Exhibit
10.18


 


MANAGEMENT STOCK OPTION
AGREEMENT


 


MANAGEMENT STOCK OPTION AGREEMENT, dated as of January
1, 2002, between Riverwood Holding, Inc., a Delaware corporation (the
“Company”), and Stephen M. Humphrey (the “Grantee”).


 


W  I
T  N  E  S  S  E  T  H:


 


WHEREAS, to motivate key employees of the Company and
the Subsidiaries by providing them an ownership interest in the Company, the
Board of Directors of the Company (the “Board”) has established the Riverwood
Holding, Inc. 2002 Management Stock Incentive Plan, as the same may be amended
from time to time (the “Plan”); and


 


WHEREAS, on the date hereof, the Company, its
indirect, wholly-owned subsidiary, Riverwood International Corporation, a
Delaware corporation (“Riverwood”), and the Grantee have entered into an
amended and restated Employment Agreement (as the same may be amended from time
to time, the “Employment Agreement”), providing for, among other things, the
grant to the Grantee of the stock options described herein;


 


WHEREAS, the Grantee and the Company desire to enter
into an agreement to evidence and confirm the grant of such stock options on
the terms and conditions set forth herein;


 


NOW, THEREFORE, to evidence the stock options so
granted, and to set forth the terms and conditions governing such stock
options, the Company and the Grantee hereby agree as follows:


 


1.  Certain Definitions.  As used in this Agreement, the following
terms shall have the following meanings:


 


(a)  “Acquisition” shall mean the series
of transactions resulting in the indirect acquisition of all of the issued and
outstanding capital stock of Former Riverwood by the Company on March 27, 1996
pursuant to the Merger Agreement.


 


(b)  “Affiliate” shall mean, with respect
to any person, any other person controlled by, controlling or under common
control with such person.


 


(c)  “Applicable Percentage” shall mean,
with respect to an EBITDA Target for any Fiscal Year, the portion of such
EBITDA Target actually achieved by the Company and the Subsidiaries as of the
end of such Fiscal Year, expressed as a percentage.


 


(d)  “Board” shall mean the Board of
Directors of the Company.


 


(e)  “CD&R Fund” shall mean the
Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman Islands
exempted limited partnership, and any successor investment vehicle managed by
Clayton, Dubilier & Rice, Inc.


 

















 


(f)  “Cause” shall have the meaning
assigned to such term in the Employment Agreement.


 


(g)  “Change in Control” shall mean the
first to occur of the following events after the date hereof:


 


(i)  the acquisition by any person, entity or
“group” (as defined in Section 13(d) of the Exchange Act), other than the
Company, the Subsidiaries, any employee benefit plan of the Company or the
Subsidiaries, the CD&R Fund, any Investor or any Affiliate of the CD&R
Fund or of an Investor, of 50% or more of the combined voting power of the
Company’s or Riverwood’s then outstanding voting securities;


 


(ii)  the merger or consolidation of the Company
or Riverwood, as a result of which persons who were stockholders of the Company
or Riverwood, as the case may be, immediately prior to such merger or
consolidation, do not, immediately thereafter, own, directly or indirectly,
more than 50% of the combined voting power entitled to vote generally in the
election of directors of the merged or consolidated company;


 


(iii)  the liquidation or dissolution of the
Company or Riverwood other than a liquidation of Riverwood into the Company or
into any Subsidiary; and


 


(iv)  the sale, transfer or other disposition of
all or substantially all of the assets of the Company or Riverwood to one or
more persons or entities that are not, immediately prior to such sale, transfer
or other disposition, Affiliates of the Company, Riverwood, the CD&R Fund
or any Investor.


 


(h)  “Change in Control Price” shall mean
the price per share of Common Stock paid in conjunction with any transaction
resulting in a Change in Control (as determined in good faith by the Board if
any part of such price is payable other than in cash).


 


(i)  “Common Stock” shall mean the Class A
Common Stock, par value $.01 per share, of the Company.


 


(j)  “Company” shall have the meaning set
forth in the introductory paragraph hereto.


 


(k)  “Covered Options” shall have the
meaning set forth in Section 4(b) hereof.


 


(l)  “Cumulative EBITDA Target”  shall mean the sum of the EBITDA Targets for
each of the fiscal years of the Company ending December 31, 2002, 2003 and
2004, or, in the case of a determination of the Cumulative EBITDA Target prior
to December 31, 2004 pursuant to Section 3(b), the sum of such


 


2

















 


EBITDA Targets for each of the Fiscal Years ending
prior to such date of determination and a pro rata portion of the EBITDA Target
for the Fiscal Year which includes such date of determination, pro-rated
through the end of the most recent calendar quarter ending on or prior to such
date of determination, as the same may be adjusted from time to time in
accordance with this Agreement.


 


(m)  “Delay Period” shall have the meaning
set forth in Section 10(c) hereof.


 


(n)  “Disability” shall have the meaning
assigned to such term in the Employment Agreement.


 


(o)  “EBITDA” shall have the meaning
assigned to such term in the Amended and Restated Credit Agreement, dated as of
August 10, 2001, among Riverwood, the other borrowers party thereto, The Chase
Manhattan Bank, as administrative agent, and the lenders party thereto from
time to time, as such agreement may be further amended from time to time.


 


(p)  “EBITDA Target” shall mean, with respect
to the 2002, 2003 and 2004 Fiscal Year, the EBITDA targeted for such Fiscal
Year in the business plan of the Company and the Subsidiaries for such Fiscal
Year approved by the Board; provided, however, that in the event the Company or
any Subsidiary consummates a significant acquisition, disposition or other
corporate transaction or series of transactions that, in the judgment of the
Executive Committee of the Board, would reasonably be expected to impact the
consolidated earnings of the Company and its subsidiaries, the EBITDA Target
for the relevant fiscal years may be appropriately adjusted by the Board to
reflect such transaction or series of transactions.


