designation of Beneficiary will be, or will be deemed to be, a Holder of any Shares covered by such option unless and until certificates for such Shares are issued in accordance with the Plan. (b) Payment of Option Price. The option ------------------------ price for Shares with respect to which an option is exercised shall be paid in full at the time such notice is given. An option shall be deemed exercised on the date the Committee or its designee receives written notice of exercise, together with full payment for the Shares purchased. The option price shall be paid to the Company either in cash or, with the approval of the Committee, Shares having a Fair Market Value equal to the option price (or a combination of cash and Shares such that the sum of the Fair Market Value of the Shares plus the cash equals the option price). (c) Payment in Cancellation of Option. The --------------------------------- Committee shall have the authority in its sole discretion to authorize the payment to the Holder of an option granted under the Plan (with the consent of such Holder), in exchange for the cancellation of all or a part of such Holder's option, of cash in an amount not to exceed the difference between the aggregate Fair Market Value on the date of such cancellation of the shares with respect to which the option is being cancelled and the aggregate option price of such Shares; provided, however, that if an Acceleration of options granted hereunder has occurred, for purposes of this subparagraph, "Fair Market Value" on the date of such cancellation shall be calculated in the same manner as the "exercise value" of a Limited Right would be calculated under Section 8(c) with respect to such date (whether or not any Limited Rights are actually outstanding). (d) Tax Withholding. With the approval of --------------- the Committee, the Grantee of a Nonqualified Option may elect to have the Company retain from the Shares to be issued upon the exercise by the Grantee of such option Shares having a Fair Market Value on the Tax Date equal to all or any part of the required minimum federal, state and local withholding tax payments to be made by the Grantee with respect to the exercise of the option in lieu of making such payments in cash. The Committee may establish from time to time rules or limitations with respect to the right of a Grantee to elect to have the Company retain Shares in satisfaction of withholding payments; provided, however, that, in any event, any such election made by a person subject to Section 16(b) of the 1934 Act must be made in accordance with any applicable rules established under such Section. If a Grantee transfers a Nonqualified Option pursuant to Section 9, the Grantee is required to satisfy the applicable withholding taxes by paying cash or other property to the Company with respect to any income recognized by the Grantee on the exercise of such option by the Transferee. The Grantee's withholding obligations must be satisfied on the date that the Transferee exercises the option. If the Grantee does not satisfy the applicable withholding tax obligation, the Company shall retain from the Shares to be issued Shares having a Fair Market Value on the Tax Date equal to the mandatory withholding tax payable by the Grantee. In connection with the exercise of an option or Limited Right, the Company has the right to require the Grantee to remit or otherwise make available to the Company an amount sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the delivery or transfer of any certificate or certificates for Shares (and prior to a cash payment in the case of a Limited Right) or to take whatever action it deems necessary to protect its interests with respect to tax liabilities in connection with the issuance of Shares or cash payment. Section 8. Limited Rights. - ---------- -------------- (a) Grant of Limited Rights. The Committee ----------------------- may grant Limited Rights with respect to any option granted under the Plan either at the time the option is granted or at any time thereafter prior to the exercise, cancellation, termination or expiration of such option. The number of Limited Rights covered by any such grant shall not exceed, but may be less than, the number of Shares covered by the related option. The term of any Limited Right shall be the same as the term of the option to which it relates. The right of a Holder to exercise a Limited Right shall be cancelled if and to the extent a related option is exercised, and the right of a Holder to exercise an option shall be cancelled if and to the extent a related Limited Right is exercised. (b) Events Permitting Exercise of Limited ------------------------------------- Rights. A Limited Right shall be exercisable only if and to - ------ the extent that the related option is exercisable; provided, however, that notwithstanding the foregoing, a Limited Right shall not be exercisable during the first six months of its term nor shall it be exercisable unless the Fair Market Value of a Share on the date of exercise exceeds the exercise price of a Share subject to the related option. A Limited Right which is otherwise exercisable may be exercised only during the following periods: (i) during a period of 30 days following the date of expiration of a Tender Offer (other than an offer by the Company) for Shares, if the offeror acquires Shares pursuant to such Tender Offer; (ii) during a period of 30 days following the date of approval by the shareholders of the Company of a definitive agreement: (x) for the merger or consolidation of the Company into or with another corporation, if the Company will not be the surviving corporation or will become a Subsidiary of another corporation, or (y) for the sale of all or substantially all of the assets of the Company (each of the foregoing transactions is hereinafter referred to as an "Acquisition Transaction") (iii) during a period of 30 days following: (x) the date upon which the Company is provided a copy of a Schedule 13D (filed pursuant to Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) indicating that any person or group (as such terms are defined in Section 13(d) (3) of such act) has become the Holder of 20% or more of the outstanding voting shares of the Company, or (y) the date of approval by the shareholders of the Company of a control share acquisition (as such term is defined in Chapter 1701 of the Ohio Revised Code) (each of the foregoing transactions is hereinafter referred to as a "Change of Control"); and (iv) during a period of 30 days following a change in the composition of the Board of Directors such that individuals who were members of the Board of Directors on the date two years prior to such change (or who were elected, or were nominated for election, by the Company's shareholders with the affirmative vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two year period) no longer constitute a majority of the Board of Directors (such a change in composition is hereinafter referred to as a "Change in Composition of the Board"). (c) Exercise of Limited Rights. Upon --------------------------- exercise of a Limited Right, the Holder thereof shall receive from the Company a cash payment equal to the excess of: (x) the aggregate "exercise value" on the date of exercise (determined as provided below) of that number of Shares as is equal to the number of Limited Rights being exercised over (y) the aggregate exercise price under the related option of that number of Shares as is equal to the number of Limited Rights being exercised. A Holder shall exercise a Limited Right by giving written notice of such exercise to the Committee. A Limited Right shall be deemed exercised on the date the Committee receives such written notice. The "exercise value" of a Limited Right on the date of exercise shall be: (i) in the case of an exercise during a period described in Section 8(b) (i), the highest price per Share paid pursuant to any Tender Offer which is in effect at any time during the 60-day period prior to the date on which the Limited Right is exercised; (ii) in the case of an exercise during a period described in Section 8(b) (ii), the greater of: (x) the highest sale price of a Share during the 30-day period prior to the date of shareholder approval of the Acquisition Transaction, as reported on the New York Stock Exchange - Composite Transactions Tape, or (y) the highest fixed or formula per Share price payable pursuant to the Acquisition Transaction (if determinable on the date of exercise); (iii) in the case of an exercise during a period described in Section 8(b) (iii), the greater of: (x) the highest sale price of a Share during the 30-day period prior to the date the Company is provided with a copy of the Schedule 13D, or the date of approval of the control share acquisition, as reported on the New York Stock Exchange - Composite Transactions Tape, or (y) the highest acquisition price of a Share shown on such Schedule 13D or to be paid in such control share acquisition; and (iv) in the case of an exercise during a period described in Section 8 (b) (iv), the highest sale price of a Share during the 30-day period prior to the date of the Change in Composition of the Board, as reported on the New York Stock Exchange - Composite Transactions Tape. Notwithstanding the foregoing, in no event shall the exercise value of a Limited Right issued in connection with an Incentive Stock Option exceed the maximum permissible exercise value for such a right under the Code and the regulations and interpretations issued pursuant thereto. Any securities or property which form part or all of the consideration paid for Shares pursuant to a Tender Offer or Acquisition Transaction shall be valued at the higher of (1) the valuation placed on such securities or property by the person making such Tender Offer or the other party to such Acquisition Transaction, or (2) the value placed on such securities or property by the Committee. (d) Compliance with Law. The exercise of -------------------- Limited Rights by directors and officers of the Company shall be subject to, and comply with, the applicable requirements of Rule 16b3(e) promulgated under the Securities Exchange Act of 1934, as amended, and as the same may be amended, modified or superseded from time to time. Section 9. Non-Transferability. - ---------- -------------------- Except as provided in this Section 9, options granted under the Plan may not be sold, pledged, assigned, hypothecated or transferred other than by Designation of Beneficiary, or, if none, then by will or the laws of descent and distribution and may be exercised during the lifetime of the Grantee only by such Grantee or by his guardian or legal representative. Upon the death of an Option Holder, outstanding Options held by such Holder may be exercised only by Designation of Beneficiary, or, if none, then by the executor or administrator of the Holder's estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution. Subject to such conditions as the Committee may prescribe, during an option Grantee's lifetime, the Committee may permit the transfer or assignment of an outstanding option by such Grantee; provided, that such transfer or assignment shall not apply to (y) an option which is an Incentive Stock Option (but only if nontransferability is necessary in order for the option to qualify as an Incentive Stock Option), and (z) an option granted to a person subject to Section 16 of the 1934 Act (but only if nontransferability is necessary in order for the option to qualify for the exemption under Rule 16b-3 of the 1934 Act). Section 10. Adjustments Upon Changes in Capitalization. - ----------- ------------------------------------------- In the event of a change in outstanding Shares by reason of a Share dividend, recapitalization, merger, consolidation, split-up, combination or exchange of Shares, or the like, the maximum number of Shares subject to option during the existence of the Plan, the number of Limited Rights which may be granted under the Plan, the number of Shares subject to, and the option price of, each outstanding option, the number of Limited Rights outstanding, the Fair Market Value of a Share on the date a Limited Right is granted, and the like shall be appropriately adjusted by the Committee (disregarding any fractional Shares resulting therefrom), whose determination in each case shall be conclusive. Section 11. Conditions Upon Granting and Exercise of ---------------------------------------- Options and Limited Rights and Issuance of ------------------------------------------ Shares. ------ No option or Limited Right shall be granted, no option or Limited Right shall be exercised and Shares shall not be issued or delivered upon the exercise of an option unless the grant and exercise thereof, and the issuance and/or delivery of Shares pursuant thereto, or the payment therefor, shall comply with all relevant provisions of state and federal law, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares then may be listed. Section 12. Amendment and Termination of Plan. - ----------- --------------------------------- (a) Amendment. The Board of Directors may --------- from time to time amend the Plan, or any provision thereof, in such respects as the Board of Directors may deem advisable; provided, however, that any such amendment shall be approved by the Holders of shares entitling them to exercise a majority of the voting power of the Company if such amendment would: (i) materially increase the benefits accruing to participants under the Plan; (ii) materially increase the aggregate number of Shares which may be issued and/or delivered under the Plan and/or the number of Shares which may be issued and/or delivered to any individual under the Plan; or (iii) materially modify the requirements as to eligibility for participation in the Plan. (b) Termination. The Board may at any time ----------- terminate the Plan. (c) Effect of Amendment or Termination. No ---------------------------------- amendment to or termination of the Plan shall adversely affect any option or Limited Right previously granted under the Plan without the consent of the Holder thereof. Section 13. Notices. - ----------- -------- Each notice relating to this Plan shall be in writing and delivered in person or by mail to the proper address. Except as otherwise provided by the Committee, each notice shall be deemed to have been given on the date it is delivered or mailed, provided, however, that for a notice of exercise given in accordance with Section 7 (b), which shall be deemed to have been given on the date it is received by the Committee with payment of the option price. Each notice to the Committee shall be addressed as follows: The Mead Corporation, Mead World Headquarters, Courthouse Plaza Northeast, Dayton, Ohio 45463, Attention: Compensation Committee. Each notice to the Holder of an option or other person or persons then entitled to exercise an option shall be addressed to such person or persons at the Holder's address as set forth in the records of the Company. Anyone to whom a notice may be given under this Plan may designate a new address by written notice to the party to that effect. Section 14. Benefits of Plan. - ----------- ---------------- This Plan shall inure to the benefit of and be binding upon each successor and assign of the Company. All rights and obligations imposed upon the Holder of an option and all rights granted to the Company under this Plan shall be binding upon such Holder's heirs, legal representatives and successors. Section 15. Pronouns and Plurals. - ----------- --------------------- All pronouns shall be deemed to refer to the masculine, feminine, singular or plural, as the identity of the person or persons may require. Section 16. Shareholder Approval and Term of Plan. - ----------- ------------------------------------- The Plan shall become effective upon its approval by the affirmative vote (either in person or by proxy) of the Holders of shares entitling them to exercise a majority of the voting power of the Company. The Plan shall expire on January 26, 1994, unless sooner terminated in accordance with Section 12. _______________________________________ NOTES: - ------ (1) Adopted by the Board of Directors of the Company on January 26, 1984, subject to approval by the shareholders of the Company. (2) Approved by the shareholders of the Company on April 24, 1986. (3) Amendment to Section 6(b) (5) adopted by the Board of Directors of the Company on November 01, 1986. (4) Amendment to Section 2, 6(4), (5) and (6), 7 and 9 by the Board of Directors of the Company on November 09, 1996 to permit the transfer of stock options and to allow for the designation of a beneficiary of the stock option grant. (5) Administrative Amendment to Section 7(d) as adopted by the Compensation Committee of the Board of Directors on June 24, 1999. EX-10.2 3 Exhibit 10.2 THE MEAD CORPORATION 1991 STOCK OPTION PLAN ---------------------- COMPOSITE --------- 06/24/99 Section 1. Purposes. - ---------- --------- The purposes of this 1991 Stock Option Plan (the ---- "Plan") are (i) to provide incentives to officers and other key employees of the Company upon whose judgment, initiative and efforts the long-term growth and success of the Company is largely