Exhibit 10.2

 

KAPSTONE PAPER AND PACKAGING
2006 INCENTIVE PLAN

(amended and restated as of May 18, 2012)

 

1.     Purpose.  KapStone Paper and Packaging Corporation, a Delaware
corporation (“KapStone”), desires to attract and retain the best available
talent and to encourage the highest level of performance. The KapStone Paper and
Packaging 2006 Incentive Plan (the “Plan”) is intended to contribute
significantly to the attainment of these objectives by affording eligible
employees and independent contractors of KapStone and its Affiliates (as defined
in Section 20) (collectively, with KapStone, the “Company”) the opportunity to
acquire a proprietary interest in KapStone through the grant of (i) stock
options (“Options”) to purchase shares of common stock, $.001 par value per
share, of KapStone (the “Common Stock”), (ii) restricted shares or the right to
receive shares of Common Stock (“Restricted Stock”) and (iii) stock appreciation
rights to receive a payment in Common Stock or cash equal to the amount of the
excess of the Fair Market Value of the Common Stock on the date of exercise over
the Fair Market Value of the Common Stock on the date of grant (“Stock
Appreciation Rights”; and collectively with Options and Restricted Stock,
“Awards”, and each individually an “Award”).

 

2.     Administration.

 

(a)  The Plan shall be administered by a committee (the “Committee”) of not
fewer than two members of the board of directors of KapStone (the “Board”) who
shall be appointed by and serve at the pleasure of the Board. To the extent
necessary to comply with Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) and, to the extent necessary to exclude Options
and Stock Appreciation Rights granted under the Plan from the calculation of the
income tax deduction limit under Section 162(m) of the Internal Revenue Code of
1986, as amended (the “Code”), each member of the Committee shall be an “outside
director” within the meaning of Section 162(m) of the Code and Treasury
Regulations promulgated thereunder. A majority of the Committee shall constitute
a quorum.

 

(b) The Committee shall have and may exercise all of the powers of the Board
under the Plan, other than the power to appoint a director to Committee
membership. The Committee shall have plenary authority in its discretion,
subject to and consistent with the express provisions of the Plan, to direct the
grants of Awards; to determine the numbers of shares of Common Stock covered by
each Award, the purchase price, if any, of the Common Stock covered by each
Award, the individuals to whom an Award is given (each a “Grantee”), the time or
times at which the Award shall be granted or may vest; to prescribe, amend and
rescind rules and regulations relating to the Plan, including, without
limitation, such rules and regulations as it shall deem advisable so that
transactions involving Awards may qualify for exemption under such rules and
regulations as the Securities and Exchange Commission may promulgate from time
to time exempting transactions from Section 16(b) of the Exchange Act; to
determine the terms and provisions of, and to cause the Company to enter into,
agreements with Grantees in connection with Awards under the Plan (“Award
Agreements”), which Award Agreements may vary from one another, as the Committee
shall deem appropriate; to amend any Award Agreement from time to time with the
consent of the Grantee; and to make all other determinations the Committee may
deem necessary or advisable for the administration of the Plan.  The Committee
shall have discretion to include such provisions in the Award Agreements as it
shall deem appropriate, including those related to non-competition,
non-solicitation of employees or customers, the forfeiture of Awards or profits
relating thereto upon a finding of fraud or other material misconduct on the
part of a Grantee, or such other provisions, not inconsistent with law or the
requirements of the Plan as it may from time to time determine appropriate. 
Every action, decision, interpretation or determination made by the Committee or
the Board with respect to the application or administration of the Plan shall be
conclusive and binding upon the Company and any person having or claiming any
interest pursuant to any Award granted under the Plan.

 

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(c) Except as otherwise required by law, no member of the Board or the Committee
shall be liable for anything whatsoever in connection with the administration of
the Plan other than such member’s own willful misconduct. Under no circumstances
shall any member of the Board or the Committee be liable for any act or omission
of any other member of the Board or the Committee. The Board and the Committee
shall be entitled to rely, in the performance of its functions with respect to
the Plan, upon information and advice furnished by KapStone’s officers,
KapStone’s accountants, KapStone’s legal counsel and any other party the Board
and Committee deems necessary. No member of the Board or Committee shall be
liable for any action taken or not taken in reliance upon any such advice.

 

(d) Each Award under the Plan shall be deemed to have been granted when the
determination of the Committee with respect to such Award is made. Once an Award
has been granted, all conditions and requirements of the Plan with respect to
such Award shall be deemed conditions on exercise, not grant.

