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Exhibit 4.14  

 
 

EXCHANGE AND SHAREHOLDERS AGREEMENT    
    

        THIS EXCHANGE AND SHAREHOLDERS AGREEMENT (this "Agreement") is made as of February 6, 2004, among JSG
Packaging Limited, a private limited company organized under the laws of the Republic of Ireland with company number 380620 (the "Company"), the MDCP
Co-Investors and each of the Persons listed on the Schedule of Additional Investors attached hereto (each an "Additional Investor" and
collectively, the "Additional Investors"). The MDCP Co-Investors and the Additional Investors are collectively referred to herein as the
"Investors" and in the singular as an "Investor". Except as otherwise indicated herein, capitalized
terms used herein are defined in Section 10 hereof. 

        The
Company and each Investor desire to enter into an agreement pursuant to which such Executive shall exchange, and the Company shall issue, one of the Company's Ordinary Shares,
nominal value €0.001 per share (the "Ordinary Shares") in exchange for each Ordinary Share held by the Investor in Jefferson Smurfit
Group Limited (formerly MDCP Acquisitions Limited). The exchange and issuance referred to in the immediately foregoing sentence is being consummated in connection with the exchange of each issued and
outstanding Ordinary Share, Class A Convertible Share, Class B Convertible Share and Class C Convertible Share of Jefferson Smurfit Group Limited for one Ordinary Share,
Class A Convertible Share, Class B Convertible Share and Class C Convertible Share of the Company, respectively (including as may result from any compulsory share acquisition
under Section 204 of the Irish Companies Act, such transaction, the "Exchange"). 

        The
Company and the Investors are also entering into this Agreement in order to record the arrangements which they have agreed should apply to the Investors' participation in the Company
and to set out certain terms governing the relationship amongst the Investors as shareholders. 

        NOW,
THEREFORE, the parties hereto agree as follows: 

        Section 1.    Exchange.    

        1A.    Exchange for Ordinary Shares.    On the date hereof or any other date agreed to by the Company and an Investor
(for each such Investor, such Investor's "Exchange Date"), each Investor (other than the
MDCP Co-Investors) shall deliver to the Company all of the Ordinary Shares of Jefferson Smurfit Group Limited (formerly MDCP Acquisitions Limited) owned by such Investor (each such share,
a "JSG Share"), as set forth opposite such Investor's name on the Schedule of Investors attached hereto,
and in exchange therefor, the Company shall deliver to each such Investor one Ordinary Share of the Company for each JSG Share so delivered. 

        1B.    Mechanics.    The closing of the exchange of the JSG Shares for the shall take place at the offices of the
Company at Beech Hill, Clonskeagh, Dublin, Ireland. On the Exchange Date for any Investor, the following transactions shall occur in the following order: 

        (i)    each
Investor deliver all JSG Shares owned by such Investor (as set forth opposite such Investor's name on the Schedule of
Investors attached hereto, free and clear of all liens, encumbrances, security interests or other restrictions on transfer, together with share transfer forms in respect of all
such JSG Shares for which, together with the relevant share certificates or indemnities in lieu thereof; and 

        (ii)   the
Company, acting through its board of directors, shall issue to such Investor acquiring Ordinary Shares hereunder the number of Ordinary Shares set forth opposite
such Investor's name on the Schedule of Investors attached hereto; and 

        (iii)  the
name of such Investor (or its nominee) shall then be entered into the Company's register of members as the holder of the number of Ordinary Shares for which the
exchange was consummated hereunder and such Investor (or its nominee) shall be issued a share certificate by the Company evidencing those Ordinary Shares upon filing of the appropriate documentation
in the Companies Registration Office in Dublin; and 

        (iv)  the
Registration Agreement shall have been amended and restated in substantially the form attached hereto as  Exhibit A and such Investor shall deliver an executed counterpart thereto to the Company;
and 

        (v)   the
Corporate Governance Agreement shall have been amended and restated in substantially the form attached hereto as  Exhibit B and such Investor shall have delivered an executed counterpart thereto to
the Company. 

        Section 2.    [Intentionally Omitted]    

        Section 3.    Covenants of the Company.    

        3A.    Financial Statements and Other Information.    Until the earlier of the effective date of the Company's initial
Listing or the date of consummation of a Sale of the Company, the Company shall deliver to each Investor and to each other holder of at least 15% of the Ordinary Shares. 

        (i)    as
soon as available but in any event within 30 days after the end of each monthly accounting period in each fiscal year, unaudited consolidated statements of
income and cash flows of the Company and its Subsidiaries for such monthly period and for the period from the beginning of the fiscal year to the end of such month, and a consolidated balance sheet of
the Company and its Subsidiaries as of the end of such monthly period; 

        (ii)   as
soon as available but in any event within 45 days after the end of each quarterly accounting period in each fiscal year, unaudited consolidated statements of
income and cash flows of the Company and its Subsidiaries for such quarterly period and for the period from the beginning of the fiscal year to the end of such quarter, and a consolidated balance
sheet of the Company and its Subsidiaries as of the end of such quarterly period, setting forth in each case comparisons to the annual budget and to the corresponding period in the preceding fiscal
year; 

        (iii)  within
120 days after the end of each fiscal year, consolidating and consolidated statements of income and cash flows of the Company and its Subsidiaries for
such fiscal year, and consolidating and consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal year, setting forth in each case comparisons to the annual budget
and to the preceding fiscal year, accompanied with respect to the consolidated portions of such statements (except with respect to budget data), by an opinion of an independent accounting firm of
recognized international standing acceptable to the Board; and 

        (iv)  at
least 30 days after the beginning of each fiscal year, an annual budget prepared on a monthly basis for the Company and its Subsidiaries for such fiscal year
(displaying anticipated statements of income and cash flows), and promptly upon preparation thereof any other significant budgets prepared by the Company and any revisions of such annual or other
budgets. 

        3B.    Inspection of Property.    Until the earlier of the effective date of the Company's initial Listing or the date
of the consummation of a Sale of the Company, the Company shall permit any representatives designated by any Investor or any holder of at least 15% of the outstanding Ordinary Shares, upon reasonable
notice and during normal business hours and such other times as any such holder may reasonably request, to (i) visit and inspect any of the properties of the Company and its Subsidiaries,
(ii) examine the corporate and financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom and (iii) discuss the affairs, finances and accounts of
any such corporations with the directors, chief executive officer and chief financial officer of the Company. 

        3C.    Preemptive Right.    

        (i)    If
the Company proposes to issue any additional Ordinary Shares or Equity Securities or Equity Equivalents that are convertible or exercisable into Ordinary Shares to
the MDCP Co-Investors or any of their respective Affiliates (the "New Shares") after the date hereof, each Investor shall have the right to
purchase all or part of a portion of the New Shares equal to the product of (a) the total number of New Shares proposed to be issued, multiplied
by (b) a fraction, (I) the numerator of which is the number of Class D Convertible Shares (if any) and Ordinary Shares held by such shareholder as of the
date hereof and (II) the denominator of which is the 

total
number of Class D Convertible Shares and Ordinary Shares which are held by all shareholders immediately prior to the proposed issuance. 

        (ii)   The
Company shall give each Investor written notice of any proposed issuance of New Shares (the "Option Issuance
Notice") describing the price and terms upon which the Company proposes to issue and sell such New Shares. During the 20-day period following the date of delivery
of the Option Issuance Notice (the "Election Period") each Investor may exercise his, her or its right to purchase New Shares in accordance with this
paragraph 3C, for the price and upon the terms and conditions specified in the Option Issuance Notice by giving written notice to the Company and stating therein the quantity of New Shares to
be purchased. 

        (iii)  In
the event that any Investor fails to exercise its right to subscribe for any New Shares which it is entitled to subscribe for under this paragraph 3C, the
Company shall have 90 days following the Election Period to issue or enter into an agreement to issue the New Shares not elected to be subscribed for by the other Investors at the price and
upon terms not substantially more favorable to the prospective subscribers for such New Shares than those specified in the Option Issuance Notice. In the event the Company has not issued the New
Shares or entered into an agreement to issue the New Shares within the said 90-day period, the Company shall not thereafter issue otherwise transfer such New Shares without first offering
such New Shares to the Investors in the manner provided in this paragraph 3C. 

        (iv)  If
an Investor elects to subscribe for any New Shares pursuant to this paragraph 3C the closing of such subscription shall occur at such time and at such
location selected by the Company. 

        (v)   Notwithstanding
anything else to the contrary set forth herein, the provisions of this paragraph 3C shall not apply to (A) any Excluded Issuances or
(B) as long as such issuance is made on the basis of Ordinary Share or Convertible Share of Jefferson Smurfit Group Limited for one Ordinary Share or Convertible Share, as the case may be, of
the Company, any issuance in connection with the Exchange. 

        Section 4.    Representations and Warranties of the Company.    As a material inducement to the Investors to
enter into this Agreement and subscribe for the Ordinary Shares, the Company hereby represents and warrants to the Investors, as of the date of this Agreement, that: 

        4A.    Organization and Corporate Power.    The Company is a public limited company duly organized and validly
existing under the laws of Ireland and is qualified to do business in every jurisdiction in which the failure to so qualify might reasonably be expected to have a material adverse effect on the
financial condition, operating results, assets, operations or business prospects of the Company and its Subsidiaries taken as a whole. The Company has all requisite corporate power and authority and
all material licenses, permits and authorizations necessary to own and operate its properties, to carry on its businesses as now conducted and presently proposed to be conducted and to carry out the
transactions contemplated by this Agreement. The copies of the Company's Articles of Association which have been furnished to the Investors' counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete. 