dependent; (ii) to assist the Company in attracting and retaining key employees of proven ability; and (iii) to increase the identity of interests of such key employees with those of the Company's shareholders by providing such employees with options to acquire Common Shares of the Company. Section 2. Definitions. - ---------- ------------ For purposes of the Plan: (a) "Acquisition Transaction" means a transaction of the type described in Section 8 (b) (ii). (b) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the 1934 Act. (c) "Board of Directors" means the Board of Directors of the Company. (d) "Change in Composition of the Board" means an event of the type described in Section 8 (b) (iv). (e) "Change in Control" means a transaction of the type described in Section 8 (b) (iii). (f) "Committee" means the committee referred to in Section 4. (g) "Code" means the Internal Revenue Code of 1986, as ---- amended. (h) "Company" means The Mead Corporation; when used in the Plan with reference to employment, "Company" shall include any Subsidiary of the Company. (i) "Designation of Beneficiary" means such person(s) or entity whom the option Holder has designated by a transfer on death or other designation of beneficiary to receive the Holder's option on the Holder's death in accordance with such procedures established from time to time by the Committee. (j) "Fair Market Value" means the average of the highest sale price and the lowest sale price of a Share on the date the value of a Share is to be determined, as reported on the New York Stock Exchange - Composite Transactions Tape or, if no sale is reported for such date, then on the next preceding date for which a sale is reported. (k) "Grantee" means the employee who received the option from the Company. (l) "Holder" means the person(s) or entity who owns the option, whether Grantee, Transferee, heir or other beneficiary. (m) "Incentive Stock Option" means an option granted under the Plan which qualifies as an incentive stock option under Section 422 of the Code. (n) "Limited Right" means a right granted under Section 8 of the Plan. (o) "Nonqualified Option" means an option granted under the Plan which does not qualify as an incentive stock option under Section 422 of the Code. (p) "1934 Act" means the Securities Exchange Act of 1934, as amended. (q) "Share" or "Shares" means the Common Shares, without par value, of the Company. (r) "Subsidiary" means any corporation, partnership or other person or entity at least 10% of the voting or equity interest of which is owned or controlled, directly or indirectly, by the Company. (s) "Tender Offer" means a tender offer or a request or invitation for tenders or an exchange offer subject to regulation under Section 14 (d) of the 1934 Act and the rules and regulations thereunder, as the same may be amended, modified or superseded from time to time. (t) "Tax Date" means the date as of which the amount of the withholding tax payment with respect to the exercise of a Nonqualified Option is calculated. (u) "Transferee" means the person who received the option from the Grantee during the Grantee's lifetime. (v) "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. Section 3. Shares Subject to the Plan. - ---------- --------------------------- (a) Number of Shares. Subject to adjustment as ---------------- provided in Section 10, the maximum number of Shares that may be issued and/or delivered under the Plan upon the exercise of options is 8,000,000. Such Shares may be either authorized and unissued or treasury Shares. Any Shares (i) subject to an option which for any reason has terminated or expired or has been cancelled prior to being fully exercised or (ii) which have been received by the Company as full or partial payment for Shares purchased pursuant to Section 7 (b), may again be subject to option under the Plan. (b) The maximum number of Limited Rights which may be granted under the Plan is 8,000,000. Any Limited Rights granted under the Plan which for any reason terminate or expire or have been cancelled prior to being fully exercised may again be granted under the Plan. Section 4. Administration. - ---------- -------------- The Plan shall be administered by a committee (the "Committee") of the Board of Directors, consisting of three or more directors, who shall from time to time be appointed by, and serve at the pleasure of, the Board of Directors. No director shall serve as a member of the Committee if he does not qualify as a disinterested person with respect to the Plan under Rule 16b-3 (or any successor provision) under the 1934 Act. The Committee shall have and exercise all the power and authority granted to it under the Plan. Subject to the provisions of the Plan, the Committee shall in its sole discretion determine the persons to whom, and the times at which, Incentive Stock Options, Nonqualified Options and Limited Rights shall be granted; the number of Shares to be subject to each option; the option price per Share; and the term of each option. In making such determinations, the Committee may take into consideration each employee's present and/or potential contribution to the success of the Company and its Subsidiaries and any other factors which the Committee may deem relevant and proper. Subject to the provisions of the Plan, the Board of Directors or the Committee shall also interpret the Plan; prescribe, amend and rescind rules and regulations relating to the Plan; correct defects, supply omissions and reconcile any inconsistencies in the Plan; and make all other determinations necessary or advisable for the administration of the Plan. The Committee or its designee may in its discretion change the terms of any Limited Right granted hereunder in connection with an Incentive Stock Option to permit the Limited Right to be exercisable even though the Fair Market Value of a Share on the date of exercise does not exceed the exercise price of the related option. Such determinations of the Board of Directors, or of the Committee (to the extent not reversed or modified by the Board of Directors), shall be conclusive. A majority of the Committee shall constitute a quorum for meetings of the Committee, and the act of a majority of the Committee at a meeting, or an act reduced to or approved in writing by all members of the Committee, shall be the act of the Committee. Section 5. Eligibility. - ---------- ----------- From time to time during the term of the Plan, the Committee may grant one or more Incentive Stock Options and/or Nonqualified Options to any person who is then an officer or other key employee of the Company. A director who is not also an employee of the Company shall not be eligible to receive options granted under the Plan. Section 6. Terms and Conditions of Options. - --------- ------------------------------- (a) Written Agreement. The terms of each option ------------------ granted under the Plan shall be set forth in a written agreement, the form of which shall be approved by the Committee. (b) Terms and Conditions of General Application. The -------------------------------------------- following terms and provisions shall apply to all options granted under the Plan: (1) No option may be granted under the Plan at an option price per Share which is less than the Fair Market Value of a Share on the date of grant. (2) No option may be exercised more than ten years after the date of grant. (3) No option shall be exercisable within one year after the date of grant. At the time an option is granted, the Committee may provide that after such one-year period, the option may be exercised with respect to all Shares subject thereto, or may be exercised with respect to only a specified number of Shares over a specified period or periods. (4) Except as provided in Sections 6(b) (5) and 6(b) (6), an option may be exercised only if the Grantee thereof has been continuously employed by the Company since the date of grant. Whether authorized leave of absence or absence for military or governmental service shall constitute a termination of employment shall be determined by the Committee, after consideration of the provisions of Section 1.421-7(h) of the regulations issued under the Code, if appropriate. (5) At the time an option is granted, or at such other time as the Committee may determine, the Committee may provide that, if the Grantee of the option ceases to be employed by the Company for any reason (including retirement or disability) other than death, the option will continue to be exercisable by the Grantee for such additional period (not to exceed the remaining term of such option) after such termination of employment as the Committee may provide. (6) At the time an option is granted, the Committee may provide that, if the Grantee of the option dies while employed by the Company or while entitled to the benefits of any additional exercise period established by the Committee with respect to such option in accordance with Section 6 (b) (5), then the option will continue to be exercisable by the person or persons (including the Holder's estate) to whom the Holder's rights with respect to such option shall have passed by will or by the laws of descent and distribution (or in accordance with the procedures set forth in Section 9 hereof) for such additional period after death (not to exceed the remaining term of such option) as the Committee may provide. (7) At the time an option is granted, the Committee may provide for any restriction or limitation on the exercise of such option and/or for any restriction or limitation on the transferability of the Shares issuable upon the exercise of such option as it may deem appropriate. (c) Additional Provisions Applicable to Incentive --------------------------------------------- Stock Options. ------------- The following additional terms and provisions shall apply to Incentive Stock Options granted under the Plan, notwithstanding any provision of Section 6 (b) to the contrary: (1) No Incentive Stock Option shall be granted to an officer or other employee who possesses directly or indirectly (within the meaning of Section 424 (d) of the Code) at the time of grant more than 10% of the voting power of all classes of shares of the Company or of any parent corporation or any corporation, 50% or more of the voting stock of which is owned or controlled, directly or indirectly, by the Company, unless the option price is at least 110% of the Fair Market Value of the Shares subject to the option on the date the option is granted and the option is not exercisable after the expiration of five years from the date of grant. (2) The aggregate Fair Market Value (determined on the date an Incentive Stock Option is granted) of Shares with respect to which Incentive Stock Options are exercisable for the first time by any individual in any calendar year (under the Plan and all of the plans of the Company and any Subsidiary and any parent corporation) shall not exceed $100,000, or such other maximum amount permitted by the Code. (d) Waiver of Terms. Subject to the ten-year ---------------- limitation in Section 6(b)(2), the Committee may waive or modify at any time, either before or after the granting of an option, any condition or restriction with respect to the exercise of such option imposed by or pursuant to this Section 6 in such circumstances as the Committee may deem appropriate (including, without limitation, in the event the Grantee retires with the approval of the Company, or in the event of a proposed Acquisition Transaction, a Change in Control, Tender Offer for Shares, or other similar transaction involving the Company). (e) Acceleration Upon Certain Events. Subject to the --------------------------------- first sentence of Section 6(b)(3) hereof, but notwithstanding any other provision of the Plan, immediately prior to the occurrence of an "Acceleration" (as defined in this Section 6(e)), all outstanding options granted hereunder shall become fully vested and exercisable. As used in the immediately preceding sentence, "immediately prior" to the Acceleration shall mean sufficiently in advance of the Acceleration to permit the grantee to take all steps reasonably necessary to exercise the option fully and to deal with the Shares purchased under the option so that those Shares may be treated in the same manner in connection with the Acceleration as the Shares of other shareholders. For purposes of this Section 6(e), an "Acceleration" shall mean any of the following: (i) the date of the first purchase of Shares pursuant to a Tender Offer (other than an offer by the Company), (ii) the date of shareholder approval of an Acquisition Transaction, (iii) the date of filing of the Schedule 13D or shareholder authorization of the control share acquisition giving rise in either case to a Change in Control, or (iv) the date of a Change in Composition of the Board. Section 7. Exercise of Options. - ---------- -------------------- (a) Notice of Exercise. The Holder of an option ------------------- granted under the Plan may exercise all or part of such option by giving written notice of exercise to the Committee or its designee; provided, however, that an option may not be exercised for a fraction of a Share. No Holder of an option nor such Holder's legal representatives, legatees, Transferees, distributees, or Designation of Beneficiary will be, or will be deemed to be, a Holder of any Shares covered by such option unless and until the option shall have been exercised in accordance with the Plan. (b) Payment of Option Price. The option price for ------------------------ Shares with respect to which an option is exercised shall be paid in full at the time such notice is given. An option shall be deemed exercised on the date the Committee or its designee receives written notice of exercise, together with full payment for the Shares purchased. The option price shall be paid to the Company either in cash or, with the approval of the Committee, Shares having a Fair Market Value equal to the option price (or a combination of cash and Shares such that the sum of the Fair Market Value of the Shares plus the cash equals the option price). (c) Payment in Cancellation of Option. The Committee --------------------------------- shall have the authority in its sole discretion to authorize the payment to the Holder of an option granted under the Plan (with the consent of such Holder), in exchange for the cancellation of all or a part of such Holder's option, of cash in an amount not to exceed the difference between the aggregate Fair Market Value on the date of such cancellation of the Shares with respect to which the option is being cancelled and the aggregate option price of such Shares; provided, however, that if an Acceleration has occurred, for purposes of this subparagraph, "Fair Market Value" on the date of such cancellation shall be calculated in the same manner as the "exercise value" of a Limited Right would be calculated under Section 8 (c) with respect to such date (whether or not any Limited Rights are actually outstanding). (d) Tax Withholding. With the approval of the --------------- Committee, the Grantee of a Nonqualified Option may elect to have the Company retain from the Shares to be issued upon the exercise by the Grantee of such option Shares having a Fair Market Value on the Tax Date equal to all or any part of the required minimum federal, state and local withholding tax payments to be made by the Grantee with respect to the exercise of the option in lieu of making such payments in cash. The Committee may establish from time to time rules or limitations with respect to the right of a Grantee to elect to have the Company retain Shares in satisfaction of withholding payments; provided, however, that, in any event, any such election made by a person subject to Section 16 (b) of the 1934 Act must be made in accordance with any applicable rules established under such section. If a Grantee transfers a Nonqualified Option pursuant to Section 9, the Grantee is required to satisfy the applicable withholding taxes by paying cash or other property to the Company with respect to any income recognized by the Grantee on the exercise of such option by the Transferee. The Grantee's withholding obligations must be satisfied on the date that the Transferee exercises the option. If the Grantee does not satisfy the applicable withholding tax obligation, the Company shall retain from the Shares to be issued Shares having a Fair Market Value on the Tax Date equal to the mandatory withholding tax payable by the Grantee. In connection with the exercise of an option or Limited Right, the Company has the right to require the Grantee to remit or otherwise make available to the Company an amount sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the delivery or transfer of any certificate or certificates for Shares (and prior to a cash payment in the case of a Limited Right) or to take whatever action it deems necessary to protect its interests with respect to tax liabilities in connection with the issuance of Shares or cash payment. Section 8. Limited Rights. - ---------- --------------- (a) Grant of Limited Rights. The Committee may grant ------------------------ Limited Rights with respect to any option granted under the Plan either at the time the option is granted or at any