<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to_________________
Commission file number 1-11113
RIVERWOOD HOLDING, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2205241
- -------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1013 Centre Road
Suite 350
Wilmington, Delaware 19805
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(Address of principal executive offices)
(Zip Code)
c/o Riverwood International Corporation
(770) 644-3000
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(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ________.
-------
At May 7, 1997 there were 7,111,900 shares and 500,000 shares of the
registrant's Class A and Class B common stock, respectively, outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION*
* As used in this Form 10-Q, unless the context otherwise requires, "RIC"
refers to the corporation formerly named Riverwood International
Corporation, the "Predecessor" or the "Predecessor Company" refers to RIC
and its subsidiaries in respect of periods prior to the Merger (as defined
herein), the "Company" refers to the registrant, Riverwood Holding, Inc., a
Delaware corporation formerly named New River Holding, Inc. ("Holding") and
its subsidiaries, "RIC Holding" refers to RIC Holding, Inc., a Delaware
corporation, successor by merger to RIC and a wholly owned subsidiary of
Holding, and "Riverwood" refers to Riverwood International Corporation, a
Delaware corporation formerly named Riverwood International USA, Inc. and a
wholly owned subsidiary of RIC Holding.
I-1
<PAGE>
RIVERWOOD HOLDING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMPANY
- -----------------------------------------------------------------------------------------------
March 29, December 31,
ASSETS 1997 1996
- -----------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash and equivalents $ 9,354 $ 16,499
Marketable securities, at cost (approximates market) 838 858
Receivables, net of allowances 150,339 153,864
Inventories 202,890 211,965
Prepaid expenses 8,603 8,113
Deferred tax assets 2,135 2,897
- -----------------------------------------------------------------------------------------------
Total Current Assets 374,159 394,196
Property, Plant and Equipment, net of accumulated
depreciation of $107,599 in 1997 and $85,768 in 1996 1,673,840 1,675,217
Investments in Net Assets of Equity Affiliates 127,531 125,030
Goodwill, net of accumulated amortization of $8,117 in 1997
and $5,900 in 1996 316,136 318,543
Other Assets 169,381 158,501
- -----------------------------------------------------------------------------------------------
Total Assets $2,661,047 $2,671,487
===============================================================================================
LIABILITIES
- -----------------------------------------------------------------------------------------------
Current Liabilities
Short-term debt $ 25,783 $ 18,173
Accounts payable 116,590 125,014
Compensation and employee benefits 38,702 38,017
Income taxes 38,697 42,031
Other accrued liabilities 122,425 112,205
- -----------------------------------------------------------------------------------------------
Total Current Liabilities 342,197 335,440
Long-Term Debt, less current portion 1,600,721 1,567,259
Deferred Income Taxes 23,188 19,722
Other Noncurrent Liabilities 84,229 85,467
- -----------------------------------------------------------------------------------------------
Total Liabilities 2,050,335 2,007,888
- -----------------------------------------------------------------------------------------------
Contingencies and Commitments (Note 5)
Redeemable Common Stock, at current redemption value 9,390 9,390
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------
Nonredeemable Common Stock 75 75
Capital in Excess of Par Value 751,153 751,153
(Accumulated Deficit) (142,980) (105,136)
Cumulative Currency Translation Adjustment (6,926) 8,117
- -----------------------------------------------------------------------------------------------
Total Shareholders' Equity 601,322 654,209
- -----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,661,047 $2,671,487
===============================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
I-2
<PAGE>
RIVERWOOD HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
ON MARCH 27, 1996, HOLDING, THROUGH ITS WHOLLY OWNED SUBSIDIARIES, ACQUIRED ALL
OF THE OUTSTANDING SHARES OF COMMON STOCK OF RIC. THE PURCHASE METHOD OF
ACCOUNTING WAS USED TO RECORD ASSETS ACQUIRED AND LIABILITIES ASSUMED BY
HOLDING. AS A RESULT OF THE MERGER, PURCHASE ACCOUNTING AND THE EFFECT OF THE
DISPOSITION OF SUBSTANTIALLY ALL OF THE ASSETS OF THE U.S. TIMBERLANDS/WOOD
PRODUCTS BUSINESS SEGMENT (SEE NOTE 8), THE ACCOMPANYING FINANCIAL STATEMENTS OF
THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS
SINCE THE FINANCIAL STATEMENTS REPORT RESULTS OF OPERATIONS AND CASH FLOWS OF
THESE TWO SEPARATE ENTITIES.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
- -------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 29, 1997 March 27, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $267,188 $293,649
Cost of Sales 235,209 232,701
Selling, General and Administrative 29,207 30,936
Research, Development and Engineering 1,689 2,031
Other Costs - 11,114
Other Expenses, net 2,822 1,217
- -------------------------------------------------------------------------------------------------------------
(Loss) Income from Operations (1,739) 15,650
Interest Income 142 329
Interest Expense 38,901 26,392
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(Loss) before Income Taxes and Equity in
Net Earnings of Affiliates (40,498) (10,413)
Income Tax Expense (Benefit) 901 (3,436)
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(Loss) before Equity in Net Earnings of Affiliates (41,399) (6,977)
Equity in Net Earnings of Affiliates 3,555 4,927
- -------------------------------------------------------------------------------------------------------------
Net (Loss) $(37,844) $ (2,050)
=============================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
I-3
<PAGE>
RIVERWOOD HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
ON MARCH 27, 1996, HOLDING, THROUGH ITS WHOLLY OWNED SUBSIDIARIES, ACQUIRED ALL
OF THE OUTSTANDING SHARES OF COMMON STOCK OF RIC. THE PURCHASE METHOD OF
ACCOUNTING WAS USED TO RECORD ASSETS ACQUIRED AND LIABILITIES ASSUMED BY
HOLDING. AS A RESULT OF THE MERGER, PURCHASE ACCOUNTING AND THE EFFECT OF THE
DISPOSITION OF SUBSTANTIALLY ALL OF THE ASSETS OF THE U.S. TIMBERLANDS/WOOD
PRODUCTS BUSINESS SEGMENT (SEE NOTE 8), THE ACCOMPANYING FINANCIAL STATEMENTS OF
THE PREDECESSOR AND THE COMPANY ARE NOT COMPARABLE IN ALL MATERIAL RESPECTS
SINCE THE FINANCIAL STATEMENTS REPORT RESULTS OF OPERATIONS AND CASH FLOWS OF
THESE TWO SEPARATE ENTITIES.
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
- -------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 29, 1997 March 27, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (37,844) $ (2,050)
Noncash Items Included in Net (Loss):
Depreciation, amortization and cost of timber harvested 32,104 24,438
Deferred income taxes 1,040 (3,574)
Pension, postemployment and
postretirement expense, net of benefits paid 1,430 1,861
Equity in net earnings of affiliates, net of dividends (2,805) (4,927)
Amortization of debt issuance costs 2,891 619
Other, net 197 (2,350)
Decrease (Increase) in Current Assets:
Receivables 1,873 14,737
Inventories 3,685 (14,659)
Prepaid expenses (742) 8,298
(Decrease) Increase in Current Liabilities:
Accounts payable (5,192) 18,182
Compensation and employee benefits 1,513 (10,248)
Income taxes (260) (3,343)
Other accrued liabilities 8,015 12,360
Decrease in Other Noncurrent Liabilities (2,522) (2,569)
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 3,383 36,775
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Property, Plant and Equipment (44,738) (44,074)
Payment of Merger costs (3,389) -
Proceeds from Maturity of Marketable Securities - 439
Proceeds from Sales of Assets 388 623
Increase in Other Assets (4,031) (8,004)
- -------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (51,770) (51,016)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Debt - 12,669
Net Increase (Decrease) in Revolving Credit Facilities 43,280 (3,000)
Proceeds from Issuance of Common Stock - 838
Payments on Debt (1,177) (2,833)
Dividends - (2,630)
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 42,103 5,044
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Effect of Exchange Rate Changes on Cash (861) (638)
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Net Decrease in Cash and Equivalents (7,145) (9,835)
Cash and Equivalents at Beginning of Period 16,499 35,870
- -------------------------------------------------------------------------------------------------------------
Cash and Equivalents at End of Period $ 9,354 $ 26,035
=============================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
I-4
<PAGE>
RIVERWOOD HOLDING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Holding, its wholly owned subsidiaries RIC Holding and the corporation formerly
named CDRO Acquisition Corporation
("Acquisition Corp.") were incorporated in 1995 to acquire the stock of RIC.
On March 27, 1996, Holding, through its wholly owned subsidiaries, acquired all
of the outstanding shares of common stock of RIC. On such date, Acquisition
Corp. was merged (the "Merger") into RIC. RIC, as the surviving corporation in
the Merger, became a wholly owned subsidiary of RIC Holding. On March 28, 1996,
RIC transferred substantially all of its properties and assets to Riverwood,
other than the capital stock of Riverwood, and RIC was merged (the "Subsequent
Merger") into RIC Holding. Thereupon, Riverwood was renamed "Riverwood
International Corporation." Upon consummation of the Subsequent Merger, RIC
Holding, as the surviving corporation in the Subsequent Merger, became the
parent company of Riverwood.
Holding and its subsidiaries conducted no significant business other than in
connection with the Merger and related transactions through March 27, 1996.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although management believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that the interim condensed financial statements be read in conjunction
with the Company's and Predecessor's most recent audited financial statements
and notes thereto. In the opinion of management, all adjustments, consisting of
normal recurring adjustments necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods presented
have been made. The Condensed Consolidated Balance Sheet as of December 31,
1996 was derived from audited financial statements.
In connection with the Merger, the purchase method of accounting was used to
establish and record a new cost basis for the assets acquired and liabilities
assumed. The difference between the purchase price and the fair market values
of the assets acquired and liabilities assumed was recorded as goodwill.
The condensed consolidated financial statements presented herein for the periods
prior to March 28, 1996, represent the Predecessor's results of operations and
cash flows prior to the Merger and, consequently, are stated on the
Predecessor's historical cost basis. The condensed consolidated financial
statements as of March 29, 1997, and for the three months then ended, reflect
the adjustments which were made to record the Merger and represent the Company's
new cost basis. On October 18, 1996, the Company sold substantially all of the
assets of the U.S. Timberlands/Wood Products business segment (see Note 8). The
operating results for the U.S. Timberlands/Wood Products business segment were
classified as discontinued operations for periods beginning March 28, 1996 and
ending October 18, 1996 (the date of the sale). The operating results for the
U.S. Timberlands/Wood Products business segment have not been reclassified as
discontinued operations in the Predecessor's Condensed Consolidated Statement of
Operations or Condensed Consolidated Statement of Cash Flows for the three
months ended March 27, 1996. Accordingly, the financial statements of the
Predecessor for periods prior to March 28, 1996 are not comparable in all
material respects with the financial statements subsequent to the Merger date.
The most significant differences relate to amounts recorded for inventory,
property, plant and equipment, intangibles and debt which resulted in increased
cost of sales, amortization, depreciation and interest expense in the three
months ended March 29, 1997 and will continue to do so in future periods.
I-5
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For a summary of the Company's significant accounting policies, please refer to
the Company's report on Form 10-K filed with the Securities and Exchange
Commission for the nine month period ended December 31, 1996. For a summary of
RIC's significant accounting policies, please refer to the financial statements
incorporated by reference in RIC's annual report filed with the Securities and
Exchange Commission under Form 10-K for the year ended December 31, 1995.
The Company has reclassified the presentation of certain prior period
information to conform with the current presentation format.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual amounts could differ from those estimates.
NOTE 3 - INVENTORIES
The major classes of inventories were as follows:
<TABLE>
<CAPTION>
(In thousands of dollars)
March 29, 1997 December 31, 1996
-------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 90,257 $ 89,412
Work-in-process 17,473 12,496
Raw materials 61,776 71,075
Supplies 33,384 38,982
-------------------------------------------------------------------
Total $202,890 $211,965
===================================================================
</TABLE>
NOTE 4 - INVESTMENTS IN NET ASSETS OF EQUITY AFFILIATES
The Company has investments in affiliates that are accounted for using the
equity method of accounting. The most significant investment is the Company's
50 percent investment in Igaras Papeis e Embalagens S.A. ("Igaras").
The following represents the summarized income statement information for Igaras,
of which the Company recognizes 50 percent in its results of operations:
<TABLE>
<CAPTION>
(In thousands of dollars)
COMPANY PREDECESSOR
--------------------------------------------------------------
Three Months Three Months
Ended Ended
March 29, 1997 March 27, 1996
--------------------------------------------------------------
<S> <C> <C>
Net Sales $ 56,402 $ 59,582
Cost of Sales 40,286 38,962
--------------------------------------------------------------
Gross Profit $ 16,116 $ 20,620
==============================================================
Income from Operations $ 9,702 $ 14,521
==============================================================
Net Income $ 6,808 $ 10,113
==============================================================
</TABLE>
During the first quarters of 1997 and 1996, the Company did not receive a
dividend from Igaras. The Company received net dividends from its investments
in affiliates, other than Igaras, that are accounted for using the equity method
of accounting totaling $0.8 million and nil for the three months ended March 29,
1997 and March 27, 1996, respectively.
I-6
<PAGE>
NOTE 5 - CONTINGENCIES AND COMMITMENTS
The Company is committed to compliance with all applicable laws and regulations.
Environmental law is, however, dynamic rather than static. As a result, costs,
which are unforeseeable at this time, may be incurred when new laws are enacted,
and when environmental agencies promulgate or revise rules and regulations.
In late 1993, the U.S. Environmental Protection Agency (the "EPA") proposed
regulations (generally referred to as the "cluster rules") that would mandate
more stringent controls on air and water discharges from the United States pulp
and paper mills. In 1996, the EPA released additional clarification of the
proposed cluster rules. Based on this information, the Company expects that the
cluster rules may be finally promulgated in 1997 and estimates the capital
spending that may be required to comply with the cluster rules could reach $55
million to be spent at its two U.S. paper mills over an eight-year period
beginning in 1997. The Company anticipates that the majority of this spending
to comply with the cluster rules will occur later in the eight-year period. The
Company had no capital spending during the first quarter of 1997 related to
compliance with the cluster rules.
The Louisiana Department of Environmental Quality ("DEQ") notified the
Predecessor by letters, dated December 19, 1995, that the Predecessor may be
liable for the remediation of the release or threat of release of hazardous
substances at a wood treatment site in Shreveport, Louisiana, that the
Predecessor or its predecessor previously operated, and a former oil refinery
site in Caddo Parish, Louisiana that the Company currently owns. Neither the
Company nor the Predecessor ever operated the oil refinery. In response to the
DEQ, the Company has provided additional information to the DEQ concerning these
sites and has commenced its own evaluation of any claims and remediation
liabilities for which it may be responsible. The Company received a letter from
the DEQ dated May 20, 1996, requesting a plan for soil and groundwater sampling
of the wood treatment site. The Company first met with the DEQ on July 18,
1996, and then submitted a soil sampling plan to the DEQ. The Company expects
approval of this sampling plan in the first half of 1997. On September 6, 1996,
the Company received from the DEQ a letter requesting remediation of the former
oil refinery site in Caddo Parish, Louisiana. The Company met with the DEQ on
February 17, 1997 to discuss these matters. The DEQ has requested that the
Company enter into a cooperative agreement to perform a phased-in approach for
evaluating soil and groundwater conditions at the Shreveport site. The Company
is in discussions with the DEQ regarding the participation of other responsible
parties in any clean-up of hazardous substances at both of these sites.
The Company is engaged in environmental remediation projects for certain
properties currently owned or operated by the Company and certain properties
divested by the Company for which responsibility was retained for pre-existing
conditions. The Company's costs in some instances cannot be estimated until the
remediation process is substantially underway. To address these contingent
environmental costs, the Company has accrued reserves where such costs are
probable and can be reasonably estimated. The Company believes that, based on
current information and regulatory requirements, the accruals established by the
Company for environmental expenditures are adequate. Based on current
knowledge, to the extent that additional costs may be incurred that exceed the
accrued reserves, such amounts are not expected to have a material impact on the
results of operations, cash flows or financial condition of the Company,
although no assurance can be given that material costs will not be incurred in
connection with clean-up activities at these properties, including the
Shreveport and Caddo Parish sites referred to above.
The Company is a party to a number of lawsuits arising out of the conduct of its
business. While there can be no assurance as to their ultimate outcome, the
Company does not believe that these lawsuits will have a material impact on the
results of operations, cash flows or financial condition of the Company.