 


(q)  “Employment Agreement” shall have the
meaning set forth in the recitals hereto.


 


(r)  “Exchange Act” shall mean the U.S.
Securities Exchange Act of 1934, as amended.


 


(s)  “Exercise Date” shall have the
meaning set forth in Section 6 hereof.


 


(t)  “Exercise Price” shall have the
meaning set forth in Section 6 hereof.


 


(u)  “Exercise Shares” shall have the
meaning set forth in Section 6 hereof.


 


(v)  “Extraordinary Termination” shall
mean a termination of the Grantee’s employment with the Company and the
Subsidiaries by reason of the Grantee’s death, Disability or Retirement.


 


(w)  “Fair Market Value” shall mean, as of
any date, the fair market value on such date of a share of Common Stock as
determined in good faith by the Executive Committee of the Board.  In making a determination of Fair Market


 


3

















 


Value, the Executive Committee shall give due
consideration to such factors as it deems appropriate, including, without
limitation, the earnings and certain other financial and operating information
of the Company and the Subsidiaries in recent periods, the potential value of
the Company and the Subsidiaries as a whole, the future prospects of the
Company and the Subsidiaries and the industries in which they compete, the
history and management of the Company and the Subsidiaries, the general condition
of the securities markets, the fair market value of securities of companies
engaged in businesses similar to those of the Company and the Subsidiaries and
a valuation of the Common Stock, which shall be performed, with respect to any
Fiscal Year, as promptly as practicable following the first business day of the
subsequent Fiscal Year by an independent valuation firm chosen by the Executive
Committee.  Notwithstanding the
foregoing, following a Public Offering, Fair Market Value shall mean the
average of the high and low trading prices for a share of Common Stock on the
primary national exchange (including NASDAQ) on which the Common Stock is then
traded on the trading day immediately preceding the date as of which such Fair
Market Value is determined.  The
determination of Fair Market Value will not give effect to any restrictions on
transfer of the shares of Common Stock or the fact that such Common Stock would
represent a minority interest in the Company.


 


(x)  “Fiscal Year” shall mean a fiscal
year of the Company ending December 31.


 


(y)  “First Purchase Period” shall have
the meaning set forth in Section 5(c)(i) hereof.


 


(z)  “Financing Agreements” shall have the
meaning set forth in Section 10(a) hereof.


 


(aa)  “Fiscal Year” shall mean a fiscal
year of the Company ending December 31.


 


(bb) “Good Reason”
shall have the meaning assigned to such term in the Employment Agreement.


 


(cc)  “Grant Date” shall mean the date
hereof, which is the date on which the Options are granted to the Grantee.


 


(dd)  “Grantee” shall have the meaning set
forth in the introductory paragraph hereto.


 


(ee)  “Installment” shall mean Performance
Options with respect to 50,000 Shares.


 


(ff)  “Investors” shall mean each of the
investors who purchased shares of Common Stock or shares of Class B Common
Stock of the Company concurrently with the consummation of the merger
contemplated by the Merger Agreement,


 


4

















 


and their “specified affiliates”, within the meaning
of the Stockholders Agreement of the Company, as amended from time to time.


 


(gg)  “Management Stock Subscription Agreement”
shall mean the management stock subscription agreement to be entered into by
the Company and the Grantee in connection with the Grantee’s exercise of any of
the Options and purchase of the Shares subject to any such Options pursuant to
Section 6 hereof.


 


(hh)  “Merger Agreement” shall mean the
Agreement and Plan of Merger, dated as of October 25, 1995, by and among RIC
Holding, its wholly owned subsidiary, CDRO Acquisition Corporation, a Delaware
corporation, and Prior Riverwood.


 


(ii)  “New Employer” shall mean the
Grantee’s employer, or the parent or a subsidiary of such employer, immediately
following a Change in Control.


 


(jj)  “Normal Termination Date” shall mean
the tenth anniversary of the date hereof.


 


(kk)  “Option Price” shall mean, with
respect to an Option, the exercise price under such Option determined in
accordance with Section 2(b) hereof.


 


(ll)  “Options” shall mean, collectively,
the Performance Options, the Service Options and the Special Performance
Options granted to the Grantee hereby.


 


(mm)  “Performance Options” shall mean
those Options that are subject to the provisions of Section 3(b) hereof
providing for the vesting of such Options on the basis of the financial
performance of the Company and the Subsidiaries and/or the continued employment
of the Grantee.  Performance Options
have been granted to the Grantee pursuant to this Agreement with respect to
150,000 Shares.


 


(nn)  “Plan” shall have the meaning set
forth in the recitals hereto.


 


(oo)  “Public Offering” shall mean the
first day as of which sales of Common Stock are made to the public in the
United States pursuant to an underwritten public offering of the Common Stock
led by one or more underwriters at least one of which is an underwriter of
nationally recognized standing.


 


(pp)  “Registration and Participation Agreement”
shall have the meaning set forth in Section 7(f) hereof.


 


(qq)  “Retirement” shall mean the Grantee’s
retirement from employment with the Company and the Subsidiaries at or after
age 65.


 


(rr)  “Riverwood” shall have the meaning
set forth in the recitals hereto.


 


5

















 


(ss)  “Rule 144” shall mean Rule 144
promulgated under the Securities Act.


 


(tt)  “Second Purchase Period” shall have
the meaning set forth in Section 5(c)(i) hereof.


 


(uu)  “Securities Act” shall mean the U.S.
Securities Act of 1933, as amended.


 


(vv)  “Service Options” shall mean those
Options that are subject to the provisions of Section 3(a) hereof providing for
the vesting of such Option on the basis of the Grantee’s completion of
service.  Service Options have been
granted to the Grantee pursuant to this Agreement with respect to 150,000
Shares.