time thereafter prior to the exercise, cancellation, termination or expiration of such option. The number of Limited Rights covered by any such grant shall not exceed, but may be less than, the number of Shares covered by the related option. The term of any Limited Right shall be the same as the term of the option to which it relates. The right of a Holder to exercise a Limited Right shall be cancelled if and to the extent a related option is exercised, and the right of a Holder to exercise an option shall be cancelled if and to the extent a related Limited Right is exercised. (b) Events Permitting Exercise of Limited Rights. A -------------------------------------------- Limited Right shall be exercisable only if and to the extent that the related option is exercisable; provided, however, that notwithstanding the foregoing, (x) a Limited Right shall not be exercisable during the first six months of its term, and (y) in the case of a Limited Right issued in connection with an Incentive Stock Option, such Limited Right shall not be exercisable unless the Fair Market Value of a Share on the date of exercise exceeds the exercise price of a Share subject to the related option. A Limited Right which is otherwise exercisable may be exercised only during the following periods: (i) during a period of 30 days following the date of expiration of a Tender Offer (other than an offer by the Company), if the offeror acquires Shares pursuant to such Tender Offer; (ii) during a period of 30 days following the date of approval by the shareholders of the Company of a definitive agreement: (x) for the merger or consolidation of the Company into or with another corporation, if the Company will not be the surviving corporation or will become a subsidiary of another corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation, (y) for the merger or consolidation of the Company with another corporation, if the Company will be the surviving corporation and will not become a subsidiary of another corporation, or for the merger or consolidation of any direct or indirect subsidiary of the Company into or with another corporation, other than (in either case) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent ((i) in the case of a merger or consolidation of the Company, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, or (ii) in the case of a merger or consolidation of any direct or indirect subsidiary of the Company, either by remaining outstanding if the Company continues as a parent of the merged or consolidated subsidiary or by being converted into voting securities of the surviving entity or any parent thereof) at least 51% of the combined voting power of the voting securities of the Company or surviving or parent entity outstanding immediately after such merger or consolidation, or (z) for the sale or disposition of all or substantially all of the assets of the Company (each of the foregoing transactions is hereinafter referred to as an "Acquisition Transaction"); (iii) during a period of 30 days following: (x) the date upon which the Company is provided a copy of a Schedule 13D (filed pursuant to Section 13 (d) of the 1934 Act and the rules and regulations promulgated thereunder) indicating that any person or group (as such terms are defined in Section 13 (d)(3) of the 1934 Act) has become the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) of 20% or more of the outstanding voting shares of the Company or (y) the date of authorization, by both a majority of the voting power of the Company and a majority of the portion of such voting power excluding the voting power of interested Shares, of a control share acquisition (as such term is defined in Chapter 1701 of the Ohio Revised Code) (each of the foregoing transactions is hereinafter referred to as a "Change in Control"); and (iv) during a period of 30 days following a change in the composition of the Board of Directors such that individuals who were members of the Board of Directors on the date two years prior to such change (and any new directors (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) who were elected, or were nominated for election, by the Company's shareholders with the affirmative vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved) no longer constitute a majority of the Board of Directors (such a change in composition is hereinafter referred to as a "Change in Composition of the Board"). (c) Exercise of Limited Rights. Upon exercise of a --------------------------- Limited Right, the Holder thereof shall receive from the Company a cash payment equal to the excess of: (x) the aggregate "exercise value" on the date of exercise (determined as provided below) of that number of Shares as is equal to the number of Limited Rights being exercised over (y) the aggregate exercise price under the related option of that number of Shares as is equal to the number of Limited Rights being exercised. A Holder shall exercise a Limited Right by giving written notice of such exercise to the Committee. A Limited Right shall be deemed exercised on the date the Committee receives such written notice. The "exercise value" of a Limited Right on the date of exercise shall be: (i) in the case of an exercise during a period described in Section 8 (b) (i), the highest price per Share paid pursuant to any Tender Offer which is in effect at any time during the 60-day period prior to the date on which the Limited Right is exercised; (ii) in the case of an exercise during a period described in Section 8 (b) (ii), the greater of: (x) the highest sale price of a Share during the 30-day period prior to the date of shareholder approval of the Acquisition Transaction, as reported on the New York Stock Exchange - Composite Transaction Tape, or (y) the highest fixed or formula per Share price payable pursuant to the Acquisition Transaction (if determinable on the date of exercise); (iii) in the case of an exercise during a period described in Section 8 (b) (iii), the greater of: (x) the highest sale price of a Share during the 30-day period prior to the date the Company is provided with a copy of the Schedule 13D, or the date of authorization of the control share acquisition, as reported on the New York Stock Exchange - Composite Transactions Tape, or (y) the highest acquisition price of a Share shown on such Schedule 13D or to be paid in such control share acquisition; and (iv) in the case of an exercise during a period described in Section 8 (b) (iv), the highest sale price of a Share during the 30-day period prior to the date of the Change in Composition of the Board, as reported on the New York Stock Exchange - Composite Transactions Tape. Notwithstanding the foregoing, in no event shall the exercise value of a Limited Right issued in connection with an Incentive Stock Option exceed the maximum permissible exercise value for such a right under the Code and the regulations and interpretations issued pursuant thereto. Any securities or property which form part or all of the consideration paid for Shares pursuant to a Tender Offer or Acquisition Transaction shall be valued at the higher of (1) the valuation placed on such securities or property by the person making such Tender Offer or the other party to such Acquisition Transaction, or (2) the value placed on such securities or property by the Committee. (d) Compliance with Law. The exercise of Limited -------------------- Rights by directors and officers of the Company shall be subject to, and comply with, the applicable requirements of Rule 16b-3 (e) under the 1934 Act (or any successor provision), as the same may be amended, modified or superseded from time to time. Section 9. Non-Transferability. - --------- ------------------- Except as provided in this Section 9, options granted under the Plan may not be sold, pledged, assigned, hypothecated or transferred other than by Designation of Beneficiary, or, if none, then by will or the laws of descent and distribution and may be exercised during the lifetime of the Grantee only by such Grantee or by his guardian or legal representative. Upon the death of an option Holder, outstanding options held by such Holder may be exercised only by Designation of Beneficiary, or, if none, then by the executor or administrator of the Holder's estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution. Subject to such conditions as the Committee may prescribe, during an option Grantee's lifetime, the Committee may permit the transfer or assignment of an outstanding option by such Grantee; provided, that such transfer or assignment shall not apply to (y) an option which is an Incentive Stock Option (but only if nontransferability is necessary in order for the option to qualify as an Incentive Stock Option), and (z) an option granted to a person subject to Section 16 of the 1934 Act (but only if nontransferability is necessary in order for the option to qualify for the exemption under Rule 16b-3 of the 1934 Act). Section 10. Adjustments Upon Changes in Capitalization. - ----------- ------------------------------------------ In the event of a change in outstanding Shares by reason of a Share dividend, recapitalization, merger, consolidation, split-up, combination or exchange of shares, or the like, the maximum number of Shares subject to option during the existence of the Plan, the number of Limited Rights which may be granted under the Plan, the number of Shares subject to, and the option price of, each outstanding option, the number of Limited Rights outstanding, the Fair Market Value of a Share on the date a Limited Right is granted, and the like shall be appropriately adjusted by the Committee (disregarding any fractional Shares resulting therefrom), whose determination in each case shall be conclusive. Section 11. Conditions Upon Granting and Exercise of - ----------- ---------------------------------------- Options and Limited Rights and Issuance of ------------------------------------------ Shares. ------- No option or Limited Right shall be granted, no option or Limited Right shall be exercised and Shares shall not be issued or delivered upon the exercise of an option unless the grant and exercise thereof, and the issuance and/or delivery of Shares pursuant thereto, or the payment therefor, shall comply with all relevant provisions of state and federal law, including, without limitation, the Securities Act of 1933, as amended, the 1934 Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares then may be listed. Section 12. Amendment and Termination of Plan. - ---------- --------------------------------- (a) Amendment. The Board of Directors may from time --------- to time amend the Plan, or any provision thereof, in such respects as the Board of Directors may deem advisable; provided, however, that any such amendment shall be approved by the Holders of Shares by such vote and otherwise in compliance with applicable federal or state law (including Rule 16b-3 (or any successor provision) under the 1934 Act) or the requirements of any stock exchange upon which the Shares may then be listed. (b) Termination. The Board may at any time terminate ----------- the Plan. (c) Effect of Amendment or Termination. No amendment ---------------------------------- to or termination of the Plan shall adversely affect any option or Limited Right previously granted under the Plan without the consent of the Holder thereof. Section 13. Notices. - ----------- -------- Each notice relating to this Plan shall be in writing and delivered in person or by mail to the proper address. Except as otherwise provided by the Committee, each notice shall be deemed to have been given on the date it is delivered or mailed, provided, however, that for a notice of exercise given in accordance with Section 7 (b), which shall be deemed to have been given on the date it is received by the Committee with payment of the option price. Each notice to the Committee shall be addressed as follows: The Mead Corporation, Mead World Headquarters, Courthouse Plaza Northeast, Dayton, Ohio 45463, Attention: Compensation Committee. Each notice to the Holder of an option or other person or persons then entitled to exercise an option shall be addressed to such person or persons at the Holder's address as set forth in the records of the Company. Anyone to whom a notice may be given under this Plan may designate a new address by written notice to the party to that effect. Section 14. Benefits of Plan. - ----------- ----------------- This Plan shall inure to the benefit of and be binding upon each successor and assign of the Company. All rights and obligations imposed upon the Holder of an option and all rights granted to the Company under this Plan shall be binding upon such Holder's heirs, legal representatives and successors. Section 15. Pronouns and Plurals. - ----------- --------------------- All pronouns shall be deemed to refer to the masculine, feminine, singular or plural, as the identity of the person or persons may require. Section 16. Shareholder Approval and Term of Plan. - ----------- -------------------------------------- The Plan shall become effective upon its approval by the affirmative vote of the Holders of a majority of the Shares entitled to vote thereon held by shareholders present in person or by proxy at any shareholders' meeting at which a quorum is present. The Plan shall expire on January 24, 2001, unless sooner terminated in accordance with Section 12. ______________________________________________ NOTES: - ------ (1) Adopted by the Board of Directors of the Company on January 24, 1991, and approved by the Company's shareholders on April 25, 1991. (2) Amendments to Sections 2, 7 (a), (b), (c), and 9 adopted by the Board of Directors of the Company on November 09, 1996 to permit the transfer of stock options and to allow for the designation of a beneficiary of the stock option grant. (3) Amendments to Sections 2(b) with addition of Section 2(w); Section 6(e); Section 8(b) with addition of subsections (i), (ii), (iii), (iv) as adopted by the Board of Directors on June 24, 1998. (4) Administrative Amendment to Section 7(d) as adopted by the Compensation Committee of the Board of Directors on June 24, 1999. EX-10.3 4 Exhibit 10.3 THE MEAD CORPORATION 1996 STOCK OPTION PLAN ---------------------- COMPOSITE --------- 06/24/99 Section 1. Purposes. ---------- --------- The purposes of The Mead Corporation 1996 Stock Option Plan (the "Plan") are (i) to provide incentives to officers, other key employees and non-employee directors of the Company upon whose judgment, initiative and efforts the long-term growth and success of the Company is largely dependent; (ii) to assist the Company in attracting and retaining key employees and non-employee directors of proven ability; and (iii) to increase the identity of interests of such key employees and non-employee directors with those of the Company's shareholders by providing such employees and directors with options to acquire Shares of the Company. Section 2. Definitions. ---------- ------------ For purposes of the Plan: (a) "Acquisition Transaction" means a transaction of the type described in Section 9(b) (ii). (b) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the 1934 Act. (c) "Board of Directors" or "Board" means the Board of Directors of the Company. (d) "Change in Composition of the Board," means an event of the type described in Section 9(b) (iv). (e) "Change in Control," means a transaction of the type described in Section 9 (b) (iii). (f) "Committee" means the committee referred to in Section 4. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Company" means The Mead Corporation, an Ohio corporation; when used in the Plan with reference to employment, "Company" shall include any Subsidiary of the Company. (i) "Designation of Beneficiary" means such person(s) or entity whom the Option Holder has designated by a transfer on death or other designation of beneficiary to receive the Holder's Option on the Holder's death in accordance with such procedures established from time to time by the Committee. (j) "Fair Market Value" means the average of the highest sale price and the lowest sale price of a Share on the date the value of a Share is to be determined, as reported on the New York Stock Exchange - Composite Transactions Tape or, if no sale is reported for such date, then on the next preceding date for which a sale is reported. (k) "Grantee" means the employee who received the option from the Company. (l) "Holder" means the person(s) or entity who owns the option, whether Grantee, Transferee, heir or other beneficiary. (m) "Incentive Stock Option" means an option granted under the Plan which qualifies as an Incentive Stock Option under Section 422 of the Code. (n) "Initial Director" means a person who is a Non- Employee Director at the date of requisite approval of this Plan by the shareholders of the Company. (o) "Limited Right" means a right granted under Section 9 of the Plan. (p) "Non-Employee Director" means a member of the Board who is not also an employee of the Company. (q) "Nonqualified Option" means an option granted under the Plan which does not qualify as an Incentive Stock Option under Section 422 of the Code. (r) "1934 Act" means the Securities Exchange Act of 1934, as amended. (s) "Reload Option" means a Nonqualified Option granted under Section 6(d) of the Plan. (t) "Share" or "Shares" means shares of common stock, without par value, of the Company. (u) "Subsequent Director" means a person who becomes a Non-Employee Director subsequent to the date of requisite approval of this Plan by the shareholders of the Company. (v) "Subsidiary" means any corporation, partnership or other person or entity at least 10% of the voting or equity interest of which is owned or controlled, directly or indirectly, by the Company. (w) "Tender Offer" means a tender offer or a request or invitation for tenders or an exchange offer subject to regulation under Section 14(d) of the 1934 Act and the rules and regulations thereunder, as the same may be amended, modified or superseded from time to time. (x) "Tax Date" means the date as of which the amount of the withholding tax payment with respect to the exercise of a Nonqualified Option is calculated. (y) "Transferee" means the person who received the option from the Grantee during the Grantee's lifetime. (z) "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. Section 3. Shares Subject to the Plan. ---------- --------------------------- (a) Number of Shares. Subject to adjustment as provided ----------------- in Section 11, the maximum number of Shares that may be issued and/or delivered under the Plan upon the exercise of options is 8,000,000. Subject to adjustment as provided in Section 11, the maximum number of Shares that may be issued and/or delivered under the Plan to any individual over the term of the Plan upon the exercise of options shall not exceed 800,000. Such Shares may be either authorized and unissued or treasury Shares. Any shares (i) subject to an option which for any reason has terminated or expired or has been cancelled prior to being fully exercised or (ii) which have been received by the Company as full or partial payment for Shares purchased pursuant to Section 8(b), may again be granted pursuant to options under the Plan. (b) Subject to adjustment as provided in Section 11, the maximum number of Limited Rights which may be granted under the Plan is 8,000,000. Subject to adjustment as provided in Section 11, the maximum number of Limited Rights that may be granted under the Plan to any individual over the term of the Plan shall not exceed 800,000. Any Limited Rights granted under the Plan which for any reason terminate or expire or have been cancelled prior to being fully exercised may again be granted under the Plan. Section 4. Administration. ---------- -------------- The Plan shall be administered by a committee (the "Committee") of the Board of Directors, consisting of three or more directors, who shall from time to time be appointed by and serve at the pleasure of, the Board of Directors. No director shall serve as a member of the Committee if (i) he or she does not qualify as a disinterested person with respect to the Plan under Rule 16b-3 (or any successor provision) under the 1934 Act or (ii) he or she does not qualify as an outside director within the meaning of Section 162(m) of the Code. The Committee shall have and exercise all the power and authority granted to it under the Plan. Subject to the provisions of the Plan, the Committee shall in its sole discretion determine the persons to whom, and the times at which, Incentive Stock Options, Nonqualified Options, Reload Options and Limited Rights shall be granted; the number of Shares to be subject to each option; the option price per Share; and the term of each option. In making such determinations, the Committee may take into consideration each participant's present and/or potential contribution to the success of the Company and any other factors which the Committee may deem relevant and proper. Subject to the provisions of the Plan, the Committee shall also interpret the Plan; prescribe, amend and rescind rules and regulations relating to the Plan; correct defects, supply omissions and reconcile any inconsistencies in the Plan; and make all other determinations necessary or advisable for the administration of the Plan. The Committee may in its discretion change the terms of any Limited Right granted hereunder in connection with an Incentive Stock Option to permit the Limited Right to be exercisable even though the Fair Market Value of a Share on the date of exercise does not exceed the exercise price of the related option. Such determinations of the Committee shall be conclusive. A majority of the Committee shall constitute a quorum for meetings of the Committee, and the act of a majority of the Committee at a meeting, or an act reduced to or approved in writing by all members of the Committee, shall be the act of the Committee. Section 5. Eligibility. ---------- ------------ From time to time during the term of the Plan, the Committee may grant one or more Incentive Stock Options, Nonqualified Options and Reload Options to any person who is then an officer or other key employee of the Company. Each Non-Employee Director shall be eligible to receive Nonqualified Options granted under the formula provision set forth in Section 7 of the Plan. Section 6. Terms and Conditions of Options. ---------- -------------------------------- (a) Option Grant Document. The terms of each option ---------------------- granted under the Plan (at any time after the establishment of the Plan) shall be set forth in a written agreement or other grant document, the form of which shall be approved by the Committee. (b) Terms and Conditions of General Application. The -------------------------------------------- following terms and provisions shall apply to all options granted under the Plan, except to the extent otherwise provided in Sections 6 (c), 6 (d), 6 (e), 6 (f) and 7 hereof, if applicable: (1) No option may be granted under the Plan at an option price per Share which is less than the Fair Market Value of a share on the date of grant. (2) No option may be exercised more than ten years after the date of grant. (3) No option shall be exercisable within one year after the date of grant. At the time an option is granted, the Committee may provide that after such one year period, the option may be exercised with respect to all Shares subject thereto, or may be exercised with respect to only a specified number of Shares over a specified period or periods. (4) Except as provided in Sections 6 (b) (5) and 6 (b) (6), an option may be exercised only if the Grantee of such option has been continuously employed by the Company since the date of grant. Whether authorized leave of absence or absence for military or governmental service shall constitute a termination of employment shall be determined by the Committee in its sole discretion. (5) At the time an option is granted, or at such other time as the Committee may determine, the Committee may provide that, if the Grantee of the Option ceases to be employed by the Company for any reason (including retirement or disability) other than death, the option will continue to be exercisable by the Holder (including a Transferee under Section 10 hereof) for such additional period (not to exceed the remaining term of such option) after such termination of employment as the Committee may provide. (6) At the time an option is granted, the Committee may provide that, if the Grantee of such option dies while employed by the Company or while entitled to the benefits of any additional exercise period established by the Committee with respect to such option in accordance with Section 6(b) (5), then the option will continue to be exercisable by the person or persons to whom the Grantee's rights with respect to such option shall have passed by will or by the laws of descent and distribution (or in accordance with the procedures set forth in Section 10 hereof) for such additional period after death (not to exceed the remaining term of such option) as the Committee may provide. (7) At the time an option is granted, the Committee may provide for any restriction or limitation on the exercise of such option and/or for any restriction or limitation on the transferability of the Shares issuable upon the exercise of such option as it may deem appropriate. (c) Additional Provisions Applicable to Incentive Stock Options. ------------------------------------------------------ -------- The following additional terms and provisions shall apply to Incentive Stock Options granted under the Plan, notwithstanding any provision of Section 6 (b) to the contrary: (1) No Incentive Stock Option shall be granted to an officer or other employee who possesses directly or indirectly (within the meaning of Section 424(d) of the Code) at the time of grant more than 10% of the voting power of all classes of Shares of the Company or of any parent corporation or any corporation, 50% or more of the voting stock of which is owned or controlled, directly or indirectly, by the Company, unless the option price is at least 110% of the Fair Market Value of the Shares subject to the option on the date the option is granted and the option is not exercisable after the expiration of five years from the date of grant. (2) The aggregate Fair Market Value (determined on the date an Incentive Stock Option is granted) of Shares with respect to which Incentive Stock Options are exercisable for the first time by any individual in any calendar year (under the Plan and all of the plans of the Company and any Subsidiary and any parent corporation) shall not exceed $100,000, or such other maximum amount permitted by the Code. (3) Any Stock Option granted under the Plan may contain a feature providing for, upon the exercise thereof, the grant of a Reload Option subject to and in accordance with the terms and conditions set forth in Section 6 (d) below. (d) Additional Provisions Applicable to Reload Options. --------------------------------------------------- Whenever the Grantee of any option containing a reload feature (the "Original Option") outstanding under this Plan exercises such Original Option, the Grantee of such Original Option (except as provided in Section 6 (d) (5) below) shall be granted on the date of such exercise (the "Reload Date") a new option (the "Reload Option") for a number of Shares (the "Original Shares") equal to the number of Shares subject to the Original Option being exercised less the number of Shares subject to the Original Option which are (A) withheld by the Company as full or partial payment of the option price for such Original Option, (B) otherwise disposed of for purposes of having the proceeds applied for such purpose or (C) withheld by the Company for purposes of tax withholding in accordance with Section 8 (d) hereof. The following additional terms and provisions shall apply to Reload Options granted under the Plan, notwithstanding any provision of Section 6 (b) to the contrary: (1) Option Price. The option price per Share ------------- covered by a Reload Option shall be an amount equal to the Fair Market Value per Share as of the Reload Date. (2) Expiration Date. Subject to Section 6 (d) (4) ---------------- below, the option exercise period shall expire on, and the Reload Option shall no longer be exercisable following, the tenth anniversary of the Reload Date. (3) Vesting Period. Reload Options granted under --------------- this Section 6 (d) shall vest and become exercisable with respect to all Shares covered thereby on the third anniversary of the Reload Date, subject to Section 6 (f) hereof. (4) Automatic Cancellation. Except as otherwise ----------------------- provided in the agreement evidencing a Reload Option, a Reload Option shall be immediately cancelled (without any action taken by the Company) with respect to that number of Shares subject to such Reload Option (such number of Shares being determined in accordance with the succeeding sentence), effective immediately upon any sale, disposition or purported assignment or transfer of any or all of the Original Shares subject to the Original Option prior to the third anniversary of the Reload Date. The number of Shares subject to the Reload Option so cancelled shall equal the number of Original Shares subject to the Original Option so sold, disposed of, assigned or transferred prior to the third anniversary of the Reload Date; provided, however, that such ----------------- Shares subject to the Reload Option shall not be cancelled if such Original Shares are used in connection with the exercise of another option with respect to which Section 6 (d) hereof applies. (5) Active Employee. No Reload Option shall be ---------------- granted to any person who is not employed by the Company at the time of exercise of an Original Option. (e) Waiver of Terms. Subject to the ten-year limitation ---------------- in Section 6 (b) (3), the Committee may waive or modify at any time, either before or after the granting of an option (including a Reload Option but excluding any option granted under Section 7 hereof) any condition or restriction with respect to the exercise of such option imposed by or pursuant to this Section 6 in such circumstances as the committee may deem appropriate (including, without limitation, in the event the Grantee retires with the approval of the Company, or in the event of a proposed Acquisition Transaction, a Change in Control, Tender Offer for Shares, or other similar transaction involving the Company). (f) Acceleration Upon Certain Events. Subject to the --------------------------------- first sentence of Section 6(b)(3) hereof, but notwithstanding any other provision of the Plan, immediately prior to the occurrence of an "Acceleration" (as defined in this Section 6(e)), all outstanding options granted hereunder (including Reload Options and options granted pursuant to Section 7 hereof) shall become fully vested and exercisable. As used in the immediately preceding sentence, "immediately prior" to the Acceleration shall mean sufficiently in advance of the Acceleration to permit the grantee to take all steps reasonably necessary to exercise the option fully and to deal with the Shares purchased under the option so that those Shares may be treated in the same manner in connection with the Acceleration as the Shares of other shareholders. For purposes of this Section 6 (e), an "Acceleration" shall mean any of the following: (i) the date of the first purchase of Shares pursuant to a Tender Offer (other than an offer by the Company), (ii) the date of shareholder approval of an Acquisition Transaction, (iii) the date of filing of the Schedule 13D or shareholder authorization of the control share acquisition giving rise in either case to a Change in Control, or (iv) the date of a Change in Composition of the Board. Section 7. Non-Employee Directors Formula Options. ---------- --------------------------------------- The following additional terms and provisions of this Section 7 shall apply to grants of options to Non-Employee Directors under the Plan, notwithstanding any provision of Section 6(b) to the contrary. The provisions of this Section 7 shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules promulgated thereunder. (a) General. Non-Employee Directors shall receive -------- Nonqualified Options under the Plan. The option price per Share shall equal the Fair Market Value of a Share on the date of grant. (b) Initial Grants to Initial Directors. Upon the ------------------------------------ requisite approval of the Plan by the shareholders of the Company, each Initial Director shall be granted automatically an option to purchase 600 Shares. (c) Initial Grants To Subsequent Directors. Each --------------------------------------- Subsequent Director shall, at the time such director becomes a Non-Employee Director, be granted automatically an option to purchase 600 Shares. (d) Subsequent Grants To Directors. On January 3rd of ------------------------------- each year beginning on January 3, 1997, each continuing Initial Director shall be granted automatically an option to purchase a number of Shares determined below. On January 3rd of each year subsequent to a Subsequent Director's becoming a Non-Employee Director, each Subsequent Director shall be granted automatically an option to purchase a number of Shares determined below. The number of Shares subject to each grant made pursuant to this Paragraph (d) shall equal the product obtained by multiplying (w) 600, by (x) an adjustment factor (the "Factor"). The Factor shall equal the quotient obtained by dividing (y) the "base line number" for average "total compensation" paid to directors by companies with annual sales in excess of $4 billion, as published in the Hay Consulting Group's "Directors Compensation Report" (or comparable successor report) in the calendar year immediately preceding the year in which such grant is made, which report covers compensation paid in the year ending immediately prior to the year of publication, by (z) $36,246. In the event that such Directors Compensation Report (or comparable successor report) is not published with respect to any year, the Factor shall equal one (1). (e) Exercisability. Subject to Section 6 (f) hereof, each --------------- option granted under this Section 7 shall be exercisable as to 100 percent of the Shares covered by the option on the first anniversary of the date the option is