 

(e) Notwithstanding the foregoing or any other provision of the Plan, the
Committee shall have no authority to issue Awards under the Plan under terms and
conditions which would cause such Awards to be considered nonqualified “deferred
compensation” subject to the provisions of Section 409A of the Code, including
by way of example but not limitation, no Options or Stock Appreciation Rights
shall be issued with an exercise price below Fair Market Value and all
Restricted Stock shall be issued and reported as income to the Grantee no later
than the fifteenth (15th) day of the third calendar month after the end of the
calendar year in which the right to the shares covered by such Award becomes
vested.

 

3.     Eligible Persons.  Subject in the case of ISOs to Section 7(g)(i), Awards
may be granted to employees, officers and directors of, and consultants and
advisors to, the Company. In determining the persons to whom Awards shall be
made and the number of shares to be covered by each Award, the Committee shall
take into account the duties of the respective persons, their present and
potential contributions to the success of the Company and other factors deemed
relevant by the Committee in connection with accomplishing the purposes of the
Plan.

 

4.     Share Limitations under the Plan.

 

(a) Subject to adjustment as provided in Section 14 and the provisions of this
Section 4, a maximum of five million seven hundred thousand (5,700,000) shares
of Common Stock shall be reserved for issuance pursuant to Awards granted under
the Plan. If an Award is forfeited or expires without being exercised, or if
Restricted Stock is repurchased by the Company as provided in Section 8(e), the
shares of Common Stock subject to the Award shall be available for additional
grants under the Plan. If an Option is exercised in whole or in part by a
Grantee tendering previously owned shares of Common Stock, or if any shares are
withheld in connection with the exercise of an Option to pay the exercise price
or to satisfy the Grantee’s tax liability, the full number of shares in respect
of which the Option has been exercised shall be applied against the limit set
forth in this Section 4(a).

 

(b) KapStone may grant Options under the Plan in substitution for options held
by employees of another corporation who become employees of KapStone or an
Affiliate as the result of a merger or consolidation of the employing
corporation with KapStone or an Affiliate, or as a result of the acquisition by
KapStone or an Affiliate of property or stock of the employing corporation.
Substitute Options shall be granted on such terms as the Committee considers
appropriate in the circumstances and in compliance with Section 409A of the
Code.  Substitute Options shall be in addition to the limit set forth in
Section 4(a).

 

(c) The maximum aggregate number of shares of Common Stock issuable pursuant to
Awards that a Grantee may be granted within one fiscal year of KapStone shall be
five hundred thousand (500,000).

 

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(d) The aggregate numbers set forth in this Section 4 shall be subject to
adjustment as provided in Section 14.

 

5.     Term of Award.  The term of each Award shall be fixed by the Committee
and specified in the applicable Award Agreement, but in no event shall it be
more than ten years from the date of grant. Subject in the case of ISOs to
Section 7(g), the term of an Award may be extended from time to time by the
Committee, provided that no extension shall extend the term beyond ten years
from the date of grant.

 

6.     Vesting.  The Committee shall determine the vesting schedule applicable
to a particular Award and specify the vesting schedule in the applicable Award
Agreement. Notwithstanding the foregoing the Committee may accelerate the
vesting of an Award at any time.

 

7.     Options.

 

(a) Type of Options.  Options granted under the Plan may be either incentive
stock options (“ISOs”) intended to meet the requirements of Section 422 of the
Code or nonqualified stock options (“NSOs”) which are not intended to meet such
Code requirements.

 

(b) Rights to Purchase.  The Committee may grant Options to employees, officers
and directors of, and consultants and advisors to, the Company, in such amounts,
and subject to such terms and conditions as the Committee may determine in its
sole discretion, including such restrictions on transferability and other
restrictions as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee shall determine.

 

(c) Option Agreement.  The terms and conditions of each Option shall be set
forth in an Option Agreement in the form approved by the Committee. Each Option
Agreement shall, at a minimum, specify (i) the number of shares of Common Stock
subject to the Option, (ii) whether the Option is intended to be an ISO or NSO,
(iii) the provisions related to vesting and exercisability of the Option,
including the Option exercise price, and (iv) that the Option is subject to the
terms and provisions of the Plan. Option Agreements may differ from one another.

 

(d)  Termination of Relationship to the Company.

 

i. With respect to an Option granted to an individual who is an employee of the
Company at the time of Option grant, unless the Option Agreement expressly
provides to the contrary, (i) the Option shall terminate immediately upon the
Grantee’s termination of employment for Cause (as defined in Section 20);
(ii) subject in the case of ISOs to Section 7(g), the Option shall terminate two
years following the Grantee’s termination of employment by reason of death or
Disability (as defined in Section 20); (iii) subject in the case of ISOs to
Section 7(g), the Option shall terminate two years after Retirement (as defined
in Section 20); (iv) the Option shall terminate three months after the Grantee’s
termination of employment for any other reason; and (v) vesting of an Option
will terminate in all cases immediately upon termination of employment. In no
event shall an Option remain exercisable beyond the expiration date specified in
the applicable Option Agreement. An Option Agreement may contain such provisions
as the Board shall approve with reference to the determination of the date
employment terminates for purposes of the Plan and the effect of leaves of
absence, which provisions may vary from one another.