        4B.    Authorised Share Capital and Related Matters.    

        (i)    The
authorized share capital of the Company is as set forth in the Company's Articles of Association. As of the Exchange Date, all of the outstanding Ordinary Shares are
validly issued and fully paid. 

        (ii)   There
are no statutory or contractual shareholders preemptive rights or rights of refusal with respect to the issuance of the Ordinary Shares hereunder, except as may
be provided herein and in the MIP, the MEIAs or the Articles of Association. There are no agreements between the Company's shareholders with respect to the voting or transfer of the Company's share
capital or with respect to any other aspect of the Company's affairs, except for this Agreement and the MIP, the MEIA, the Corporate Governance Agreement and the Registration Agreement. 

        (iii)  The
Ordinary Shares being issued to an Additional Investor hereunder are being issued to such Additional Investor free and clear of all liens, encumbrances and
restrictions (other than restrictions existing under applicable securities laws or created hereunder or by the agreements contemplated hereby) and the issuance of the Ordinary Shares hereunder has
been duly authorized by the Company. 

        4C.    Authorization; No Breach.    The execution, delivery and performance of this Agreement has been duly authorized
by the Company. This Agreement constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except (i) as such enforcement
is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and (ii) for limitations imposed by general principles of equity. The
execution, delivery and performance by the Company of this Agreement do not and will not (i) conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under, (iii) result in the creation of any lien, security interest, charge or encumbrance upon the Company's share capital or assets pursuant to,
(iv) give any third party the right to modify, terminate or accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative or governmental body pursuant to, the Articles of Association of the Company, or any law, statute, rule or regulation to which the
Company is subject, or any agreement, instrument, order, judgment or decree to which the Company is a party or by which it is bound. 

        4D.    Compliance with Laws.    The Company has not violated any law or any governmental regulation or requirement
which violation would reasonably be expected to have a material adverse effect upon its business, financial condition, operating results, assets, liabilities, customer, employee or supplier relations,
prospects or value. The Company is not subject to any clean up liability under any applicable environmental law, rule or regulation. 

        Section 5.    Investors' Representations.    Each of the Investors hereby represents and warrants to each other
Investor and to the Company for itself, severally and ratably and not jointly, as of the Exchange Date, that: 

        5A.    Corporate Existence and Power.    If such Investor is a company or a partnership, such Investor is duly
organized and validly existing under the laws of its jurisdiction of organization and has all corporate, partnership or limited liability company powers (as applicable) and all material governmental
and regulatory licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. If such Investor is a company or a partnership, such Investor is duly
qualified to do business in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified would not have a material adverse effect on such
Investor. 

        5B.    Authorization.    If such Investor is a company or a partnership, the execution, delivery and performance by
such Investor of this Agreement and the other agreements and documents contemplated hereby to which such Investor is a party and the consummation of the transactions contemplated hereby and thereby
are within such Investor's corporate, partnership or limited liability company powers (as applicable) and have been duly authorized by all necessary corporate, partnership or limited liability company
action (as applicable) on the part of such Investor. Each Investor that is an individual has sufficient legal capacity to assess, execute and deliver this Agreement on his or her own behalf. This
Agreement and each other agreement and document contemplated hereby to which the Investor is or becomes a party constitutes a legal, valid and binding agreement of such Investor, enforceable against
such Investor in accordance with its terms, except (i) as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally
and (ii) for limitations imposed by general principles of equity. 

        5C.    Governmental Authorization.    The execution, delivery and performance by such Investor of this Agreement and
the consummation of the transactions contemplated hereby and thereby require no action with respect to such Investor by or in respect of, or filing with, any governmental or regulatory entity other
than (i) compliance with any applicable filing requirements with competition authorities (each of which has been made by such Investor) and (ii) other filings, notifications and consents
that 

may
be required after consummation of the transactions contemplated hereby or are immaterial to the consummation of the transactions contemplated hereby. 

        5D.    Noncontravention.    The execution, delivery and performance by such Investor of this Agreement and the
consummation of the transactions contemplated hereby and thereby do not and will not (i) violate the organizational documents, if any, of such Investor, (ii) violate any applicable law,
except for any such violation which would not have a material adverse effect on the ability of such Investor to consummate the transactions and perform all of such Investor's obligations hereunder
contemplated hereby and thereby or (iii) require any consent or other action by any Person, or constitute a default, under any provision of any agreement or other instrument binding upon such
Investor, except as to matters which would not be material to such Investor. 

        5E.    Ownership of JSG Shares.    The JSG Shares set forth opposite such Investor's name on the  Schedule of Investors attached
hereto and being exchanged by such Investor hereunder are owned beneficially and of record by such Investor free and
clear of all liens, encumbrances, security interests and other restrictions on transfer. 

        Section 6.    Additional Investor Representation and Warranty,    Each Additional Investor represents, warrants
and covenants to the MDCP Co-Investors and the Company that: (a) the determination of such Additional Investor to acquire the Ordinary Shares pursuant to this Agreement and to enter
into the agreements contemplated hereby has been made by such Additional Investor on the basis of its own due diligence investigation, independent of any other Investor and independent of any
statements or opinions as to the advisability of such purchase or as to the properties, business, prospects or condition (financial or otherwise) of the Company, the Group or any of their respective
Subsidiaries which may have been made or given by any other Investor or by any agent or employee of any other Investor, and represents the investment decision of such Additional Investor alone,
(b) no other Investor has acted as an agent of such Additional Investor in connection with the exchange hereunder and that no other Investor shall be acting as an agent of such Investor in
connection with monitoring its investment hereunder, (c) no representation or warranty is being made by the MDCP Co-Investors, the Company, the Group or any of their respective
Affiliates (collectively, the "MDCP Co-Investor Parties") or being relied upon by any Additional Investor in connection with the exchange
hereunder and the transactions contemplated hereby and the other agreements or documents being delivered by such Additional Investor hereunder, (d) forever releases, discharges and covenants
not to sue any of the MDCP Co-Investor Parties in any matter in connection with the exchange for Ordinary Shares hereunder and the transactions contemplated hereby and the other agreements
or documents being delivered by such Additional Investor hereunder, except for representations, warranties and covenants expressly made by such MDCP Co-Investor Party and set forth in this
Agreement and the other agreements and documents contemplated hereby to which such MDCP Co-Investor Party is a party, (e) other than costs and expenses expressly agreed to be paid
by the Company in writing, such Additional Investor is solely responsible for all costs, expenses, taxes, duties, filing fees and charges arising out of the exchange for Ordinary Shares hereunder and
any other transaction contemplated hereby or by the agreements or documents delivered by such Additional Investor in connection with this Agreement, (f) the MDCP Co-Investor Parties
have retained Kirkland & Ellis LLP and Arthur Cox in connection with the transactions contemplated hereby and expect to retain Kirkland & Ellis LLP and Arthur Cox as legal counsel in
connection with the management and operation of the investment in the Company, (g) Kirkland & Ellis LLP and Arthur Cox are not representing and will not represent any Additional Investor
in connection with the transactions contemplated hereby or any dispute which may arise between any of the MDCP Co-Investor Parties, on the one hand, and any Additional Investor, on the
other hand, (h) such Additional Investor will, if it wishes counsel on the transactions contemplated hereby, retain at its own expense its own independent counsel, and
(i) Kirkland & Ellis LLP and Arthur Cox may represent the MDCP Co-Investor Parties in connection with any and all matters contemplated hereby (including, without limitation,
any dispute or litigation between any of the MDCP Co-Investor Parties, on the one hand, and any Additional Investor, on the other hand). 

        Section 7.    Restrictions on Transfer.    