granted. (f) Termination. Upon the termination of a Non-Employee ----------- Director from such position, for any reason, after such director has attained either age 70 or ten (10) years of service as a director of the Company (whether or not as a Non-Employee Director), each option granted to such Non-Employee Director pursuant to this Section 7 which is exercisable at the time of such termination shall remain exercisable for the remainder of its term. Upon the termination of a Non-Employee Director from such position, for any reason, prior to the attainment of age 70 or ten (10) years of service as a director of the Company (whether or not as a Non-Employee Director), all options granted to such Non- Employee Director pursuant to this Section 7 which are exercisable at the time of such termination shall remain exercisable for a period of one year following the date of such termination, but in no event may the term of an option be extended beyond its expiration date. Each option granted pursuant to this Section 7 which is not exercisable at the time of such termination shall be immediately cancelled. Section 8. Exercise of Options. ---------- ------------------- (a) Notice of Exercise. The Holder of an option granted ------------------ under the Plan may exercise all or part of such option by giving written notice of exercise to the Committee or its designee; provided, however, that an option may not be exercised for a fraction of a Share. No Holder of an option nor such Holder's legal representatives, legatees, Transferees, distributees or Designation of Beneficiary will be, or will be deemed to be, a Holder of any Shares covered by such option unless and until the option shall have been exercised in accordance with the Plan. (b) Payment of Option Price. The option price for Shares ----------------------- with respect to which an option is exercised shall be paid in full at the time such notice is given. An option shall be deemed exercised on the date the Committee or its designee receives written notice of exercise, together with full payment for the Shares purchased. The option price shall be paid to the Company either in cash or Shares (including Shares withheld from the Shares otherwise receivable by the Option Holder upon the exercise of the option) having a Fair Market Value equal to the option price (or a combination of cash and Shares such that the sum of the Fair Market Value of the Shares plus the cash equals the option price). The Committee shall have the authority, subject to such conditions and procedures that it deems necessary and advisable, to authorize the use of a cashless exercise procedure with a registered broker/dealer. (c) Payment in Cancellation of Option. The Committee --------------------------------- shall have the authority in its sole discretion to authorize the payment to an Option Holder (with the consent of such Holder) in exchange for the cancellation of all or a part of such Holder's Option (other than an option granted under Section 7 hereof), of cash in an amount per Share not to exceed the difference between the aggregate Fair Market Value on the date of such cancellation of the Shares and the aggregate option price of such Shares; provided, however, that if an Acceleration has occurred, for purposes of this subparagraph, "Fair Market Value" on the date of such cancellation shall be calculated in the same manner as the "exercise value" of a Limited Right would be calculated under Section 9(c) with respect to such date (whether or not any Limited Rights are actually outstanding). (d) Tax Withholding. With the approval of the Committee, --------------- the Grantee of a Nonqualified Option may elect to have the Company retain from the Shares to be issued upon the exercise by the Grantee of such option Shares having a Fair Market Value on the Tax Date equal to all or any part of the required minimum federal, state and local withholding tax payments to be made by the Grantee with respect to the exercise of the option in lieu of making such payments in cash. The Committee may establish from time to time rules or limitations with respect to the right of a Grantee to elect to have the Company retain Shares in satisfaction of withholding payments; provided, however, that, in any event, any such election made by a person subject to Section 16(b) of the 1934 Act must be made in accordance with any applicable rules established under such Section. If a Grantee transfers a Nonqualified Option pursuant to Section 10, the Grantee is required to satisfy the applicable withholding taxes by paying cash or other property to the Company with respect to any income recognized by the Grantee on the exercise of such option by the Transferee. The Grantee's withholding obligations must be satisfied on the date that the Transferee exercises the option. If the Grantee does not satisfy the applicable withholding tax obligation, the Company shall retain from the Shares to be issued Shares having a Fair Market Value on the Tax Date equal to the mandatory withholding tax payable by the Grantee. In connection with the exercise of an option or Limited Right, the Company has the right to require the Grantee to remit or otherwise make available to the Company an amount sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the delivery or transfer of any certificate or certificates for Shares (and prior to a cash payment in the case of a Limited Right) or to take whatever action it deems necessary to protect its interests with respect to tax liabilities in connection with the issuance of Shares or cash payment. Section 9. Limited Rights ---------- -------------- (a) Grant of Limited Rights. The Committee may grant ------------------------ Limited Rights with respect to any option granted under the Plan (other than an option granted under Section 7) either at the time the option is granted or at any time thereafter prior to the exercise, cancellation, termination or expiration of such option. The number of Limited Rights covered by any such grant shall not exceed, but may be less than, the number of Shares covered by the related option. The term of any Limited Right shall be the same as the term of the option to which it relates. The right of a Holder to exercise a Limited Right shall be cancelled if and to the extent a related option is exercised, and the right of a Holder to exercise an option shall be cancelled if and to the extent a related Limited Right is exercised. (b) Events permitting Exercise of Limited Rights. A -------------------------------------------- Limited Right shall be exercisable only if and to the extent that the related option is exercisable; provided, however, that notwithstanding the foregoing, (x) a Limited Right shall not be exercisable during the first six months of its term, and (y) in the case of a Limited Right issued in connection with an Incentive Stock Option, such Limited Right shall not be exercisable unless the Fair Market Value of a Share on the date of exercise exceeds the exercise price of a Share subject to the related option. A Limited Right which is otherwise exercisable may be exercised only during the following periods: (i) during a period of 30 days following the date of expiration of a Tender Offer (other than an offer by the Company), if the offeror acquires Shares pursuant to such Tender Offer; (ii) during a period of 30 days following the date of approval by the shareholders of the Company of a definitive agreement: (x) for the merger or consolidation of the Company into or with another corporation, if the Company will not be the surviving corporation or will become a subsidiary of another corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation, (y) for the merger or consolidation of the Company with another corporation, if the Company will be the surviving corporation and will not become a subsidiary of another corporation, or for the merger or consolidation of any direct or indirect subsidiary of the Company into or with another corporation, other than (in either case) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent ((i) in the case of a merger or consolidation of the Company, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, or (ii) in the case of a merger or consolidation of any direct or indirect subsidiary of the Company, either by remaining outstanding if the Company continues as a parent of the merged or consolidated subsidiary or by being converted into voting securities of the surviving entity or any parent thereof) at least 51% of the combined voting power of the voting securities of the Company or surviving or parent entity outstanding immediately after such merger or consolidation, or (z) for the sale or disposition of all or substantially all of the assets of the Company (each of the foregoing transactions is hereinafter referred to as an "Acquisition Transaction"); (iii) during a period of 30 days following: (x) the date upon which the Company is provided a copy of a Schedule 13D (filed pursuant to Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder) indicating that any person or group (as such terms are defined in Section 13(d)(3) of the 1934 Act) has become the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) of 20% or more of the outstanding voting Shares of the Company or (y) the date of authorization, by both a majority of the voting power of the Company and a majority of the portion of such voting power excluding the voting power of interested Shares, of a control share acquisition (as such term is defined in Chapter 1701 of the Ohio Revised Code) (each of the foregoing transactions is hereinafter referred to as a "Change in Control"); and (iv) during a period of 30 days following a change in the composition of the Board of Directors such that individuals who were members of the Board of Directors on the date two years prior to such change (and any new directors (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) who were elected, or were nominated for election, by the Company's shareholders with the affirmative vote of at least two- thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved) no longer constitute a majority of the Board of Directors (such a change in composition is hereinafter referred to as a "Change in Composition of the Board"). (c) Exercise of Limited Rights. Upon exercise of a -------------------------- Limited Right, the Holder thereof shall receive from the Company a cash payment equal to the excess of: (x) the aggregate "exercise value" on the date of exercise (determined as provided below) of that number of Shares as is equal to the number of Limited Rights being exercised over (y) the aggregate exercise price under the related option of that number of Shares as is equal to the number of Limited Rights being exercised. A Holder shall exercise a Limited Right by giving written notice of such exercise to the Committee. A Limited Right shall be deemed exercised on the date the Committee receives such written notice. The "exercise value" of a Limited Right on the date of exercise shall be: (i) in the case of an exercise during a period described in Section 9 (b) (i), the highest price per Share paid pursuant to any Tender Offer which is in effect at any time during the 60-day period prior to the date on which the Limited Right is exercised; (ii) in the case of an exercise during a period described in Section 9(b) (ii), the greater of: (x) the highest sale price of a Share during the 30-day period prior to the date of shareholder approval of the Acquisition Transaction, as reported on the New York Stock Exchange -Composite Transactions Tape, or (y) the highest fixed or formula per Share price payable pursuant to the Acquisition Transaction (if determinable on the date of exercise); (iii) in the case of an exercise during a period described in Section 9(b) (iii), the greater of: (x) the highest sale price of a Share during the 30-day period prior to the date the Company is provided with a copy of the Schedule 13D, or the date of authorization of the control Share acquisition, as reported on the New York Stock Exchange -Composite Transactions Tape, or (y) the highest acquisition price of a Share shown on such schedule 13D or to be paid in such control Share acquisition; and (iv) in the case of an exercise during a period described in Section 9 (b) (iv), the highest sale price of a Share during the 30-day period prior to the date of the change in Composition of the Board, as reported on the New York Stock Exchange - Composite Transactions Tape. Notwithstanding the foregoing, in no event shall the exercise value of a Limited Right issued in connection with an Incentive Stock Option exceed the maximum permissible exercise value for such a right for purposes of Section 422 of the Code and the regulations and interpretations issued pursuant thereto. Any securities or property which form part or all of the consideration paid for Shares pursuant to a Tender Offer or Acquisition Transaction shall be valued at the higher of (1) the valuation placed on such securities or property by the person making such Tender Offer or the other party to such Acquisition Transaction, or (2) the value placed on such securities or property by the Committee. (d) Compliance with Law. The exercise of Limited ------------------- Rights by directors and officers of the Company shall be subject to, and comply with, the applicable requirements of Rule l6b-3 (e) under the 1934 Act (or any successor provision), as the same may be amended, modified or superseded from time to time. Section 10. Transfers Upon Death; Nonassignability. ----------- -------------------------------------- Except as provided in this Section 10, options granted under the Plan may not be sold, pledged, assigned, hypothecated or transferred other than by Designation of Beneficiary, or, if none, then by will or the laws of descent and distribution and may be exercised during the lifetime of the Grantee only by such Grantee or by his guardian or legal representative. Upon the death of an Option Holder, outstanding Options held by such Holder may be exercised only by Designation of Beneficiary, or, if none, then by the executor or administrator of the Holder's estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution. Subject to such conditions as the Committee may prescribe, during an option Grantee's lifetime, the Committee may permit the transfer or assignment of an outstanding option by such Grantee; provided, that such transfer or assignment shall not apply to (y) an option which is an Incentive Stock Option (but only if nontransferability is necessary in order for the option to qualify as an Incentive Stock Option) and (z) an option granted to a person subject to Section 16 of the 1934 Act (but only if nontransferability is necessary in order for the option to qualify for the exemption under Rule 16b-3 of the 1934 Act) Section 11. Adjustments Upon Changes in Capitalization. ----------- ------------------------------------------ In the event of a change in outstanding Shares by reason of a Share dividend, recapitalization, merger, consolidation, split- up, combination or exchange of Shares, or the like, or in the event of any similar corporate transaction which the Committee determines requires the adjustments described herein, the maximum number of Shares subject to option during the existence of the Plan, the number of Limited Rights which may be granted under the Plan, the number of Shares subject to, and the option price of, each outstanding option, the maximum number of Shares or Limited Rights which may be granted to any individual over the term of the Plan, the number of Limited Rights outstanding, the Fair Market Value of a Share on the date a Limited Right is granted, and the like shall be appropriately adjusted by the Committee (disregarding any fractional Shares resulting therefrom), whose determination in each case shall be conclusive. Section 12. Conditions Upon Granting and Exercise of Options and ----------- ---------------------------------------------------- Limited Rights and Issuance of Shares. ------------------------------------- No option or Limited Right shall be granted, no option or Limited Right shall be exercised and Shares shall not be issued or delivered upon the exercise of an option unless the grant and exercise thereof, and the issuance and/or delivery of Shares pursuant thereto, or the payment therefor, shall comply with all relevant provisions of state and federal law, including, without limitation, the Securities Act of 1933, as amended, the 1934 Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares then may be listed. Section 13. Amendment and Termination of Plan. ----------- --------------------------------- (a) Amendment. The Board of Directors may from time to --------- time amend the Plan, or any provision thereof, in such respects as the Board of Directors may deem advisable; provided, however, that any such amendment shall be approved by the holders of Shares by such vote and otherwise in compliance with applicable federal or state law (including Rule 16b-3 (or any successor provision) under the 1934 Act) or the requirements of any stock exchange upon which the Shares may then be listed. (b) Termination. The Board may at any time terminate the ------------ Plan. (c) Effect of