 

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ii. With respect to an Option granted to an individual who is not an employee of
the Company at the time of Option grant, the Board shall determine and specify
in the applicable Option Agreement the consequences, if any, of the termination
of the Grantee’s relationship with the Company.

 

(e)  Option Price. Subject in the case of ISOs to Section 7(g), the exercise
price per share of Common Stock covered by an Option shall be established by the
Committee; provided, however, that (a) the exercise price per share for any
Option shall not be less than one hundred percent (100%) of the Fair Market
Value of a share of Common Stock on the date the Option is granted and (b) no
ISO granted to a 10% Shareholder (as defined in Section 7(g)) shall have an
exercise price per share less than one hundred ten percent (110%) of the Fair
Market Value of a share of Common Stock on the date the Option is granted.
Notwithstanding the foregoing, an Option (whether an ISO or NSO) may be granted
with an exercise price lower than the minimum exercise price set forth above if
such Option is granted pursuant to an assumption or substitution for another
option in a manner qualifying under the provision of Sections 409A and 424(a) of
the Code.

 

(f)  No Stockholder Rights. No Grantee shall have the rights of a stockholder
with respect to shares covered by an Option until such person becomes the holder
of record of such shares.

 

(g)  ISO Provisions.

 

i. Employment Requirement; Termination of Employment, Death or Disability. ISOs
may only be awarded to employees of KapStone or a corporation which, with
respect to KapStone, is a “parent corporation” or “subsidiary corporation”
within the meaning of Sections 424(e) and (f) of the Code. No ISO may be
exercised unless, at the time of such exercise, the Grantee is, and has been
continuously since the date of grant of his or her option, employed by the
Company, except that:

 

(1)         an ISO may be exercised within the period of three months after the
date the Grantee ceases to be an employee of the Company (or within such lesser
period as may be specified in the applicable Option Agreement), provided, that
the Option Agreement may designate a longer exercise period and that the
exercise after such three-month period shall be treated as the exercise of a NSO
under the Plan;

 

(2) if the Grantee dies while in the employ of the Company, or within three
months after the Grantee ceases to be such an employee, the ISO may be exercised
by the person to whom it is transferred by will or the laws of descent and
distribution within the period of one year after the date of death (or within
such lesser period as may be specified in the applicable Option Agreement);
provided, that the Option Agreement may designate a longer exercise period and
that the exercise after such one-year period shall be treated as the exercise of
a NSO under the Plan; and

 

(3)

 

if while in the employ of the Company the Grantee becomes disabled within the
meaning of Section 22(e)(3) of the Code or any successor provisions thereto, the
ISO may be exercised within the period of one year after the date the Grantee
ceases to be such an employee because of such disability (or within such lesser
period as may be specified in the applicable Option Agreement) provided, that
the Option Agreement may designate a longer exercise period and that the
exercise after such one-year period shall be treated as the exercise of a NSO
under the Plan.

 

For all purposes of the Plan and any Option granted hereunder, “employment”
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no ISO may be exercised after its expiration date.

 

ii. 10% Shareholders.  In the case of an individual who at the time the Option
is granted owns stock possessing more than 10% of the total combined voting
power of all classes of the stock of KapStone or of a parent or subsidiary
corporation of KapStone (a “10% Shareholder”), (i) the Option exercise price of
any ISO granted to such person shall in no event be less than 110% of the Fair
Market Value of the Common

 

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Stock on the date the ISO is granted and (ii) the term of an ISO granted to such
person may not exceed five years from the date of grant.

 

iii. $100,000 Limit.  The aggregate Fair Market Value (determined at the time an
ISO is granted) of the Common Stock covered by ISOs exercisable for the first
time by an employee during any calendar year (under all plans of the Company)
may not exceed $100,000.

 

iv. Options Which Do Not Satisfy ISO Requirements.  To the extent that any
Option which is issued under the Plan exceeds the limit set forth in
paragraph (c) or otherwise does not comply with the requirements of Code
Section 422, it shall be treated as a NSO.

 

(h) Cancellation and New Grant of Options, Etc.  The Committee shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Grantees, (i) the cancellation of any or all outstanding Options under
the Plan and the grant in substitution therefor of new Options under the Plan
covering the same or different numbers of shares of Common Stock and having an
Option exercise price per share which may be lower or higher than the exercise
price per share of the cancelled Options or (ii) the amendment of the terms of
any and all outstanding Options under the Plan to provide an Option exercise
price per share which is higher or lower than the then-current exercise price
per share of such outstanding options; provided, however, that the Committee
shall not take any of the actions described in (i) or (ii) hereof without
receiving the approval of KapStone ‘s stockholders. The provisions of this
Section 7(h) may not be altered or amended without stockholder approval.