On December 6, 1995, Forrest Kelly Clay, a former shareholder of the
Predecessor, commenced a purported class action law suit in the United States
District Court for the Northern District of Georgia, against the Company and
certain officers of the Company (the "Individual Defendants," and together with
the Company, the "Defendants"). In his complaint, Clay alleges that the
Defendants violated the federal securities laws by disseminating misleading
statements and by omissions concerning the strategic alternatives that the
Predecessor was considering, including its potential sale to a third-party
investor. The complaint also alleged that the Individual Defendants, through
their exercise of stock appreciation rights ("SARs"), violated the federal
securities laws by trading in the Predecessor's securities while in possession
of material, non-public information. The complaint generally seeks damages in an
unspecified amount, as well as other relief. On January 29, 1996, Defendants
filed a motion to dismiss the complaint for failure to state a claim and failure
to plead fraud with particularity. On March 29, 1996, the Court denied
Defendants' motion to dismiss and allowed limited discovery to proceed with
regard to statements attributable to the Company and the nature of the SARs.
That discovery is now complete, and plaintiff has twice amended his complaint
(each time putting forward the same claims made in the initial complaint but
amending certain of the factual allegations). On November 1, 1996, the
Defendants moved to dismiss the amended complaint, noting (i) none of the
statements attributable to the Company concerning its review of strategic
alternatives was false and (ii) that there was no causal relationship between
plaintiff's purchase of Riverwood common stock and the Individual Defendants'
exercise of SARs. That motion has been fully briefed and is currently before
the Court.
I-7
<PAGE>
NOTE 6 - OTHER COSTS
Other Costs incurred by the Predecessor in 1996 included expenses associated
with stock based compensation plans, expenses related to RIC's review of
strategic alternatives and provision for environmental reserves.
NOTE 7 - INCOME TAXES
During the three months ended March 29, 1997, the Company recognized an income
tax expense of $0.9 million on a (Loss) before Income Taxes and Equity in Net
Earnings of Affiliates of $40.5 million. This expense differed from the
statutory federal income tax rate because of valuation allowances established on
net operating loss carryforward tax assets in the U.S. and certain international
locations where the realization of benefits is uncertain.
In the first quarter of 1996, the Predecessor recognized an income tax benefit
of $3.4 million on a (Loss) before Income Taxes and Equity in Net Earnings of
Affiliates of $10.4 million.
NOTE 8 - DISPOSITION OF BUSINESSES AND OPERATING ACTIVITIES
On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/Wood Products business segment for cash of approximately $550
million. In addition, the buyer assumed certain specified preclosing
liabilities. Under the terms of the agreement for such sale, the Company and
the buyer, Plum Creek Timber Company, L.P., entered into a twenty-year supply
agreement with a ten-year renewal option for the purchase by the Company, at
market-based prices, of a majority of the Company's requirements for pine
pulpwood and residual chips at its paper mill in West Monroe, Louisiana (the
"West Monroe Mill"), as well as a portion of the Company's needs for hardwood
pulpwood at the West Monroe Mill. The Company did not realize any gain or loss
on the sale.
The operating results for the U.S. Timberlands/Wood Products business segment
were classified as discontinued operations for periods beginning March 28, 1996
and ending October 18, 1996 (the date of the sale). The operating results of
the U.S. Timberlands/Wood Products business segment have not been reclassified
as discontinued operations in the Predecessor's Condensed Consolidated
Statements of Operations or Condensed Consolidated Statements of Cash Flows.
In connection with and following the Merger, the Company decided in 1996 to exit
certain businesses and operating activities, including the sale or closure of
the Company's last dedicated folding carton converting plant in the United
States, located in Kankakee, Illinois, packaging machinery manufacturing plants
in Marietta, Georgia and Koln, Germany, a beverage multiple packaging converting
plant in Bakersfield, California and the trucking transportation operations in
West Monroe, Louisiana, as well as the consolidation and realignment of certain
other operations in the United States, Australia and Europe. The cost of
exiting these businesses and operating activities was approximately $40.9
million which was accrued during 1996 as a purchase accounting adjustment.
These costs related principally to the severance of approximately 750 employees,
relocation and other plant closure costs. At December 31, 1996, $32.6 million
of this total was unspent and accrued in Other accrued liabilities on the
Condensed Consolidated Balance Sheets. During the first quarter of 1997, $7.0
million was paid out and charged against the accrual and related primarily to
severance costs.
NOTE 9 - PRO FORMA DATA
The following unaudited pro forma financial data has been prepared assuming that
the Merger and related financings were consummated on January 1, 1996 and
excluding the results of operations of the U.S. Timberlands/Wood Products
business segment from the period presented. This pro forma financial data is
presented for informational purposes and is not necessarily indicative of the
operating results that would have occurred had the Merger been consummated on
January 1, 1996, nor is it necessarily indicative of future operations.
<TABLE>
<CAPTION>
Three Months
Ended
March 27, 1996
(In thousands of dollars)
---------------------------------------------
<S> <C>
Net Sales $ 258,706
Net Loss $ (31,696)
</TABLE>
I-8
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Directors
of Riverwood Holding, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Riverwood Holding, Inc. and its subsidiaries as of March 29, 1997, and the
related condensed consolidated statements of operations and cash flows for the
three-month period ended March 29, 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Riverwood Holding, Inc. and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the nine-month period ended
December 31, 1996 and the three-month period ended March 27, 1996 (Predecessor).
The consolidated statements of operations, shareholders' equity and cash flows
for the nine month period ended December 31, 1996 and the consolidated statement
of shareholders' equity for the three-month period ended March 27, 1996
(Predecessor) are not presented herein. In our report dated March 17, 1997, we
expressed an unqualified opinion on those consolidated financial statements,
based on our audit and the report of other auditors. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1996 and consolidated statements of operations and cash flows
for the three-month period ended March 27, 1996, are fairly stated, in all
material respects, in relation to the consolidated financial statements from
which they have been derived.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 25, 1997
I-9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On March 27, 1996, Holding, through its wholly-owned subsidiaries, acquired all
of the outstanding shares of common stock of RIC. On such date, Acquisition
Corp. was merged in the Merger into RIC. RIC, as the surviving corporation of
the Merger, became a wholly owned subsidiary of RIC Holding. On March 28, 1996,
RIC transferred substantially all of its properties and assets to Riverwood,
other than the capital stock of Riverwood, and RIC was merged in the Subsequent
Merger into RIC Holding. Thereupon, Riverwood was renamed "Riverwood
International Corporation." Upon consummation of the Subsequent Merger, RIC
Holding, as the surviving corporation in the Subsequent Merger, became the
parent company of Riverwood.
The Merger was accounted for as a purchase in accordance with APB Opinion No.
16, "Business Combinations" ("APB 16"). Purchase accounting results in increased
cost of sales, amortization and depreciation. Additionally, the new capital
structure has resulted and will continue to result in higher reported interest
expense. The condensed consolidated financial statements for periods prior to
March 28, 1996 have been prepared on the historical cost basis using accounting
principles that had been adopted by RIC. As a result of the Merger, purchase
accounting and the effect of the disposition of substantially all of the U.S.
Timberlands/Wood Products business segment (see Note 8 to the Condensed
Consolidated Financial Statements), operating results subsequent to the Merger
are not comparable in all material respects to the operating results prior to
the Merger.
On October 18, 1996, the Company sold substantially all of the assets of the
U.S. Timberlands/Wood Products business segment for cash of approximately $550
million. In addition, the buyer assumed certain specified preclosing
liabilities. Under the terms of the agreement for such sale, the Company and
the buyer, Plum Creek Timber Company, L.P., entered into a twenty-year supply
agreement with a ten-year renewal option for the purchase by the Company, at
market-based prices, of a majority of the West Monroe Mill's requirements for
pine pulpwood and residual chips, as well as a portion of the Company's needs
for hardwood pulpwood at the West Monroe Mill. The Company did not realize any
gain or loss on the sale. The operating results for the U.S. Timberlands/Wood
Products business segment were classified as discontinued operations for periods
beginning March 28, 1996 and ending October 18, 1996 (the date of the sale).
The operating results of the U.S. Timberlands/Wood Products business segment
have not been reclassified as discontinued operations in the Predecessor's
Condensed Consolidated Statements of Operations or Condensed Consolidated
Statements of Cash Flows.
Under the terms and definitions of the Company's senior secured credit agreement
(the "Senior Secured Credit Agreement") and the indentures (the "Indentures")
for the Company's $250 million aggregate principal amount of 10 1/4% Senior
Notes due 2006 (the "Senior Notes") and $400 million aggregate principal amount
of 10 7/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes"
and together with the Senior Notes, the "Notes"), certain expenses and costs are
excluded from the Company's Income (Loss) from Operations in determining EBITDA
(as defined below), including amortization, depreciation or expenses associated
with the write-up of inventory, fixed assets and intangible assets in accordance
with APB 16 and APB Opinion No. 17, "Intangible Assets", collectively referred
to as the "Purchased Asset Costs." During the three months ended March 29,
1997, the Company's (Loss) from Operations included Purchased Asset Costs as
follows:
<TABLE>
<CAPTION>
Three months ended March 29, 1997
(In thousands of dollars)
------------------------
COATED BOARD
DESCRIPTION SYSTEM CONTAINERBOARD TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of sales (excluding depreciation) $ 136 $ - $ 136
Depreciation expense 4,828 911 5,739
Amortization of intangible assets 1,255 - 1,255
- ------------------------------------------------------------------------------------------------
Net impact on (Loss) Income from
Operations $6,219 $ 911 $7,130
================================================================================================
</TABLE>
I-10
<PAGE>
GENERAL
The Company reports its results in two business segments: Coated Board System
and Containerboard. The Coated Board System business segment includes the
production and sale of coated board for packaging cartons from the paper mills
in West Monroe, Louisiana; Macon, Georgia (the "Macon Mill") and Norrkoping,
Sweden; converting operations at facilities in the United States, Australia and
Europe; and the design, manufacture and installation of packaging machinery
related to the assembly of beverage cartons. The Containerboard business segment
includes the production and sale of linerboard, corrugating medium and kraft
paper from paperboard mills in the United States. The former U.S.
Timberlands/Wood Products business segment included timberlands and operations
engaged in the supply of pulpwood to the West Monroe Mill from the Company's
former U.S. timberlands, as well as the manufacture and sale of lumber and
plywood.
The table below sets forth Net Sales, (Loss) Income from Operations and
consolidated net income (exclusive of non-cash charges resulting from purchase
accounting during the periods subsequent to the Merger) before consolidated
interest expense, consolidated income taxes, consolidated depreciation and
amortization, cost of timber harvested and other non-cash charges deducted in
determining consolidated net income and extraordinary items and the cumulative
effect of accounting changes and earnings of, but including dividends from non-
controlled affiliates ("EBITDA"), calculated in accordance with definitions in
the Senior Secured Credit Agreement and the Indentures and on a pro forma basis
to exclude Other Costs of the Predecessor ("Pro Forma EBITDA"). The Company
believes that EBITDA provides useful information regarding the Company's debt
service ability, but should not be considered in isolation or as a substitute
for the Condensed Consolidated Statements of Operations or cash flow data.
<TABLE>
<CAPTION>
(In thousand of dollars)
- ------------------------ Company Predecessor
--------------------------------
Three Months Three Months
Ended Ended
March 29, 1997 March 27, 1996
---------------------------------
<S> <C> <C>
Net Sales (Segment Data):
Coated Board System $240,110 $234,608
Containerboard 27,078 25,496
U.S. Timberlands/Wood Products - 37,336
Intersegment Eliminations - (3,791)
-------- --------
Net Sales $267,188 $293,649
======== ========
(Loss) Income from Operations (Segment Data):
Coated Board System $ 15,779 $ 24,638
Containerboard (13,006) (5,955)
U.S. Timberlands/Wood Products - 13,868
Corporate and Eliminations (4,512) (16,901)
-------- --------
(Loss) Income from Operations $ (1,739) $ 15,650
======== ========
Pro Forma EBITDA (Segment Data):
Coated Board System $ 44,485 $ 47,174
Containerboard (8,038) (1,242)
U.S. Timberlands/Wood Products - 16,766
Corporate and Eliminations (3,294) (6,565)
-------- --------
Pro Forma EBITDA $ 33,153 $ 56,133
======== ========
</TABLE>
Prior to March 28, 1996, the Predecessor Company incurred expenses associated
with stock based compensation plans, expenses related to RIC's review of
strategic alternatives and provision for environmental reserves. These expenses
were classified as Other Costs on the Condensed Consolidated Statements of
Operations. Stock based compensation expense was allocated to each of the
business segments based upon the responsibility of the individuals holding or
exercising the stock incentive benefits. During the three months ended March
27, 1996, $1.2 million, $0.1 million, $0.2 million and $0.8 million of stock-
based compensation expense were allocated to the Coated Board System,
Containerboard and U.S. Timberlands/Wood Products business segments and
Corporate and Eliminations, respectively. Expenses related to RIC's review of
strategic alternatives and environmental reserves were included in Corporate and
Eliminations for business segment reporting purposes.
BUSINESS TRENDS AND INITIATIVES
The Company's cash flow from operations and EBITDA are influenced by sales
volume and selling prices for its products and raw material costs, and are
affected by a number of significant business, economic and competitive factors.
Many of these factors are not
I-11
<PAGE>
within the Company's control. Historically, in the Coated Board System business
segment, the Company has experienced stable pricing for its integrated beverage
carton products, and cyclical pricing for its folding carton and open market
coated board products. The Company's open market coated board sales are affected
by competition from competitors' coated board and other substrates - solid
bleached sulfate (SBS), recycled clay coated news (CCN) and, internationally,
white lined chip (WLC) - as well as by general market conditions. In the
Containerboard business segment, conditions in the cyclical worldwide commodity
paperboard markets have a substantial impact on the Company's containerboard
sales.
The Company is pursuing a number of long-term initiatives designed to improve
productivity and profitability while continuing to implement its Coated Board
System business strategy. First, the Company has taken actions to increase open
market coated board sales above 1996 levels. The Company has established key
account relationships with a number of major independent converters, involving
multi-year commitments by the Company to supply a significant portion of these
customers' requirements for coated board. The Company is also undertaking a
comprehensive, long-term marketing initiative aimed at potential new folding
carton applications for coated board. Second, the Company has undertaken a
profit-center oriented reorganization of its operations, designed to focus on
profitability and to reevaluate its commitment of assets to business sectors
with low profitability, and to provide greater control over costs and revenues,
as well as managerial autonomy and accountability. A major initial project was
the reorganization of the Company's North American beverage operations into
three business units, each of which is a separate profit center serving a
different customer segment. Third, the Company is implementing a number of cost
saving measures, including reorganizing operations to remove duplication and
excess overhead, and streamlining and consolidating international and other
operations. These measures include the sale or closure of the Company's last
dedicated folding carton converting plant in the Unites States, located in
Kankakee, Illinois, packaging machinery manufacturing plants in Marietta,
Georgia, and Koln, Germany, a beverage multiple packaging converting plant in
Bakersfield, California, and the trucking transportation operations in West
Monroe, Louisiana, as well as the consolidation and realignment of certain
operations in the United States, Australia and Europe. Finally, the Company has
reevaluated and reduced its planned capital expenditures, and is reducing its
inventory levels without impacting seasonal inventory requirements, as well as
considering the sale of surplus assets. There can be no assurance, however,
that any of these business alternatives can be successfully implemented or will
result in improved cash flows from operations and EBITDA.