        7A.    General.    Unless otherwise consented to by the MDCP Co-Investor Majority, no Investor may
directly or indirectly (including by means of a change of ownership or change of control of such Investor or any Person directly or indirectly controlling such Investor if such change is designed to
circumvent the provisions of this Agreement) sell, assign, transfer, exchange, mortgage, pledge, grant a security interest in, or otherwise dispose of or encumber (including by operation of law) all
or any part of such Investor's Ordinary Shares (a "Transfer"), except as provided in this paragraph 7A or permitted by paragraphs 7B or 7C and no
such Transfer shall relieve the transferor of its obligations hereunder. The restrictions set forth in this paragraph 7A shall not apply with respect to any Transfer by any Investor
(i) in the case of any Investor who is an individual, pursuant to applicable laws of descent and distribution or among such Investor's Family Group or (ii) in the case of an Investor
which is a company or partnership, among its Affiliates, and in the case of any MDCP Co-Investor, to its direct or indirect partners and investors or to other investment funds controlling,
controlled by or common control with such MDCP Co-Investor (collectively referred to herein as "Permitted Transferees");  provided that the restrictions
contained in this Section 7 shall continue to be applicable to the
transferred Ordinary Shares after any such Transfer; provided further that the transferees of such Ordinary Shares shall have executed and delivered to
the Board a Deed of Adherence in form and substance acceptable to the Company and the MDCP Co-Investor Majority (x) to be bound by the terms herein in the same manner and to the
same extent as the transferor thereof and (y) assuming the obligations of the transferor hereunder with respect to the Ordinary Shares so transferred. Without limiting the proviso and the
further proviso of the immediately foregoing sentence, (x) Permitted Transferees of DBCP Europe GP (Jersey) Limited shall include (i) Deutsche Bank AG, its Subsidiaries, holding
companies and other Subsidiaries of any such holding company ("DBAG Group"), (ii) DB Capital Partners (Europe) 2002 L.P. (or a similar named
entity), and/or any other partnership, fund or other investment entity established, managed, advised (including where a general partner of a partnership is advised) or sponsored by any member of the
DBAG Group as a co-investment scheme operated wholly or partially for the benefit of employees of any member of the DBAG Group ("DB
Partnership"), any principal or executive of the DBAG Group and every nominee or other trustee of any such person, partnership, fund, investment entity or (iii) the
general partner of such DB Partnership to hold on behalf of the DB Partnership, (y) Permitted Transferees of each of J.P. Morgan Partners Global Investors, L.P., J.P. Morgan Partners Investors
(Cayman), L.P., J.P. Morgan Partners Global Investors A, L.P., J.P. Morgan Partners Global Investors (Cayman) II, L.P and J.P. Morgan Partners (BHCA), L.P. shall include (i) JP Morgan Chase,
its Subsidiaries, holding companies and other Subsidiaries of such holding company (the "JPM Group"), (ii) any other partnership, fund or other
investment entity established, managed, advised (including where a general partner of a partnership is advised) or sponsored by any member of the JPM Group as a co-investment scheme
operated wholly or partially for the benefit of employees of any member of the JPM Group ("JPM Partnership"), any principal or executive of the JPM
Group and every nominee or other trustee of any such person, partnership, fund, investment entity or (iii) the general partner of such JPM Partnership to hold on behalf of the JPM Partnership,
and (z) Permitted Transferees of each of Arthur Street Portfolio, L.P., Arthur Street Fund, L.P., Vesey Street Portfolio, L.P., Vesey Street Fund, L.P. and Passage Portfolio, L.P. shall include
(i) Merrill Lynch & Co., Inc., its Subsidiaries, holding companies and other Subsidiaries of any such holding company ("ML Group"),
(ii) any other partnership, fund or other investment entity established, managed, advised (including where a general partner of a partnership is advised) or sponsored by any member of the ML
Group as a co-investment scheme operated wholly or partially for the benefit of employees of any member of the ML Group ("ML Partnership"),
any principal or executive of the ML Group and every nominee or other trustee of any such person, partnership, fund, investment entity or (iii) the general partner of such ML Partnership to
hold on behalf of the ML Partnership. Notwithstanding the foregoing, no party hereto shall avoid the provisions of this Agreement by making one or more Transfers to one or more Permitted Transferees
and subsequently disposing of all or any portion of such party's interest in any such Permitted Transferee. 

        7B.    Sale of the Company.    

        (i)    If
the Board and MDCP Co-Investor Majority approve a Sale of the Company (an "Approved Sale"), each Investor
shall vote for, consent to and raise no objections against such Approved Sale. If the Approved Sale is structured as a (a) merger or consolidation, each Investor shall waive any minority
rights, objection rights, appraisal rights or similar rights in connection with such merger or consolidation or (b) sale of Ordinary Shares, each Investor shall agree to Transfer all of its
Ordinary Shares and rights to acquire Ordinary Shares on the terms and conditions approved by the Board. Each Investor holding Ordinary Shares shall promptly take all necessary or desirable actions in
connection with the consummation of the Approved Sale as requested by the Board. 

        (ii)   The
obligations of the Investors holding Ordinary Shares with respect to the Approved Sale are subject to the satisfaction of the following conditions: (a) upon
the consummation of the Approved Sale, all of the holders of Ordinary Shares shall receive the same form and amount of consideration per Ordinary Share; and (b) if any Investors, as the case
may be, are given an option as to the form and amount of consideration to be received, in respect of their Ordinary Shares, each Investor shall be given the same option. 

        (iii)  Each
Investor Transferring Ordinary Shares pursuant to this paragraph 7B shall pay its pro rata share (based on the relative aggregate amount of consideration
received by each Investor pursuant to such Transfer of such Ordinary Shares) of the expenses incurred by the Company and the Investors in connection with such Transfer and shall be obligated to
transfer such Ordinary Shares on such terms, conditions, warranties, representations, covenants, undertakings, indemnities and other obligations that the Board specifies in connection with such
Transfer (other than any such obligations that relate specifically to a particular Investor such as indemnification with respect to representations and warranties given by a Investor regarding such
Investor's title to and ownership of Ordinary Shares, which such Investor shall be required to provide only with respect to itself and its Ordinary Shares);  provided that no Investor shall be obligated
in connection with such Transfer to agree to indemnify or hold harmless the transferees with respect to an
amount in excess of the net proceeds paid to such holder in connection with such Transfer; provided further that, without limiting the obligations of
any other Investor, no Investor shall be required to provide any indemnification (other than indemnification with respect to representations and warranties given by such Investor regarding such
Investor's title to and ownership of Ordinary Shares) that would violate any provision of such Investor's constitutive documents as in effect on the date of this Agreement. 

        7C.    Tag-Along Rights.    

        (i)    At
least 30 days prior to any Transfer (other than an Exempted Transfer) by any MDCP Co-Investor or its Permitted Transferees of Ordinary Shares, such
MDCP
Co-Investor or the Company shall deliver a written notice (the "Sale Notice") to each other Investor (collectively, the
"Other Investors") specifying in reasonable detail the identity of the prospective transferee(s), the number of Ordinary Shares to be transferred and
the terms and conditions of the proposed Transfer. 

        (ii)   Upon
receipt of the Sale Notice, the Other Investors may elect to participate in the contemplated Transfer by delivering written notice to the Board within
15 days after delivery of the Sale Notice. Such participation shall be based on the pro rata share represented by the Ordinary Shares owned by each Investor participating in such Transfer
relative to the aggregate number of all Ordinary Shares and Class D Convertible Shares owned by Persons participating in such Transfer. If the Other Investors have not elected to participate in
the contemplated Transfer (through notice to such effect or expiration of the 15-day period after delivery of the Sale Notice), then the MDCP Co-Investor proposing to make such
Transfer and its Permitted Transferee may Transfer the Ordinary Shares specified in the Sale Notice at a price and on terms no more favorable to the transferee(s) thereof than specified in the Sale
Notice during the 90-day period immediately following the date of the delivery of the Sale Notice. The Ordinary Shares of the 

MDCP
Co-Investor and its Permitted Transferees not Transferred within such 90-day period shall be subject to the provisions of this paragraph 7C upon subsequent Transfer
thereof. 

        (iii)  The
MDCP Co-Investor and any Permitted Transferee proposing to Transfer Ordinary Shares shall use reasonable best efforts to obtain the agreement of the
prospective transferee(s) to the participation of the Other Investors who have elected to participate in any contemplated Transfer, and shall not Transfer any of its Ordinary Shares to any prospective
transferee if such prospective transferee(s) declines to allow the participation of the Other Investors to the extent permitted by this paragraph 7C. Each Investor transferring Ordinary Shares
pursuant to this paragraph 7C shall pay its pro rata share (determined on a pro rata basis, based upon the number of Ordinary Shares transferred) of the expenses incurred by the Investors and
the Company in connection with such Transfer and shall be obligated to join in any terms, conditions, warranties, representations, covenants, undertakings, indemnities and other obligations that the
MDCP Co-Investor, any of its Permitted Transferees, the Board or the Company agrees to provide in connection with such Transfer (other than any such obligations that relate specifically to
a particular Investor such as indemnification with respect to representations and warranties given by an Investor regarding such shareholder's title to and ownership of Ordinary Shares, which such
Investor shall be required to provide only with respect to itself and its Ordinary Shares); provided that no Investor shall be obligated in connection
with such Transfer to agree to indemnify or hold harmless the transferees with respect to an amount in excess of the net proceeds paid to such Investor in connection with such Transfer;  provided further
that, without limiting the obligations of any other Investor, no Investor shall be required to provide any indemnification (other than
indemnification with respect to representations and warranties given by such Investor regarding such Investor's title to and ownership of Ordinary Shares) that would violate any provision of such
Investor's constitutive documents as in effect on the date of this Agreement. 

        Section 8.    Voting Agreement.    So long as the MDCP Co-Investors and their respective Permitted
Transferees collectively hold a majority of the Ordinary Shares, each Investor shall vote all of its Equity Securities and take all other necessary or desirable actions (in such holder's capacity as a
shareholder of the Company) as are requested by the MDCP Co-Investor Majority in order to cause the representatives to be elected as members of the Board as set forth in the Corporate
Governance Agreement and as otherwise directed by the MDCP Co-Investor Majority. In addition, each Investor shall not vote its Equity Securities in connection with the removal of any of
any designee of the MDCP Co-Investor Majority or any other Board member as a director unless and until the MDCP Co-Investor Majority directs such Investor how to vote on such
removal. In addition, each Investor shall at all such times vote his or her Equity Securities on all matters presented to the Company's shareholders as directed by the MDCP Co-Investor
Majority as long as such vote is not materially adversely discriminatory to such Investor in a manner different from the MDCP Co-Investor Majority. The provisions of this Section 8
shall terminate as of the effective date of the Company's initial Listing or upon consummation of a Sale of the Company. 

        Section 9.    Transfers; Future Sales.    Prior to any Investor Transferring any Ordinary Shares to any Person
(other than pursuant to a Listing or to a MDCP Co-Investor or its Permitted Transferees) or any Equity Securities or Equity Equivalents to any Person, such Investor shall cause the
prospective transferee to be bound by this Agreement and to execute and deliver to the Company and the other Investors a Deed of Adherence to this Agreement in form and substance satisfactory to the
MDCP Co-Investors and the Company. Transferees of Ordinary Shares held by Additional Investors shall be deemed to have the rights and obligations of Additional Investors with respect to
such Ordinary Shares and transferees of Ordinary Shares held by any MDCP Co-Investor shall be deemed to have the rights and obligations of MDCP Co-Investors with respect to
such Ordinary Shares; provided that notwithstanding the foregoing Ordinary Shares acquired by a MDCP Co-Investor from an Additional Investor
shall be deemed to have the rights and obligations of Ordinary Shares held by a MDCP Co-Investor. 