 


(ww)  “Shares” shall mean the shares of
Common Stock subject to the Options.


 


(xx)  “Special Performance Options” shall
mean those Options that are subject to the provisions of Section 3(c) hereof
providing for the vesting of such Options on the basis of the occurrence of a
Change in Control and/or the continued employment of the Grantee.  Special Performance Options have been
granted to the Grantee pursuant to this Agreement with respect to 150,000
Shares.


 


(yy)  “Subsidiary” shall mean any
corporation or other person, a majority of whose outstanding voting securities
or other equity interests are owned, directly or indirectly, by the Company.


 


2.  Grant of
Options.


 


(a)  Confirmation
of Grant.  The Company hereby
evidences and confirms its grant to the Grantee, effective as of the date
hereof, of (i) Service Options to purchase 150,000 Shares and (ii)
Performance Options to purchase 150,000 Shares and (iii) Special performance
Options to purchase 150,000 Shares.  The
Options are not intended to be incentive stock options under the U.S. Internal
Revenue Code of 1986, as amended.  This
Agreement is subordinate to, and the terms and conditions of the Options
granted hereunder are subject to, the terms and conditions of the Plan.  If there is any inconsistency between the
terms hereof and the terms of the Plan, the terms of the Plan shall govern.


 


(b)  Option
Price.  The per share exercise price
for the Shares covered by the Options shall equal $120.00 per share.


 


3.  Exercisability.


 


(a)  Service
Options.  Except as otherwise
provided in this Agreement and subject to the continuous employment of the
Grantee with the Company or one or more of the Subsidiaries until the
applicable vesting date, the Service Options shall become vested and
exercisable in two annual installments, one-third on the second anniversary of
the


 


6

















 


Grant Date and the remaining two-thirds on the Third anniversary of the
Grant Date; provided that, if, on or prior to the third anniversary of
the Grant Date, (x) the Grantee’s employment is terminated by reason of
an Extraordinary Termination or (y)(i)the CD&R Fund and, if
applicable, its Affiliates effect a sale or other disposition of all of the
Common Stock then held by the CD&R Fund and its Affiliates to one or more
persons other than any person who is a general or limited partner or Affiliate
of the CD&R Fund and (ii) thereafter, the Grantee’s employment is
terminated by the Company other than for Cause or by the Grantee for Good
Reason, all Service Options held by the Grantee as of the effective date of
such Extraordinary Termination or termination under the foregoing clause
(y)(ii), whichever is applicable, shall become immediately 100% vested and
exercisable.


 


(b)  Performance
Options.  Except as otherwise
provided in this Agreement and subject to the continuous employment of the
Grantee with the Company or one or more of the Subsidiaries until the
applicable vesting date as follows:


 


(i)  the Applicable Percentage of an Installment
of Performance Options shall become vested and exercisable on each of the first
three anniversaries of the Grant Date, provided in the case of any such
Installment, that the Executive Committee of the Board determines that Company
has achieved at least 75% of the EBITDA Target for the Fiscal Year ending
immediately prior to such anniversary date;


 


(ii)  100% of any Performance Options that, as of
the third anniversary of the Grant Date, have not become vested and exercisable
in accordance with the preceding clause (i) shall become vested and exercisable
as of the date of such third anniversary if the Executive Committee of the
Board determines that Company has achieved 100% of the Cumulative EBITDA Target
for the three Fiscal Years ending December 31, 2004; and


 


provided that if, on or prior to the
third anniversary of the Grant Date, (x) the Grantee’s employment is
terminated by reason of an Extraordinary Termination or (y)(i)
the CD&R Fund and, if applicable, its Affiliates effect a sale or other
disposition of all of the Common Stock then held by the CD&R Fund and its
Affiliates to one or more persons other than any person who is a general or
limited partner or Affiliate of the CD&R Fund and (ii) thereafter,
either the Grantee’s employment is terminated by the Company other than for
Cause or the Grantee’s employment is terminated by the Grantee for Good Reason,
then the excess of (x) a “proportionate share” of the Performance
Options, over (y) the number of Performance Options that have previously
become vested pursuant to Section 3(b)(i) shall vest and become exercisable as
of such date of termination.  Such
“proportionate share” that shall become vested and exercisable shall equal the
product of (i) the percentage obtained by dividing (x) the
cumulative EBITDA actually achieved by the Company during the period commencing
on January 1, 2002 and ending on the last day of the most recent calendar
quarter ending on or prior to the effective date of the Extraordinary
Termination or other termination, whichever is applicable, as determined by the
Executive Committee of the Board, by (y) the Cumulative EBITDA Target,
multiplied by (ii) the total number of Shares subject to such
Performance Options.  Any


 


7

















 


Performance Options held by the Grantee as of the date of an
Extraordinary Termination or other termination, whichever is applicable, that
have not become vested and exercisable on or prior to such date of termination
in accordance with this Section 3(b) shall terminate and be cancelled
immediately on such date.


 


Notwithstanding the foregoing provisions of this
paragraph (b), 100% of the Performance Options shall become vested and
exercisable nine years and six months following the Grant Date regardless of
whether any EBITDA Target has been achieved, subject to the continuous
employment of the Grantee with the Company or one or more of the Subsidiaries
until such date.


 


(c)  Special
Performance Options.  Except as
otherwise provided in this Agreement and subject to the continuous employment
of the grantee with the Company or one or more of the Subsidiaries until the
applicable vesting date, 100% of the Special performance Options shall vest and
become exercisable upon the earliest of (i) the occurrence, prior to the
third anniversary of the Grant Date, of a Change in Control, and (ii)
the nine year and six month anniversary of the Grant Date.