 

(i)  Buyout Provisions.  The Committee may at any time offer to buy out for a
payment in cash or shares, an Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the Grantee at
the time that such offer is made; provided, however, that the Committee shall
not be permitted to take such action with regard to any Option the exercise
price of which, on the date in question, is in excess of the Fair Market Value
of a share of Common Stock without receiving the approval of KapStone’s
stockholders. The provisions of this Section 7(i) may not be altered or amended
without stockholder approval.

 

(j)  No Deferral Feature.  The Option Agreement shall not provide for any
deferral feature with respect to an Option constituting a deferral of
compensation under Section 409A of the Code.

 

8.     Restricted Stock.

 

(a) Type of Restricted Stock.  Restricted Stock granted under the Plan may be
either restricted stock shares (“RS Shares”) or restricted stock units (“RS
Units”).  “RS Shares” means Shares which are issued and awarded to Grantees
subject to a substantial risk of forfeiture and restrictions on transfer of such
Shares during a specified period as provided in subsection (b).  “RS Units”
means bookkeeping units that represent the right of a Grantee to receive the
specified number of Shares upon lapse of the substantial risk of forfeiture and
other restrictions on such Shares during the specified period as provided in
subsection (b).

 

(b) Rights to Purchase.  The Committee may grant Restricted Stock to employees,
officers and directors of, and consultants and advisors to, the Company, in such
amounts, and subject to such terms and conditions as the Committee may determine
in its sole discretion, including such restrictions on transferability and other
restrictions as the Committee may impose, which restrictions may lapse
separately or in combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee shall determine. Grantees shall not
be required to pay cash or other consideration for Restricted Stock granted
hereunder, other than in the form of services performed under such terms and
conditions as the Committee may determine.

 

(c) Restricted Stock Grant Agreement.  Restricted Stock shall be granted under a
Restricted Stock Grant Agreement that shall specify whether the Restricted Stock
is an Award of RS Shares or RS Units, the number of RS Shares or RS Units
granted, and the terms of the restrictions referred to in subsection (b).  If
the Award is made in the form of RS Shares, then (i) the Award shall be further
evidenced by certificates or other indicia of ownership for the Shares
registered in the name of the Grantee and referring to the terms, conditions,
and restrictions applicable to such RS Shares; (ii) the Award of RS Shares shall
be entered upon the records of the duly authorized transfer agent of the

 

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Company as soon as practicable after the Award; but (iii) the Company may retain
physical possession of any such certificates, and the Company may require a
Grantee awarded RS Shares to deliver a stock power to the Company, endorsed in
blank, relating to the RS Shares for so long as the Restricted Stock is subject
to risk of forfeiture.

 

(d) Termination of Employment Prior to Vesting of Restricted Stock.  Unless the
Restricted Stock Grant Agreement expressly provides to the contrary, immediately
upon the termination of the Grantee’s status as an employee, officer or director
of, or consultant or advisor to, the Company for any reason other than the death
or Disability of the Grantee, Restricted Stock granted to such Grantee that has
not vested prior to such time may no longer vest, and Grantee shall forfeit all
rights (and the Company shall have no further obligations) with respect to such
Restricted Stock. In the event of the death or Disability of the Grantee, the
Award shall immediately vest in full.

 

(e) Repurchase Right.  The Committee may in its sole discretion provide that a
Restricted Stock Grant Agreement shall grant the Company the right to repurchase
RS Shares upon the termination for specified reasons or any reason of the
purchaser’s status as an employee, officer, director of, or consultant or
advisor to, the Company.  The purchase price for the RS Shares repurchased by
the Company pursuant to such repurchase right and the rate at which such
repurchase right shall lapse (if any) shall be determined by the Committee in
its sole discretion and shall be set forth in the Restricted Stock Grant
Agreement.

 

(f) Other Provisions.  The Restricted Stock Grant Agreement shall contain such
other terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Committee in its sole discretion.

 

(g) Rights as a Shareholder.  Unless otherwise provided in the Restricted Stock
Grant Agreement:

 

i.              A Grantee awarded RS Shares that have not been forfeited shall
have the rights of a stockholder with respect to such RS Shares from and after
the date that the Award of RS Shares is entered upon the records of the duly
authorized transfer agent of the Company, including without limitation the right
to vote such RS Shares and the right to receive dividends declared on the RS
Shares; provided, however, that any dividend in Shares on RS Shares shall be
held subject to the same restrictions and for the same period as the RS Shares
to which they relate.