        Section 10.    Definitions.    For the purposes of this Agreement, the following terms have the meanings set
forth below: 

        "Affiliate" of any particular person or entity means any other person or entity controlling, controlled by or under common control with
such particular person or entity. 

        "Class D Convertible Shares" means Class D Convertible Shares of the Company, nominal value €0.001 per
share. 

        "Corporate Governance Agreement" means that certain Corporate Governance Agreement, dated as of February 6, 2004, by and among the
Company, MDCP IV and the other parties signatory thereto, as amended, modified, supplemented or waived from time to time. 

        "Equity Equivalents" means any securities convertible into or exchangeable for any Equity Securities, including without limitation,
warrants, options and other rights to acquire Equity Securities. 

        "Equity Securities" means any shares, share derivatives, share appreciation rights or other rights or instruments containing
equity-like features or otherwise based on changes in the enterprise value of the issuer thereof or its Affiliates (other than ordinary course cash bonus payments) and any rights to
acquire any such right or instrument. 

        "Excluded Issuances" means the issuance of (i) any Ordinary Shares after the date hereof for management incentive and/or
compensation purposes, (ii) any Ordinary Shares (other than issuances to the MDCP Co-Investors in their capacity as equity holders of the Company) issued as consideration for an
acquisition or joint venture transaction, (iii) any Ordinary Shares issued as an "equity kicker" in respect of indebtedness for borrowed money or any preferred Equity Securities,
(iv) any Ordinary Shares issued upon conversion of any Equity Securities or Equity Equivalents, (v) any options, warrants or rights to acquire, or shares convertible into, Ordinary
Shares listed in clauses (i) through (iv), and (vi) Ordinary Shares issued in connection with or pursuant to a Public Sale. 

        "Exempted Transfer" means a Transfer (i) to one or more Affiliates of a MDCP Co-Investor or its Permitted Transferees,
(ii) to any members, partners, shareholders, officers or directors of a MDCP Co-Investor or entity controlling, controlled by or under common control with a MDCP
Co-Investor or among the Family Group of any such Person, (iii) up to 25% of the aggregate Ordinary Shares held by the MDCP Co-Investors and their Permitted Transferees
as of the Settlement Date plus the aggregate Ordinary Shares purchased by the MDCP Co-Investors and their Permitted Transferees after the Settlement Date, (iv) to any Person who
becomes an Additional Investor hereunder on or prior to the Settlement Date or (v) in a Public Sale. 

        "Family Group" means, with respect to any Investor, such Investor's spouse and descendants (whether natural or adopted) and any trust
solely for the benefit of such Investor and/or such Investor's spouse, descendants, siblings and/or siblings' descendants. 

        "5% Owner" means any Person that owns 5% or more of the Company's Ordinary Shares on a fully-diluted basis. 

        "Independent Third Party" means any Person who, immediately prior to the contemplated transaction, is not a 5% Owner, who is not
controlling, controlled by or under common control with any 5% Owner and who is not the spouse or descendent (by birth or adoption) of any 5% Owner. 

        "Listing" means the admission of all or any part of the Ordinary Shares to the Official List of The Irish Stock Exchange Limited or the
Official List of the UK Listing Authority, and to trading on the market for listed securities of the London Stock Exchange or to trading on the Alternative Investment Market or the taking effect of
any granting of permission to deal in the same on any recognized investment exchange (as that term is used in the Financial Services Act 1986) or the registration of all or any of the Ordinary Shares
(or equivalent securities of any Subsidiary or American Depository Receipts with respect to any of the forgoing) on Form F-1, F-2 or F-3 (or any similar
long-form or short-form registrations) pursuant to the United States Securities Act of 1933 (as amended) or any 

similar
US federal law, or any similar listing or registration by the Company of the Ordinary Shares on the public stock exchange or securities market in any other jurisdiction. 

        "MDCP Co-Investor Majority" means the holders of a majority of the Ordinary Shares held by all MDCP Co-Investors. 

        "MDCP Co-Investors" means, collectively, MDCP IV Global Investments LP, MDCP III Global Investments LP, MDSE III Global
Investments LP and any Affiliate of the foregoing that owns or holds Ordinary Shares as of the date of determination and "MDCP Co-Investor" means any of the MDCP Co-Investors. 

        "MEIA" means the Company's Management Equity Incentive Agreement, dated as of February 6, 2004, by and among the Company and
certain of its executives, as such agreement may be amended, restated, supplemented or waived from time to time. 

        "MIP" means the Company's 2004 Management Equity Plan, approved by the Company on February 6, 2004, as amended, restated,
supplemented or waived from time to time. 

        "Ordinary Shares" means ordinary shares of the Company, nominal value €0.001 per share. 

        "Person" means an individual, a partnership, a limited liability company an unlimited liability company, a company limited by guarantee, a
corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 

        "Public Sale" means (x) any sale after a Listing in any European Union member state or (y) in the case of a Listing in the
United States, any sale pursuant to a registered public offering under the Securities Act or any sale to the public pursuant to Rule 144 promulgated under the Securities Act effected through a
broker, dealer or market maker. 

        "Registration Agreement" means that certain Registration Rights Agreement, dated as of February 6, 2004, by and among the Company,
MDCP IV and the other parties signatory thereto, as amended, modified, supplemented or waived from time to time. 

        "Sale of the Company" means the sale of the Company to an Independent Third Party or affiliated group of Independent Third Parties
pursuant to which such party or parties acquire (i) capital stock of the Company possessing the voting power to elect a majority of the Company's board of directors (whether by merger,
consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis. 

        "Securities Act" means the Securities Act of 1933, as amended. 

        "Subsidiary" means any Company of which the securities having a majority of the ordinary voting power in electing the board of directors
are, at the time as of which any determination is being made, owned by the Company either directly or through one or more Subsidiaries. 

        Section 11.    Miscellaneous.    

        11A.    Complete Agreement.    This Agreement and the agreements contemplated hereby embody the complete agreement and
understanding among the parties hereto with respect to the purchase of Ordinary Shares and supersedes and preempts any prior understandings, agreements or representations by or among the parties,
whether written or oral, which may have related to the subject matter hereof in any way. Without limiting the generality of the immediately foregoing sentence, except as expressly set forth in this
Agreement, none of the Company nor any MDCP Co-Investor has made or shall be deemed to have made any representation or warranty to any Additional Investor regarding the purchase and sale
of Ordinary Shares hereunder and the transactions contemplated by this Agreement and the agreements contemplated hereby. Notwithstanding the foregoing, nothing herein shall be deemed to amend,
supersede or preempt any agreement of an Investor made in any Acceptance Form included with that certain Exchange Offer information memorandum dated on or about January 20, 2004, including,
without limitation, the power of attorney executed in connection therewith, in any side letter executed (or, in accordance with this Section 11, deemed executed) by the Company, or in any
letter agreement between the Company and an Investor or Affiliate of an Investor regarding payment of fees, expenses and interest in the event that the share capital reduction is not consummated. 

        11B.    Remedies.    Each holder of Ordinary Shares shall have all rights and remedies set forth in this Agreement and
the Articles of Association and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason
of any breach of any provision of this Agreement and to exercise all other rights granted by law. 

        11C.    Consent to Amendments.    Except as otherwise expressly provided herein, the provisions of this Agreement may
be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the MDCP
Co-Investor Majority or, in the event that no MDCP Co-Investor holds Ordinary Shares, the holders of a majority of the Ordinary Shares then held by Investors and their
Permitted Transferees; provided that if any such amendment, modification or waiver would materially adversely affect any Investor relative to the MDCP Co-Investor Majority, such amendment,
modification or waiver shall be effective against such Investor only with the written consent of such Investor or the holders of a majority of Ordinary
Shares held by all holders so adversely affected. No other course of dealing between the Company and any Investor or any delay in exercising any rights hereunder, under any agreement contemplated
hereby or under the Articles of Association shall operate as a waiver of any rights of any such holders. Each Additional Investor agrees and acknowledges that the Company may issue Ordinary Shares
hereunder after such Investor's Exchange Date, that the Person acquiring such Ordinary Shares may become a party hereto as an Additional Investor and that the Schedule of
Investors and Schedule of Additional Investors may be updated by the Company to reflect any such issuance, in each case without
the consent of any Additional Investor hereunder. 

        11D.    Successors and Assigns.    Except as otherwise expressly provided herein, all covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not.
In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for the Investors' benefit as purchasers or holders of Ordinary Shares are, except as
otherwise set forth herein, also for the benefit of, and enforceable by, any subsequent holder of such shares. The rights and obligations of any Investor under this Agreement and the agreements 

contemplated
hereby may be assigned by such Investor at any time only with the prior written consent of such Investor. 

        11E.    Severability.    Whenever possible, each provision of this Agreement shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent
of such prohibition or invalidity, without invalidating the remainder of this Agreement. 

        11F.    Counterparts.    This Agreement may be executed simultaneously in two or more counterparts, any one of which
need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement. 

        11G.    Descriptive Headings; Interpretation.    The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a Section of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. 

        11H.    Governing Law.    The Agreement and the exhibits and schedules hereto shall be governed by and construed in
accordance with the laws of the State of Illinois without reference to its conflict of laws rules and the parties hereby submit to the non-exclusive jurisdiction of state and federal
courts located in the State of Illinois. 