 


(d)  Conditions.  The Board, in its sole discretion, may
accelerate the vesting or exercisability of any Option, all Options or any
class of Options, at any time and from time to time.  Shares eligible for purchase may, subject to the provisions
hereof, thereafter be purchased, at any time and from time to time on or after
such anniversary until the date one day prior to the date on which the Options
terminate, provided that any such purchase shall be effected pursuant to and
subject to Sections 5 and 6 hereof and the provisions contained in the
Management Stock Subscription Agreement related to the purchase of such Shares.


 


4.  Termination
of Options.


 


(a)  Normal
Termination Date.  Unless an earlier
termination date shall occur as specified in subsection (b), the Options shall
terminate and be cancelled on the Normal Termination Date.


 


(b)  Early
Termination.  If the Grantee’s
employment is voluntarily or involuntarily terminated for any reason, any
Options held by the Grantee that have not become vested and exercisable on or
before the effective date of such termination shall terminate and be cancelled
immediately upon such termination of employment.  Subject to the provisions of Section 5(c), all Options held
by the Grantee on the date of such termination that shall have become vested
and exercisable on or before the effective date of such termination (such
Options, the “Covered Options”) shall remain exercisable for whichever
of the following periods is applicable, and if not exercised within such
period, shall terminate and be cancelled upon the expiration of such period: (i)
if the Grantee’s employment is terminated by reason of an Extraordinary
Termination, the Covered Options shall remain exercisable solely until the
first to occur of (A) the one year anniversary of the Grantee’s
termination of employment or (B) the Normal Termination Date and (ii)
if the Grantee’s employment is terminated for any reason other than (x)
an Extraordinary Termination or (y) for Cause, the Covered Options shall
remain


 


8

















 


exercisable for a period of 60 days after the earliest to occur of (x)
the expiration of the Second Purchase Period (as defined in
Section 5(c)(i) hereof), (y) the receipt by the Grantee of
written notice that the CD&R Fund does not intend to exercise its right to
purchase the Covered Options pursuant to Section 5(c)(i) and (z)
the Normal Termination Date. 
Notwithstanding anything else contained in this Agreement, if the
Grantee’s employment is terminated for Cause, all Options (whether or not then
exercisable) shall terminate and be cancelled immediately upon such
termination.  Nothing in this Agreement
shall be deemed to confer on the Grantee any right to continue in the employ of
the Company or any Subsidiary, or to interfere with or limit in any way the
right of the Company or any Subsidiary to terminate such employment at any
time.


 


5.  Restrictions
on Exercise; Non-Transferability of Options; Repurchase of Options.


 


(a)  Restrictions
on Exercise.  The Options may be
exercised only with respect to full shares of Common Stock.  No fractional shares of Common Stock shall
be issued.  Notwithstanding any other
provision of this Agreement, the Options may not be exercised in whole or in
part, and no certificates representing Shares shall be delivered, (i) (A)
unless all requisite approvals and consents of any governmental authority of
any kind having jurisdiction over the exercise of the Options shall have been
secured, (B) unless the purchase of the Shares upon the exercise of
the Options shall be exempt from registration under applicable U.S. federal and
state securities laws, and applicable non-U.S. securities laws, or the Shares
shall have been registered under such laws, and (C) unless all
applicable U.S. federal, state and local and non-U.S. tax withholding
requirements shall have been satisfied or (ii) if such exercise
would  result in a violation of the
terms or provisions of or a default or an event of default under any of the
Financing Agreements.  The Company shall
use commercially reasonable efforts to obtain the consents and approvals
referred to in clause (i)(A) of the preceding sentence and to obtain the
consent of the parties to the Financing Agreements referred to in clause (ii)
of the preceding sentence so as to permit the Options to be exercised.


 


(b)  Non-Transferability
of Options.  Except as contemplated
by Section 5(c), the Options may be exercised only by the Grantee or by
the Grantee’s estate.  Except as
contemplated by Section 5(c), the Option is not assignable or
transferable, in whole or in part, and it may not, directly or indirectly, be
offered, transferred, sold, pledged, assigned, alienated, hypothecated or
otherwise disposed of or encumbered (including without limitation by gift,
operation of law or otherwise) other than by will or by the laws of descent and
distribution to the estate of the Grantee upon the Grantee’s death, provided
that the deceased Grantee’s beneficiary or the representative of the Grantee’s
estate shall acknowledge and agree in writing, in a form reasonably acceptable
to the Company, to be bound by the provisions of this Agreement and the Plan as
if such beneficiary or the estate were the Grantee.


 


(c)                                  Purchase
of Options on Termination of Employment.


 


(i)  Termination of Employment.  If the Grantee’s employment is terminated
for any reason other than for Cause, the Company shall have an option


 


9

















 


to purchase all or any portion of the Covered Options
and shall have 30 days from the date of the Grantee’s termination of employment
(such 30-day period being hereinafter referred to as the “First Purchase
Period”) during which to give notice in writing to the Grantee (or, if the
Grantee’s employment was terminated by the Grantee’s death, the Grantee’s
estate) of its election to exercise or not to exercise such right to purchase
the Covered Options.  The Company hereby
undertakes to use reasonable efforts to act as promptly as practicable
following such termination to make such election.  If the Company (i) fails to give notice that it
intends to exercise its right to purchase the Covered Options within the First
Purchase Period, or (ii) chooses to purchase none or only a portion
of the Covered Options, by giving such notice, the CD&R Fund shall have the
right to purchase all or any portion of the Covered Options not purchased by
the Company, and shall have until the expiration of the earlier of (x) 30
days following the end of the First Purchase Period, or (y) 30 days
from the date of receipt by the CD&R Fund of written notice that the
Company does not intend to exercise its right with respect to all of the
Covered Options (such 30-day period being hereinafter referred to as the
“Second Purchase Period”), to give notice in writing to the Grantee (or the
Grantee’s estate) of the CD&R Fund’s exercise of its right to purchase all
or any portion of such Covered Options. 
If the rights of the Company and the CD&R Fund to purchase all of
the Covered Options granted in this subsection are not fully exercised as
provided herein other than as a result of any deferral of the payment of the
Purchase Price therefor pursuant to Section 10 hereof, the Grantee (or the
Grantee’s estate) shall be entitled to retain any Covered Options not so
purchased, subject to all of the provisions of this Agreement (including,
without limitation, Section 4(b)).