I-12
<PAGE>
RESULTS OF OPERATIONS
FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996
The following is a discussion of the Company's results of operations on a pro
forma basis. The discussion is based upon the three month period ended March
29, 1997, exclusive of the net effect of Purchased Asset Costs made in this
period, in comparison to the three month period ended March 27, 1996, exclusive
of Other Costs and the U.S. Timberlands/Wood Products business segment results
of operations, as follows:
<TABLE>
<CAPTION>
(In thousands of dollars)
- ------------------------- Three Months Ended
-------------------------------------------------------------
Pro forma % Increase (Decrease) Pro forma
March 29, 1997 From Prior Period March 27, 1996
---------------------------------------------------------------
<S> <C> <C> <C>
Net Sales (Segment Data):
Coated Board System $240,110 2.3 $234,608
Containerboard 27,078 6.2 25,496
-------- --------
Net Sales 267,188 2.7 260,104
Cost of Sales 229,334 7.4 213,588
-------- --------
Gross Profit 37,854 (18.6) 46,516
Selling, General and Administrative 29,205 (2.1) 29,830
Research, Development and Engineering 1,689 (15.9) 2,009
Other Expenses, net 1,569 (21.5) 1,999
-------- --------
Income from Operations $ 5,391 (57.5) $ 12,678
======== ========
Income (Loss) from Operations (Segment Data):
Coated Board System $ 21,998 (15.0) $ 25,881
Containerboard (12,095) (107.3) (5,835)
Corporate (4,512) 38.8 (7,368)
-------- --------
Income from Operations $ 5,391 (57.5) $ 12,678
======== ========
</TABLE>
PAPERBOARD PRODUCTION
Total tons of paperboard produced at the Company's paper mills for the first
quarters of 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
(In thousands of tons)
----------------------------------------
March 29, 1997 March 27, 1996
----------------------------------------
<S> <C> <C>
Carrierboard 158.5 170.7
Folding cartonboard 65.7 62.5
White Lined Chip board 27.0 29.1
------ -----
Total Coated Board 251.2 262.3
Containerboard 85.6 95.3
------ -----
336.8 357.6
====== =====
</TABLE>
I-13
<PAGE>
This tonnage represents production at the Company's paper mills and does not
represent shipments or sales of paperboard to customers. Containerboard
production included 5,600 tons and 8,200 tons of saleable off-specification
coated board for the first quarter of 1997 and 1996, respectively, produced on
dedicated coated board paper machines and sold in the Containerboard business
segment. The Company's U.S. mill production of containerboard decreased by
approximately 9,700 tons in the first quarter of 1997 compared to the same
period of 1996, while its production of coated board decreased by approximately
11,100 tons in the first quarter of 1997 as compared to the first quarter of
1996. The decrease in production is due principally to lower daily production
rates for both containerboard and coated board to produce quality paperboard,
and to higher maintenance-related down time on one of four U.S. coated board
paper machines. During the first three months of 1997 and 1996, the Company
took 30 machine days and 49 machine days, respectively, of unscheduled
corrugating medium paper machine outages to balance inventory levels. The
Company's coated board capacity can also be used for linerboard production when
market conditions warrant. During the first quarters of 1997 and 1996, the
Company produced approximately 2,900 and 1,000 tons, respectively, of linerboard
on U.S. coated board paper machines. The Company anticipates an insignificant
amount of linerboard production on its dedicated coated board paper machines
during the second quarter of 1997 and will review the need for producing
linerboard on coated board paper machines in the second half of 1997 based on
existing market conditions and the start-up of the second coated board paper
machine at the Macon Mill. The second paper machine at the Macon Mill is
expected to produce approximately 110,000 tons of linerboard in 1997, and,
during the start-up of the conversion to coated board production in the second
half of 1997, is expected to produce approximately 50,000 tons of coated board.
NET SALES
As a result of the factors described below, the Company's Net Sales in the first
quarter of 1997 increased by $7.1 million, or 2.7 percent, compared with the
first quarter of 1996. Net Sales in the Coated Board System business segment
increased $5.5 million, or 2.3 percent, in the first quarter of 1997 to $240.1
million from $234.6 million in the first quarter of 1996, due primarily to
increased sales volume of approximately 26,000 tons, substantially offset by
lower average selling prices, in worldwide coated board open markets. In
addition, the Company's domestic integrated beverage business benefited from
increased sales volumes, slight selling price improvement, lower distribution
costs and favorable product mix. Net Sales in the Containerboard business
segment increased $1.6 million, or 6.2 percent, to $27.1 million in the first
quarter of 1997 from $25.5 million in the first quarter of 1996, due to an
increase in containerboard sales volume, offset somewhat by a decrease in
selling prices as a result of the significant decline in containerboard markets
worldwide that began in the latter part of 1995 and has continued into the first
quarter of 1997.
GROSS PROFIT
As a result of the factors discussed below, the Company's Gross Profit for the
first quarter of 1997 decreased $8.6 million, or 18.6 percent, to $37.9 million
from $46.5 million in the first quarter of 1996. The Company's gross profit
margin decreased to 14.2 percent for the first quarter of 1997 from 17.9 percent
in the first quarter of 1996. In the Containerboard business segment, Gross
Profit decreased $6.1 million to a loss of $10.5 million in the first quarter of
1997 as compared to a loss of $4.4 million in the first quarter of 1996. This
decrease was due principally to sales volume increases combined with declining
selling prices of containerboard which were below related production costs.
Gross Profit in the Coated Board System business segment decreased by $2.2
million, or 4.3 percent, to $48.9 million in the first quarter of 1997 as
compared to $51.2 million in the first quarter of 1996, while that segment's
gross profit margin decreased to 20.4 percent in the first quarter of 1997 from
21.8 percent in the first quarter of 1996. This decrease in the gross profit
margin resulted principally from lower selling prices in worldwide coated board
open markets.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative expenses decreased $0.6 million, or 2.1
percent, to $29.2 million in the first quarter of 1997 as compared to $29.8
million in the first quarter of 1996 and as a percentage of Net Sales, Selling,
General and Administrative expenses decreased to 10.9 percent in the first
quarter of 1997 from 11.5 percent in the same period of 1996. This decrease was
primarily a result of lower operating expenses in international operations,
particularly in Europe, resulting from efforts to reduce inefficiencies and
streamline operations.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, Development and Engineering expenses decreased by $0.3 million to $1.7
million.
OTHER EXPENSES, NET
Other Expenses, net, decreased by approximately $0.4 million to $1.6 million.
I-14
<PAGE>
INCOME FROM OPERATIONS
As a result of the above factors, the Company's Income from Operations in the
first quarter of 1997 decreased by $7.3 million, or 57.5 percent, to $5.4
million from $12.7 million in the first quarter of 1996, while the operating
margin as a percent of Net Sales decreased to 2.0 percent from 4.9 percent.
(Loss) from Operations in the Containerboard business segment increased $6.3
million to a loss of $12.1 million in the first quarter of 1997 from a (Loss)
from Operations of $5.8 million in the first quarter of 1996, primarily as a
result of the factors described above. Income from Operations in the Coated
Board System business segment decreased $3.9 million, or 15.0 percent, to $22.0
million in the first quarter of 1997 from $25.9 million in the first quarter of
1996, while the operating margin as a percent of Net Sales decreased to 9.2
percent from 11.0 percent for the same periods, primarily as a result of the
factors described above.
U.S. DOLLAR CURRENCY EXCHANGE RATES
Fluctuations in U.S. dollar currency exchange rates did not have a significant
impact on Net Sales, Gross Profit, operating expenses or Income from Operations
of the Company during the first quarter of 1997 as compared to the same period
of 1996.
INTEREST INCOME, INTEREST EXPENSE, INCOME TAXES AND EQUITY IN NET EARNINGS OF
AFFILIATES
INTEREST INCOME
Interest Income decreased $0.2 million to $0.1 million in the first quarter of
1997 from $0.3 million in the first quarter of 1996 primarily as a result of
lower average balances of cash and equivalents and marketable securities in 1997
as compared to 1996.
INTEREST EXPENSE
Interest Expense increased $12.5 million to $38.9 million in the first quarter
1997 from the first quarter of 1996 primarily as a result of the incremental
indebtedness incurred in connection with the Merger, offset somewhat by an
increase of $1.3 million in 1997 of capitalized interest related to the pulp
mill modification at the Macon Mill and conversion of the linerboard paper
machine at the Macon Mill to coated board production.
INCOME TAX EXPENSE (BENEFIT)
During the first quarter of 1997, the Company recognized an income tax expense
of $0.9 million on a (Loss) before Income Taxes and Equity in Net Earnings of
Affiliates of $40.5 million. This expense differed from the statutory federal
income tax rate because of valuation allowances established on net operating
loss carryforward tax assets in the U.S. and certain international locations
where the realization of benefits is uncertain. Cash paid for income taxes
during the first quarter of 1997 was $4.3 million.
In the first quarter of 1996, the Predecessor Company recognized an income tax
benefit of $3.4 million on a (Loss) from Operations before Income Taxes and
Equity in Net Earnings of Affiliates of $10.4 million.
EQUITY IN NET EARNINGS OF AFFILIATES
Equity in Net Earnings of Affiliates is comprised primarily of the Company's
equity in net earnings of Igaras, an integrated containerboard producer located
in Brazil, which produces linerboard, corrugating medium and corrugated boxes,
which is accounted for under the equity method of accounting. Equity in Net
Earnings of Affiliates decreased $1.3 million to $3.6 million in the first
quarter 1997 from $4.9 million in the first quarter of 1996, primarily as a
result of the significant decline in containerboard markets worldwide. During
the first quarters of 1997 and 1996, the Company did not receive a dividend from
Igaras. The Company received net dividends from its investments in affiliates,
other than Igaras, that are accounted for using the equity method of accounting
totaling $0.8 million and nil for the three months ended March 29, 1997 and
March 27, 1996, respectively
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company broadly defines liquidity as its ability to generate sufficient cash
flow from operating activities to meet its obligations and commitments. In
addition, liquidity includes the ability to obtain appropriate debt and equity
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives. Therefore, liquidity cannot
be considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.
I-15
<PAGE>
CASH FLOWS
Cash and equivalents decreased by approximately $7.1 million in the first
quarter of 1997 primarily as a result of $51.8 million of net cash used in
investing activities, offset in part by $42.1 million and $3.4 million of net
cash provided by financing and operating activities, respectively. Cash used in
investing activities related principally to the purchases of property, plant and
equipment (see "-Liquidity and Capital Resources - Capital Expenditures").
Depreciation, amortization and cost of timber harvested during the first quarter
of 1997 totaled approximately $32.1 million, and is expected to be approximately
$125 million to $130 million for fiscal 1997.
The Company's cash flows from its operations and EBITDA are subject to moderate
seasonality with demand usually increasing in the spring and summer. The
Company's Coated Board System business segment experiences seasonality
principally due to the seasonality of the worldwide multiple packaging beverage
segment. Historically, the Company's Coated Board System business segment
reports its strongest sales in the second and third quarters of the fiscal year
driven by the seasonality of the Company's integrated beverage business.
LIQUIDITY AND CAPITAL RESOURCES
GENERALLY
The Company's liquidity needs arise primarily from debt service on the
substantial indebtedness incurred in connection with the Merger and from the
funding of its capital expenditures. In connection with the Merger, the Company
entered into the Senior Secured Credit Agreement with certain lenders providing
for senior secured credit facilities with aggregate commitments not to exceed
$1,550 million (the "Senior Secured Credit Facilities"), including a $1,150
million term loan facility (the "Term Loan Facility") and a $400 million
revolving credit facility (the "Revolving Facility"). In addition, Riverwood
International Machinery, Inc., a wholly owned subsidiary of Riverwood, entered
into a credit agreement (the "Machinery Credit Agreement," and together with the
Senior Secured Credit Agreement, the "Credit Agreements") providing for a $140
million secured revolving credit facility (the "Machinery Facility," and
together with the Senior Secured Credit Facilities, the "Facilities") with
certain lenders for the purpose of financing or refinancing packaging machinery.
Also in connection with the Merger, the Company completed an offering of the
Notes.
As of March 29, 1997, the Company had outstanding approximately $1,627 million
of indebtedness, consisting primarily of $650 million aggregate principal amount
of the Notes payable, $750 million in term loan borrowings under the Term Loan
Facility and additional amounts under the Revolving Facility, the Machinery
Facility and other debt issues and facilities. During the first quarter of
1997, the Company had a net increase in revolving credit facilities of
approximately $43.3 million and repaid approximately $1.2 million of debt.
DEBT SERVICE
Principal and interest payments under the Facilities and interest payments on
the Notes represent significant liquidity requirements for the Company. Annual
term loan amortization requirements under the Term Loan Facility will be
approximately $1.0 million, $3.0 million, $28.0 million, $80.2 million, $124.7
million, $173.0 million, $184.1 million and $156.0 million for each of the years
1997 through 2004, respectively. The Revolving Facility will mature in March
2003 and the $140 million Machinery Facility will mature in March 2001, with all
amounts then outstanding becoming due. The loans under the Facilities bear
interest at floating rates based upon the interest rate option elected by the
Company. The Senior Notes and the Senior Subordinated Notes bear interest at
rates of 10 1/4 percent and 10 7/8 percent, respectively. Interest expense in
1997 is expected to be approximately $170 million to $175 million, including
approximately $10 million of non-cash amortization of deferred debt issuance
costs. During the first quarter of 1997, cash paid for interest was
approximately $19.7 million, and during April 1997, the Company paid an
additional $36.2 million of interest.
CAPITAL EXPENDITURES
Capital spending for the first quarter of 1997 was approximately $45 million.
During the first quarter of 1997, the Company completed a project to modify the
pulp mill at the Macon Mill and is in the process of converting the second
linerboard paper machine at the Macon Mill to coated board production. The cost
of the pulp mill modification was approximately $32 million and was completed in
early 1997 while the paper machine conversion is expected to cost approximately
$85 million and is expected to be completed in mid-1997. For the first quarter
of 1997, capital spending on these two projects totaled approximately $26
million while cumulative capital spending through March 29, 1997 on these two
projects totaled approximately $72 million. The pulp mill modification project
was completed on budget and on schedule, and to date, the conversion of the
second linerboard paper machine is on budget and on schedule. Other capital
spending during this period related primarily to increasing paper production
efficiencies, increasing converting capacity, and manufacturing packaging
machinery. Total capital spending for fiscal 1997 is expected to be
approximately $155 million and is expected to relate principally to the pulp
mill modification, the conversion of the second paper machine at the Macon Mill
and the production of packaging machinery.
I-16
<PAGE>
FINANCING SOURCES AND CASH FLOWS
At March 29, 1997, the Company and its U.S. and international subsidiaries had
the following amounts undrawn under revolving credit facilities:
<TABLE>
<CAPTION>
Total Amount Total Amount
Total Amount of Outstanding at Available at
(In thousands of dollars) Commitments March 29, 1997 March 29, 1997
- ------------------------- --------------- -------------- --------------
<S> <C> <C> <C>
Revolving Facility $400,000 $132,000 $268,000
Machinery Facility 140,000 35,000 19,000
International facilities 54,933 38,438 16,495
-------- -------- --------
$594,933 $205,438 $303,495
======== ======== ========
</TABLE>
The Machinery Facility is limited by a borrowing base. During December 1996,
the commitment for the Australian revolving facility was reduced from
approximately $37 million to approximately $32 million. Undrawn Revolving
Facility availability is expected to be used to pay taxes and other remaining
costs of the Merger of approximately $43 million and to meet future working
capital and other business needs of the Company. The Company anticipates
pursuing additional working capital financing for its foreign operations as
necessary, and possibly implementing a receivables securitization program.
During the first quarter of 1997, the Company paid approximately $3 million of
accrued costs related to the Merger. During April 1997, the Company made
payments of $29 million for taxes relating to the Merger.
As described above, the Company has substantial liquidity, but anticipates
material incremental borrowings throughout 1997. The Company believes that cash
generated from operations, together with amounts available under its Revolving
Facility, the Machinery Facility and other available financing sources, will be
adequate to permit the Company to meet its debt service obligations, capital
expenditure program requirements, ongoing operating costs and working capital
needs, although no assurance can be given in this regard. The Company's future
financial and operating performance, ability to service or refinance the senior
and senior subordinated notes payable and to repay, extend or refinance the
revolving credit facilities and ability to comply with the covenants and
restrictions contained in its debt agreements (see "- Covenant Restrictions"),
will be subject to future economic conditions and to financial, business and
other factors, many of which are beyond the Company's control, and will be
substantially dependent on its ability to successfully implement its overall
business and profitability strategies. See "-Business Trends and Initiatives."
In connection with and following the Merger, the Company decided in 1996 to exit
certain businesses and operating activities, including the sale or closure of
the Company's last dedicated folding carton converting plant in the United
States, located in Kankakee, Illinois, packaging machinery manufacturing plants
in Marietta, Georgia and Koln, Germany, a beverage multiple packaging converting
plant in Bakersfield, California and the trucking transportation operations in
West Monroe, Louisiana, as well as the consolidation and realignment of certain
operations in the United States, Australia and Europe. The cost of exiting
these businesses and operating activities was approximately $40.9 million which
was accrued during 1996 as a purchase accounting adjustment. The costs relate
principally to the severance of approximately 750 employees, relocation and
other plant closure costs. At December 31, 1996, $32.6 million of this total
was accrued in Other accrued liabilities on the Condensed Consolidated Balance
Sheets. During the first quarter of 1997, $7.0 million was paid out and charged
against the accrual and related primarily to severance costs.
While the Company believes that Igaras has adequate liquidity, the Company
shares control of Igaras with its joint venture partner and future dividend
payments from Igaras, if any, would be subject to restrictions in the joint
venture agreement and would reflect only the Company's remaining interest of
50%. Under the Igaras joint venture agreement, Igaras is required to pay
dividends equal to at least 25% of its net profits. Due to currency
fluctuations, inflation and changes in political and economic conditions,
earnings from Brazilian operations have been subject to significant volatility.