Amendment or Termination. No amendment to ---------------------------------- or termination of the Plan shall adversely affect any option or Limited Right previously granted under the Plan without the consent of the Holder thereof. Section 14. Notices. ----------- ------- Each notice relating to this Plan shall be in writing and delivered in person or by mail to the proper address. Except as otherwise provided by the Committee, each notice shall be deemed to have been given on the date it is delivered or mailed, provided, however, that for a notice of exercise given in accordance with Section 8 (b), which shall be deemed to have been given on the date it is received by the Committee with payment of the option price. Each notice to the Committee shall be addressed as follows: The Mead Corporation, Mead World Headquarters, Courthouse Plaza Northeast, Dayton, Ohio 45463, Attention: Compensation Committee. Each notice to the Holder of an option or other person or persons then entitled to exercise an option shall be addressed to such person or persons at The Holder's address as set forth in the records of the Company. Anyone to whom a notice may be given under this Plan may designate a new address by written notice to the party to that effect. Section 15. Benefits of Plan. ----------- ---------------- This Plan shall inure to the benefit of and be binding upon each successor and assign of the Company. All rights and obligations imposed upon the Holder of an option and all rights granted to the Company under this Plan shall be binding upon such Holder's heirs, legal representatives and successors. Section 16. Pronouns and Plurals. ----------- --------------------- All pronouns shall be deemed to refer to the masculine, feminine, singular or plural, as the identity of the person or persons may require. Section 17. Shareholder Approval and Term of Plan. ----------- ------------------------------------- The Plan shall become effective upon its approval by the affirmative vote of the holders of a majority of the Shares entitled to vote thereon held by shareholders present in person or by proxy at any shareholders' meeting at which a quorum is present. The Plan shall expire on September 30, 2005, unless sooner terminated in accordance with Section 13. Section 18. Interpretation. ----------- -------------- The Plan is designed and intended to comply with Rule 16b-3 promulgated under the 1934 Act and Section 162(m) of the Code and all provisions hereof shall be construed in a manner to so comply. ___________________________________________ NOTES: - ----- (1) Adopted by the Board of Directors of the Company on October 28, 1995, and approved by the Company's shareholders on April 25, 1996. (2) Amendments to Sections 2, 6 (b) and (e), 8 (a) and (d), 10 and 14 to allow for the designation of a beneficiary of the stock option grant. (3) Amendments to Section 2(b), with an addition of subsection (z); Section 6(a), (f); Section 9(b) with addition of subsections (i), (ii), (iii), (iv) as adopted by the Board of Directors on June 24, 1998. (4) Administrative Amendment to Section 8(d) as adopted by the Compensation Committee of the Board of Directors on June 24, 1999. EX-10.4 5 Exhibit 10.4 INDEMNIFICATION AGREEMENT ------------------------ AGREEMENT between The Mead Corporation, an Ohio corporation (the "Company"), and Duane E. Collins (the "Indemnitee"). WHEREAS, it is essential to the Company to retain and attract as directors the most capable persons available; WHEREAS, Indemnitee is a director of the Company; WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors of public companies in today's environment; WHEREAS, basic protection against undue risk of personal liability of directors heretofore has been provided through insurance coverage providing reasonable protection at reasonable cost, and Indemnitee has relied on the availability of such coverage; but as a result of substantial changes in the marketplace for such insurance it has become increasingly more difficult to obtain such insurance on terms providing reasonable protection at reasonable cost; WHEREAS, the Regulations of the Company and the Ohio General Corporation Law each provide that the indemnification provided therein shall not be exclusive; WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the full extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies; NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound, the Company and Indemnitee hereby agree as follows: 1. Certain Definitions. ------------------- (a) Change in Control: shall be deemed to have ----------------- occurred if an event set forth in any one of the following paragraphs shall have occurred: (i) date of expiration of a Tender Offer (other than an offer by the Company), if the offeror acquires Shares pursuant to such Tender Offer; (ii) the date of approval by the shareholders of the Company of a definitive agreement: (x) for the merger or consolidation of the Company or any direct or indirect subsidiary of the Company into or with another corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent ((i) in the case of a merger or consolidation of the Company, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, or (ii) in the case of a merger or consolidation of any direct or indirect subsidiary of the Company, either by remaining outstanding if the Company continues as a parent of the merged or consolidated subsidiary or by being converted into voting securities of the surviving entity or any parent thereof) at least 51% of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities, or (y) for the sale or disposition of all or substantially all of the assets of the Company, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 51% of the combined voting power of the voting securities of which are owned (directly or indirectly) by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale or disposition; (iii) (x) any Person is or becomes the Beneficial Owner of 20% or more of the voting power of the then outstanding securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates), excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (x) (1) of paragraph (ii) above or (y) the date of authorization, by both a majority of the voting power of the Company and a majority of the portion of such voting power excluding the voting power of interested Shares, of a control share acquisition (as such term in defined in Chapter 1701 of the Ohio Revised Code); and (iv) a change in the composition of the Board of Directors such that individuals who were members of the Board of Directors on the date two years prior to such change (and any new directors (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) who were elected, or were nominated for election, by the Company's shareholders with the affirmative vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved) no longer constitute a majority of the Board of Directors. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. For purposes of this paragraph, the following terms shall have the following meanings: "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the 1934 Act. "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the 1934 Act. "Person" shall have the meaning given in Section 3(a)(9) of the 1934 Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. (b) Claim: any threatened, pending or completed ----- action, suit or proceeding, or any inquiry or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. (c) Expenses: include attorneys' fees and all -------- other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal) or preparing to defend, be a witness in or participate in any Claim relating to any Indemnifiable Event (including all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing). (d) Judgments: include judgments, fines, --------- penalties and amounts paid in settlement that are paid or payable in connection with any Claim relating to any Indemnifiable Event (including all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing). (e) Indemnifiable Event: any event or occurrence ------------------- related to the fact that Indemnitee is or was a director of the Company, or is or was serving at the request of the Company as a director, trustee, officer, employee, agent or representative of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity. (f) Reviewing Party: any appropriate person or --------------- body consisting of a member or members of the Company's Board of Directors or any other person or any other person or body appointed by the Board (including the special, independent counsel referred to in Section 4) who is not a party to the particular Claim for which Indemnitee is seeking indemnification. (g) Voting Securities: any securities of the ----------------- Company which vote generally in the election of directors. 2. Scope of Indemnification. ------------------------ (a) Basic Indemnification Arrangement. In the --------------------------------- event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of), an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than 30 days after written demand is presented to the Company against any and all Judgments arising from or relating to such Claim. (b) Expenses. Any and all Expenses and any and -------- all expenses referred to in Section 2(c) shall be paid by the Company promptly as they are incurred by Indemnitee (any such payment of expenses by the Company is hereinafter referred to as an "Expense Advance"). Indemnitee hereby agrees to repay the amount of Expenses so paid if it is proved by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Company or undertaken with reckless disregard for the best interests of the Company. Indemnitee hereby further agrees to reasonably cooperate with the Company concerning any Claim. (c) Indemnification for Additional Expenses. The --------------------------------------- Company shall indemnify Indemnitee against any and all expenses (including attorneys' fees) which are incurred by Indemnitee in connection with any claim asserted against or action brought by Indemnitee for (i) indemnification of Expenses or Judgments or advance payment of Expenses by the Company under this Agreement or under any other agreement, the Company's Regulations, statute or rule of law now or hereafter in effect relating to Claims for Indemnifiable Events and/or (ii) recovery under any directors' and officers' liability insurance policy or policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. (d) Partial Indemnity. If Indemnitee is entitled ----------------- under any provision of this Agreement to indemnification by the Company for some or a portion of the Judgments arising from or relating to a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. (e) Indemnification of Successful Defense ------------------------------------- Expenses. -------- Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 3. Reviewing Party Determinations. ------------------------------ (a) General Rules. Notwithstanding the ------------- provisions of Section 2, the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the special, independent counsel referred to in Section 4 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law; provided, however, that if Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed) and any such determination by the Reviewing Party shall be modified, to the extent necessary, to conform to such final judicial determination. (b) Selection of Reviewing Party. If there has ---------------------------- not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors. If there has been such a Change in Control, the Reviewing Party shall be the special, independent counsel referred to in Section 4 hereof. (c) Judicial Review. If there has been no --------------- determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the state of Ohio having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. (d) Burden of Proof. In connection with any --------------- determination by the Reviewing Party pursuant to Section 3(a), or by a court of competent jurisdiction pursuant to Section 3(c) or otherwise, as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish by clear and convincing evidence that Indemnitee is not so entitled. 4. Change in Control. The Company agrees that if ----------------- there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments under this Agreement or under any other agreement, the Company's Regulations, statute or rule of law now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from special, independent counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company within the last five years (other than in connection with such matters) or Indemnitee. Unless Indemnitee has theretofore selected counsel pursuant to this Section 4 and such counsel has been approved by the Company, the firms on the attached Exhibit I hereto shall be deemed to satisfy the requirements set forth above, except with respect to any such firms which the Company or Indemnitee shall have engaged for any purpose at any time within the five years preceding such engagement (other than, in the case of the Company, with respect to matters concerning the rights of Indemnitee (or of other indemnitees under similar indemnity agreements) to indemnity payments). The Company agrees to pay the reasonable fees of the special, independent counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. 5. No Presumption. For purposes of this Agreement, -------------- the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo ---- contendere, or its equivalent, shall not create a - ---------- presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 6. Non-exclusivity. The rights of Indemnitee --------------- hereunder shall be in addition to any other rights Indemnitee may now or hereafter have to indemnification by the Company. More specifically, the parties intend that Indemnitee shall be entitled to indemnification to the maximum extent permitted by any or all of the following: (a) The fullest benefits provided by the Company's Regulations in effect on the date hereof, a copy of the relevant portions of which are attached hereto as Exhibit II; (b) The fullest benefits provided by the Articles of Incorporation, Regulations, or Bylaws or their equivalent of the Company in effect at the time the Indemnifiable Event occurs or at the time Expenses are incurred by Indemnitee; (c) The fullest benefits allowable under Ohio law in effect at the date hereof, a copy of the relevant portions of which are attached hereto as Exhibit III, or as the same may be amended to the extent that such benefits are increased thereby; (d) The fullest benefits allowable under the law of the jurisdiction under which the Company exists at the time the Indemnifiable Event occurs or at the time Expenses are incurred by the Indemnitee; and (e) Such other benefits as are or may be otherwise available to Indemnitee pursuant to this Agreement, any other agreement or otherwise. The parties intend that combination of two or more of the benefits referred to in (a) through (e) shall be available to Indemnitee to the extent that the document or law providing for such benefits does not require that the benefits provided therein be exclusive of other benefits. The Company hereby undertakes to use its best efforts to assist Indemnitee, in all proper and legal ways, to obtain all such benefits to which Indemnitee is entitled. 7. Liability Insurance. The rights of the Indemnitee ------------------- hereunder shall also be in addition to any other rights Indemnitee may now or hereafter have under policies of insurance maintained by the Company or otherwise. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director. The parties hereby acknowledge that the Company presently maintains directors' and officers' liability insurance under policies issued by the following insurers and with the following limits of liability: National Union Fire Insurance Company of Pittsburgh ($25 million); Federal Insurance Company ($25 million in excess of $25 million); Continental Casualty Company ($15 million in excess of $50 million); Zurich - American Insurance Company ($25 million in excess of $65 million); and Executive Risk Indemnity, Inc. of New York ($10 million in excess of $90 million). The scope of such insurance is described in the "Executive Summary" attached hereto as Exhibit IV. The Company shall maintain such insurance coverage for so long as Indemnitee's services are covered hereunder, provided and to the extent that such insurance is available on a basis acceptable to the Company. In the event that such insurance becomes unavailable in the amount of the present policy limits or in the present scope of coverage at premium costs and on other terms acceptable to the Company, then the Company may forego maintenance of all or a portion of such insurance coverage. However, in the event of any reduction in (or cancellation of) such insurance coverage (whether voluntary or involuntary), the Company shall, and hereby agrees to, stand as a self-insurer with respect to the coverage, or portion thereof, not retained and shall indemnify the Indemnitee against any loss arising out of the reduction in or cancellation of such insurance coverage; provided that the Company's obligation as a self-insurer and indemnitor hereunder shall only extend to the first $60 million of such coverage. 