 


(ii)  Purchase Price, etc.  All purchases pursuant to this
Section 5(c) by the Company or the CD&R Fund shall be for a purchase
price and effected in the manner prescribed by Sections 5(f), (g) and (h).


 


(d)                                 Notice
of Termination.  The Company shall
give written notice of any termination of the Grantee’s employment to the
CD&R Fund, except that if such termination (if other than as a result of
death) is by the Grantee, the Grantee shall give written notice of such
termination to the Company and the Company shall give written notice of such
termination to the CD&R Fund.


 


(e)                                  Public
Offering.  In the event that a
Public Offering has been consummated, neither the Company nor the CD&R Fund
shall have any rights to purchase the Covered Options pursuant to
Section 5(c).


 


(f)                                    Purchase
Price.  Subject to
Section 10(c) hereof, the purchase price to be paid to the Grantee (or the
Grantee’s estate) for the Covered Options purchased pursuant to Section 5(c)
shall be equal to the excess, if any, of (i) the Fair Market Value,
as of the effective date of the termination of employment that gives rise to
the right of the Company and the CD&R Fund to, of the Shares which may be
purchased upon exercise of such Covered Options over (ii) the
aggregate Option Price of such Covered Options.


 


10

















 


(g)                                 Payment.  The completion of a purchase pursuant to
this Section 5 shall take place at the principal office of the Company on
the tenth business day following the receipt by the Grantee (or the
Grantee’s estate) of the CD&R Fund’s or the Company’s notice of its
exercise of the right to purchase the Covered Options pursuant to
Section 5(c).  Subject to
Section 10 hereof, the purchase price shall be paid by delivery to the
Grantee (or the Grantee’s estate) of a check for the purchase price payable to
the order of the Grantee (or the Grantee’s estate), against delivery of such
instruments as the Company may reasonably request, signed by the Grantee (or
the Grantee’s estate), free and clear of all security interests, liens, claims,
encumbrances, charges, options, restrictions on transfer, proxies and voting
and other agreements of whatever nature.


 


(h)                                 Application
of the Purchase Price to Certain Loans. 
The Grantee agrees that the Company and the CD&R Fund shall be
entitled to apply any amounts to be paid by the Company or the CD&R Fund,
as the case may be, to purchase the Covered Options pursuant to this
Section 5 to discharge any indebtedness of the Grantee to the Company or
any Subsidiary, or indebtedness that is guaranteed by the Company or any
Subsidiary, including, but not limited to, any indebtedness of the Grantee
incurred to purchase any shares of Common Stock.


 


(i)                                     Withholding.  Whenever Shares are to be issued pursuant to
the Options, the Company may require the recipient of the Shares to remit to
the Company an amount sufficient to satisfy any applicable U.S. federal, state
and local and non-U.S. tax withholding requirements as a condition to the
issuance of such Shares.  In the event any
cash is paid to the Grantee or the Grantee’s estate or beneficiary pursuant to
this Section 5, the Company shall have the right to withhold an amount
from such payment sufficient to satisfy any applicable U.S. federal, state and
local and non-U.S. tax withholding requirements.  If shares of Common Stock are traded on a national securities
exchange or bid and ask prices for shares of Common Stock are quoted on the
NASDAQ, the Company may, if requested by the Grantee, withhold Shares to
satisfy the minimum applicable withholding requirements, subject to the
provisions of the Plan and any rules adopted by the Board regarding compliance
with applicable law, including, but not limited to, Section 16(b) of the
Exchange Act.


 


6.                                       Manner
of Exercise.  To the extent that any
outstanding Options shall have become and remain vested and exercisable as
provided in Sections 3 and 4 and subject to such reasonable administrative
regulations as the Board may have adopted, such Options may be exercised, in
whole or in part, by notice to the Secretary of the Company in writing given on
the date as of which the Grantee will so exercise the Options (the “Exercise
Date”), specifying the number of whole Shares with respect to which the Options
are being exercised (the “Exercise Shares”), subject to the execution by the Company
and the Grantee of a  Management Stock Subscription Agreement
substantially in the form attached to the Plan as Exhibit A (“Management Stock
Subscription Agreement”), or in such other form as may be agreed upon by the
Company and the Grantee, such Management Stock Subscription Agreement to
contain (unless a Public Offering shall have occurred prior to the Exercise
Date) provisions corresponding to Section 5(c) hereof, and the delivery to
the Company by the Grantee, on or within five days following the Exercise Date,
in accordance with the Management Stock


 


11

















 


Subscription Agreement, full payment for the Exercise Shares in United
States dollars in cash, or cash equivalents satisfactory to the Company, and in
an amount equal to the product of the number of Exercise Shares, multiplied by
the aggregate Option Price for such Exercise Shares (such amount, the “Exercise
Price”).  Upon execution by the Company
and the Grantee of the Management Stock Subscription Agreement and delivery to
the Company by the Grantee of the Exercise Price, the Company shall deliver to
the Grantee a certificate or certificates representing the Exercise Shares,
registered in the name of the Grantee and bearing appropriate legends as provided
in Section 7(b) hereof.  If, as of
the Exercise Date, shares of Common Stock are traded on a U.S. national
securities exchange or bid and ask prices for shares of Common Stock are quoted
over NASDAQ, the Grantee may, in lieu of tendering cash, tender shares of
Common Stock that have been owned by the Grantee for at least six months,
having an aggregate Fair Market Value on the Exercise Date equal to the
Exercise Price or may deliver a combination of cash and such shares of Common
Stock having an aggregate Fair Market Value equal to the difference between the
Exercise Price and the amount of such cash as payment of the Exercise Price,
subject to such rules and regulations as may be adopted by the Board to provide
for the compliance of such payment procedure with applicable law, including
Section 16(b) of the Exchange Act. 
The Company may require the Grantee to furnish or execute such other
documents as the Company shall reasonably deem necessary (i) to
evidence such exercise, (ii) to determine whether registration is
then required under the Securities Act and (iii) to comply with or
satisfy the requirements of the Securities Act, applicable state or non-U.S.
securities laws or any other law.