There can be no assurance that such volatility will not recur in the future.
COVENANT RESTRICTIONS
The Credit Agreements impose restrictions on the Company's ability to make
capital expenditures and both the Credit Agreements and the Indentures governing
the Notes limit the Company's ability to incur additional indebtedness. Such
restrictions, together with the highly leveraged nature of the Company, could
limit the Company's ability to respond to market conditions, to meet its capital
spending program, to provide for unanticipated capital investments or to take
advantage of business opportunities. The covenants contained in the Credit
Agreements also, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur guarantee obligations, repay the Notes,
pay dividends, create liens on assets, enter into sale and leaseback
transactions,
I-17
<PAGE>
make investments, loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures or engage in certain transactions with
affiliates, and otherwise restrict corporate activities. The covenants contained
in the Indentures governing the Notes also impose restrictions on the operation
of the Company's businesses. At March 29, 1997, the Company was in compliance
with the covenants in its debt agreements.
ENVIRONMENTAL AND LEGAL MATTERS
The Company is committed to compliance with all applicable environmental laws
and regulations throughout the world. Environmental law is, however, dynamic
rather than static. As a result, costs, which are unforeseeable at this time,
may be incurred when new laws are enacted, and when environmental agencies
promulgate or revise rules and regulations.
In late 1993, the EPA proposed regulations (generally referred to as the
"cluster rules") that would mandate more stringent controls on air and water
discharges from United States pulp and paper mills. In 1996, the EPA released
additional clarification of the proposed cluster rules. Based on this
information, the Company expects that the cluster rules may be finally
promulgated in 1997 and estimates the capital spending that may be required to
comply with the cluster rules could reach $55 million to be spent at its two
U.S. paper mills over an eight-year period beginning in 1997. The Company
anticipates that the majority of this spending for compliance with the cluster
rules will occur later in the eight-year period. The Company had no capital
spending during the first quarter of 1997 related to compliance with the cluster
rules.
The DEQ has notified the Company by letters, dated December 19, 1995, that the
Predecessor may be liable for the remediation of the release or threat of
release of hazardous substances at a wood treatment site in Shreveport,
Louisiana, that the Predecessor or its predecessor previously operated, and at a
former oil refinery site in Caddo Parish, Louisiana that the Company currently
owns. Neither the Company nor the Predecessor ever operated the oil refinery.
In response to the DEQ, the Company has provided additional information to the
DEQ concerning these sites and has commenced its own evaluation of any claims
and remediation liabilities for which it may be responsible. The Company
received a letter from the DEQ dated May 20, 1996, requesting a plan for soil
and groundwater sampling of the wood treatment site. The Company first met with
the DEQ on July 18, 1996, and then submitted a soil sampling plan to the DEQ.
The Company expects approval of this sampling plan in the first half of 1997.
On September 6, 1996, the Company received from the DEQ a letter requesting
remediation of the former oil refinery site in Caddo Parish, Louisiana. The
Company met with the DEQ on February 17, 1997 to discuss these matters. The DEQ
requested that the Company enter into a cooperative agreement to perform a
phased-in approach for evaluating soil and groundwater conditions at the
Shreveport site. The Company is in discussions with the DEQ regarding the
participation of other responsible parties in any clean up of hazardous
substances at both of these sites.
The Company is engaged in environmental remediation projects for certain
properties currently owned or operated by the Company and certain properties
divested by the Company for which responsibility was retained for pre-existing
conditions. The Company's costs in some instances cannot be reliably estimated
until the remediation process is substantially underway. To address these
contingent environmental costs, the Company has accrued reserves when such costs
are probable and can be reasonably estimated. The Company believes that, based
on current information and regulatory requirements, the accruals established by
the Company for environmental expenditures are adequate. Based on current
knowledge, to the extent that additional costs may be incurred that exceed the
accrued reserves, such amounts are not expected to have a material impact on the
results of operations, cash flows, or financial condition of the Company,
although no assurance can be given that material costs will not be incurred in
connection with clean-up activities at these properties, including the
Shreveport and Caddo Parish sites referred to above.
On December 6, 1995, Forrest Kelly Clay, a former shareholder of the
Predecessor, commenced a purported class action lawsuit in the United States
District Court for the Northern District of Georgia, against the Company and
certain officials of the Company (the "Individual Defendants," and together with
the Company, the "Defendants"). In his complaint, Clay alleges that the
Defendants violated the federal securities laws by disseminating misleading
statements and by omission concerning the strategic alternatives that the
Predecessor was considering, including its potential sale to a third-party
investor. The complaint also alleged that the Individual Defendants, through
their exercise of stock appreciation rights ("SARs"), violated the federal
securities laws by trading in the Predecessor's securities while in possession
of material, non-public information. The complaint generally seeks damages in
an unspecified amount, as well as other relief. On January 29, 1996, Defendants
filed a motion to dismiss the complaint for failure to state a claim and failure
to plead fraud with particularity. On March 29, 1996, the Court denied
Defendants' motion to dismiss and allowed limited discovery to proceed with
regard to statements attributable to the Company and the nature of the SARs.
That discovery is now complete, and plaintiff has twice amended his complaint
(each time putting forward the same claims made in the initial complaint but
amending certain of the factual allegations). On November 1, 1996, the
Defendants moved to dismiss the amended complaint, noting (i) none of the
statements attributable to the Company concerning its review of strategic
alternatives was false and (ii) that there is no causal relationship between
plaintiff's purchase of Riverwood common stock and the Individual Defendants'
exercise of SARs. That motion has been fully briefed and is currently before
the Court.
I-18
<PAGE>
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report (other than the financial
statements and other statements of historical fact), including, without
limitation, statements as to management's expectations and belief presented in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements. Forward-looking statements are
made based upon management's expectations and belief concerning future
developments and their potential effect upon the Company. There can be no
assurance that future developments will be in accordance with management's
expectations or that the effect of future developments on the Company will be
those anticipated by management. There are certain important factors that could
cause actual results to differ materially from estimates reflected in such
forward-looking statements, including changes in the level of sales volume of
coated board for beverage cartons and folding cartons, as well as for
containerboard, in the United States and abroad, changes in selling prices of
the products of the Company or its competitors, the Company's ability to realize
cost savings from productivity improvements and changes in the market for raw
materials which could impact the Company's production costs.
While the Company periodically reassesses material trends and uncertainties
affecting the Company's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of
results of operations and financial condition contained in its quarterly and
annual reports, the Company does not intend to review or revise any particular
forward-looking statement referenced herein in light of future events.
I-19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable
ITEM 2. CHANGES IN SECURITIES.
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Effective March 31, 1997, Stephen M. Humphrey was appointed as President and
Chief Executive Officer of the Company. He is also a member of the Company's
board of directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 Employment Agreement between Riverwood Holding, Inc., Riverwood
International Corporation and Stephen Humphrey. Filed as an exhibit
hereto.
10.2 Management Stock Option Agreement between Riverwood Holding Inc. and
Stephen Humphrey. Filed as an exhibit hereto.
99 Reconciliation of (Loss) Income from Operations to EBITDA. Filed as an
exhibit hereto.
(b) Reports on Form 8-K.
Not applicable.
II-1
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RIVERWOOD HOLDING, INC.
---------------------------------------------
(Registrant)
Date: May 9, 1997 By: /s/ B. H. Chastain
---------------------------------------
B. H. Chastain
Secretary
Date: May 9, 1997 By: /s/ J. O. Egan
---------------------------------------
J. O. Egan
Senior Vice President and
Chief Financial Officer
II-2
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT is entered into as of this 26th day of
March, 1997 by and among Riverwood International Corporation, a Delaware
corporation ("Employer"), Riverwood Holding, Inc., a Delaware corporation
("Holding"), and Stephen Humphrey ("Executive").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Employer desires to employ Executive as its President and
Chief Executive Officer and to enter into this Agreement setting forth the terms
and conditions of such employment;
WHEREAS, Executive desires to accept such employment on the terms and
conditions set forth herein and to enter into this Agreement;
WHEREAS, Employer, the Company and Executive each agree that Executive
will have a prominent role in the management of the business, and the
development of the goodwill, of the Company and its subsidiaries and will
establish and develop relations and contacts with the principal customers and
suppliers of the Company and its subsidiaries in the United States and the rest
of the world, all of which constitute valuable goodwill of, and could be used by
Executive to compete unfairly with, the Company and its subsidiaries;
WHEREAS, (i) in the course of his employment with Employer, Executive
-
will obtain confidential information and trade secrets concerning the worldwide
business and operations of the Company and the Subsidiaries that could be used
to compete unfairly with the Company and the Subsidiaries; (ii) the covenants
--
and restrictions contained in Sections 8 through 13, inclusive, are intended to
protect the legitimate interests of Employer and the Company to protect their
respective goodwill, trade secrets and other confidential information and (iii)
---
Executive desires to agree to be bound by such covenants and restrictions and to
enter into the Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
<PAGE>
1. Agreement to Employ. Upon the terms and subject to the
-------------------
conditions of this Agreement, Employer hereby employs Executive and Executive
hereby accepts employment by Employer.
2. Term; Position and Responsibilities.
-----------------------------------
(a) Term of Employment. Unless Executive's employment shall sooner
------------------
terminate pursuant to Section 7, Employer shall employ Executive for a term
commencing on the 31st day of March, 1997 and ending on the fifth anniversary
thereof (the "Initial Term"). Effective upon the expiration of the Initial
Term, Executive's employment hereunder shall be deemed to be automatically
extended, upon the same terms and conditions, for additional periods of one year
(each, an "Additional Term"), in each such case, commencing upon the expiration
of the Initial Term or the then current Additional Term, as the case may be,
unless Employer, at least 180 days prior to the expiration of the Initial Term
or any Additional Term, shall give written notice (a "Nonrenewal Notice") to
Executive of its intention not to renew the Employment Period (as defined below)
hereunder, provided that a Non-Renewal Notice shall not constitute a notice to
Executive of his termination of employment by Employer unless such notice
specifically provides for such termination of employment and the specific date
thereof. The period during which Executive is employed pursuant to this
Agreement, including any extension thereof in accordance with the preceding
sentence, shall be referred to as the "Employment Period".
(b) Position and Responsibilities. During the Employment Period,
-----------------------------
Executive shall serve as President and Chief Executive Officer of Employer and
have such duties and responsibilities as are customarily assigned to individuals
serving in such position and such other duties consistent with Executive's
position as the Board of Directors of Employer ("Employer's Board") specifies
from time to time. Executive will devote all of his skill, knowledge and working
time (except for (i) vacation time as set forth in Section 6(c) hereof and
-
absence for sickness or similar disability and (ii) to the extent that it does
--
not interfere with the performance of Executive's duties hereunder, (A) such
-
reasonable time as may be devoted to service on boards of directors and the
fulfillment of civic responsibilities and (B) reasonable time as may be
-
necessary from time to time for personal financial matters) to the conscientious
performance of the duties of such position or positions. Executive shall serve
as a member of the respective Boards
2
<PAGE>
of Directors of Employer and Holding during the Employment Period.
3. Base Salary. As compensation for the services to be performed by
-----------
Executive during the Employment Period, Employer will pay Executive an annual
base salary of $500,000 and, in the event that employment hereunder is
terminated by death, for the remainder of the pay period in which death occurs
and for one month thereafter. Employer's Board will review Executive's base
salary annually during the period of his employment hereunder and, in the
discretion of Employer's Board, may increase (but may not decrease) such base
salary from time to time based upon the performance of Executive, the financial
condition of Employer, prevailing industry salary levels and such other factors
as Employer's Board shall consider relevant. (The annual base salary payable to
Executive under this Section 3, as the same may be increased from time to time
and without regard to any reduction therefrom in accordance with the next
sentence, shall hereinafter be referred to as the "Base Salary".) The Base
Salary payable under this Section 3 shall be reduced to the extent that
Executive elects to defer such Base Salary under the terms of any deferred
compensation, savings plan or other voluntary deferral that arrangement may be
maintained or established by Employer. Employer shall pay Executive the Base
Salary in monthly installments, or in such other installments as may be mutually
agreed upon by Employer and Executive.
4. Incentive Compensation Arrangements.
-----------------------------------
(a) Incentive Compensation. During the Employment Period, Executive
----------------------
shall participate in Employer's incentive compensation programs for its
executive officers existing from time to time, at a level commensurate with his
position and duties with Employer, which programs shall provide an aggregate
annual target bonus of 100% of Base Salary, based on such performance targets as
may be established from time to time by Employer's Board or a committee thereof.
Notwithstanding the foregoing, Executive shall receive an annual bonus for 1997
at least equal to $250,000.
(b) Options. Executive shall be granted non-qualified stock options
-------
(the "Service Options") to purchase up to 112,500 shares of the Class A Common
Stock of Holding, par value $.01 per share (the "Common Stock"), and non-
qualified stock options (the "Performance Options," and together with the
Service Options, the "Options") to
3
<PAGE>
purchase up to an additional 112,500 shares of Common Stock. Each Option shall
be granted to Executive pursuant to and in accordance with the terms of the
Riverwood Holding, Inc. Stock Incentive Plan, have a ten year term and otherwise
be subject to the terms and conditions (which shall include those described in
this Section 4(b)) set forth in a separate Management Stock Option Agreement,
substantially in the form attached hereto as Exhibit A, to be entered into by
Executive and Holding (the "Option Agreement").
The per share exercise price for the Common Stock covered by the
Service Options and the Performance Options shall be:
<TABLE>
<CAPTION>
Number of Shares
Number of Shares Covered By Per Share
Covered By Service Performance Exercise
Options Options Price
<S> <C> <C>
37,500 shares 37,500 shares $100
37,500 shares 37,500 shares $ 75
37,500 shares 37,500 shares $ 50
</TABLE>
All other terms of the Options shall be contained in the Option
Agreement.
5. Employee Benefits. During the Employment Period, employee
-----------------
benefits, including life, medical, dental, accidental death and dismemberment,
business travel accident, prescription drug and disability insurance, will be
provided to Executive in accordance with the programs of Employer then available
to senior executive employees, as the same may be amended and in effect from
time to time. Executive shall also be entitled to participate in all of
Employer's profit sharing, pension, retirement, deferred compensation and
savings plans, as the same may be amended and in effect from time to time,
applicable to senior executives of Employer. The benefits referred to this
Section 5 shall be provided to Executive on a basis that is commensurate with
Executive's position and duties with the Company hereunder and that is no less
favorable than that of similarly situated employees of Employer.
4
<PAGE>
6. Perquisites and Expenses.
------------------------
(a) General. During the Employment Period, Executive shall be
-------
entitled to participate in all special benefit or perquisite programs generally
available from time to time to senior executive officers of Employer, on the
terms and conditions then prevailing under each such program.
(b) Business Travel, Lodging, etc. Employer shall reimburse
-----------------------------
Executive for reasonable travel, lodging, meal and other reasonable expenses
incurred by him in connection with his performance of services hereunder upon
submission of evidence, satisfactory to Employer, of the incurrence and
purpose of each such expense and otherwise in accordance with Employer's
business travel reimbursement policy applicable to senior executives as in
effect from time to time.
(c) Vacation. Executive shall be entitled to such vacation as is
--------
available under the prevailing policies of Employer but not less than the
greater of five weeks of paid vacation or the number of weeks of paid vacation
per year calculated in accordance with Employer's vacation policy applicable to
senior executives, without carry-over accumulation.
7. Termination of Employment.
-------------------------
(a) Termination Due to Death or Disability. In the event that
--------------------------------------
Executive's employment hereunder terminates due to death or is terminated by
Employer due to Executive's Disability (as defined below), no termination
benefits shall be payable to or in respect of Executive except as provided in
Section 7(f)(ii). For purposes of this Agreement, "Disability" shall mean a
physical or mental disability that prevents the performance by Executive of his
duties hereunder lasting for a continuous period of six months or longer. The
determination of Executive's Disability shall be made by an independent
physician who is reasonably acceptable to Employer and Executive and shall be
final and binding and shall be based on such competent medical evidence as shall
be presented to it by Executive or by any physician or group of physicians or
other competent medical experts employed by Executive and/or Employer to advise
such independent physician.