        11I.    Notices.    All notices, demands or other communications to be given or delivered under or by reason of the
provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, one day after being sent to the recipient by reputable express
courier service by overnight mail (charges prepaid) or by facsimile. Such notices, demands and other communications shall be sent to the Investors and to the Company at the address indicated below: 

        If to the Company: 

c/o
Jefferson Smurfit Group Limited

Headquarters

Beech Hill

Clonsekagh

Dublin 4

Facsimile:        353-1-283-7113 

        with copies to: 

William
Fry

Solicitors

Fitzwilton House

Wilton Place

Dublin 2

Attention:        Owen O'Connell

Facsimile:        +353-1-618-0618 

and
to the MDCP Co-Investors and Kirkland & Ellis LLP (at the addresses set forth below) 

        If to the MDCP Co-Investors: 

c/o
Madison Dearborn Partners, LLC

Three First National Plaza,

Suite 3800

Chicago, Illinois 60602

USA

Attention: Samuel M. Mencoff

Facsimile: 312-895-1001 

        with a copy to: 

Kirkland &
Ellis LLP

200 East Randolph Drive

Chicago, IL 60601

USA

Attention:        William S. Kirsch, P.C.

Facsimile:        (312) 861-2200 

        If to an Additional Investor: 

To
the address set forth for such Additional Investor

on the Schedule of Additional Investors attached hereto 

or
to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. 

        11J.    No Strict Construction.    The parties hereto have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. 

        11K.    Side Letters.    Notwithstanding anything herein to the contrary, each of the Company and each Investor agree
that, in connection with such Investor's investment in MDCP Acquisitions Limited (formerly MDCP Acquisitions plc), MDCP Acquisitions Limited entered into certain side letter
agreements with certain of the Investors and to the extent that any obligations under any such side letter have not been fully performed by MDCP Acquisitions Limited or any of its Subsidiaries prior
to the date hereof, the obligations of MDCP Acquisitions Limited under such side letter shall from and after the Exchange Date become obligations of the Company as though the Company were originally
party thereto. Furthermore, any agreement of any Investor evidenced in any side letter (including to the extent such had the effect of amending rights or obligations of any such Investor or the
transferor of any Ordinary Shares held by such Investor) shall remain in full force and effect and binding upon each such Investor. 

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. 

	 	 	JSG PACKAGING LIMITED
	

 	
 	
By:	

    

	 	 	Its:	    

	

 	
 	
MDCP IV GLOBAL INVESTMENTS LP
	

 	
 	
By:	

MDP IV Global GP, LP
	 	 	Its:	General Partner
	

 	
 	

By:	

MDP Global Investors Limited
	 	 	Its:	General Partner
	

 	
 	

By:	

    

	 	 	Its:	    

	

 	
 	
MDCP III GLOBAL INVESTMENTS LP
	

 	
 	
By:	

MDP III Global GP, LP
	 	 	Its:	General Partner
	

 	
 	

By:	

MDP Global Investors Limited
	 	 	Its:	General Partner
	

 	
 	

By:	

    

	 	 	Its:	    

	

 	
 	
MDSE III GLOBAL INVESTMENTS LP
	

 	
 	
By:	

MDP III Global GP, LP
	 	 	Its:	General Partner
	

 	
 	

By:	

MDP Global Investors Limited
	 	 	Its:	General Partner
	

 	
 	

By:	

    

	 	 	Its:	    

[Signature Page to Subscription and Shareholders Agreement]

SCHEDULE OF INVESTORS

AS OF FEBRUARY 6, 2004  

	Name of Investor
 
	 	Number of

JSG Shares
	 	Number of

Ordinary Shares

	MDCP IV Global Investments, L.P.	 	39,020,270	 	39,020,270
	MDCP III Global Investments, L.P.	 	7,495,357	 	7,495,357
	MDSE III Global Investments, L.P.	 	166,429	 	166,429
	Mid-Ocean Europe GP (Jersey) Limited	 	7,500,000	 	7,500,000
	J.P. Morgan Partners (BHCA), L.P.	 	2,757,089	 	2,757,089
	J.P. Morgan Partners Global Investors, L.P.	 	436,894	 	436,894
	J.P. Morgan Partners Global Investors A, L.P.	 	59,558	 	59,558
	J.P. Morgan Partners Global Investors (Cayman), L.P.	 	221,747	 	221,747
	J.P. Morgan Partners Global Investors (Cayman) II, L.P.	 	24,712	 	24,712
	Arthur Street Portfolio, L.P.	 	113,400	 	113,400
	Arthur Street Fund, L.P.	 	201,450	 	201,450
	Vesey Street Portfolio, L.P.	 	572,550	 	572,550
	Vesey Street Fund, L.P.	 	441,750	 	441,750
	Passage Portfolio, L.P.	 	170,850	 	170,850
	Techline Investment Ltd.	 	3,470,845	 	3,470,845
	Teachers Insurance and Annuity Association of America	 	1,983,339	 	1,983,339
	BVCF IV, L.P.	 	247,918	 	247,918
	TCW/Crescent Mezzanine Partners III, L.P.	 	423,531	 	423,531
	TCW/Crescent Mezzanine Trust	 	65,982	 	65,982
	TCW Crescent Mezzanine Partners III Netherlands, L.P.	 	17,304	 	17,304
	Stanley Shuman	 	49,584	 	49,584
	Maxce LLC	 	99,167	 	99,167
	Eran Ashany	 	14,876	 	14,876
	Walter O'Hara, Jr.	 	9,918	 	9,918
	Robert Dean	 	2,480	 	2,480
	Special Co-Invest I	 	50,000	 	50,000
	Schwerin Company, L.L.C.	 	25,000	 	25,000
	Paul J. Magnell	 	25,000	 	25,000
	Northwestern University	 	10,000	 	10,000
	Randolph Street Partners V	 	125,000	 	125,000
	 	 	
	 	

	 	TOTAL	 	65,802,000	 	65,802,000

SCHEDULE OF ADDITIONAL INVESTORS

AS OF FEBRUARY 6, 2004  

	Mid-Ocean Europe GP (Jersey) Limited

Mid-Ocean Partners

3rd Floor

1 Chester Street

London SW1X 7HP

Attention: Hugh Briggs	 	 
	

J.P. Morgan Partners Global Investors, L.P.

J.P. Morgan Partners

1221 Avenue of the Americas, 39th Floor

New York, NY 10020

Attention: Robert Ruggiero	
 	

 
	

J.P. Morgan Partners Investors (Cayman), L.P.

J.P. Morgan Partners

1221 Avenue of the Americas, 39th Floor

New York, NY 10020

Attention: Robert Ruggiero	
 	

 
	

J.P. Morgan Partners Global Investors A, L.P.

J.P. Morgan Partners

1221 Avenue of the Americas, 39th Floor

New York, NY 10020

Attention: Robert Ruggiero	
 	

 
	

J.P. Morgan Partners Global Investors

(Cayman) II, L.P.

J.P. Morgan Partners

1221 Avenue of the Americas, 39th Floor

New York, NY 10020

Attention: Robert Ruggiero	
 	

 
	

J.P. Morgan Partners (BHCA), L.P.

J.P. Morgan Partners

1221 Avenue of the Americas, 39th Floor

New York, NY 10020

Attention: Robert Ruggiero	
 	

 
	

Arthur Street Portfolio, L.P.

Merrill Lynch Private Equity Partners

800 Scudders Mill Road

Plainsboro, NJ 08536

Attention: Mike Cerminaro	
 	

 
	

Arthur Street Fund, L.P.

Merrill Lynch Private Equity Partners

800 Scudders Mill Road

Plainsboro, NJ 08536

Attention: Mike Cerminaro	
 	

 
	 	 	 

	

Vesey Street Portfolio, L.P.

Merrill Lynch Private Equity Partners

800 Scudders Mill Road

Plainsboro, NJ 08536

Attention: Mike Cerminaro	
 	

 
	

Vesey Street Fund, L.P.

Merrill Lynch Private Equity Partners

800 Scudders Mill Road

Plainsboro, NJ 08536

Attention: Mike Cerminaro	
 	

 
	

Passage Portfolio, L.P.

Merrill Lynch Private Equity Partners

800 Scudders Mill Road

Plainsboro, NJ 08536

Attention: Mike Cerminaro	
 	

 
	

Northwestern University

Investment Office

633 Clark Street, Crown 1-209

Evanston, IL 60208

Attention: Du H. Chai	
 	

 
	

Techline Investment Ltd.

GIC Special Investments Pte Ltd

156 West 56th Street

Suite 190

New York, NY 10019

Attention: David L. Chiang	
 	

 
	

Teachers Insurance and Annuity Association of America

TIAA-CREF

730 Third Avenue

New York, NY 10017

Attention: Holly D. Holtz	
 	

 
	

BVCF IV, L.P.

Adams Street Partners

One North Wacker

Suite 2200

Chicago, IL 60606-2807

Attention: David S. Timson	
 	

 
	

TCW/Crescent Mezzanine Trust

TCW/Crescent Mezzanine, LLC

200 Crescent Court

Suite 1600

Dallas, TX 75201

Attention: Tim Costello	
 	

 
	

TCW/Crescent Mezzanine Partners III, L.P.

TCW/Crescent Mezzanine, LLC

200 Crescent Court

Suite 1600

Dallas, TX 75201

Attention: Tim Costello	
 	

 
	 	 	 

	

TCW Crescent Mezzanine Partners III Netherlands, L.P

TCW/Crescent Mezzanine, LLC

200 Crescent Court

Suite 1600

Dallas, TX 75201

Attention: Tim Costello	
 	

 
	

Randolph Street Partners V

Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, IL 60601

Attention: William Kirsch	
 	

 
	 	
 Stanley Shuman

Allen & Company

711 5th Avenue

New York, NY 10022	
 	

 
	 	
 Macxe LLC

Allen & Company

711 5th Avenue

New York, NY 10022	
 	

 
	 	
 Eran Ashany

Allen & Company

711 5th Avenue

New York, NY 10022	
 	

 
	 	
 Walter O'Hara, Jr.