 


7.                                       Grantee’s
Representations, Warranties and Covenants.


 


(a)                                  Investment
Intention.  The Grantee represents
and warrants that the Options have been, and any Exercise Shares will be,
acquired by the Grantee solely for the Grantee’s own account for investment and
not with a view to or for sale in connection with any distribution
thereof.  The Grantee agrees that the
Grantee will not, directly or indirectly, offer, transfer, sell, pledge,
hypothecate or otherwise dispose of all or any of the Options or any of the
Exercise Shares (or solicit any offers to buy, purchase or otherwise acquire or
take a pledge of all or any of the Options or any of the Exercise Shares),
except in compliance with the Securities Act and the rules and regulations of
the Commission thereunder, and in compliance with applicable state securities or
“blue sky” laws and non-U.S. securities laws. 
The Grantee further understands, acknowledges and agrees that none of
the Exercise Shares may be transferred, sold, pledged, hypothecated or
otherwise disposed of unless the provisions of the related  Management Stock
Subscription Agreement shall have been complied with or have expired.


 


(b)                                 Legends.  The Grantee acknowledges that any
certificate representing the Exercise Shares shall bear an appropriate legend,
which will include, without limitation, the following language:


 


“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE PROVISIONS OF A MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, DATED
AS OF
              ,
AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED


 


12

















 


BY IT ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE EXCEPT
IN ACCORDANCE WITH THE PROVISIONS OF SUCH MANAGEMENT STOCK SUBSCRIPTION
AGREEMENT, AS THE SAME MAY BE AMENDED FROM TIME TO TIME A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE COMPANY. 
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED TO CERTAIN OF
THE BENEFITS OF AND ARE BOUND BY CERTAIN OF THE OBLIGATIONS SET FORTH IN A
REGISTRATION AND PARTICIPATION AGREEMENT, DATED AS OF MARCH 27, 1996, AMONG THE
COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY, AS THE SAME MAY BE AMENDED
FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.”


 


“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE OR NON-U.S.
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS (i) (A) SUCH DISPOSITION
IS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, (B) THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE
COMPANY AN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH DISPOSITION IS EXEMPT FROM
THE PROVISIONS OF SECTION 5 OF SUCH ACT OR (C) A NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION, REASONABLY SATISFACTORY TO COUNSEL
FOR THE COMPANY, SHALL HAVE BEEN OBTAINED WITH RESPECT TO SUCH DISPOSITION AND
(ii) SUCH DISPOSITION IS PURSUANT TO REGISTRATION UNDER ANY
APPLICABLE STATE AND NON-U.S. SECURITIES LAWS OR AN EXEMPTION THEREFROM.”


 


(c)                                  Securities
Law Matters.  The Grantee
acknowledges receipt of advice from the Company that (i) the
Exercise Shares have not been registered under the Securities Act or qualified
under any state securities or “blue sky” or non-U.S. securities laws, (ii) it
is not anticipated that there will be any public market for the Exercise
Shares, (iii) the Exercise Shares must be held indefinitely and the
Grantee must continue to bear the economic risk of the investment in the
Exercise Shares unless the Exercise Shares are subsequently registered under
the Securities Act and such state laws or an exemption from registration is
available, (iv) while the Company is currently obligated under its
Financing Agreements to file periodic reports with the Commission and,
accordingly, Rule 144 may be presently available with respect to sales of
securities of the Company, the Company has made no covenant to the Grantee to continue
to make Rule 144 available, (v) when and if the Exercise Shares may
be disposed of without registration in


 


13

















 


reliance upon Rule 144, such disposition can be made only in limited
amounts in accordance with the terms and conditions of such Rule, (vi) the
Company does not plan to file reports with the Commission or make public
information concerning the Company available unless required to do so by law or
the terms of its Financing Agreements, (vii) if the exemption
afforded by Rule 144 is not available, sales of the Exercise Shares may be
difficult to effect because of the absence of public information concerning the
Company, (viii) a restrictive legend in the form heretofore set
forth shall be placed on the certificates representing the Exercise Shares and
(ix) a notation shall be made in the appropriate records of the
Company indicating that the Exercise Shares are subject to restrictions on
transfer set forth in this Agreement and, if the Company should in the future
engage the services of a stock transfer agent, appropriate stop-transfer
restrictions will be issued to such transfer agent with respect to the Exercise
Shares.


 


(d)                                 Compliance
with Rule 144.  If any of the
Exercise Shares are to be disposed of in accordance with Rule 144, the Grantee
shall transmit to the Company an executed copy of Form 144 (if required by Rule
144) no later than the time such form is required to be transmitted to the
Commission for filing and such other documentation as the Company may
reasonably require to assure compliance with Rule 144 in connection with such
disposition.


 


(e)                                  Ability
to Bear Risk.  The Grantee covenants
that the Grantee will not exercise all or any of the Options unless (i) the
financial situation of the Grantee is such that the Grantee can afford to bear
the economic risk of holding the Exercise Shares for an indefinite period and (ii) the
Grantee can afford to suffer the complete loss of the Grantee’s investment in
the Exercise Shares.