(b) Termination by Employer for Cause. Executive may be terminated
---------------------------------
for "Cause" by Employer; provided,
5
<PAGE>
however, that Executive shall be permitted to attend a meeting of Employer's
Board within thirty days after delivery to him of a Notice of Termination
pursuant to this Section 7(b) to explain why he should not be terminated for
Cause and, if following any such explanation by Executive, Employer's Board
determines that Employer does not have Cause to terminate Executive's
employment, any such prior Notice of Termination delivered to Executive shall
thereupon be withdrawn and of no further force or effect. "Cause" shall mean
(i) the willful failure of Executive substantially to perform his duties
-
hereunder (other than any such failure due to physical or mental illness) or
other willful and material breach by Executive of any of his obligations
hereunder or under the Option Agreement, after a demand for substantial
performance is delivered, and a reasonable opportunity to cure is given, to
Executive by Employer's Board, which demand identifies the manner in which
Employer's Board believes that Executive has not substantially performed his
duties or breached his obligations, (ii) Executive's engaging in willful and
--
serious misconduct that has caused or would reasonably be expected to result in
material injury to Employer or any of its affiliates or (iii) Executive's
---
conviction of, or entering a plea of nolo contendere to, a crime that
---------------
constitutes a felony.
(c) Termination Without Cause. A termination "Without Cause" shall
-------------------------
mean a termination of employment by Employer other than due to Disability as
described in Section 7(a) or for Cause as defined in Section 7(b).
(d) Termination by Executive. Executive may terminate his employment
------------------------
for any reason. A termination of employment by Executive for "Good Reason"
shall mean a termination of employment by Executive within 30 days following the
occurrence of any of the following events without Executive's consent: (i) the
-
assignment to Executive of duties that are significantly different from and that
result in a substantial diminution of the duties that he is to assume on the
date hereof, (ii) the failure of Employer to obtain the assumption of this
--
Agreement by any successor as contemplated by Section 14, (iii) a reduction of
---
Executive's Base Salary, (iv) a material breach by Employer of any of its
--
obligations hereunder or by Holding under the Option Agreement or (v) delivery
-
to Executive of a Nonrenewal Notice, provided in the case of any of clauses (i),
(iii) or (iv), Executive has delivered written notice of his intention to
terminate his employment for "Good Reason", specifying the provisions hereof on
which Executive
6
<PAGE>
will rely, and Employer or Holding, as the case may be, shall have had a
reasonable opportunity to cure.
(e) Notice of Termination. Any termination by Employer pursuant to
---------------------
Section 7(a), 7(b) or 7(c), or by Executive pursuant to Section 7(d), shall be
communicated by a written "Notice of Termination" addressed to the other parties
to this Agreement. A "Notice of Termination" shall mean a notice stating that
Executive's employment with Employer has been or will be terminated.
(f) Payments Upon Certain Terminations.
----------------------------------
(i) In the event of a termination of Executive's employment by
Employer Without Cause or a termination by Executive of his employment for
Good Reason during the Employment Period, Employer shall pay to Executive
(or, following his death, to Executive's beneficiary) (A) his Base Salary,
-
payable in installments based on Employer's regular payroll practices, for
the period beginning on the Date of Termination and ending on the earlier
of (x) the last day of the Initial Term or, if applicable, the then current
-
Additional Term and (y) the third anniversary of the Date of Termination
-
(the "Severance Period") and (B) if, as of the Date of Termination, the
-
Company has achieved the performance objectives established under the
Company's annual incentive compensation plan for the calendar year that
includes the Date of Termination, pro rated on the basis of the fraction
described in the immediately following clause (B)(2) hereof, an amount,
payable in one lump sum as soon as reasonably practicable following receipt
by Employer of Employer's or Holding's financial statements for such
calendar year (accompanied by an audit report of its accountants) through
the Date of Termination, equal to the product of (1) the amount of
-
incentive compensation that would have been payable to Executive for such
calendar year under the annual incentive compensation plan had he remained
employed for the entire calendar year, multiplied by (2) a fraction, the
-
numerator of which is equal to the number of days in such calendar year
that precede the Date of Termination and the denominator of which is equal
to 365 (such product, the "Pro Rata Bonus"), less (C) any amount paid or
-
payable to Executive under the terms of any severance plan or program of
Holding, Employer or any of their respective subsidiaries as in effect on
the Date of Termination; provided that Employer may, at any time, pay to
--------
7
<PAGE>
Executive in a single lump sum and in satisfaction of Employer's
obligations under clauses (A) and (B) of this Section 7(f)(i), an amount
equal to (x) the installments of the Base Salary then remaining to be paid
-
to Executive pursuant to clause (A) above, and the amount, if any, then
remaining to be paid to Executive pursuant to clause (B) above, less (y)
-
the amount, if any, remaining to be paid to Executive pursuant to any plan
or program identified under clause (C) above. If Executive's employment
shall terminate and he is entitled to receive continued payments of his
Base Salary under clause (A) of this Section 7(f)(i), Employer shall (x)
-
continue to provide to Executive during the Severance Period the life,
medical, dental, accidental death and dismemberment and prescription drug
benefits referred to in Section 5 (the "Continued Benefits") and (y)
-
reimburse Executive for expenses incurred by him for outplacement and
career counseling services provided to Executive for an aggregate amount
not in excess of the lesser of (i) $25,000 and (ii) 20% of Executive's Base
- --
Salary. Executive shall not have a duty to mitigate the costs to Employer
under this Section 7(f)(i), except that payments of Base Salary and
Continued Benefits shall be reduced or canceled to the extent of any
compensation, fees or comparable benefit coverage earned by (whether or not
paid currently) or offered to Executive during the Severance Period by a
subsequent employer or other entity for whom Executive performs services
including consulting services.
(ii) If Executive's employment shall terminate upon his death
or Disability or if Employer shall terminate Executive's employment for
Cause or Executive shall terminate his employment without Good Reason
during the Employment Period, Employer shall pay Executive his full Base
Salary through the Date of Termination, plus, in the case of termination
upon Executive's death or Disability, if the Company has achieved the pro
rated performance target for such calendar year (determined as provided in
Section 7(e)(ii)), the Pro Rata Bonus for the portion of the calendar year
preceding Executive's Date of Termination (exclusive of any time between
the onset of a physical or mental disability that prevents the performance
by Executive of his duties hereunder and the resulting Date of
Termination), plus in the case of termination upon Executive's death, his
full Base Salary for the remainder of the pay period in which death occurs
8
<PAGE>
and for one month thereafter, as provided in Section 3 hereof.
(iii) Any benefits payable to Executive under any otherwise
applicable plans, policies and practices of Employer shall not be limited
by this Section 7(e), other than any such severance plan.
(g) Date of Termination. As used in this Agreement, the term "Date
-------------------
of Termination" shall mean (i) if Executive's employment is terminated by his
-
death, the date of his death, (ii) if Executive's employment is terminated by
--
Employer for Cause, the date on which Notice of Termination is given or, if
later, the date of termination specified in such Notice, as contemplated by
Section 7(e), and (iii) if Executive's employment is terminated by Employer
---
Without Cause, due to Executive's Disability or by Executive for any reason, 30
days after the date on which Notice of Termination is given as contemplated by
Section 7(e) or, if no such Notice is given, 30 days after the date of
termination of employment.
(h) Resignation from Board Memberships. Effective as of any Date of
----------------------------------
Termination under this Section 7 or otherwise as of the date of Executive's
termination of employment with Employer, Executive shall resign, in writing,
from all Board memberships then held by him on the Boards of Holding, Employer
or any of their respective subsidiaries.
8. Unauthorized Disclosure. During the period of Executive's
-----------------------
employment with Employer and the ten year period following any termination of
such employment, without the prior written consent of Employer's Board or its
authorized representative, except to the extent required by an order of a court
having apparent jurisdiction or under subpoena from an appropriate government
agency, in which event, Executive will use his best efforts to consult with
Employer's Board prior to responding to any such order or subpoena, and except
as required in the performance of his duties hereunder, Executive shall not
disclose any confidential or proprietary trade secrets, customer lists,
drawings, designs, information regarding product development, marketing plans,
sales plans, manufacturing plans, management organization information (including
data and other information relating to members of Employer's Board, the Board of
Directors of Holding and management of Employer or Holding), operating policies
or manuals, business plans, financial records, packaging design or other
financial,
9
<PAGE>
commercial, business or technical information relating to Holding, Employer or
any of their respective subsidiaries or affiliates that Holding, Employer or any
of their respective subsidiaries or affiliates may receive belonging to
suppliers, customers or others who do business with Holding, Employer or any of
their respective subsidiaries or affiliates (collectively, "Confidential
Information") to any third person unless such Confidential Information has been
previously disclosed to the public or is in the public domain (other than by
reason of Executive's breach of this Section 8).
9. Non-Competition. During the period of Executive's employment and,
---------------
following any termination thereof, the period ending on the later of (i) the
-
first anniversary of the Date of Termination and (ii) the last day of the
--
Severance Period, Executive shall not, directly or indirectly, engage in
business with, serve as an agent or consultant to, become a partner, member,
principal or stockholder (other than a holder of less than 1% of the
outstanding voting shares of any publicly held company) of or become employed in
an executive capacity by, any person, firm or other entity that competes or has
a reasonable potential for competing anywhere in the United States or Europe
with any part of the business of Holding, Employer or any of their respective
subsidiaries that relates to producing, marketing, manufacturing, designing or
installing packaging or paper products, machines or related materials. Whether
any such person, firm or entity so competes or so has a reasonable potential for
competing shall be determined in good faith by Employer's Board. For purposes
of this Section 9, the phrase employment "in an executive capacity" shall mean
employment in any position in connection with which Executive has or reasonably
would be viewed as having powers and authorities with respect to any other
person, firm or other entity or any part of the business thereof that are
substantially similar, with respect thereto, to the powers and authorities
assigned to the President and Chief Executive Officer of Employer in the By-Laws
of Employer as in effect on the date hereof, a copy of the relevant portions of
which has been delivered to and reviewed by Executive on the date hereof.
10. Non-Solicitation of Employees. During the period of Executive's
-----------------------------
employment and, following any termination thereof, the period ending on the
third anniversary of the Date of Termination (such periods collectively, the
"Restriction Period"), Executive shall not, directly or indirectly, for his own
account or for the
10
<PAGE>
account of any other person or entity with which he is or shall become
associated in any capacity, (a) solicit for employment, employ or otherwise
-
interfere with the relationship of Holding, Employer or any of their respective
subsidiaries with, any person who at any time during the six months preceding
such solicitation, employment or interference is or was employed by or otherwise
engaged to perform services for Holding, Employer or any of their respective
subsidiaries, other than any such solicitation or employment during Executive's
employment with Holding and Employer on behalf of Holding, Employer or any of
their respective subsidiaries, or (b) induce any employee of Holding, Employer
-
or any of their respective subsidiaries who is a member of management to engage
in any activity which Executive is prohibited from engaging in under any of
Sections 8, 9, 10 or 11 hereof or to terminate his employment with Employer.
11. Non-Solicitation of Customers. During the Restriction Period,
-----------------------------
Executive shall not, directly or indirectly, solicit or otherwise attempt to
establish for himself or any other person, firm or entity anywhere in the United
States or Europe any business relationship of a nature that is competitive with
the business or relationship of Holding, Employer or any of their respective
subsidiaries with any person, firm or corporation which was a customer, client
or distributor of Holding, Employer or any of their respective subsidiaries at
any time during the Employment Period (in the case of any such activity during
the Employment Period) or during the twelve-month period preceding the date of
Executive's termination of employment with Holding, Employer and their
respective subsidiaries, other than any such solicitation during Executive's
employment with Holding or Employer on behalf of Holding, Employer or any of
their respective subsidiaries.
12. Return of Documents. In the event of the termination of
-------------------
Executive's employment for any reason, Executive will deliver to Employer all of
Holding's, Employer's or any of their respective subsidiaries' property and
Holding's, Employer's or any of their respective, subsidiaries' non-personal
documents and data of any nature and in whatever medium pertaining to
Executive's employment with Holding, Employer or any of their respective
subsidiaries, and he will not take with him any such property, documents or data
of any description or any reproduction thereof, or any documents containing or
pertaining to any Confidential Information. Whether documents or data are
"personal" or "non-personal" shall be
11
<PAGE>
determined as follows: Executive shall present any documents or data that he
wishes to take with him to the chief legal officer of Employer for his review.
The chief legal officer shall make an initial determination whether any such
documents or data are personal or non-personal, and with respect to such
documents or data that he determines to be non-personal, shall notify Executive
either that such documents or data must be retained by Employer or that Employer
must make and retain a copy thereof before Executive takes such documents or
data with him. Any disputes as to the personal or non-personal nature of any
such documents or data shall first be presented to the Chairman of Employer's
Board or to another representative designated by Employer's Board (such Chairman
or representative, the "Chairman"), and if such disputes are not promptly
resolved by Executive and the Chairman, such disputes shall be resolved through
arbitration pursuant to Section 17(b).
13. Injunctive Relief with Respect to Covenants. Executive
-------------------------------------------
acknowledges and agrees that the covenants, obligations and agreements of
Executive with respect to noncompetition, nonsolicitation, confidentiality and
Employer property relate to special, unique and extraordinary matters and that
a violation of any of the terms of such covenants, obligations or agreements
will cause Employer irreparable injury for which adequate remedies are not
available at law. Therefore, Executive agrees that Employer shall be entitled
to an injunction, restraining order or such other equitable relief (without the
requirement to post bond) as a court of competent jurisdiction may deem
necessary or appropriate to restrain Executive from committing any violation of
the covenants, obligations or agreements referred to in this Section 13. These
injunctive remedies are cumulative and in addition to any other rights and
remedies Employer may have. If Employer does not substantially prevail in
obtaining the injunctive relief it seeks, Employer shall reimburse the Executive
for any legal expenses incurred by him in defending against the imposition of
such injunctive relief. Employer, Holding and Executive hereby irrevocably
submit to the exclusive jurisdiction of the courts of the State of New York and
the Federal courts of the United States of America, in each case located in New
York City, in respect of the injunctive remedies set forth in this Section 13
and the interpretation and enforcement of Sections 8, 9, 10, 11, 12 and 13
insofar as such interpretation and enforcement
12
<PAGE>
relate to any request or application for injunctive relief in accordance with
the provisions of this Section 13, and the parties hereto hereby irrevocably
agree that (i) the sole and exclusive appropriate venue for any suit or
-
proceeding relating solely to such injunctive relief shall be in such a court,
(ii) all claims with respect to any request or application for such injunctive
--
relief shall be heard and determined exclusively in such a court, (iii) any such
---
court shall have exclusive jurisdiction over the person of such parties and over
the subject matter of any dispute relating to any request or application for
such injunctive relief and (iv) each hereby waives any and all objections and
--
defenses based on forum, venue or personal or subject matter jurisdiction as
they may relate to an application for such injunctive relief in a suit or
proceeding brought before such a court in accordance with the provisions of this
Section 13. All disputes not relating to any request or application for
injunctive relief in accordance with this Section 13 shall be resolved by
arbitration as contemplated by Section 17(b).
14. Assumption of Agreement. Employer will require any successor (by
-----------------------
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Employer, by agreement in form and substance
reasonably satisfactory to Executive, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Executive to
compensation from Employer in the same amount and on the same terms as Executive
would be entitled hereunder if Employer terminated his employment Without Cause
as contemplated by Section 7, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
15. Entire Agreement. This Agreement (including the Exhibit hereto)
----------------
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof, and all promises, representations, understandings,
arrangements. All prior correspondence and proposals (including summaries of
proposed terms) and all prior promises, representations, understandings,
arrangements and
13
<PAGE>
agreements relating to such subject matter (including but not limited to those
made to or with Executive by any other person or entity) are merged herein and
superseded hereby.
16. Indemnification. Employer agrees that it shall indemnify and
---------------
hold harmless Executive to the fullest extent permitted by Delaware law from and
against any and all liabilities, costs, claims and expenses including without
limitation all costs and expenses incurred in defense of litigation, including
attorneys' fees, arising out of the employment of Executive hereunder, except to
the extent arising out of or based upon the gross negligence or willful
misconduct of Executive. Costs and expenses incurred by Executive in defense of
litigation, including attorneys' fees, shall be paid by Employer in advance of
the final disposition of such litigation upon receipt of an undertaking adequate
under Delaware law made by or on behalf of Executive to repay such amount if it
shall ultimately be determined that Executive is not entitled to be indemnified
by Employer under this Agreement.
17. Miscellaneous.
-------------
(a) Binding Effect; Assignment. This Agreement shall be binding on
--------------------------
and inure to the benefit of Employer and its successors and permitted assigns.