Allen & Company

711 5th Avenue

New York, NY 10022	
 	

 
	 	
 Robert Dean

Allen & Company

711 5th Avenue

New York, NY 10022	
 	

 
	 	
 Schwerin Company, L.L.C.

Michael Schwerin

President

One Bayview Avenue

Oyster Bay, New York 11771	
 	

 
	 	
 Paul Magnell

CEO

Bay State Paper Company

892 River Street

Hyde Park, MA 02136	
 	

 
	 	
 Special Co-Invest I

Madison Dearborn Partners, LLC

Three First National Plaza

Suite 3800

Chicago, Illinois 60602

Attention: David Mosher	
 	

 

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Exhibit 10.39    
    

 
  EXECUTION COPY    
    

 
  STOCK OPTION AGREEMENT
  (Time and Performance)    
    

        This Stock Option Agreement (the "Agreement"), dated as of September 24, 2004 (the "Grant Date"), is made by and between Rockwood Holdings, Inc., a
Delaware corporation (hereinafter referred to as the "Company"), and Seifollah Ghasemi, an employee of the Company or a Subsidiary (as defined in the Plan) or an Affiliate (as defined below) of the
Company, hereinafter referred to as "Optionee". 

        WHEREAS,
the Committee (as defined below), appointed to administer the Plan, has determined that it would be to the advantage and best interest of the Company and its shareholders to
grant the Optionee an option to purchase shares of its common stock, par value $0.01 per share (the "Common Stock") as an incentive for increased efforts during the Optionee's term of employment with
the Company or its Subsidiaries or Affiliates; 

        NOW,
THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby
agree as follows: 

 
 

ARTICLE I
  
  DEFINITIONS    
    

        Whenever the following terms are used in this Agreement, they shall have the meaning specified in the Plan or below unless the context clearly indicates to the
contrary. 

Section 1.1.    Affiliate    

        "Affiliate"
shall mean, with respect to the Company, any entity directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity
designated by the Board of Directors of the Company in which the Company or an Affiliate has an interest. 

Section 1.2.    Cause    

        "Cause"
shall mean (i) the Optionee's willful and continued refusal to perform duties, which are within the control of the Optionee and consistent with the Optionee's title and
position, that is not cured within 15 days following receipt by the Optionee of written notice from the Company of such failure, (ii) the Optionee's conviction of or plea of guilty or no
contest to a (x) felony, (y) a misdemeanor involving the Company or (z) misdemeanor not involving the Company, which results in material and demonstrable harm to the business or
reputation of the Company (in each case of (x), (y) or (z), other than as a result of vicarious liability under any environmental criminal statute), (iii) the Optionee's willful
malfeasance or misconduct (x) relating to the Company which is demonstrably injurious to the Company or its subsidiaries, other than in a manner that is insignificant or inconsequential or
(y) not involving the Company, but which results in material, adverse and demonstrable harm to the Company or its subsidiaries or (iv) a breach by the Optionee of the material terms of
Section 25 of the Management Stockholder's Agreement, following notice of such breach (which notice may be oral or written) that (if, in the good faith discretion of the Board, is able to be
cured by the Optionee) is not cured within 15 days following receipt by the Optionee of written notice from the Company that it reasonably believes the Optionee is in breach of any such
covenants; provided, however, that Cause shall cease to exist as an event on the 60th day following actual and substantiated knowledge of
the Cause event by a non-employee member of the Board affiliated with KKR. For purposes of this subsection, no act, or failure to act, on the Optionee's part shall be considered "willful"
unless done or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company. 

 

Section 1.3.    Change of Control    

        "Change
of Control" shall mean (i) sales of all or substantially all of the assets of the Company to a Person who is not KKR or an affiliate of KKR (collectively, the
"KKR Partnerships"), (ii) a sale by KKR or any of its respective affiliates resulting in more than 50% of the voting stock of the Company being
held by a Person or group that does not include KKR or any of its respective affiliates or (iii) a merger, consolidation, recapitalization or reorganization of the Company with or into another
Person which is not an affiliate of KKR; if and only if as a result of any of the foregoing events in (i)-(iii) the KKR Partnerships lose the ability, without the approval of a Person who is
not an affiliate of KKR, to elect a majority of the Board of Directors of the Company (or the resulting entity). Notwithstanding the foregoing, if any of the transactions described in
(i)-(iii) of the preceding sentence shall occur and the other Person involved in such transaction (or its ultimate parent entity) is an operating company controlled by KKR or an affiliate of
KKR prior to such transaction (an "Alternate KKR Entity"), then the determination of whether a change of control has occurred shall be made by determining whether an event set forth in clauses (i),
(ii) or (iii) above has occurred (including the ability to elect a majority of the Board) if the Alternate KKR Entity is treated as being unaffiliated with KKR and by treating the voting
power of the Alternate KKR Entity in the Company (or the resulting entity) as if it were held by a Person unaffiliated with KKR. 

Section 1.4.    Code    

        "Code"
shall mean the Internal Revenue Code of 1986, as amended. 

Section 1.5.    Committee    

        "Committee"
shall mean the Compensation Committee of the Company. 

Section 1.6.    Disability    

        "Disability"
shall mean a determination, made at the request of the Optionee or upon the reasonable request of the Company set forth in a notice to the Optionee, by a physician selected
by the Company and the Optionee, that the Optionee is unable to perform his duties as an employee of the Company or its subsidiaries and in all reasonable medical likelihood such inability will
continue for a period in
excess of 180 consecutive days (such inability is hereinafter referred to as "Disability" or being "Disabled"). 

Section 1.7.    Financial Statement Approval Date    

        "Financial
Statement Approval Date" shall mean the date on which the audited financial statements of the Company for any given Fiscal Year have been finally approved by the auditing firm
engaged by the Company to review such statements (which approval shall in no event occur later than March 31 of the calendar year immediately following the applicable Fiscal Year). 

Section 1.8.    Fiscal Year    

        "Fiscal
Year" shall mean each fiscal year of the Company. 

Section 1.9.    Good Reason    

        "Good
Reason" shall mean, without the Optionee's consent, (A) a reduction in the Optionee's base salary or annual bonus opportunity, (B) a substantial reduction in the
Optionee's duties, authorities, and responsibilities or removal from the Optionee of the title of Chief Executive Officer of the Company, (C) the Optionee's removal from, or failure to be
re-elected to the Board, (D) the elimination or reduction of the Optionee's eligibility to participate in the Company's benefit programs that is inconsistent with the eligibility of
similarly situated employees of the Company to participate therein, provided, however, that any adverse change to the terms of the Supplemental Pension
Benefit shall be deemed an event of Good Reason, (E) a transfer of the Optionee's primary workplace by more 

2

 

than
35 miles from the Company's offices in Princeton, New Jersey, (F) any failure by the Company to pay when due any payment owed to the Optionee within 15 days after the date such
payment becomes due or (G) failure of any successor to the Company (whether direct or indirect and whether by merger, acquisition, consolidation or otherwise) to assume in a writing delivered
to the Optionee, upon the assignee becoming such, the obligations of the Company hereunder; provided, that either of the events described in clauses
(A) and (B) of this definition shall constitute Good Reason only if the Company fails to cure such event within 30 days after receipt from the Optionee of written notice of the
event which constitutes Good Reason; and provided, further, that "Good Reason" shall cease to exist for an event on the 60th day following
the later of its occurrence or the Optionee's knowledge thereof, unless the Optionee has given the Company written notice thereof prior to such date. 

Section 1.10.    Group    

        "Group"
shall mean two or more Persons acting together as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of securities of
the Company. 

Section 1.11.    Initial Vesting Date    

        "Initial
Vesting Date" shall mean the Grant Date. 

Section 1.12.    Interim Termination Event    

        "Interim
Termination Event" shall mean any event that terminates the Optionee's employment described in Section 3.2(b) or (c) below, which occurs after December 31
of any given calendar year but prior to the Financial Statement Approval Date occurring in the immediately following calendar year. 

Section 1.13.    Management Stockholder's Agreement    

        "Management
Stockholder's Agreement" shall mean that certain Amended and Restated Management Stockholder's Agreement dated as of September 24, 2004 between the Optionee and the
Company, as amended from time to time. 

Section 1.14.    Options    

        "Options"
shall mean the Time Option (which shall, in part and to the extent permitted by applicable law and as set forth on the signature page hereto, be an "incentive stock option",
within the meaning of Section 422 of the Code) and Performance Option (which shall in its entirety be an option that is not an incentive stock option) to purchase Common Stock granted under
this Agreement. To the extent that, for any reason, an Option intended to be an incentive stock option does not qualify as an incentive stock option, it shall be deemed an Option that is not an
incentive stock option. 

Section 1.15.    Performance Option    

        "Performance
Option" shall mean an Option with respect to which the commencement of exercisability is governed by Section 3.1(b) hereof. 

Section 1.16.    Performance Target    

        "Performance
Target" shall have the meaning as set forth in Appendix A attached hereto. 

Section 1.17.    Person    

        "Person"
shall mean "person", as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (or any successor section thereto). 

3

 

Section 1.18.    Plan    

        "Plan"
shall mean the Amended and Restated 2003 Stock Purchase and Option Plan for Rockwood Holdings, Inc. and Subsidiaries. 