8. Escrow Fund. As collateral security for its ----------- obligations hereunder (including specifically its indemnity obligations (other than Judgments) and other obligations pursuant to Sections 2, 6 and 7) and under similar agreements with other directors, officers and representatives, in the event of a Change in Control, the Company shall dedicate and maintain, for a period of five years following the Change in Control, an escrow account in the aggregate of TEN MILLION DOLLARS ($10,000,000) by depositing assets or bank letters of credit in escrow or reserving lines of credit that may be drawn down by an escrow agent in said amount (the "Escrow Reserve"). The Company shall promptly, following establishment of the Escrow Reserve, provide Indemnitee with a true and complete copy of the agreement relating to the establishment and operation of the Escrow Reserve, together with such additional documentation or information with respect to the Escrow Reserve as Indemnitee may from time to time reasonably request. The Company shall promptly, following establishment of the Escrow Reserve, deliver an executed copy of this Agreement to the escrow agent for the Escrow Reserve to evidence to that agent that Indemnitee is a beneficiary of the Escrow Reserve and shall deliver to Indemnitee the escrow agent's signed receipt evidencing that delivery. Notwithstanding anything to the contrary contained in this Section 8, any assets deposited by the Company in the Escrow Reserve shall at all times be and remain subject to the claims of the general creditors of the Company. 9. Period of Limitations. No legal action shall be --------------------- brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. 10. Liability Standards. This Agreement shall be ------------------- construed on the basis of the duties owed by Indemnitee as a director of the Company, and the standards for determining liability in damages for a breach thereof, which apply to each particular Claim. The parties acknowledge that changes in such duties or such liability standards may result in an expansion or contraction of the Company's indemnification exposure hereunder. 11. Amendments, Etc. No supplement, modification or --------------- amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 12. Subrogation. In the event of payment under this ----------- Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 13. No Duplication of Payments. The Company shall not -------------------------- be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, the Company's Regulations or otherwise) of the amounts otherwise indemnifiable hereunder. 14. Binding Effect, Etc. This Agreement shall be ------------------- binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director of the Company or as a director, trustee, officer, agent or representative of any other enterprise at the Company's request. 15. Severability. The provisions of this Agreement ------------ shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. 16. Governing Law. This Agreement shall be governed ------------- by and construed and enforced in accordance with the laws of the state of Ohio applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws. Executed and effective this 24th day of June, 1999. JEROME F. TATAR By ________________________ Jerome F. Tatar Chairman of the Board DUANE E. COLLINS ________________________ Duane E. Collins Director Exhibit I Special, Independent, Counsel Taft, Stettinius & Hollister LLP Kirkland & Ellis 1800 Firstar Tower 200 East Randolph Dr. 425 Walnut Center Chicago, IL 60601 Cincinnati, Ohio 45202-3957 (312) 861-2000 (513) 381-2838 Baker & Hostetler Vorys, Sater, Seymour and Pease 3200 National City Center 52 East Gay Street 1900 East Ninth Street P.O. Box 1008 Cleveland, Ohio 44114 Columbus, OH 43216-1008 (216) 621-0200 (614) 464-6400 Exhibit IV EXECUTIVE SUMMARY Director & Officer Indemnification & Insurance Mead provides two methods of protecting its directors: indemnification and insurance. Indemnification --------------- Under Mead's indemnification, the Company must reimburse ---- a director for expenses and attorneys fees if he or she prevails in the defense of a claim for an indemnifiable event. In addition, the Company may reimburse a director --- for expenses, attorneys' fees, settlement amounts, fines and judgments (even if he or she does not prevail on the claim), if Mead's Board, Mead's legal counsel, Mead's shareholders or an appropriate court decides that the director acted in good faith and in a manner he believed was in, or not opposed to, Mead's best interests. In a criminal matter the director must have had no reason to believe his conduct was unlawful. Mead's Board may also --- ---- indemnify a director (regardless of whether he or she prevails in the defense of a claim), against expenses, attorneys fees, fines, settlement amounts and judgments if the Board decides such indemnification is in the best interest of Mead. Under Ohio law, Mead may not, however, indemnify a director against fines, settlement amounts and judgments in an action brought by Mead or in a derivative action brought by a shareholder on behalf of Mead, if the director is judged to be negligent or guilty of misconduct. Mead does have insurance to protect a director in such event. Mead may advance expenses to a director, provided he or she agrees to repay Mead if it is later determined that indemnification is not available. Insurance --------- Mead carries insurance which provides two types of coverage: indemnification coverage and "D&O" coverage. Under the indemnification coverage, the insurance carrier(s) reimburse Mead for amounts paid to indemnify directors and officers. Under the D&O, the insurance carrier pays amounts directly to the director or officer involved in the claim for nonindemnifiable acts. These coverages have a $100 million aggregate limit. Defense costs are included within the limit. The indemnification coverage has a $500,000 per incident deductible. The D&O coverage has no deductible. Mead currently pays $443,407 (August 1, 1999 - August 1, 2000) for the coverage, and this premium is renegotiated annually. The following matters, among others, are excluded from coverage under the policies: . Libel and slander. . Gains attributable to personal profit to which a director was not entitled. . Insider trading liability. . Active and deliberate dishonesty with actual dishonest purpose and intent. . Any claim related to or arising from pollution. . Bodily injury to or sickness, disease or death of a person. . Injury or destruction to tangible property. . Illegal payments. . Suit brought by a director or officer of Mead. Mead's coverage does protect the directors for acts and omissions related to takeover situations, subject to policy exclusions. EX-10.5 6 Exhibit 10.5 THE MEAD CORPORATION RESTRICTED STOCK PLAN --------------------- COMPOSITE --------- 06/24/99 ARTICLE I. GENERAL PROVISIONS - ---------- ------------------ Section 1. Purpose. The purpose of The Mead Corporation ---------- -------- Restricted Stock Plan (the "Plan") is to provide certain compensation to eligible directors and employees in the form of Common Shares ("Shares") of The Mead Corporation (the "Company") which are restricted in accordance with the terms and conditions set forth below and to encourage the continued high level of performance of such directors and employees by increasing the identity of interests of such directors and employees with the shareholders of the Company. The Plan is intended to be an unfunded program established for the purpose of providing compensation for eligible directors and a select group of management employees and is exempt from Parts 1 through 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended. Section 2. Definitions. For purposes of the Plan, the following ---------- ------------ terms shall have the following meanings: (a) "Board of Directors" means the Board of Directors of the Company. (b) A "Change in Control" shall be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred: (i) date of expiration of a Tender Offer (other than an offer by the Company), if the offeror acquires Shares pursuant to such Tender Offer; (ii) the date of approval by the shareholders of the Company of a definitive agreement: (x) for the merger or consolidation of the Company or any direct or indirect subsidiary of the Company into or with another corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent ((i) in the case of a merger or consolidation of the Company, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof, or (ii) in the case of a merger or consolidation of any direct or indirect subsidiary of the Company, either by remaining outstanding if the Company continues as a parent of the merged or consolidated subsidiary or by being converted into voting securities of the surviving entity or any parent thereof) at least 51% of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation, or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company's then outstanding securities, or (y) for the sale or disposition of all or substantially all of the assets of the Company, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 51% of the combined voting power of the voting securities of which are owned (directly or indirectly) by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale or disposition; (iii) (x) any Person is or becomes the Beneficial Owner of 25% or more of the voting power of the then outstanding securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates), excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (x)(1) of paragraph (ii) above or (y) the date of authorization, by both a majority of the voting power of the Company and a majority of the portion of such voting power excluding the voting power of interested Shares, of a control share acquisition (as such term is defined in Chapter 1701 of the Ohio Revised Code); and (iv) a change in the composition of the Board of Directors such that individuals who were members of the Board of Directors on the date two years prior to such change (and any new directors (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) who were elected, or were nominated for election, by the Company's shareholders with the affirmative vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such two year period or whose election or nomination for election was previously so approved) no longer constitute a majority of the Board of Directors. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. (c) "Committee" means the Compensation Committee of the Board of Directors. (d) "Company" means The Mead Corporation; however, when used with reference to employment, "Company" also includes any corporation, partnership or other person or entity at least 10% of the voting or equity interest of which is owned or controlled, directly or indirectly, by the Company. (e) "Eligible Director" means any director of the Company who is not also an employee of the Company. (f) "Eligible Employee" means any employee of the Company selected by the Committee. (g) "Grant Date" means the date on which Restricted Shares are to be granted pursuant to Article II, Section 1. (h) "Market Value" means the average of the highest sale price and the lowest sale price of a Share on the date the value of a Share is to be determined, as reported on the New York Stock Exchange - Composite Transactions Tape (or other similar source) or, if no sale is reported for such date, then on the next preceding date for which a sale is reported. (i) "Participant" means any individual who holds Restricted Shares granted under the Plan. (j) "Restriction Period" means (i) in the case of Restricted Shares granted pursuant to Article II. Section 1 (a), (b) or Section 2, the period of six months from the date the Restricted Shares are granted, (ii) in the case of Restricted Shares granted pursuant to Article II. Section 1(c), the date the grantee becomes age 55 or six months from the date the Restricted Shares are granted, whichever is later, and (iii) in the case of Restricted Shares granted pursuant to Article III, the period of six months or longer (as determined by the Committee) from the date Restricted Shares are granted. (k) "Restricted Shares" means any Shares issued or delivered pursuant to the Plan which remain subject to the restrictions set forth in Article I, Section 5 of the Plan. (l) "Shares" means the Common Shares, without par value, of the Company. (m) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (n) "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the Exchange Act. (o) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (p) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. (q) "Tender Offer" shall mean a tender offer or a request or invitation for tenders or an exchange offer subject to regulation under Section 14(d) of the Exchange Act and the rules and regulations thereunder, as the same may be amended, modified or superseded from time to time. Section 3. Administration. ---------- -------------- (a) The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee and the Board of Directors shall each have authority to construe and interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for administering the Plan. The Committee or the Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent it shall deem expedient to carry it into effect. The determination of the Committee or the Board of Directors on any matters within the scope of this section shall be conclusive. A majority of the Committee shall constitute a quorum for meetings of the Committee, and the act of a majority of the Committee at a meeting, or an act reduced to or approved in writing by all members of the Committee, shall be the act of the Committee. In the case of Restricted Shares granted pursuant to Article III, the Committee may in its discretion impose additional conditions or restrictions as to the attainment of specified performance goals during the Restriction Period for all or a portion of the shares or all or a portion of the years in the Restriction Period. (b) The Committee may waive or modify at any time any condition or restriction (including, without limitation, any of the restrictions set the sale, distribution, production or attempted sale or distribution of any goods, products or services then sold or being developed by the Company. (c) Notwithstanding any other provision of the Plan, immediately prior to the occurrence of a "Change in Control", all of the restrictions set forth in this Section 5 shall immediately cease to apply to all Restricted Shares issued pursuant to the Plan, except to the extent that the lapse of such restrictions would, in the opinion of counsel selected by the Company's independent auditors, constitute "parachute payments" within the meaning of Section 280G(b)(2)(A) of the Internal Revenue Code (the "Code") and, when added to any other "parachute payments" which would be received by the Participant pursuant to the terms of any other plan, arrangement or agreement with the Company, any person whose actions result in a change in control of the Company or any person affiliated with the Company or such person, would be subject to the tax imposed by Section 4999 of the Code. As used in the immediately preceding sentence, "immediately prior" to the Change in Control shall mean sufficiently in advance of the Change in Control to permit the Participant to deal with the Shares so that those Shares may be treated in the same manner in connection with the Change in Control as the Shares of other shareholders. (d) At the end of the Restriction Period, or at such earlier time as it is provided for in Paragraphs (b) or (c) of this Section 5, the restrictions applicable to the Restricted Shares pursuant to this Section 5 shall cease and a share certificate for the number of Restricted Shares with respect to which the restrictions have ceased shall be delivered, free of all such restrictions and all restrictive legends, to the Participant or the Participant's beneficiary or estate, as the case may be. (e) If required by the Committee, each grant of Restricted Shares shall be evidenced by a written agreement between the Company and the Participant. (f) In the event that the restrictions set forth in Paragraph (a) of this Section 5 shall cease to apply to any Restricted Shares granted to Eligible Employees subject to Section 16 of the Act prior to the date which is six months after the date of grant of such Restricted Shares, then, notwithstanding any provision to the contrary in this Section 5, the restrictions set forth in paragraphs (a) (i) and (a) (ii) of this Section 5 shall continue in effect until the date which is six months after the date of such grant. (g) Notwithstanding any provision to the contrary in this Section 5, but subject nonetheless to Paragraph (c) of this Section 5, in the case of Restricted Shares granted pursuant to Article III, if the Participant fails to attain specified performance goals set forth with respect to such Restricted Shares during the Restriction Period, the Participant will forfeit such Restricted Shares to the extent specified in the grant of such Restricted Shares and the right of the Participant