This Agreement shall also be binding on and inure to the benefit of Executive
and his heirs, executors, administrators and legal representatives. This
Agreement shall not be assignable by any party hereto without the prior written
consent of the other parties hereto, except pursuant to this Section 17(a) as
hereinafter provided. Each of Holding and Employer may effect such an
assignment without prior written approval of Executive upon the transfer of all
or substantially all of its business and/or assets (whether by purchase, merger,
consolidation or otherwise), provided that the successor to such business and/or
--------
assets shall expressly assume and agree to perform this Agreement in accordance
with the provisions of Section 14.
(b) Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement (except in connection with any request or
application for injunctive relief in accordance with Section 13) shall be
resolved by binding arbitration. The arbitration shall be held in the city of
Atlanta, Georgia and except to the extent inconsistent with this Agreement,
shall be conducted in accordance with the Commercial Arbitration Rules of the
14
<PAGE>
American Arbitration Association then in effect at the time of the arbitration,
and otherwise in accordance with principles which would be applied by a court of
law or equity. The arbitrator shall be acceptable to both Employer and
Executive. If the parties cannot agree on an acceptable arbitrator, the dispute
shall be heard by a panel of three arbitrators, one appointed by Employer, one
appointed by Executive, and the third appointed by the other two arbitrators.
All expenses of arbitration shall be borne by the party who incurs the expense,
or, in the case of joint expenses, by both parties in equal portions, except
that, in the event Executive prevails on the principal issues of such dispute or
controversy, all such expenses shall be borne by the Employer.
(c) Governing Law. This Agreement shall be governed by and
-------------
constructed in accordance with the laws of the State of New York without
reference to principles of conflict of laws.
(d) Taxes. Employer may withhold from any payments made under this
-----
Agreement all federal, state, city or other applicable taxes as shall be
required by law.
(e) Amendments. No provision of this Agreement may be modified,
----------
waived or discharged unless such modification, waiver or discharge is approved
by Employer's Board or a person authorized thereby and is agreed to in writing
by Executive and, in the case of any such modification, waiver or discharge
effecting the rights or obligations of Holding, is approved by the Board of
Directors of Holding or such officer of Holding as may be specifically
designated for such purpose by such Board of Directors. No waiver by any party
hereto at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No waiver of any provision of
this Agreement shall be implied from any course of dealing between or among the
parties hereto or from any failure by any party hereto to assert its rights
hereunder on any occasion or series of occasions.
(f) Severability. In the event that any one or more of the provisions
------------
of this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not be affected thereby.
15
<PAGE>
(g) Notices. Any notice or other communication required or permitted
-------
to be delivered under this Agreement shall be (i) in writing, (ii) delivered
- --
personally, by courier service or by certified or registered mail, first-class
postage prepaid and return receipt requested, (iii) deemed to have been received
---
on the date of delivery or on the third business day after the mailing thereof,
provided that the party giving such notice or communication shall have attempted
- --------
to telephone the party or parties to which notice is being given during regular
business hours on or before the day such notice or communication is being sent,
to advise such party or parties that such notice is being sent, and (iv)
--
addressed as follows (or to such other address as the party entitled to notice
shall hereafter designate in accordance with the terms hereof):
(A) if to Employer or Holding, to it at:
Riverwood International Corporation
3350 Cumberland Circle
Suite 1400
Atlanta, Georgia 30339
Attention: General Counsel
---------
(B) if to Executive, to him at the address listed on the signature
page hereof.
Copies of any notices or other communications given under this Agreement shall
also be given to:
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
Attention: Mr. Kevin J. Conway
---------
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.
---------
(h) Survival. Sections 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, and, if
--------
Executive's employment terminates in a manner giving rise to a payment under
Section 7(f), Section 7(f), shall survive the termination of the employment of
Executive hereunder.
16
<PAGE>
(i) No Conflicts. Executive, Employer and Holding each represent that
------------
they are entering into this Agreement voluntarily and that Executive's
employment hereunder and each party's compliance with the terms and
conditions of this Agreement will not conflict with or result in the breach by
such party of any agreement to which it is a party or by which it may be bound.
(j) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
(k) Headings. The section and other headings contained in this
--------
Agreement are for the convenience of the parties only and are not intended to be
a part hereof or to affect the meaning or interpretation hereof.
17
<PAGE>
IN WITNESS WHEREOF, Employer and Holding have duly executed this
Agreement by their authorized representatives and Executive has hereunto set his
hand, in each case effective as of the date first above written.
RIVERWOOD INTERNATIONAL CORPORATION
By: /s/ B. Charles Ames
---------------------------------------
Name: B. Charles Ames
Title: chief executive
officer
RIVERWOOD HOLDING, INC.
By: /s/ B. Charles Ames
--------------------------------------
Name: B. Charles Ames
Title: chief executive
officer
Executive:
/s/ Stephen Humphrey
---------------------------------------
Stephen Humphrey
Address:
-------
3350 Cumberland Circle
Suite 1400
Atlanta, Georgia 30339
<PAGE>
Exhibit A
---------
MANAGEMENT STOCK OPTION AGREEMENT
---------------------------------
MANAGEMENT STOCK OPTION AGREEMENT, dated as of March 31, 1997, between
Riverwood Holding, Inc., a Delaware corporation (the "Company"), and Stephen
Humphrey (the "Grantee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, to motivate key employees of the Company and the Subsidiaries
by providing them an ownership interest in the Company, the Board of Directors
of the Company (the "Board") has established the Riverwood Holding, Inc. Stock
Incentive Plan, as the same may be amended from time to time (the "Plan"); and
WHEREAS, on the date hereof, the Company, its indirect, wholly-owned
subsidiary, Riverwood International Corporation, a Delaware corporation
("Riverwood"), and the Grantee have entered into an Employment Agreement (as the
same may be amended from time to time, the "Employment Agreement"), providing
for, among other things, the grant to the Grantee of the stock options described
herein;
WHEREAS, the Grantee and the Company desire to enter into an agreement
to evidence and confirm the grant of such stock options on the terms and
conditions set forth herein;
NOW, THEREFORE, to evidence the stock options so granted, and to set
forth the terms and conditions governing such stock options, the Company and the
Grantee hereby agree as follows:
(i) Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following meanings:
(1) "Acquisition" shall mean the series of transactions resulting in
-----------
the indirect acquisition of all of the issued and outstanding capital stock
of Former Riverwood by the Company on March 27, 1996 pursuant to the Merger
Agreement.
(2) "Affiliate" shall mean, with respect to any person, any other
---------
person controlled by, controlling or under common control with such person.
<PAGE>
(3) "Applicable Percentage" shall mean, with respect to an EBITDA
---------------------
Target for any Fiscal Year, the portion of such EBITDA Target actually
achieved by the Company and the Subsidiaries as of the end of such Fiscal
Year, expressed as a percentage.
(4) "Board" shall mean the Board of Directors of the Company.
-----
(5) "CD&R Fund" shall mean the Clayton, Dubilier & Rice Fund V
---------
Limited Partnership, a Cayman Islands exempted limited partnership, and any
successor investment vehicle managed by Clayton, Dubilier & Rice, Inc.
(6) "Cause" shall have the meaning assigned to such term in the
-----
Employment Agreement.
(7) "Change in Control" shall mean the first to occur of the
-----------------
following events after the date hereof:
(i) the acquisition by any person, entity or "group" (as
defined in Section 13(d) of the Exchange Act), other than the Company,
the Subsidiaries, any employee benefit plan of the Company or the
Subsidiaries, the CD&R Fund, any Investor or any Affiliate of the CD&R
Fund or of an Investor, of 50% or more of the combined voting power of
the Company's or Riverwood's then out standing voting securities;
(ii) the merger or consolidation of the Company or Riverwood, as
a result of which persons who were stockholders of the Company or
Riverwood, as the case may be, immediately prior to such merger or
consolidation, do not, immediately thereafter, own, directly or
indirectly, more than 50% of the combined voting power entitled to
vote generally in the election of directors of the merged or
consolidated company;
(iii) the liquidation or dissolution of the Company or Riverwood
other than a liquidation of Riverwood into the Company or into any
Subsidiary; and
(iv) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or Riverwood to one or
more persons or en-
2
<PAGE>
tities that are not, immediately prior to such sale, transfer or other
disposition, Affiliates of the Company, Riverwood, the CD&R Fund or
any Investor.
(8) "Change in Control Price" shall mean the price per share of
-----------------------
Common Stock paid in conjunction with any transaction resulting in a Change
in Control (as determined in good faith by the Board if any part of such
price is payable other than in cash).
(9) "Common Stock" shall mean the Class A Common Stock, par value
------------
$.01 per share, of the Company.
(10) "Company" shall have the meaning set forth in the introductory
-------
paragraph hereto.
(11) "Covered Options" shall have the meaning set forth in Section
---------------
4(b) hereof.
(12) "Cumulative EBITDA Target" shall mean the sum of the EBITDA
------------------------
Targets for each of the fiscal years of the Company ending December 31,
1997, 1998, 1999, 2000 and 2001 or, in the case of a determination of the
Cumulative EBITDA Target prior to December 31, 2001 pursuant to Section
3(b) or 9(b) hereof, the sum of such EBITDA Targets for each of the Fiscal
Years ending prior to such date of determination and a pro rata portion of
the EBITDA Target for the Fiscal Year which includes such date of
determination, pro-rated through the end of the most recent calendar
quarter ending on or prior to such date of determination, as the same may
be adjusted from time to time in accordance with this Agreement.
(13) "Delay Period" shall have the meaning set forth in Section 10(c)
------------
hereof.
(14) "Disability" shall have the meaning assigned to such term in the
----------
Employment Agreement.
(15) "EBITDA" shall have the meaning assigned to such term in the
------
Credit Agreement, dated as of March 21, 1996, as amended, among RIC Holding
(as successor to Former Riverwood), the other borrowers party thereto, The
Chase Manhattan Bank, as administrative agent, and the lenders party
thereto from time to time, as such agreement may be further amended from
time to time.
3
<PAGE>
(16) "EBITDA Target" shall mean, with respect to the 1997 Fiscal Year,
-------------
EBITDA of $210 million and, with respect to each subsequent Fiscal Year,
the EBITDA targeted for such Fiscal Year in the business plan of the
Company and the Subsidiaries for such Fiscal Year approved by the Board;
provided, however, that in the event the Company or any Subsidiary
consummates a significant acquisition, disposition or other corporate
transaction or series of transactions that, in the judgement of the
Executive Committee of the Board, would reasonably be expected to impact
the consolidated earnings of the Company and its subsidiaries, the EBITDA
Target for the relevant fiscal years may be appropriately adjusted by the
Board to reflect such transaction or series of transactions.
(17) "Employment Agreement" shall have the meaning set forth in the
--------------------
recitals hereto.
(18) "Exchange Act" shall mean the U.S. Securities Exchange Act of
------------
1934, as amended.
(19) "Exercise Date" shall have the meaning set forth in Section 6
-------------
hereof.
(20) "Exercise Price" shall have the meaning set forth in Section 6
--------------
hereof.
(21) "Exercise Shares" shall have the meaning set forth in Section 6
---------------
hereof.
(22) "Extraordinary Termination" shall mean a termination of the
-------------------------
Grantee's employment with the Company and the Subsidiaries by reason of the
Grantee's death, Disability or Retirement.
(23) "Fair Market Value" shall mean, as of any date, the fair market
-----------------
value on such date of a share of Common Stock as determined in good faith
by the Executive Committee of the Board. In making a determination of
Fair Market Value, the Executive Committee shall give due consideration to
such factors as it deems appropriate, including, without limitation, the
earnings and certain other financial and operating information of the
Company and the Subsidiaries in recent periods, the potential value of the
Company and the Subsidiaries as a whole, the future prospects of the
Company and the Subsidiaries and the industries in which they compete, the
history and management of the
4
<PAGE>
Company and the Subsidiaries, the general condition of the securities
markets, the fair market value of securities of companies engaged in
businesses similar to those of the Company and the Subsidiaries and a
valuation of the Common Stock, which shall be performed, with respect
Fiscal Year, beginning with the 1997 Fiscal Year, as promptly as
practicable following the first business day of the subsequent Fiscal Year
by an independent valuation firm chosen by the Executive Committee.
Notwithstanding the foregoing, following a Public Offering, Fair Market
Value shall mean the average of the high and low trading prices for a share
of Common Stock on the primary national exchange (including NASDAQ) on
which the Common Stock is then traded on the trading day immediately
preceding the date as of which such Fair Market Value is determined. The
determination of Fair Market Value will not give effect to any restrictions
on transfer of the shares of Common Stock or the fact that such Common
Stock would represent a minority interest in the Company.
(24) "Fiscal Year" shall mean a fiscal year of the Company ending
-----------
December 31.
(25) "First Purchase Period" shall have the meaning set forth in
---------------------
Section 5(c)(i) hereof.
(26) "Financing Agreements" shall have the meaning set forth in
--------------------
Section 10(a) hereof.
(27) "Fiscal Year" shall mean a fiscal year of the Company ending
-----------
December 31.
(28) "Former Riverwood" shall mean the Delaware corporation known as
----------------
"Riverwood International Corporation" prior to the Acquisition, which was
merged into RIC Holding in connection with the Acquisition.
(29) "Good Reason" shall have the meaning assigned to such term in the
-----------
Employment Agreement.
(30) "Grant Date" shall mean the date hereof, which is the date on
----------
which the Options are granted to the Grantee.
(31) "Grantee" shall have the meaning set forth in the introductory
-------
paragraph hereto.
5
<PAGE>
(32) "Installment" shall mean Performance Options with respect to
-----------
7,500 shares.
(33) "Investors" shall mean each of the investors who purchased shares
---------
of Common Stock or shares of Class B Common Stock of the Company
concurrently with the consummation of the merger contemplated by the Merger
Agreement, and their "specified affiliates", within the meaning of the
Stockholders Agreement of the Company, as amended from time to time.
(34) "Management Stock Subscription Agreement" shall mean the
---------------------------------------
management stock subscription agreement to be entered into by the Company
and the Grantee in connection with the Grantee's exercise of any of the
Options and purchase of the Shares subject to any such Options pursuant to
Section 6 hereof.
(35) "Merger Agreement" shall mean the Agreement and Plan of Merger,
----------------
dated as of October 25, 1995, by and among RIC Holding, its wholly owned
subsidiary, CDRO Acquisition Corporation, a Delaware corporation, and Prior
Riverwood.
(36) "New Employer" shall mean the Grantee's employer, or the parent
------------
or a subsidiary of such employer, immediately following a Change in
Control.
(37) "Normal Termination Date" shall mean the tenth anniversary of the
-----------------------
date hereof.
(38) "Option Price" shall mean, with respect to an Option, the
------------
exercise price under such Option determined in accordance with Section 2(b)
hereof, except as provided otherwise in Section 3(b)(iii).
(39) "Options" shall mean, collectively, the Performance Options and
-------
the Service Options granted to the Grantee hereby.
(40) "Performance Options" shall mean those Options that are subject
-------------------
to the provisions of Section 3(b) hereof providing for the vesting of such
Options on the basis of the financial performance of the Company and the
Subsidiaries and/or the continued employment of the Grantee. Performance
Options have been granted to the Grantee pursuant to this Agreement with
respect to 112,500 Shares.
6
<PAGE>
(41) "Plan" shall have the meaning set forth in the recitals hereto.
----
(42) "Public Offering" shall mean the first day as of which sales of
---------------
Common Stock are made to the public in the United States pursuant to an
underwritten public offering of the Common Stock led by one or more
underwriters at least one of which is an underwriter of nationally
recognized standing.
(43) "Registration and Participation Agreement" shall have the meaning
----------------------------------------
set forth in Section 7(f) hereof.
(44) "Retirement" shall mean the Grantee's retirement from employment
---------
with the Company and the Subsidiaries at or after age 65.
(45) "RIC Holding" shall mean RIC Holding, Inc., a Delaware
-----------
corporation and wholly owned subsidiary of the Company.
(46) "Riverwood" shall have the meaning set forth in the recitals
---------
hereto.
(47) "Rule 144" shall mean Rule 144 promulgated under the Securities
--------
Act.
(48) "Second Purchase Period" shall have the meaning set forth in
----------------------
Section 5(c)(i) hereof.
(49) "Securities Act" shall mean the U.S. Securities Act of 1933, as
--------------
amended.
(50) "Service Options" shall mean those Options that are subject to
---------------
the provisions of Section 3(a) hereof providing for the vesting of such
Option on the basis of the Grantee's completion of service. Service
Options have been granted to the Grantee pursuant to this Agreement with
respect to 112,500 Shares.
(51) "Shares" shall mean the shares of Common Stock subject to the
------
Options.