Section 1.19.    Pronouns    

        The
masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates. 

Section 1.20.    Retirement    

        "Retirement"
shall mean retirement at age 65 or over (or such other age as may be approved by the Board of Directors of the Company) after having been employed by the Company or a
Subsidiary for at least three years after November 1, 2001. 

Section 1.21.    Secretary    

        "Secretary"
shall mean the Secretary of the Company. 

Section 1.22.    Time Option    

        "Time
Option" shall mean an Option with respect to which the commencement of exercisability is governed by Section 3.1(a) hereof. 

Section 1.23.    Vesting Date    

        "Vesting
Date" shall mean each anniversary of the Initial Vesting Date on which the Time Option becomes exercisable pursuant to Section 3.1(a)(i) hereof. 

4

  

 
 

ARTICLE II
  
    GRANT OF OPTIONS    
    

Section 2.1.    Grant of Options  

        For good and valuable consideration, on and as of the date hereof the Company irrevocably grants to the Optionee a Time Option and a Performance Option to
purchase any part or all of an aggregate of the number of shares set forth with respect to each such Option on the signature page hereof of its Common Stock upon the terms and conditions set forth in
this Agreement. 

Section 2.2.    Exercise Price  

        Subject to Section 2.4, the exercise price of the shares of Common Stock covered by the Options shall be $500.00 per share without commission or other
charge (which is the fair market value per share of the Common Stock on the Grant Date). 

Section 2.3.    No Guarantee of Employment  

        Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or Affiliate or shall
interfere with or restrict in any way the rights of the Company and its Subsidiaries or Affiliates, which are hereby expressly reserved, to terminate the employment of the Optionee at any time for any
reason whatsoever, with or without Cause. 

Section 2.4.    Adjustments in Options Pursuant to Merger, Consolidation, etc.  

        Subject to Sections 8 and 9 of the Plan, in the event that the outstanding shares of the stock subject to an Option, are, from time to time, changed into or
exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock
dividend, combination of shares, or other corporate event, the Committee shall make, as appropriate and equitable, an adjustment in the number and kind of shares and/or the amount of consideration as
to which or for which, as the case may be, such Option, or portions thereof then unexercised, shall be exercisable and/or, other than in an event that is a Change of Control, shall pay to the Optionee
a dividend in respect of the shares of Common Stock subject to the Option, in any event in order to allow the Optionee to participate in such corporate event in an equitable manner. Any such
adjustment made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. 

5

 
 
 

ARTICLE III
  
    PERIOD OF EXERCISABILITY    
    

        Section 3.1.    Commencement of Exercisability    

        (a)   Time
Option. 

        (i)    So
long as the Optionee continues to be employed by the Company or its Subsidiaries, the Time Option shall become exercisable pursuant to the following schedule: 

	Date Time Option

Becomes Exercisable
 
	 	Percentage of Time Option Shares

Granted As to Which Time

Option Is Exercisable
	 
	After the first anniversary of the Initial Vesting Date	 	20	%
	After the second anniversary of the Initial Vesting Date	 	40	%
	After the third anniversary of the Initial Vesting Date	 	60	%
	After the fourth anniversary of the Initial Vesting Date	 	80	%
	After the fifth anniversary of the Initial Vesting Date	 	100	%

        (ii)   That
portion of the Option intended to be an "incentive stock option" within the meaning of Section 422 of the Code ("ISO") and that portion of the Option that
is not intended to be an ISO ("NQSO") shall each become exercisable ratably in accordance with the above schedule. For example, following the first anniversary of the Initial Vesting Date, 20% of the
ISOs and 20% of the NQSOs shall be exercisable, while 40% of the ISOs and 40% of the NQSOs shall be exercisable following the second anniversary of the Initial Vesting Date, and so on. 

        (iii)  Notwithstanding
the foregoing, the Time Option shall become immediately exercisable as to 100% of the shares of Common Stock subject to such Option immediately prior
to a Change of Control (but only to the extent such Option has not otherwise terminated or become exercisable). 

        (b)   Performance
Option. 

        (i)    The
Option shall become exercisable with respect to 20% of the shares of Common Stock subject to such Option in respect of each Fiscal Year (beginning with the 2004
Fiscal Year) upon the achievement by the Company of the Performance Target established in respect of each such Fiscal Year and set forth on Appendix A attached hereto;  provided, however, that such
Option shall only become exercisable as to 20% of the shares of Common Stock subject to such Option (each such 20% of the
shares, a "Tranche") on December 31 of each such Fiscal Year upon the occurrence of the Financial Statement Approval Date applicable to such
Fiscal Year so long as either (i) the Optionee remains employed with the Company on the applicable Financial Statement Approval Date or (ii) an Interim Termination Event
occurs between such December 31 and the applicable Financial Statement Approval Date. If the Company does not achieve its Performance Target for any given Fiscal Year (a
"Missed Year"), the Option shall not become exercisable in respect of such Fiscal Year, as set forth in the immediately preceding sentence;  provided, however, that if the Company achieves the Performance Target as established for any Fiscal Year subsequent to a Missed Year, then any prior
percentage of the Option (the exercisability of which had not previously occurred) in respect of prior Missed Years shall become exercisable (but only to the extent such Option has not otherwise
terminated or become exercisable). Notwithstanding the foregoing, the Option shall become exercisable as to 100% of the shares of Common Stock subject to such Option (to the extent such Option has not
otherwise terminated or become exercisable) on the eighth anniversary of the Grant Date. 

        (ii)   Notwithstanding
the foregoing, upon the occurrence of a Change of Control prior to December 31, 2008, the Option (to the extent such Option has not otherwise
terminated) shall be exercisable with respect to the number of shares of Common Stock equal to the total number of shares of Common Stock subject to the Option multiplied by a fraction, (i) the
numerator of which 

6

 

is
the number of shares of Common Stock that have previously become exercisable in respect of prior Fiscal Years, plus, with respect to the Tranche that could have become vested in respect the Fiscal
Year in which the Change of Control occurs, if the Board determines, in its good faith discretion that, as of the date of the Change of Control, the Company would, but for the Change of Control, have
achieved the Performance Target for such year, a pro rata portion of such Tranche (based on the number of days that have elapsed in such Fiscal Year through the date of the Change of Control, relative
to 365 days) (the "Pro-Rata Fiscal Year") and (ii) the denominator of which is the maximum number of shares that could have become vested in such completed Fiscal Years
(whether or not they actually vested), plus a pro-rata portion of the maximum number of shares that could have become vested for the Fiscal Year in which the Change of Control occurred.
(See Exhibit I for an example of the application of this Section 3.1(b)(ii).) Notwithstanding the foregoing provisions of this
Section 3.1(b), if the Board determines, in its good faith discretion, that, as of the date of the Change of Control, the Company achieved the applicable Performance Target set forth in
Appendix A hereto, the Option shall become exercisable in full. The Board shall make such determination based on an interpolation of the applicable Fiscal Year goals set forth in
Appendix A. 

        (c)   Notwithstanding
the foregoing, no Option which does not otherwise become exercisable in accordance with Section 3.1(b)(i) above shall become exercisable as
to any additional shares of Common Stock following the termination of employment of the Optionee for any reason, and any Option which is non-exercisable as of the Optionee's termination of
employment (other than any Option which becomes exercisable in accordance with Section 3.1(b)(i) shall be immediately cancelled. 

Section 3.2.    Expiration of Options  

        Except as otherwise provided in Section 5 or 6 of the Management Stockholder's Agreement, the Optionee may not exercise the Options to any extent after the
first to occur of the following events: 

        (a)   The
tenth anniversary of the Grant Date; 

        (b)   The
tenth anniversary of the Grant Date, if the Optionee's employment is terminated by reason of death or Disability; 

        (c)   The
first anniversary of the date of the Optionee's termination of employment by reason of Retirement, by the Company without Cause or by the Optionee for Good Reason; 

        (d)   The
date of an Optionee's termination of employment by the Company for any reason other than as set forth in Section 3.2(b) or (c) above (without regard to
Section 5 or 6 of the Management Stockholder's Agreement); 

        (e)   The
date the Option is terminated pursuant to Section 5 or 6 of the Management Stockholder's Agreement; or 

        (f)    If
the Committee so determines pursuant to Section 9 of the Plan, the effective date of either the merger or consolidation of the Company into another Person, or
the exchange or acquisition by another Person of all or substantially all of the Company's assets or 80% or more of its then outstanding voting stock, or the recapitalization, reclassification,
liquidation or dissolution of the Company. At least ten days prior to the effective date of such merger, consolidation, exchange, acquisition, recapitalization, reclassification, liquidation or
dissolution, the Committee shall give the Optionee notice of such event if the Option has then neither been fully exercised nor become unexercisable under this Section 3.2. 

7

  

 
 

ARTICLE IV
  
    EXERCISE OF OPTIONS    
    

Section 4.1.    Person Eligible to Exercise

        Except
as otherwise provided in the Management Stockholder's Agreement, during the lifetime of the Optionee, only he may exercise an Option or any portion thereof. After the death of the
Optionee, any exercisable portion of an Option may, prior to the time when an Option becomes unexercisable under Section 3.2, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws of descent and distribution. 

Section 4.2.    Partial Exercise

        Any
exercisable portion of an Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion
thereof becomes unexercisable under Section 3.2; provided, however, that any partial exercise shall be for whole shares of Common Stock only. 