to such Restricted Shares shall terminate to the extent specified in the grant of such Restricted Shares without any further obligations on the part of the Company. Section 6. Rights as a Shareholder. ---------- ------------------------ (a) Upon the grant of Restricted Shares pursuant to Article II or Article III of the Plan, the Company shall issue a share registered in the name of the Participant bearing the following legend and any other legend required by any federal or state securities laws: "The transferability of this certificate and the Common Shares represented hereby are subject to the restrictions, terms and conditions (including forfeiture and restrictions against sale, assignment, transfer, pledge, hypothecation and other disposition) set forth in The Mead Corporation Restricted Stock Plan. Copies of such Plan will be mailed to any shareholder without charge within five days after receipt of written request therefor address to Secretary, The Mead Corporation, Mead World Headquarters, Courthouse Plaza Northeast, Dayton, OH 45463." Each such share shall be retained by the Company until the restrictions set forth in Article I, Section 5(a) cease to apply to the Shares. (b) Upon the issuance of Restricted Shares pursuant to paragraph (a) of this Section 6, the Participant shall, subject to all of the terms, conditions and restrictions set forth in the Plan, have all of the rights of a holder of Shares, including the right to vote and to receive dividends and other distributions with respect thereto. ARTICLE II. RESTRICTED SHARES FOR ELIGIBLE DIRECTORS - ----------- ---------------------------------------- Section 1. Grant of Restricted Shares to Eligible ---------- --------------------------------------- Directors. ---------- (a) On the third business day of January, 1998 and on each annual anniversary of such date during the term of the Plan, (each such date is hereinafter referred to as a "Grant Date"), the Company shall grant a number of Restricted Shares to each then Eligible Director determined by dividing $7,500 by the Market Value of a Share on the Grant Date (rounded to the nearest whole shares). (b) If during the term of the Plan any person becomes an Eligible Director on a date other than a Grant Date, the Company shall grant such person a number of Restricted Shares determined by dividing $7,500 by the Market Value of a Share (rounded to the nearest whole share) on the date of such person's election to the Board of Directors. (c) Each Eligible Director shall automatically receive a grant of a number of Restricted Shares of the Company equal to the quotient obtained by dividing (i) 5,000, by (ii) the Market Value per Share on the date the Plan, as amended, is approved by the Shareholders (the "Initial Grant"). Thereafter, on the third business day of January, 1997 and on each annual anniversary of such date during the term of the Plan, the Company shall grant and each Eligible Director shall automatically receive a number of Restricted Shares which shall equal the product obtained by multiplying the Initial Grant by an adjustment factor (the "Factor"). The Factor shall equal the quotient obtained by dividing (y) the base line number for average total compensation paid to directors by companies with annual sales in excess of $4 billion, as published in the Hay Consulting Group's "Directors Compensation Report" (or comparable successor report) in the calendar year immediately preceding the year in which such grant is made, which report covers compensation paid in the year ending immediately prior to the year of publication, by (z) 36,246. In the event that such Directors Compensation Report (or comparable successor report) is not published with respect to any year, the Factor shall equal one (1). Section 2. Election to Receive Compensation as Restricted Shares. ---------- ------------------------------------------------------ (a) Not later than June 1 of each year during the term of the Plan, the Committee shall cause each Eligible Director to be furnished with an appropriate form which enables the director to elect to receive payment in Restricted Shares of a minimum of 20% up to a maximum of 100% (in increments of 10%) of the annual retainer fee to be earned by such director for service on the Board of Directors during the following calendar year which is paid on or after the first day of such calendar year. In order to be effective, the election form must be signed by the director and must be returned to the Committee or its delegate not later than July 1 of the year prior to the year with respect to which the election is being made. All such elections are irrevocable. (b) A new Eligible Director may, by filing the prescribed election form, elect to receive the annual retainer fee as Restricted Shares as provided in paragraph (a) of this Section 2 only if the election form is signed and filed at least six months prior to the date of payment of the annual retainer fee to such director. (c) If an Eligible Director has elected to receive all or a portion of the annual retainer fee as Restricted Shares as provided in this Section 2, then on the date such fee would otherwise be payable, the Company shall grant to such director a number of Restricted Shares determined by dividing the compensation so to be received by the Market Value of a Share on such date such other compensation would otherwise be payable (rounded to the nearest whole share). ARTICLE III. RESTRICTED SHARES FOR ELIGIBLE EMPLOYEES - ------------ ---------------------------------------- Section 1. Grant of Restricted Shares to Eligible Employees. ---------- ------------------------------------------------- From time to time during the term of the Plan, the Committee may determine that Restricted Shares shall be granted to Eligible Employees either as payment for all or a portion of the compensation to be paid to any Eligible Employee pursuant to the Company's incentive compensation plans, or for any other reason consistent with the purposes of the Plan. Restricted Shares to be granted as payment for all or a portion of incentive compensation shall be granted on the date the compensation is awarded, and the number of Restricted Shares so granted shall be determined by dividing the amount of such compensation by the Market Value of a Share on the date the compensation is awarded (rounded to the nearest whole Share). ARTICLE IV. MISCELLANEOUS - ----------- ------------- Section 1. Adjustments Upon Changes in Capitalization. ---------- ------------------------------------------- Upon any change in the outstanding Shares by virtue of a share dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar change, the number of Restricted Shares which may be granted under the Plan (or the class of shares which may be granted as Restricted Shares) shall be adjusted appropriately by the Committee, whose determination with respect to such adjustment shall be conclusive. Unless the Committee shall otherwise determine, any securities and other property received by a Participant in connection with or as a result of any such change with respect to Restricted Shares (excluding dividends paid in cash) shall be subject to the restrictions then applicable to Restricted Shares under the Plan (including forfeiture), and shall be deposited promptly with the Company to be held in custody until the restrictions cease to apply to the Restricted Shares to which such securities or other property relates. Notwithstanding the foregoing, however, in the event any rights to purchase Shares are issued pursuant to the Company's Shareholder Rights Plan (or any successor plan) with respect to Restricted Shares, such rights shall cease to be subject to the restrictions applicable to the underlying Restricted Shares at such time, if any, as such rights become exercisable. Section 2. Compliance with Laws. The issuance or delivery of ---------- --------------------- Shares pursuant to the Plan shall be subject to, and shall comply with, any applicable requirements of federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder), any securities exchange upon which the Shares may be listed and any other law or regulation applicable thereto, and the Company shall not be obligated to issue or deliver any Shares pursuant to the Plan if such issuance or delivery would violate any such requirements. The foregoing shall not, however, be deemed to require the Company to effect any registration of Shares under any such law or regulation. Section 3. Amendment and Termination. ---------- -------------------------- (a) The Board of Directors may from time to time amend the Plan, or any provision thereof, in such respects as the Board of Directors may deem advisable; provided, however, that any such amendment must be approved by the holders of Shares entitling them to exercise a majority of the voting power of the Company if such amendment would: (i) materially increase the benefits accruing to participants under the Plan; (ii) materially increase the aggregate number of Shares which may be issued and/or delivered or the number of Shares which may be granted to any individual under the Plan; (iii) materially modify the requirements as to eligibility for participation in the Plan. (b) The Plan shall terminate and no additional Restricted Shares shall be granted under the Plan after September 30, 2005; provided, however, that the Board of Directors may earlier terminate the Plan at any time. (c) No amendment to or termination or expiration of the Plan shall adversely affect any Restricted Shares previously granted under the Plan without the consent of the holder thereof. (d) Notwithstanding paragraph (a) of this Section 3, the provisions of Section 1 of Article II may not be amended more than once every six months other than to comport with changes in the Code, ERISA or the rules thereunder. Section 4. Notices. Each notice relating to the Plan shall be in ---------- -------- writing and delivered in person or by mail to the proper address. Each notice shall be deemed to have been given on the date it is delivered or mailed except that an election to receive compensation as Restricted Shares pursuant to Article II, Section 2 shall be deemed to have been given on the date it is received by the Committee. Each notice to the Committee shall be addressed as follows: The Mead Corporation, Mead World Headquarters, Courthouse Plaza Northeast, Dayton, Ohio 45463, Attention: Secretary. Each notice to a Participant shall be addressed to the Participant's address as set forth in the records of the Company. Anyone to whom a notice may be given under this Plan may designate a new address by written notice to the Company or to the Participants, as the case may be. Section 5. Benefits of Plan. The Plan shall inure to the benefit ---------- ----------------- of, and shall be binding upon, each successor and assign of the Company. All rights and obligations imposed upon a Participant and all rights granted to the Company under this Plan shall be binding upon such Participant's heirs, legal representatives and successors. Nothing in the Plan shall be deemed to create any obligation on the part of the Company to nominate any director for re-election or to continue the employment of any employee. Section 6. Taxes. ---------- ------ (a) The Company shall have the right to require, prior to the issuance or delivery of any Restricted Shares, payment by the Participant of any taxes required by law with respect to the issuance or delivery of such Restricted Shares. (b) On any date on or after January 1, 1994 that restrictions applicable to Restricted Shares granted (or to be granted) hereunder shall have ceased pursuant to Article I, Section 5 (the "Lapse Date"), and with respect to persons subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act") on any date thereafter through the end of the next following period (the "Window Period") specified in Rule 16b-3(e)(3) (or any successor rule) under the 1934 Act, the Participant to whom such Restricted Shares were granted may elect to have the Company retain, from the Restricted Shares to be delivered at the end of the Restriction Period, Shares having a Market Value on the date of delivery equal to all or any part of the required minimum federal, state and local withholding tax payments to be made by the Participant with respect to ceasing of the restrictions in lieu of making such payments in cash; provided that such election may also be made in advance of the Lapse Date and will be effective on the date specified in the notice of election (subject, as applicable, to Section 16 of the 1934 Act), and further provided that, with respect to a Lapse Date that has occurred or will occur between January 1, 1994 and October 28, 1994, the election may be made by persons subject to and in accordance with Section 16 of the 1934 Act through the end of the first Window Period which commences on, includes or follows October 28, 1994. The Committee may establish from time to time rules or limitations with respect to the right of a Participant to elect to have the Company retain Restricted Shares in satisfaction of withholding payments; provided, however, that, in any event, any such rules or limitations must be in accordance with Section 16 of the 1934 Act and any applicable rules established under such Section. Section 7. Governing Law. All grants of Restricted Shares shall ---------- -------------- be made and accepted in the State of Ohio. The laws of the State of Ohio shall control the interpretation and performance of the provisions of the Plan. Section 8. Effective Date of the Plan. The effective date of the ---------- --------------------------- Plan shall be December 10, 1987; provided, however, that if the Plan is not approved at the 1988 Annual Meeting of Shareholders by the holders of at least a majority of the outstanding voting power of the Company, the Plan shall immediately terminate. No dividends shall be paid prior to the 1988 Annual Meeting of Shareholders with respect to any Restricted Shares granted prior to such meeting. If the Plan is not approved at such meeting, all Restricted Shares granted prior thereto shall be retained by the Company, and the Company shall pay to the Participant in whose name such Restricted Shares were registered an amount equal to the Market Value on the date of grant of a number of Shares equal to such number of Restricted Shares. ___________________________________________ NOTES: - ------ (1) Adopted by the Board of Directors of the Company on December 11, 1987. (2) Approved by the shareholders of the Company on April 28, 1988. (3) Addition of Article II, Section 2, subsection (d) adopted by the Board of Directors of the Company on December 15, 1989 (deleted February 28, 1991). (4) Amendment to Article I, Section 2, subsection (h) adopted by the Board of Directors of the Company on January 25, 1990. (5) Amendments to Article I, Section 2, subsections (d) and (j); Article I, Section 3, subsection (a); and Article III, Section 1; and addition of Article 2, Section 5, subsection (g), adopted by the Board of Directors of the Company on January 24, 1991, and approved by the shareholders of the Company on April 25, 1991. (6) Amendments to Article II, Section 2, subsections (a) and (b); and addition of Article I, Section 5, subsection (f) and Article IV, Section 3, subsection (d) adopted by the Board of Directors of the Company on February 28, 1991. (7) Amendments to Article I, Section 5, subsection (b); and addition of Article I, Section 5, subsection (b) (iii), adopted by the Board of Directors of the Company on July 23, 1992. (8) Amendment to Article IV, Section 6, subsection (b) adopted by the Board of Directors of the Company on April 28, 1994. (9) Amendments to Article I, Section 2(j), Section 4, Section 5(b) (i), Section 6, Article II, Section 1(c), Article IV, Section 3(b) adopted by the Board of Directors of the Company on October 28, 1995, and approved by the shareholders of the Company on April 25, 1996. (10) Amendments to Article I, Section 2(j) and 5(b); Article II, Section 1(a) and (b) adopted by the Board of Directors of the Company on November 09, 1996. (11) Amendments to Article I, Section 2(b), and addition of subsection (i), (ii), (iii), (iv) with addition of a paragraph at the end; addition of (m), (n), (o), (p), (q) and Article I, Section 5(c) of the Plan adopted by the Board of Directors of the Company on June 24, 1998. (12) Administrative Amendment to Article IV, Section 6(b) adopted by the Compensation Committee of the Board of Directors of the Company on June 24, 1999. EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q OF THE MEAD CORPORATION FOR THE QUARTERLY PERIOD ENDED JULY 4, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS SCHEDULE SHALL NOT BE DEEMED TO BE FILED FOR PURPOSES OF SECTION 11 OF THE SECURITIES ACT OF 1933, SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 323 OF THE TRUST INDENTURE ACT OF 1939, OR OTHERWISE SUBJECT TO THE LIABILITIES OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY REGISTRATION STATEMENT TO WHICH IT RELATES. 6-MOS DEC-31-1998 JUL-04-1999 36 0 569 0 482 1,174 5,772 2,472 5,190 693 1,346 0 0 153 2,143 5,190 1,868 1,868 1,528 1,528 0 0 52 89 32 68 0 0 0 68 .66 .65
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