(52) "Subsidiary" shall mean any corporation or other person, a
----------
majority of whose outstanding voting securities or other equity interests
are owned, directly or indirectly, by the Company.
7
<PAGE>
2. Grant of Options.
----------------
(a) Confirmation of Grant. The Company hereby evidences and confirms
---------------------
its grant to the Grantee, effective as of the date hereof, of (i) Service
-
Options to purchase 112,500 Shares and (ii) Performance Options to purchase
--
112,500 Shares. The Options are not intended to be incentive stock options
under the U.S. Internal Revenue Code of 1986, as amended. This Agreement is
subordinate to, and the terms and conditions of the Options granted hereunder
are subject to, the terms and conditions of the Plan. If there is any
inconsistency between the terms hereof and the terms of the Plan, the terms of
the Plan shall govern.
(b) Option Price. The Service Options and the Performance Options
------------
shall each be divided into three equal tranches, each such tranche covering
37,500 Shares and, subject to section 3(b) below, having a per share exercise
price for the Shares covered thereby determined in accordance with the following
schedule:
<TABLE>
<CAPTION>
Number of
Shares Covered
Number of Shares by Each
Covered By Each Tranche of Per Share
Tranche of Service Performance Exercise
Options Options Price
<S> <C> <C>
37,500 Shares 37,500 Shares $100
37,500 Shares 37,500 Shares $ 75
37,500 Shares 37,500 Shares $ 50
</TABLE>
3. Exercisability.
--------------
(a) Service Options. Except as otherwise provided in this Agreement
---------------
and subject to the continuous employment of the Grantee with the Company or one
or more of the Subsidiaries until the applicable vesting date, each tranche of
Service Options shall become vested and exercisable in five annual installments,
on each of the first five anniversaries of the Grant Date, at the rate of 10%,
20%, 30%, 20% and 20%, respectively; provided that, if, on or prior to the fifth
--------
anniversary of the Grant Date, (x) the Grantee's employment is terminated by
-
reason of an Extraordinary Termination or (y)(i)the CD&R Fund and, if
- -
8
<PAGE>
applicable, its Affiliates effect a sale or other disposition of all of the
Common Stock then held by the CD&R Fund and its Affiliates to one or more
persons other than any person who is a general or limited partner or Affiliate
of the CD&R Fund and (ii) thereafter, the Grantee's employment is terminated by
--
the Company other than for Cause or by the Grantee for Good Reason, all Service
Options held by the Grantee as of the effective date of such Extraordinary
Termination or termination under the foregoing clause (y)(ii), whichever is
applicable, shall become immediately 100% vested and exercisable.
(b) Performance Options. Except as otherwise provided in this
-------------------
Agreement and subject to the continuous employment of the Grantee with the
Company or one or more of the Subsidiaries until the applicable vesting date as
follows:
(i) the Applicable Percentage of an Installment of each tranche of
Performance Options shall become vested and exercisable on each of the
first five anniversaries of the Grant Date, provided in the case of any
such Installment that the Executive Committee of the Board determines that
Company has achieved at least 75% of the EBITDA Target for the Fiscal Year
ending immediately prior to such anniversary date;
(ii) 100% of any Performance Options that, as of the fifth
anniversary of the Grant Date, have not become vested and exercisable in
accordance with the preceding clause (i) shall become vested and
exercisable as of the date of such fifth anniversary if the Executive
Committee of the Board determines that Company has achieved 100% of the
Cumulative EBITDA Target for the five Fiscal Years ending December 31,
2001; and
(iii) if any Performance Options have not become vested and
exercisable in accordance with either of the preceding clauses (i) or (ii)
as of the fifth anniversary of the Grant Date, (x) as of the date of such
fifth anniversary, and as of each anniversary of the Grant Date occurring
thereafter, the Option Price for any Performance Options that have not
become vested and exercisable in accordance with this clause (iii) as of
such date, shall increase by 10% and (y) the lesser of (A) 100% of each
-
tranche of such unvested Performance Options and (B) Performance Options
-
covering 7,500 Shares of each tranche of such unvested
9
<PAGE>
Performance Options shall become vested and exercisable as of each of the
sixth through ninth anniversaries of the Grant Date if the Executive
Committee of the Board determines that Company has achieved at least 100%
of the EBITDA Target for the Fiscal Year ending immediately prior to such
anniversary date;
provided that if, on or prior to the fifth anniversary of the Grant Date, (x)
- -------- -
the Grantee's employment is terminated by reason of an Extraordinary Termination
or (y)(i) the CD&R Fund and, if applicable, its Affiliates effect a sale or
- -
other disposition of all of the Common Stock then held by the CD&R Fund and its
Affiliates to one or more persons other than any person who is a general or
limited partner or Affiliate of the CD&R Fund and (ii) thereafter, the Grantee's
--
employment is terminated by the Company other than for Cause or by the Grantee
for Good Reason, then the excess of (x) a proportionate share of each tranche of
-
Performance Options, over (y) the number of Performance Options of such tranche
-
that have previously become vested pursuant to Section 3(b)(i) shall vest and
become exercisable as of such date of termination. Such proportionate share of
each tranche of Performance Options that shall become vested and exercisable
shall equal the product of (i) the percentage obtained by dividing (x) the
- -
cumulative EBITDA actually achieved by the Company during the period commencing
on January 1, 1997 and ending on the last day of the most recent calendar
quarter ending on or prior to the effective date of the Extraordinary
Termination or other termination, whichever is applicable, as determined by the
Executive Committee of the Board, by (y) the Cumulative EBITDA Target,
-
multiplied by (ii) the total number of Shares initially subject to such tranche
--
of Performance Options. Any Performance Options held by the Grantee as of the
date of an Extraordinary Termination or other termination, whichever is
applicable, that have not become vested and exercisable on or prior to such date
of termination in accordance with this Section 3(b) shall terminate and be
cancelled immediately on such date.
Notwithstanding the foregoing provisions of this paragraph (b), 100%
of the Performance Options shall become vested and exercisable nine years and
six months following the Grant Date regardless of whether any EBITDA Target has
been achieved, subject to the continuous employment of the Grantee with the
Company or one or more of the Subsidiaries until such date.
10
<PAGE>
(c) Conditions. The Board, in its sole discretion, may accelerate
----------
the vesting or exercisability of any Option, all Options or any class of
Options, at any time and from time to time. Shares eligible for purchase may,
subject to the provisions hereof, thereafter be purchased, at any time and from
time to time on or after such anniversary until the date one day prior to the
date on which the Options terminate, provided that any such purchase shall be
effected pursuant to and subject to Sections 5 and 6 hereof and the provisions
contained in the Management Stock Subscription Agreement related to the purchase
of such Shares.
4. Termination of Options.
----------------------
(a) Normal Termination Date. Unless an earlier termination date
-----------------------
shall occur as specified in subsection (b), the Options shall terminate and be
cancelled on the Normal Termination Date.
(b) Early Termination. If the Grantee's employment is voluntarily or
-----------------
involuntarily terminated for any reason, any Options held by the Grantee that
have not become vested and exercisable on or before the effective date of such
termination shall terminate and be cancelled immediately upon such termination
of employment. Subject to the provisions of Section 5(c), all Options held by
the Grantee on the date of such termination that shall have become vested and
exercisable on or before the effective date of such termination (such Options,
the Covered Options") shall remain exercisable for whichever of the following
periods is applicable, and if not exercised within such period, shall terminate
and be cancelled upon the expiration of such period: (i) if the Grantee's
-
employment is terminated by reason of an Extraordinary Termination, the Covered
Options shall remain exercisable solely until the first to occur of (A) the one
-
year anniversary of the Grantee's termination of employment or (B) the Normal
-
Termination Date and (ii) if the Grantee's employment is terminated for any
--
reason other than (x) an Extraordinary Termination or (y) for Cause, the Covered
- -
Options shall remain exercisable for a period of 60 days after the earliest to
occur of (x) the expiration of the Second Purchase Period (as defined in
-
Section 5(c)(i) hereof), (y) the receipt by the Grantee of written notice that
-
the CD&R Fund does not intend to exercise its right to purchase the Covered
Options pursuant to Section 5(c)(i) and (z) the Normal Termination Date.
-
Notwithstanding anything else contained in this Agreement, if the Grantee's
employment is
11
<PAGE>
terminated for Cause, all Options (whether or not then exercisable) shall
terminate and be cancelled immediately upon such termination. Nothing in this
Agreement shall be deemed to confer on the Grantee any right to continue in the
employ of the Company or any Subsidiary, or to interfere with or limit in any
way the right of the Company or any Subsidiary to terminate such employment at
any time.
5. Restrictions on Exercise; Non-Transferability of Options;
---------------------------------------------------------
Repurchase of Options.
- ---------------------
(a) Restrictions on Exercise. The Options may be exercised only with
------------------------
respect to full shares of Common Stock. No fractional shares of Common Stock
shall be issued. Not withstanding any other provision of this Agreement, the
Options may not be exercised in whole or in part, and no certificates
representing Shares shall be delivered, (i) (A) unless all requisite approvals
- -
and consents of any govern mental authority of any kind having jurisdiction
over the exercise of the Options shall have been secured, (B) unless the
-
purchase of the Shares upon the exercise of the Options shall be exempt from
registration under applicable U.S. federal and state securities laws, and
applicable non-U.S. securities laws, or the Shares shall have been registered
under such laws, and (C) unless all applicable U.S. federal, state and local and
-
non-U.S. tax withholding requirements shall have been satisfied or (ii) if such
--
exercise would result in a violation of the terms or provisions of or a default
or an event of default under any of the Financing Agreements. The Company shall
use commercially reasonable efforts to obtain the consents and approvals
referred to in clause (i)(A) of the preceding sentence and to obtain the consent
of the parties to the Financing Agreements referred to in clause (ii) of the
preceding sentence so as to permit the Options to be exercised.
(b) Non-Transferability of Options. Except as contemplated by
------------------------------
Section 5(c), the Options may be exercised only by the Grantee or by the
Grantee's estate. Except as contemplated by Section 5(c), the Option is not
assignable or transferable, in whole or in part, and it may not, directly or
indirectly, be offered, transferred, sold, pledged, assigned, alienated,
hypothecated or otherwise disposed of or encumbered (including without
limitation by gift, operation of law or otherwise) other than by will or by the
laws of descent and distribution to the estate of the Grantee upon the Grantee's
death, provided that the deceased Grantee's beneficiary or the representative of
--------
the Grantee's estate shall acknowledge and agree in writing, in a form
12
<PAGE>
reasonably acceptable to the Company, to be bound by the provisions of this
Agreement and the Plan as if such beneficiary or the estate were the Grantee.
(c) Purchase of Options on Termination of Employment.
------------------------------------------------
(i) Termination of Employment. If the Grantee's employment is
-------------------------
terminated for any reason other than for Cause, the Company shall have an
option to purchase all or any portion of the Covered Options and shall have
30 days from the date of the Grantee's termination of employment (such 30-
day period being hereinafter referred to as the "First Purchase Period")
during which to give notice in writing to the Grantee (or, if the Grantee's
employment was terminated by the Grantee's death, the Grantee's estate) of
its election to exercise or not to exercise such right to purchase the
Covered Options. The Company hereby undertakes to use reasonable efforts
to act as promptly as practicable following such termination to make such
election. If the Company (i) fails to give notice that it intends to
-
exercise its right to purchase the Covered Options within the First
Purchase Period, or (ii) chooses to purchase none or only a portion of the
--
Covered Options, by giving such notice, the CD&R Fund shall have the right
to purchase all or any portion of the Covered Options not purchased by the
Company, and shall have until the expiration of the earlier of (x) 30 days
-
following the end of the First Purchase Period, or (y) 30 days from the
-
date of receipt by the CD&R Fund of written notice that the Company does
not intend to exercise its right with respect to all of the Covered Options
(such 30-day period being hereinafter referred to as the "Second Purchase
Period"), to give notice in writing to the Grantee (or the Grantee's
estate) of the CD&R Fund's exercise of its right to purchase all or any
portion of such Covered Options. If the rights of the Company and the CD&R
Fund to purchase all of the Covered Options granted in this sub section
are not fully exercised as provided herein other than as a result of any
deferral of the payment of the Purchase Price therefor pursuant to Section
10 hereof, the Grantee (or the Grantee's estate) shall be entitled to
retain any Covered Options not so purchased, subject to all of the
provisions of this Agreement (including, without limitation, Section
4(b)).
13
<PAGE>
(ii) Purchase Price, etc. All purchases pursuant to this Section 5(c)
-------------------
by the Company or the CD&R Fund shall be for a purchase price and effected
in the manner prescribed by Sections 5(f), (g) and (h).
(d) Notice of Termination. The Company shall give written notice of
---------------------
any termination of the Grantee's employment to the CD&R Fund, except that if
such termination (if other than as a result of death) is by the Grantee, the
Grantee shall give written notice of such termination to the Company and the
Company shall give written notice of such termination to the CD&R Fund.
(e) Public Offering. In the event that a Public Offering has been
---------------
consummated, neither the Company nor the CD&R Fund shall have any rights to
purchase the Covered Options pursuant to Section 5(c).
(f) Purchase Price. Subject to Section 10(c) hereof, the purchase
--------------
price to be paid to the Grantee (or the Grantee's estate) for the Covered
Options purchased pursuant to Section 5(c) shall be equal to the excess, if any,
of (i) the Fair Market Value, as of the effective date of the termination of
-
employment that gives rise to the right of the Company and the CD&R Fund to, of
the Shares which may be purchased upon exercise of such Covered Options over
(ii) the aggregate Option Price of such Covered Options.
--
(g) Payment. The completion of a purchase pursuant to this Section 5
-------
shall take place at the principal office of the Company on the tenth business
day following the receipt by the Grantee (or the Grantee's estate) of the CD&R
Fund's or the Company's notice of its exercise of the right to purchase the
Covered Options pursuant to Section 5(c). Subject to Section 10 hereof, the
purchase price shall be paid by delivery to the Grantee (or the Grantee's
estate) of a check for the purchase price payable to the order of the Grantee
(or the Grantee's estate), against delivery of such instruments as the Company
may reasonably request, signed by the Grantee (or the Grantee's estate), free
and clear of all security interests, liens, claims, encumbrances, charges,
options, restrictions on transfer, proxies and voting and other agreements of
whatever nature.
(h) Application of the Purchase Price to Certain Loans. The Grantee
--------------------------------------------------
agrees that the Company and the CD&R Fund shall be entitled to apply any amounts
to be paid by the Company or the CD&R Fund, as the case may be, to pur-
14
<PAGE>
chase the Covered Options pursuant to this Section 5 to discharge any
indebtedness of the Grantee to the Company or any Subsidiary, or indebtedness
that is guaranteed by the Company or any Subsidiary, including, but not limited
to, any indebtedness of the Grantee incurred to purchase any shares of Common
Stock.
(i) Withholding. Whenever Shares are to be issued pursuant to the
-----------
Options, the Company may require the recipient of the Shares to remit to the
Company an amount sufficient to satisfy any applicable U.S. federal, state and
local and non-U.S. tax withholding requirements as a condition to the issuance
of such Shares. In the event any cash is paid to the Grantee or the Grantee's
estate or beneficiary pursuant to this Section 5, the Company shall have the
right to withhold an amount from such payment sufficient to satisfy any
applicable U.S. federal, state and local and non-U.S. tax withholding
requirements. If shares of Common Stock are traded on a national securities
exchange or bid and ask prices for shares of Common Stock are quoted on the
NASDAQ, the Company may, if requested by the Grantee, withhold Shares to satisfy
the minimum applicable withholding requirements, subject to the provisions of
the Plan and any rules adopted by the Board regarding compliance with applicable
law, including, but not limited to, Section 16(b) of the Exchange Act.