 

ii.             A Grantee awarded RS Units that have not been forfeited shall
have no rights as a stockholder (unless and until Shares are issued in respect
of such RS Unites upon lapse of the substantial risk of forfeiture), including
without limitation no right to vote Shares represented by such RS Units;
provided, however, that if dividends (other than dividends in Shares) are paid
on Shares represented by RS Units, then the Company will cumulate amounts
equivalent to the amount of dividends and pay to the Grantee such amount when
the restrictions lapse; and if dividends in Shares are paid on Shares, the
Company will credit the Grantee with additional RS Units equal to the per-share
dividend on RS Units that have not yet either vested or been forfeited, with
such additional RS Units being subject to the same restrictions and for the same
period as the RS Units to which they relate.

 

(h) No Deferral Provisions.  A Restricted Stock Award shall not provide for any
deferral of compensation recognition after vesting with respect to Restricted
Stock which would cause the Award to constitute a deferral of compensation which
is not in compliance with Section 409A of the Code.

 

9.     Stock Appreciation Rights.

 

(a) Rights to Purchase.  The Committee may grant Stock Appreciation Rights to
employees, officers and directors of, and consultants and advisors to, the
Company, in such amounts, and subject to such terms and conditions as the
Committee may determine in its sole discretion, including such restrictions on
transferability and other restrictions as the Committee may impose, which
restrictions may lapse separately or in combination at such times, under such
circumstances, in such installments, or otherwise, as the Committee shall
determine. No Stock Appreciation Rights shall be granted under the terms and
conditions which would cause such rights to be treated as deferred compensation
subject to Section 409A of the Code. Grantees shall not be required to pay cash
or other consideration for Stock Appreciation Rights granted hereunder, other
than in the form of services performed under such terms and conditions as the
Committee may determine.

 

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(b) Stock Appreciation Rights Agreement.  Stock Appreciation Rights shall be
granted under a Stock Appreciation Rights Agreement. Each Stock Appreciation
Rights Agreement shall, at a minimum, specify (i) the number of shares of Common
Stock subject to the Stock Appreciation Right, (ii)  the provisions related to
vesting and exercisability of the Stock Appreciation Right, including the base
price, and (iii) that the Stock Appreciation Right is subject to the terms and
provisions of the Plan.  Stock Appreciation Rights Agreements may differ from
one another.

 

(c) Termination of Employment Prior to Vesting of Stock Appreciation Rights.

 

i.              With respect to a Stock Appreciation Right granted to an
individual who is an employee of the Company at the time of Stock Appreciation
Right grant, unless the Stock Appreciation Rights Agreement expressly provides
to the contrary, (i) the Stock Appreciation Right shall terminate immediately
upon the Grantee’s termination of employment for Cause (as defined in
Section 20); (ii) the Stock Appreciation Right shall terminate two years
following the Grantee’s termination of employment by reason of death or
Disability (as defined in Section 20); (iii) the Stock Appreciation Right shall
terminate two years after Retirement (as defined in Section 20); (iv) the Stock
Appreciation Right shall terminate three months after the Grantee’s termination
of employment for any other reason; and (v) vesting of a Stock Appreciation
Right will terminate in all cases immediately upon termination of employment. In
no event shall a Stock Appreciation Right remain exercisable beyond the
expiration date specified in the applicable Stock Appreciation Rights Agreement.
A Stock Appreciation Rights Agreement may contain such provisions as the Board
shall approve with reference to the determination of the date employment
terminates for purposes of the Plan and the effect of leaves of absence, which
provisions may vary from one another.

 

ii.             With respect to a Stock Appreciation Right granted to an
individual who is not an employee of the Company at the time of Stock
Appreciation Right grant, the Board shall determine and specify in the
applicable Stock Appreciation Rights Agreement the consequences, if any, of the
termination of the Grantee’s relationship with the Company.

 

(d)  Base Price. The base price per share of Common Stock covered by a Stock
Appreciation Right shall be established by the Committee; provided, however,
that the base price per share for any Stock Appreciation Right shall not be less
than one hundred percent (100%) of the Fair Market Value of a share of Common
Stock on the date the Stock Appreciation Right is granted.  Notwithstanding the
foregoing, a Stock Appreciation Right may be granted with a base price lower
than the minimum base price set forth above if such Stock Appreciation Right is
granted pursuant to an assumption or substitution for another Stock Appreciation
Right in a manner qualifying under the provision of Sections 409A and 424(a) of
the Code.

 

(e)  Other Provisions.  The Stock Appreciation Rights Agreement shall contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Committee in its sole discretion.

 

(f)  Rights as a Shareholder.  No Grantee shall have the rights of a stockholder
with respect to shares covered by a Stock Appreciation Right until such person
becomes the holder of record of such shares.