 


(f)                                    Registration;
Restrictions on Sale upon Public Offering. 
The Grantee acknowledges and agrees that in respect of any Exercise
Shares purchased upon exercise of all or any of the Options, the Grantee shall
be entitled to the rights and subject to the obligations created under the
Registration and Participation Agreement, dated as of March 27, 1996, among the
Company and certain stockholders of the Company, as the same may be amended,
modified or supplemented from time to time (the “Registration and
Participation Agreement”), to the extent set forth therein.  The Grantee agrees that, in the
event that the Company files a registration statement under the Securities Act
with respect to an underwritten public offering of any shares of its capital
stock, the
Grantee will not effect any public sale or distribution of any shares of the
Common Stock (other than as part of such public offering), including but not
limited to, pursuant to Rule 144 or Rule 144A under the Securities Act, during
the 20 days prior to and the 180 days after the effective date of such
registration statement.  The Grantee
further understands and acknowledges that any sale, transfer or other
disposition of the Exercise Shares by him following a public offering will be
subject to compliance with, and may be limited under, the federal securities
laws and/or state “blue sky” and/or non-U.S. securities laws.


 


(g)  Section
83(b) Election.  The Grantee agrees
that, within 20 days of any Exercise Date that occurs prior to a Public
Offering, the Grantee shall give notice to the Company in the event the Grantee
has made or intends to make an election pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, with respect to the


 


14

















 


Exercise Shares purchased on such date, and acknowledges that the
Grantee will be solely responsible for any and all tax liabilities payable by
the Grantee in connection with the Grantee’s exercise of any Options or receipt
of any Exercise Shares or attributable to the Grantee’s making or failing to
make such an election.


 


8.                                       Representations
and Warranties of the Company.  The
Company represents and warrants to the Grantee that (a) the Company
has been duly incorporated and is an existing corporation in good standing under
the laws of the State of Delaware, (b) this Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
legally binding obligation of the Company enforceable against the Company in
accordance with its terms and (c) the Exercise Shares, when issued,
delivered and paid for, upon exercise of the Options in accordance with the
terms hereof and the Management Stock Subscription Agreement, will be duly
authorized, validly issued, fully paid and nonassessable, and free and clear of
any liens or encumbrances other than those created pursuant to this Agreement,
the Management Stock Subscription Agreement or otherwise in connection with the
transactions contemplated hereby.


 


9.                                       Change
in Control.


 


(a)  Service
Options and Vested Performance Options. 
In the event of a Change in Control, each then outstanding (i)
Service Option, (ii) Performance Option and (iii) if such Change
in Control occurs on or before the third anniversary of The Grant Date, Special
Performance Option, (regardless of whether at such time otherwise exercisable)
shall be canceled in exchange for a payment in cash of an amount equal to the
excess, if any, of (i) the product of the Change in Control Price
multiplied by  the aggregate number of
Shares covered by all such Options, (ii) over the aggregate Option Price
for all such Options.  Any Options that
have not so vested shall be cancelled upon a Change in Control.


 


(b)  Timing
of Option Cancellation Payments; Discretionary Acceleration.  Notwithstanding the provisions of the
preceding paragraph (a), the Board (as constituted immediately prior to the
Change in Control) may determine, in its discretion, to accelerate the
exercisability or cause the cancellation and payment, calculated as provided in
Section 9(a), in respect of all or any Options prior to a Change in Control
that occurs after the third anniversary of the Grant Date.  The cash payments described in paragraph (a)
above shall be payable in full, as soon as reasonably practicable, but in no
event later than, 30 days following the Change in Control.


 


10.  Certain
Restrictions on Repurchases


 


(a)  Financing
Agreements, etc.  Notwithstanding
any other provision of this Agreement, the Company shall not be obligated or
permitted to pay the purchase price for any Covered Options that the Company
may elect to purchase from the Grantee pursuant to Section 5(c) if (i) the
payment of such purchase price would result in a violation of the terms or
provisions of, or result in a default or an event of default under, the Amended
and Restated Credit Agreement, dated as of August 10, 2001 (the “Credit
Agreement”), among Riverwood, the other borrowers party thereto, The Chase
Manhattan Bank, as


 


15

















 


administrative agent, and the lenders party thereto from time to time,
any other guarantee, financing or security agreement or document entered into
by the Company or any Subsidiary from time to time in (“Financing Agreements”),
in each case as the same may be amended, modified or supplemented from time to
time, (ii) the payment of such purchase price would violate any of
the terms or provisions of the Certificate of Incorporation of the Company or (iii) the
Company has no funds legally available therefor under the General Corporation
Law of the State of Delaware.


 


(b)                                 Delay
of Purchase.  In the event that the
payment of the purchase price for any Covered Options by the Company otherwise
permitted under Section 5(c) is prevented solely by the terms of
Section 10(a), (i) the payment of such purchase price will be
postponed and will be made without the application of further conditions or
impediments (other than as set forth in Section 5 hereof or in this
Section 10) at the first opportunity thereafter when the Company has funds
legally available therefor and when the payment of such purchase price will not
result in any default, event of default or violation under any of the Financing
Agreements or in a violation of any term or provision of the Certificate of
Incorporation of the Company and (ii) the Grantee’s right to
receive payment of such purchase price shall rank against other similar rights
with respect to shares of Common Stock or options in respect thereof according
to priority in time of the effective date of the event giving rise to any such
right, provided that any such right as to which a common date determines
priority shall be of equal priority and shall share pro rata in any purchase
payments made pursuant to clause (i) above.


 


(c)                                  Purchase
Price Adjustment.  In the event that
the payment of the purchase price for any Covered Options from the Grantee is
delayed pursuant to this Section 10, the purchase price for such Covered
Options when the purchase price is eventually paid as contemplated by
Section 10(b) shall be the sum of (a) the purchase price of
such Covered Options determined in accordance with Section 5(f) at the
time that the purchase would have been paid but for the operation of this
Section 10, plus (b) an amount equal to interest on such
purchase price for the period from the date on which the purchase price would
have been paid but for the operation of this Section 10 to the date on
which such purchase price is actually paid (the “Delay Period”), at an annual
rate of interest equal to the weighted average cost of the Company’s bank
indebtedness outstanding during the Delay Period.