Section 4.3.    Manner of Exercise

        An
Option, or any exercisable portion thereof, may be exercised solely by delivering to the Secretary or his office all of the following prior to the time when the Option or such portion
becomes unexercisable under Section 3.2: 

        (a)   Notice
in writing signed by the Optionee or the other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is
thereby exercised and indicating the extent to which the portion of the Option being exercised constitutes Incentive Stock Options, such notice complying with all applicable rules established by the
Committee; 

        (b)   Full
payment (in cash, by check or by a combination thereof) for the shares with respect to which such Option or portion thereof is exercised; 

        (c)   A
bona fide written representation and agreement, in a form satisfactory to the Committee, signed by the Optionee or other person then entitled to exercise such Option
or portion thereof, stating that the shares of stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares except as may be
permitted under the Securities Act of 1933, as amended (the "Act"), and then applicable rules and regulations thereunder, and that the Optionee or other person then entitled to exercise such Option or
portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such
person is contrary to the representation and agreement referred to above; provided, however, that the Committee may, in its reasonable discretion, take whatever additional actions it deems reasonably
necessary to ensure the observance and performance of such representation and agreement and to effect compliance with the Act and any other federal or state securities laws or regulations; 

        (d)   Full
payment to the Company of all amounts which, under federal, state or local law, it is required to withhold upon exercise of the Option; and 

        (e)   In
the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than the Optionee, appropriate proof of the
right of such person or persons to exercise the Option. 

Without
limiting the generality of the foregoing, the Committee may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on exercise of an
Option does not violate the Act, and may issue stop-transfer orders covering such shares. Share certificates 

8

 

evidencing
stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of subsection (c) above and the agreements herein. The written representation and
agreement referred to in subsection (c) above shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Act, and such registration is
then effective in respect of such shares. In addition to the foregoing, after a Public Offering (as defined in the Management Stockholder's Agreement), the Optionee may, in the Committee's good faith
discretion, make payment of the exercise price (as required in Section 4.3(b) above) in shares of Common Stock that the Optionee has held for at least six months or otherwise pursuant to an
irrevocable broker loan program established in accordance with applicable law. 

Section 4.4.    Conditions to Issuance of Stock Certificates

        The
shares of stock deliverable upon the exercise of an Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares, which have then been
reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon
the exercise of an Option or portion thereof prior to fulfillment of all of the following conditions: 

        (a)   The
obtaining of approval or other clearance from any state or federal governmental agency which the Committee shall, in its reasonable and good faith discretion,
determine to be necessary or advisable; and 

        (b)   The
lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative
convenience. 

Section 4.5.    Rights as Stockholder

        The
holder of an Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of the Option or
any portion thereof
unless and until certificates representing such shares shall have been issued by the Company to such holder. 

 
 

ARTICLE V
  
    MISCELLANEOUS    
    

Section 5.1.    Administration

        The
Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Optionee, the Company and
all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Options. In its
absolute discretion, the Board of Directors may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement. 

Section 5.2.    Options Not Transferable

        Except
as provided in the Management Stockholder's Agreement, neither the Options nor any interest or right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted
disposition thereof shall 

9

 

be
null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution. 

Section 5.3.    Shares to Be Reserved

        The
Company shall at all times during the term of the Options reserve and keep available such number of shares of stock as will be sufficient to satisfy the requirements of this
Agreement. 

Section 5.4.    Notices

        Any
notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Optionee shall be
addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice, which is required to be given to the Optionee, shall, if the Optionee is then deceased, be given to the Optionee's personal representative if such representative has
previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall have been deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. 

Section 5.5.    Titles

        Titles
are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. 

Section 5.6.    Applicability of Plan and Management Stockholder's Agreement

        The
Options and the shares of Common Stock issued to the Optionee upon exercise of the Options shall be subject to all of the terms and provisions of the Plan and the Management
Stockholder's Agreement, to the extent applicable to the Options and such shares. In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall control. In the event of
any conflict between this Agreement or the Plan and the Management Stockholder's Agreement, the terms of the Management Stockholder's Agreement shall control. 

Section 5.7.    Amendment

        This
Agreement may be amended only by a writing executed by the parties hereto, which specifically states that it is amending this Agreement. 

Section 5.8.    Governing Law

        The
laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of
conflicts of laws. 

Section 5.9.    Arbitration

        In
the event of any controversy among the parties hereto arising out of, or relating to, this Agreement which cannot be settled amicably by the parties, such controversy shall be
finally, exclusively and conclusively settled by mandatory arbitration conducted expeditiously in accordance with the American Arbitration Association rules, by a single independent arbitrator. If the
parties are unable to agree on the selection of an arbitrator, then any party may petition the American Arbitration Association for the appointment of the arbitrator, which appointment shall be made
within ten days of the petition therefore. Either the Company or the Optionee may institute such arbitration proceeding by giving written notice to the other party. The arbitrator in New York or New
Jersey shall hold a hearing within 30 days of his or her appointment. In preparation for their presentation at such hearing, each party may depose a maximum of four people. Each such deposition
shall last no more than six 

10

 

hours.
Each side may file with the arbitrator one brief, not in excess of 30 pages, excluding exhibits. Each side shall have no more than eight hours to present its position to the arbitrator. The
hearing shall be no more than three days in length. The decision of the arbitrator shall be final and binding upon all parties hereto and shall be rendered pursuant to a written decision, which
contains a detailed recital of the arbitrator's reasoning. Judgment upon the award rendered may be entered in any court having jurisdiction thereof. 

        IN
WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto. 

	 	 	ROCKWOOD HOLDINGS. INC.
	

 	
 	
By:	

/s/  THOMAS J. RIORDAN      
 Thomas J. Riordan

Its:    Senior Vice President Law and Administration
	

 	
 	

OPTIONEE:
	

 	
 	

By:	

/s/  SEIFOLLAH GHASEMI      
 SEIFOLLAH GHASEMI
	

 	
 	

	

 	
 	

	 	 	Address
	

 	
 	

Optionee's Taxpayer Identification Number:
	

 	
 	

	Aggregate number of shares of Common Stock for which the Time Option granted hereunder is exercisable (40% of total number of shares):	 	 	 
	6,000, of which	 	 	 
	200     shall be incentive stock options and	 	 	 
	5,800 shall be nonqualified stock options.	 	 	 
	

Aggregate number of shares of Common Stock for which the Performance Option granted hereunder is exercisable (60% of total number of shares):	
 	

 	

 
	9,000, all of which shall be non-qualified stock options.	 	 	 

11

 
 
Appendix A

Performance Targets  

        The Performance Targets are based on the Company's achievement of the following implied equity values calculated as 8.0x the applicable fiscal year's Consolidated
EBITDA (as defined below), minus the year-end Net Debt (as defined below, and, with Consolidated EBITDA, "Equity Values"): 

	Fiscal Year
 
	 	Equity Values

	2004:	 	$868.7 million
	2005:	 	$1,290.1 million
	2006:	 	$1,822.2 million
	2007:	 	$2,401.6 million
	2008:	 	$2,785.0 million

For
purposes hereof, 

        (a)   "Consolidated
EBITDA" is as defined in the Credit Agreement dated as of July 30, 2004 among Rockwood Specialties Group, Inc., Rockwood Specialties Limited,
Rockwood Specialties International, Inc., the lenders party thereto, Credit Suisse First Boston, acting through its Cayman Islands Branch, as administrative agent and collateral agent, and UBS
Securities LLC and Goldman Sachs Credit Partners L.P., as co-syndication agents thereunder, filed as Exhibit 10.1 to Rockwood Specialties Group, Inc.'s Current Report on
Form 8-K filed with the Securities and Exchange Commission on August 4, 2004 ("Credit Agreement"). 

        (b)   "Net
Debt" is "Consolidated Total Debt" as defined in the Credit Agreement, plus (i) all net indebtedness of Rockwood Specialties International, Inc. and
Rockwood Specialties Consolidated, Inc. for borrowed money outstanding on such date and (ii) all Capitalized Lease Obligations of Rockwood Specialties International, Inc. and
Rockwood Specialties Consolidated, Inc. outstanding on such date. 

        The
Board shall, in good faith, fairly and appropriately adjust the effect(s) of any significant acquisitions, divestitures, foreign exchange movements, changes in capital structure, and
other non-recurring or extraordinary events that may affect the Equity Values, based on an objective determination that such an adjustment is reasonably necessary. The Board's
determination of such adjustment shall be based on the Company's accounting as set forth in its books and records and on the financial plan of the Company pursuant to which the Equity Values were
originally established. 

 
 

Exhibit I    
    
    Example    
    

Assumptions:  

	(1)
	100
shares of stock subject to the option (irrespective of whether such options have previously been exercised).

	(2)
	FY
2004 Performance Target achieved, the option vested, and was exercised, as to 20 shares.

	(3)
	FY
2005 Performance Target not achieved.

	(4)
	FY
2006: Change of Control occurs mid-year; Board of Directors determines the Company is on target to achieve FY 2006 Performance Target. 

Result:  

        Based on the special Change of Control vesting schedule, the proportion of the total shares subject to the option (irrespective of any prior exercise) is
determined as follows: 

	Total Shares subject to option	 	Change of Control Vesting Fraction	 	 
	100	 	20 + 10

50	 	= 60 shares

        Since
20 shares have already vested, an additional 40 shares of the original 100 shares would become vested upon the Change of Control. 

QuickLinks

Exhibit 10.39

EXECUTION COPY

STOCK OPTION AGREEMENT (Time and Performance)

ARTICLE I DEFINITIONS

ARTICLE II GRANT OF OPTIONS

ARTICLE III PERIOD OF EXERCISABILITY

ARTICLE IV EXERCISE OF OPTIONS

ARTICLE V MISCELLANEOUS

Appendix A Performance Targets

Exhibit I Example

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