 

(g) Cancellation and New Grant of Stock Appreciation Rights, Etc.  The Committee
shall have the authority to effect, at any time and from time to time, with the
consent of the affected Grantees, (i) the cancellation of any or all outstanding
Stock Appreciation Rights under the Plan and the grant in substitution therefor
of new Stock Appreciation Rights under the Plan covering the same or different
numbers of shares of Common Stock and having a base price per share which may be
lower or higher than the base price per share of the cancelled Stock
Appreciation Rights or (ii) the amendment of the terms of any and all
outstanding Stock Appreciation Rights under the Plan to provide a base price per
share which is higher or lower than the then-current base price per share of
such outstanding Stock Appreciation Rights; provided, however, that the
Committee shall not take any of the actions described in (i) or (ii) hereof
without receiving the approval of KapStone ‘s stockholders. The provisions of
this Section 9(g) may not be altered or amended without stockholder approval.

 

(h) Buyout Provisions.  The Committee may at any time offer to buy out for a
payment in cash or shares, a Stock Appreciation Right previously granted, based
on such terms and conditions as the Committee shall establish and communicate to
the Grantee at the time that such offer is made; provided, however, that the
Committee shall not be

 

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permitted to take such action with regard to any Stock Appreciation Right the
base price of which, on the date in question, is in excess of the Fair Market
Value of a share of Common Stock without receiving the approval of KapStone’s
stockholders. The provisions of this Section 9(h) may not be altered or amended
without stockholder approval..

 

(i)  No Deferral Feature.  The Stock Appreciation Rights Agreement shall not
provide for any deferral feature with respect to a Stock Appreciation Right
constituting a deferral of compensation under Section 409A of the Code.

 

10.  Exercise of Awards.

 

(a) An Award other than a Restricted Stock Award may be exercised at any time
and from time to time, in whole or in part, as to any or all full shares as to
which such Award is then exercisable. An Award may not be exercised with respect
to a fractional share. A Grantee (or other person who, pursuant to Section 11,
may exercise the Award) shall exercise the Award by delivering to KapStone in
the manner provided in the Award Agreement a written notice of exercise, stating
the number of shares of Common Stock with respect to which the exercise is being
made.  Upon receipt by KapStone of any notice of exercise, the exercise of the
Award as set forth in that notice shall be irrevocable.

 

(b) Upon exercise of an Option, the Grantee shall pay to KapStone the Option
exercise price per share of Common Stock multiplied by the number of full shares
as to which the Option is then exercised. A Grantee may pay the Option exercise
price by (i) tendering or causing to be tendered to KapStone cash, (ii) delivery
or deemed delivery of shares of Common Stock owned by the Grantee having a Fair
Market Value equal to the exercise price, (iii) authorizing KapStone to withhold
whole shares of Common Stock which would otherwise be delivered to the Grantee
having an aggregate Fair Market Value, determined as of the date of exercise,
equal to the exercise price, (iv) delivery of other property permitted by law
and acceptable to the Board or Committee, or (v) any other means which the Board
or Committee determines are consistent with the purpose of the Plan and with
applicable laws and regulations (including, without limitation, the provisions
of Rule 16b-3 and Regulation T promulgated by the Federal Reserve Board).

 

(c) The Company shall, in its sole discretion, take any action reasonably
believed by it to be necessary to comply with local, state or federal tax laws
relating to the reporting and withholding of taxes. In the event a Grantee has
exercised an Award, a Grantee shall, upon notification of the amount due,
promptly pay or cause to be paid the amount determined by the Company as
necessary to satisfy all applicable tax withholding requirements. A Grantee may
satisfy his or her tax withholding requirement in any manner satisfactory to the
Company.

 

(d) Any certificates or other indicia of ownership representing the shares as to
which an Award has been exercised shall refer to the restrictions applicable to
such shares.

 

11.  Nontransferability.

 

(a) Except as provided in Section 11 (b), Awards granted under the Plan shall
not be assignable or transferable other than by will or the laws of descent and
distribution and Options and Stock Appreciation Rights may be exercised during
the lifetime of the Grantee only by the Grantee or by the Grantee’s guardian or
legal representative.  In the event of any attempt by a Grantee to transfer,
assign, pledge, hypothecate or otherwise dispose of an Award or any right
thereunder, except as provided for herein, or in the event of the levy of any
attachment, execution or similar process upon the rights or interest hereby
conferred, KapStone may terminate the Award (making such Award null and void) or
repurchase the RS Shares as provided in Section 8(e) by notice to the Grantee.

 

(b) Notwithstanding paragraph (a), if (and on the terms) so provided in the
applicable Option Agreement, a Grantee may transfer a NSO, by gift or a domestic
relations order, to a Family Member (as defined in Section 20) of the Grantee.
If a NSO is transferred in accordance with this subparagraph, the Option shall
be exercisable solely by the transferee, but the determination of the
exercisability of the Option shall be based solely on the activities and state
of affairs of the Grantee. Thus, for example, if, after a transfer with respect
to an Option, the Grantee ceases to be an employee of the Company, such
termination shall trigger the provisions of Section 7(d) hereof. Conversely, if
after a

 

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transfer the transferee ceases to be an employee of the Company, such
termination shall not trigger the provisions of Section 7(d) hereof.