 


11.                                 No
Rights as Stockholder.  The Grantee
shall have no voting or other rights as a stockholder of the Company with
respect to any Shares covered by the Options until the exercise of the Options
and the issuance of a certificate or certificates to the Grantee for such
Shares.  No adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.


 


12.                                 Capital
Adjustments.  The number and price
of the Shares covered by the Options shall be proportionately adjusted to
reflect any stock dividend, stock split or share combination of the Common
Stock or any recapitalization of the Company. 
Subject to any required action by the stockholders of the Company and
Section 9 hereof, in any merger, consolidation, reorganization, exchange
of shares, liquidation or dissolution, the Options shall pertain to the
securities and other property, if any, that a


 


16

















 


holder of the number of shares of Common Stock covered by the Options
would have been entitled to receive in connection with such event.


 


13.                                 Miscellaneous.


 


(a)                                  Notices.  All notices and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been given if delivered personally or sent by certified
or express mail, return receipt requested, postage prepaid, or by any
recognized international equivalent of such delivery, to the Company, the
CD&R Fund or the Grantee, as the case may be, at the following addresses or
to such other address as the Company, the CD&R Fund or the Grantee, as the
case may be, shall specify by notice to the others:


 


(i)                                     if
to the Company, to it at:


 


Riverwood Holding, Inc.


Suite 1200


1105 North Market Street


P.O. Box 8985


Wilmington, Delaware 19899


Attention:  General Counsel


 


(ii)                                           if
to the Grantee, to the Grantee at his last known address set forth on the books
and records of the Company.


 


(iii)  if to the CD&R Fund, to:


 


Clayton, Dubilier & Rice Fund V


Limited Partnership


Foulkstone Plaza, Suite 102


1403 Foulk Road


Wilmington, Delaware 19803


Attention:  Joseph L. Rice, III


 


All such notices and communications shall be deemed to have been
received on the date of delivery if delivered personally or on the third
business day after the mailing thereof, provided that the party giving
such notice or communication shall have attempted to telephone the party or
parties to which notice is being given during regular business hours on or
before the day such notice or communication is being sent, to advise such party
or parties that such notice is being sent. 
Copies of any notice or other communication given under this Agreement
shall also be given to:


 


Clayton, Dubilier & Rice, Inc.


375 Park Avenue


New York, New York 10152


Attention:  Kevin J. Conway


 


and


 


17

















 


Debevoise & Plimpton


875 Third Avenue


New York, New York 10022


Attention:  Franci J. Blassberg, Esq.


 


The CD&R Fund also shall be given a copy of any notice or other
communication between the Grantee and the Company under this Agreement at its
address as set forth above.


 


(b)                                 Binding
Effect; Benefits.  This Agreement
shall be binding upon and inure to the benefit of the parties to this Agreement
and their respective successors and assigns. 
Except as provided in Section 5, nothing in this Agreement, express
or implied, is intended or shall be construed to give any person other than the
parties to this Agreement or their respective successors or assigns any legal
or equitable right, remedy or claim under or in respect of any agreement or any
provision contained herein.


 


(c)                                  Waiver;
Amendment.


 


(i)                                     Waiver.  Any party hereto or beneficiary hereof may
by written notice to the other parties (A) extend the time for the
performance of any of the obligations or other actions of the other parties
under this Agreement, (B) waive compliance with any of the
conditions or covenants of the other parties contained in this Agreement and (C) waive
or modify performance of any of the obligations of the other parties under this
Agreement, provided that any waiver of the provisions of Section 5
must be consented to in writing by the CD&R Fund.  Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party or beneficiary, shall be deemed to constitute a
waiver by the party or beneficiary taking such action of compliance with any
representations, warranties, covenants or agreements contained herein.  The waiver by any party hereto or
beneficiary hereof of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any preceding or succeeding breach and
no failure by a party or beneficiary to exercise any right or privilege
hereunder shall be deemed a waiver of such party’s or beneficiary’s rights or
privileges hereunder or shall be deemed a waiver of such party’s or
beneficiary’s rights to exercise the same at any subsequent time or times
hereunder.


 


(ii)                                           Amendment.  This Agreement may not be amended, modified
or supplemented orally, but only by a written instrument executed by the
Grantee and the Company, and (in the case of any amendment, modification or
supplement that adversely affects the rights of the CD&R Fund hereunder)
consented to by the CD&R Fund in writing. 
The parties hereto acknowledge that the Company’s consent to an amendment
or modification of this Agreement may be subject to the terms and provisions of
the Financing Agreements.


 


(d)                                 Assignability.  Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company or


 


18

















 


the Grantee without the prior written consent of the other parties and
the CD&R Fund.  The CD&R Fund
may assign from time to time all or any portion of its rights under
Section 5 to one or more persons or other entities designated by it.


 


(e)                                  Applicable
Law.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK,
EXCEPT TO THE EXTENT THAT THE CORPORATE LAW OF THE STATE OF DELAWARE
SPECIFICALLY AND MANDATORILY APPLIES.


 


(f)                                    Section
and Other Headings, etc.  The
section and other headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.


 


(g)                                 Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.


 


(h)  Delegation
by the Board.  All of the powers,
duties and responsibilities of the Board specified in this Agreement may, to
the full extent permitted by applicable law, be exercised and performed by any
duly constituted committee thereof to the extent authorized by the Board to
exercise and perform such powers, duties and responsibilities.


 


19

















 


IN WITNESS WHEREOF, the Company and the Grantee have
executed this Agreement as of the date first above written.


 


	
   

  	
  RIVERWOOD HOLDING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE GRANTEE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Stephen Humphrey

  



 


20