 

12.  Compliance with Law; Registration of Shares.

 

(a) The Plan and any grant hereunder shall be subject to all applicable laws,
rules, and regulations of any applicable jurisdiction or authority or agency
thereof and to such approvals by any regulatory or governmental agency which, in
the opinion of Company’s counsel, may be required or appropriate.

 

(b) Notwithstanding any other provision of the Plan or Award Agreements made
pursuant hereto, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:

 

i. Effectiveness of any registration or other qualification of such shares of
the Company under any law or regulation of any applicable jurisdiction or
authority or agency thereof which the Board shall, in its absolute discretion or
upon the advice of counsel, deem necessary or advisable; and

 

ii. Grant of any other consent, approval or permit from any applicable
jurisdiction or authority or agency thereof or securities exchange or quotation
system which the Board shall, in its absolute discretion or upon the advice of
counsel, deem necessary or advisable.

 

The Company shall use all reasonable efforts to obtain any consent, approval or
permit described above; provided, however, that except to the extent as may be
specified in an Award Agreement with respect to any particular grant, the
Company shall be under no obligation to register or qualify any shares of Common
Stock subject to an Award under any federal or state securities law or on any
exchange.

 

13.  Change in Control.

 

(a) In the event that a Change in Control occurs, the Board may determine that
(i) any Option shall be assumed, or a substantially equivalent Award shall be
substituted, by an acquiring or succeeding entity (or an affiliate thereof) on
such terms as the Board determines to be appropriate; (ii) upon written notice
to the Grantee, provide that the Award shall terminate immediately prior to the
consummation of the transaction unless exercised by the Grantee within a
specified period following the date of the notice; (iii) in the event that the
Change in Control is a sale or similar transaction under the terms of which
holders of Common Stock receive a payment for each share of Common Stock
surrendered in the transaction (the “Sales Price”), make or provide for a
payment to each Grantee equal to the amount by which (A) the Sales Price times
the number of shares of Common Stock subject to the Award (to the extent such
Award is then exercisable) exceeds (B) the aggregate exercise or base price, if
any, for all such shares of Common Stock; or (iv) may make such other equitable
adjustments as the Board deems appropriate.

 

(b)  “Change in Control” means the occurrence of any of the following:  (i) any
“person” (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly, of securities representing 35% or more of
the combined voting power for election of directors of the then outstanding
securities of the Company or any successor of the Company; (ii) during any
period of two consecutive years or less, individuals who at the beginning of
such period constituted the Board cease, for any reason, to constitute at least
a majority of the Board, unless the election or nomination for election of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period; (iii)  the
consummation of the liquidation of the Company or the sale or other disposition
of 50% or more of the assets of the Company; or (iv) the consummation of any
merger or consolidation to which the Company is a party as a result of which the
persons who were share owners of the Company immediately prior to the effective
date of the merger or consolidation will have beneficial ownership of less than
50% of the combined voting power for election of directors of the surviving
corporation following the effective date of such merger or consolidation.

 

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14.  Adjustments upon Changes in Capitalization.

 

(a) In the event of any stock dividend or split, recapitalization, combination,
exchange or similar change affecting the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company, the Committee shall make any or all of the
following adjustments as it deems appropriate to equitably reflect such event:
(i) adjust the aggregate number of shares (or such other security as is
designated by the Board) which may be acquired pursuant to the Plan, (ii) adjust
the purchase price to be paid for any or all such shares subject to the then
outstanding Awards, (iii) adjust the number of shares of Common Stock (or such
other security as is designated by the Board) subject to any or all of the then
outstanding Awards and (iv) make any other equitable adjustments or take such
other equitable action as the Board, in its discretion, shall deem appropriate.
For purposes hereof, the conversion of any convertible securities of the Company
shall not be deemed to have been “effected without receipt of consideration.”

 

(b) Any and all adjustments or actions taken by the Board pursuant to this
Section 14 shall be conclusive and binding for all purposes.

 

15.  No Right to Continued Employment.  Neither the Plan nor any action taken
hereunder shall be construed as giving any employee or any independent
contractor any right to continue in the employ of or to be engaged as an
independent contractor by the Company or affect the right of the Company to
terminate such person’s employment or other relationship with the Company at any
time.

 

16.  Amendment; Early Termination.  Subject to Sections 7(h) and 9(g), the Board
may at any time and from time to time alter, amend, suspend or terminate the
Plan in whole or in part; provided, however, that no amendment requiring
stockholder approval by law or by the rules of any stock exchange, inter-dealer
quotation system, or other market in which shares of Common Stock are traded,
shall be effective unless and until such stockholder approval has been obtained
in compliance with such rule or law; and provided, further, that no such
amendment shall materially adversely affect the rights of a Grantee in any Award
previously granted under the Plan without the Grantee’s written consent.

 

17.  Effective Date.  The Plan shall be effective as of the date of its adoption
by the Board (the “Effective Date”), subject to the approval thereof by the
stockholders of KapStone entitled to vote thereon within 12 months of such date.
In the event that such stockholder approval is not obtained within such time
period, the Plan and any Awards granted under the Plan on or prior to the
expiration of such 12 month period shall be void and of no further force and
effect.

 

18.  Termination of Plan.  Unless terminated earlier by the Board in accordance
with Section 16 above, the Plan shall terminate on, and no further Awards may be
granted after, the tenth anniversary of the Effective Date.

 

19.  Severability.  In the event that any one or more provisions of the Plan or
an Award Agreement, or any action taken pursuant to the Plan or an Award
Agreement, should, for any reason, be unenforceable or invalid in any respect
under the laws of the United States, any state of the United States or any other
jurisdiction, such unenforceability or invalidity shall not affect any other
provision of the Plan or Award Agreement, but in such particular jurisdiction
and instance the Plan and/or Award Agreement, as applicable, shall be construed
as if such unenforceable or invalid provision had not been contained therein or
if the action in question had not been taken thereunder.

 

20.  Definitions.

 

(a)  Affiliate.  The term “Affiliate” means any entity, whether or not
incorporated, that directly or through one or more intermediaries is controlled
by KapStone.

 

(b) Cause.  The term “Cause” when used herein in conjunction with termination of
employment (or other service relationship) means (i) if the Grantee is a party
to an employment or similar agreement with the Company which

 

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defines “cause” (or a similar term), the meaning set forth in such agreement
(other than death or disability), or (ii) otherwise, termination by the Company
of the employment (or other service relationship) of the Grantee by reason of
the Grantee’s (1) intentional failure to perform reasonably assigned duties,
(2) dishonesty or willful misconduct in the performance of his duties,
(3) involvement in a transaction which is materially adverse to the Company,
(4) breach of fiduciary duty involving personal profit, (5) willful violation of
any law, rule, regulation or court order (other than misdemeanor traffic
violations and misdemeanors not involving misuse or misappropriation of money or
property), (6) commission of an act of fraud or intentional misappropriation or
conversion of any asset or opportunity of the Company, or (7) material breach of
any provision of the Plan, the Grantee’s Award Agreement or any other written
agreement between the Grantee and the Company, in each case as determined in
good faith by the Board, whose determination shall be final, conclusive and
binding on all parties.

 

(c)  Disability.  Except as otherwise specified in the applicable Award
Agreement or in the Grantee’s Employment Agreement with the Company, the Grantee
shall be deemed to have a “Disability” if the Grantee is unable to engage in any
substantial gainful activity by reason of any medically determined physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve
(12) months, as reasonably determined by the Board in good faith and in its
discretion.

 

(d)  Fair Market Value.  As used herein, the term “Fair Market Value” of a share
of Common Stock as of a specified date for the purposes of the Plan shall mean
the value of a share of Common Stock determined consistent with the requirements
of Sections 422 and 409A of the Code as follows: the arithmetic mean of the high
and low sales prices of a share of Common Stock on the date of grant on the
principal securities exchange (including the Nasdaq National Market) on which
such shares are traded on the relevant date for which Fair Market Value is being
determined, or if the shares are not traded on a securities exchange, Fair
Market Value shall be deemed to be the average of the high bid and low asked
prices of the Common Stock on the date of grant in the over-the-counter market
on which such shares are traded on the relevant date for which Fair Market Value
is being determined. If the shares are not publicly traded, Fair Market Value of
a share of Common Stock (including, in the case of any repurchase of shares, any
distributions with respect thereto which would be repurchased with the shares)
shall be determined in good faith by the Board or the Committee. In no case
shall Fair Market Value be determined with regard to restrictions other than
restrictions which, by their terms, will never lapse.

 

(e) Family Member of the Grantee.  As used herein, “Family Member of the
Grantee” means the Grantee’s child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
including adoptive relationships, any person sharing the Grantee’s household
(other than a tenant or employee), a trust in which these persons have more than
50% of the beneficial interest, a foundation in which these persons (or the
Grantee) control the management of assets, and any other entity in which these
persons (or the Grantee) own more than 50% of the voting interests.

 

(f) Retirement.  As used herein, “Retirement” means the termination of
employment of a Grantee over the age of 64.

 

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