6. Manner of Exercise. To the extent that any outstanding Options
------------------
shall have become and remain vested and exercisable as provided in Sections 3
and 4 and subject to such reasonable administrative regulations as the Board may
have adopted, such Options may be exercised, in whole or in part, by notice to
the Secretary of the Company in writing given on the date as of which the
Grantee will so exercise the Options (the "Exercise Date"), specifying the
number of whole Shares with respect to which the Options are being exercised
(the "Exercise Shares"), subject to the execution by the Company and the Grantee
of a Management Stock Subscription Agreement substantially in the form attached
to the Plan as Exhibit A ("Management Stock Subscription Agreement"), or in such
other form as may be agreed upon by the Company and the Grantee, such Management
Stock Subscription Agreement to contain (unless a Public Offering shall have
occurred prior to the Exercise Date) provisions corresponding to Section 5(c)
hereof, and the delivery to the Company by the Grantee, on or within five days
following the Exercise Date, in accordance with the Management Stock
Subscription Agreement, full payment for the Exercise Shares in United States
dollars in cash, or cash equivalents
15
<PAGE>
satisfactory to the Company, and in an amount equal to the product of the number
of Exercise Shares, multiplied by the aggregate Option Price for such Exercise
Shares (such amount, the "Exercise Price"). Upon execution by the Company and
the Grantee of the Management Stock Subscription Agreement and delivery to the
Company by the Grantee of the Exercise Price, the Company shall deliver to the
Grantee a certificate or certificates representing the Exercise Shares,
registered in the name of the Grantee and bearing appropriate legends as
provided in Section 7(b) hereof. If, as of the Exercise Date, shares of Common
Stock are traded on a U.S. national securities exchange or bid and ask prices
for shares of Common Stock are quoted over NASDAQ, the Grantee may, in lieu of
tendering cash, tender shares of Common Stock that have been owned by the
Grantee for at least six months, having an aggregate Fair Market Value on the
Exercise Date equal to the Exercise Price or may deliver a combination of cash
and such shares of Common Stock having an aggregate Fair Market Value equal to
the difference between the Exercise Price and the amount of such cash as payment
of the Exercise Price, subject to such rules and regulations as may be adopted
by the Board to provide for the compliance of such payment procedure with
applicable law, including Section 16(b) of the Exchange Act. The Company may
require the Grantee to furnish or execute such other documents as the Company
shall reasonably deem necessary (i) to evidence such exercise, (ii) to determine
- --
whether registration is then required under the Securities Act and (iii) to
---
comply with or satisfy the requirements of the Securities Act, applicable
state or non-U.S. securities laws or any other law.
7. Grantee's Representations, Warranties and Covenants.
---------------------------------------------------
(a) Investment Intention. The Grantee represents and warrants that
--------------------
the Options have been, and any Exercise Shares will be, acquired by the Grantee
solely for the Grantee's own account for investment and not with a view to or
for sale in connection with any distribution thereof. The Grantee agrees that
the Grantee will not, directly or indirectly, offer, transfer, sell, pledge,
hypothecate or otherwise dispose of all or any of the Options or any of the
Exercise Shares (or solicit any offers to buy, purchase or otherwise acquire or
take a pledge of all or any of the Options or any of the Exercise Shares),
except in compliance with the Securities Act and the rules and regulations of
the Commission thereunder, and in compliance with applicable state securities or
"blue sky" laws and non-U.S. securities
16
<PAGE>
laws. The Grantee further understands, acknowledges and agrees that none of the
Exercise Shares may be transferred, sold, pledged, hypothecated or otherwise
disposed of unless the provisions of the related Management Stock Subscription
Agreement shall have been complied with or have expired.
(b) Legends. The Grantee acknowledges that any certificate
-------
representing the Exercise Shares shall bear an appropriate legend, which will
include, without limitation, the following language:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, DATED AS OF
_______, AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT
ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF SUCH MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY. THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE ENTITLED TO CERTAIN OF THE BENEFITS OF AND ARE BOUND
BY CERTAIN OF THE OBLIGATIONS SET FORTH IN A REGISTRATION AND
PARTICIPATION AGREEMENT, DATED AS OF MARCH 27, 1996, AMONG THE COMPANY
AND CERTAIN STOCKHOLDERS OF THE COMPANY, AS THE SAME MAY BE AMENDED
FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE OR NON-U.S.
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) (A) SUCH DISPOSITION
- -
IS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (B) THE HOLDER HEREOF SHALL HAVE
-
DELIVERED TO THE COMPANY AN OPINION OF COUNSEL, WHICH OPINION AND
COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT SUCH DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
SUCH ACT OR (C) A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
-
COMMISSION, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, SHALL
HAVE BEEN OBTAINED WITH RESPECT TO SUCH DISPOSITION AND (ii) SUCH
--
DISPOSITION IS
17
<PAGE>
PURSUANT TO REGISTRATION UNDER ANY APPLICABLE STATE AND NON-U.S.
SECURITIES LAWS OR AN EXEMPTION THEREFROM."
(c) Securities Law Matters. The Grantee acknowledges receipt of
----------------------
advice from the Company that (i) the Exercise Shares have not been registered
-
under the Securities Act or qualified under any state securities or "blue sky"
or non-U.S. securities laws, (ii) it is not anticipated that there will be any
--
public market for the Exercise Shares, (iii) the Exercise Shares must be held
---
indefinitely and the Grantee must continue to bear the economic risk of the
investment in the Exercise Shares unless the Exercise Shares are subsequently
registered under the Securities Act and such state laws or an exemption from
registration is available, (iv) while the Company is currently obligated under
--
its Financing Agreements to file periodic reports with the Commission and,
accordingly, Rule 144 may be presently available with respect to sales of
securities of the Company, the Company has made no covenant to the Grantee to
continue to make Rule 144 available, (v) when and if the Exercise Shares may be
-
disposed of without registration in reliance upon Rule 144, such disposition can
be made only in limited amounts in accordance with the terms and conditions of
such Rule, (vi) the Company does not plan to file reports with the Commission or
--
make public information concerning the Company available unless required to do
so by law or the terms of its Financing Agreements, (vii) if the exemption
---
afforded by Rule 144 is not available, sales of the Exercise Shares may be
difficult to effect because of the absence of public information concerning the
Company, (viii) a restrictive legend in the form heretofore set forth shall be
----
placed on the certificates representing the Exercise Shares and (ix) a notation
--
shall be made in the appropriate records of the Company indicating that the
Exercise Shares are subject to restrictions on transfer set forth in this
Agreement and, if the Company should in the future engage the services of a
stock transfer agent, appropriate stop-transfer restrictions will be issued to
such transfer agent with respect to the Exercise Shares.
(d) Compliance with Rule 144. If any of the Exercise Shares are to be
------------------------
disposed of in accordance with Rule 144, the Grantee shall transmit to the
Company an executed copy of Form 144 (if required by Rule 144) no later than the
time such form is required to be transmitted to the Commission for filing and
such other documentation as the Company may reasonably require to assure
compliance with Rule 144 in connection with such disposition.
18
<PAGE>
(e) Ability to Bear Risk. The Grantee covenants that the Grantee will
--------------------
not exercise all or any of the Options unless (i) the financial situation of the
-
Grantee is such that the Grantee can afford to bear the economic risk of holding
the Exercise Shares for an indefinite period and (ii) the Grantee can afford to
--
suffer the complete loss of the Grantee's investment in the Exercise Shares.
(f) Registration; Restrictions on Sale upon Public Offering. The
--------------------------------------------------------
Grantee acknowledges and agrees that in respect of any Exercise Shares purchased
upon exercise of all or any of the Options, the Grantee shall be entitled to the
rights and subject to the obligations created under the Registration and
Participation Agreement, dated as of March 27, 1996, among the Company and
certain stockholders of the Company, as the same may be amended, modified or
supplemented from time to time (the "Registration and Participation Agreement"),
to the extent set forth therein. The Grantee agrees that, in the event that the
Company files a registration statement under the Securities Act with respect to
an underwritten public offering of any shares of its capital stock, the Grantee
will not effect any public sale or distribution of any shares of the Common
Stock (other than as part of such public offering), including but not limited
to, pursuant to Rule 144 or Rule 144A under the Securities Act, during the 20
days prior to and the 180 days after the effective date of such registration
statement. The Grantee further understands and acknowledges that any sale,
transfer or other disposition of the Exercise Shares by him following a public
offering will be subject to compliance with, and may be limited under, the
federal securities laws and/or state "blue sky" and/or non-U.S. securities laws.
(g) Section 83(b) Election. The Grantee agrees that, within 20 days
----------------------
of any Exercise Date that occurs prior to a Public Offering, the Grantee shall
give notice to the Company in the event the Grantee has made or intends to make
an election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended, with respect to the Exercise Shares purchased on such date, and
acknowledges that the Grantee will be solely responsible for any and all tax
liabilities payable by the Grantee in connection with the Grantee's exercise of
any Options or receipt of any Exercise Shares or attributable to the Grantee's
making or failing to make such an election.
8. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the Grantee
19
<PAGE>
that (a) the Company has been duly incorporated and is an existing corporation
-
in good standing under the laws of the State of Delaware, (b) this Agreement has
-
been duly authorized, executed and delivered by the Company and constitutes a
valid and legally binding obligation of the Company enforceable against the
Company in accordance with its terms and (c) the Exercise Shares, when issued,
-
delivered and paid for, upon exercise of the Options in accordance with the
terms hereof and the Management Stock Subscription Agreement, will be duly
authorized, validly issued, fully paid and nonassessable, and free and clear of
any liens or encumbrances other than those created pursuant to this Agreement,
the Management Stock Subscription Agreement or otherwise in connection with the
transactions contemplated hereby.
9. Change in Control.
-----------------
(a) Service Options and Vested Performance Options. Subject to
----------------------------------------------
Section 9(d), in the event of a Change in Control prior to the fifth anniversary
of the Grant Date, (i) each then outstanding Service Option (regardless of
-
whether such Service Option is at such time otherwise exercisable), (ii) each
--
then outstanding Performance Option that shall have become vested and
exercisable in accordance with Section 3(b) hereof prior to the Change in
Control, if any, and (iii) an additional one fifth of each tranche of the
---
Performance Options shall be canceled in exchange for a payment in cash of an
amount equal to the excess, if any, of (i) the product of the Change in Control
-
Price multiplied by the aggregate number of Shares covered by all such Options,
(ii) over the aggregate Option Price for all such Options.
--
(b) Performance Options. Subject to Section 9(d), in the event of a
-------------------
Change of Control prior to the fifth anniversary of the Grant Date and prior to
the date as of which any of the Performance Options shall have become vested and
exercisable in accordance with Section 3(b)(i) hereof, a proportionate share
(determined in accordance with the immediately succeeding sentence) of each
tranche of then outstanding Performance Options shall be canceled in exchange
for a payment in cash of an amount equal to the excess, if any, of (i) the
-
product of the Change in Control Price multiplied by the number of Shares
covered by such canceled proportionate share of such tranche of Performance
Options (ii) over the aggregate Option Price for such canceled proportionate
--
share of such tranche of Performance Options. The proportionate share of each
tranche of the Performance Options that shall be so canceled shall be equal
20
<PAGE>
to the product of (A) the percentage obtained by dividing (x) the cumulative
- -
EBITDA actually achieved by the Company during the period commencing on January
1, 1997 and ending on the last date of the Fiscal Year ending immediately
preceding the effective date of the Change in Control by (y) the Cumulative
-
EBITDA Target multiplied by (B) the total number of Shares initially subject to
-
such tranche of the Performance Options.
(c) Timing of Option Cancellation Payments; Discretionary
-----------------------------------------------------
Acceleration. Notwithstanding the provisions of the preceding paragraphs (a)
- ------------
and (b), the Board (as constituted immediately prior to the Change in Control)
may determine, in its discretion, to accelerate the exercisability or cause the
cancellation and payment, calculated as provided in Section 9(a), in respect of
all or any additional portion of the Performance Options. The cash payments
described in paragraphs (a) and (b) above shall be payable in full, as soon as
reasonably practicable, but in no event later than, 30 days following the Change
in Control.
(d) Alternative Options. Notwithstanding Sections 9(a), 9(b) and 9
-------------------
(c) hereof, no cash settlement or other payment shall be made with respect to
any Option in the event that the transaction constituting the Change in Control
is accounted for using the "pooling of interest" method of accounting. In such
event, the portion of each Option then held by the Grantee that, but for the
provisions of this paragraph (d), would have been settled for cash pursuant to
paragraphs (a) or (b) of this Section 9 in connection with the Change in
Control, shall become fully vested immediately prior to the consummation of such
transaction and the Grantee shall have the right, subject to compliance with all
applicable securities laws, to (i) exercise such portion of the Options in
-
connection with the Change in Control or (ii) provided such opportunity is made
--
available by the New Employer, exchange such portion of the Options for fully
exercisable options to purchase common stock of the New Employer having
substantially equivalent economic value to the Options being exchanged therefor
(determined at the time of the Change in Control).
10. Certain Restrictions on Repurchases
-----------------------------------
(a) Financing Agreements, etc. Notwithstanding any other provision
-------------------------
of this Agreement, the Company shall not be obligated or permitted to pay the
purchase price for any Covered Options that the Company may elect to purchase
from
21
<PAGE>
the Grantee pursuant to Section 5(c) if (i) the payment of such purchase price
would result in a violation of the terms or provisions of, or result in a
default or an event of default under, (A) the Credit Agreement, dated as of
-
March 21, 1996 (the "Credit Agreement"), among Riverwood, the other borrowers
----------------
party thereto, The Chase Manhattan Bank, as administrative agent, and the
lenders party thereto from time to time, (B) the Equipment Packaging Machinery
-
Credit Agreement, dated as of March 21, 1996 (the "PMC Agreement"), among
Riverwood International Machinery, Inc., The Chase Manhattan Bank, as
administrative agent, and the lenders party thereto from time to time, (C) the
-
Indenture, dated as of March 27, 1996, as supplemented, among Riverwood, as
issuer, the Company and RIC Holding, Inc., as guarantors, and Fleet National
Bank of Connecticut, as trustee (the "Senior Note Indenture"), (D) the
-
Indenture, dated as of March 27, 1996, as supplemented, among Riverwood, as
issuer, the Company and RIC Holding, as guarantors, and Fleet National Bank of
Massachusetts, as trustee (together with the Senior Note Indenture, the
"Indentures"), or (E) any other guarantee, financing or security agreement or
-
document entered into (I) by Former Riverwood or any of its subsidiaries prior
-
to the Acquisition that remains outstanding in any part on or after the
Acquisition, (II) by the Company or any Subsidiary in connection with the
--
Acquisition, or the financing of the Acquisition, or (III) otherwise from time
---
to time in connection with the operations of the Company or the Subsidiaries
(the Credit Agreement, the Indentures and such other agreements and documents,
as each may be amended, modified or supplemented from time to time, are referred
to herein as the "Financing Agreements"), in each case as the same may be
--------------------
amended, modified or supplemented from time to time, (ii) the payment of such
--
purchase price would violate any of the terms or provisions of the Certificate
of Incorporation of the Company or (iii) the Company has no funds legally
---
available therefor under the General Corporation Law of the State of Delaware.
(b) Delay of Purchase. In the event that the payment of the purchase
-----------------
price for any Covered Options by the Company otherwise permitted under Section
5(c) is prevented solely by the terms of Section 10(a), (i) the payment of such
-
purchase price will be postponed and will be made without the application of
further conditions or impediments (other than as set forth in Section 5 hereof
or in this Section 10) at the first opportunity thereafter when the Company has
funds legally available therefor and when the payment of such purchase price
will not result in any
22
<PAGE>
default, event of default or violation under any of the Financing Agreements or
in a violation of any term or provision of the Certificate of Incorporation of
the Company and (ii) the Grantee's right to receive payment of such purchase
--
price shall rank against other similar rights with respect to shares of Common
Stock or options in respect thereof according to priority in time of the
effective date of the event giving rise to any such right, provided that any
--------
such right as to which a common date determines priority shall be of equal
priority and shall share pro rata in any purchase payments made pursuant to
clause (i) above.
(c) Purchase Price Adjustment. In the event that the payment of the
-------------------------
purchase price for any Covered Options from the Grantee is delayed pursuant to
this Section 10, the purchase price for such Covered Options when the purchase
price is eventually paid as contemplated by Section 10(b) shall be the sum of
(a) the purchase price of such Covered Options determined in accordance with
-
Section 5(f) at the time that the purchase would have been paid but for the
operation of this Section 10, plus (b) an amount equal to interest on such
-
purchase price for the period from the date on which the purchase price would
have been paid but for the operation of this Section 10 to the date on which
such purchase price is actually paid (the "Delay Period"), at an annual rate of
interest equal to the weighted average cost of the Company's bank indebtedness
outstanding during the Delay Period.
11. No Rights as Stockholder. The Grantee shall have no voting or
------------------------
other rights as a stockholder of the Company with respect to any Shares covered
by the Options until the exercise of the Options and the issuance of a
certificate or certificates to the Grantee for such Shares. No adjustment shall
be made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
12. Capital Adjustments. The number and price of the Shares covered
-------------------
by the Options shall be proportionately adjusted to reflect any stock dividend,
stock split or share combination of the Common Stock or any recapitalization of
the Company. Subject to any required action by the stockholders of the Company
and Section 9 hereof, in any merger, consolidation, reorganization, exchange of
shares, liquidation or dissolution, the Options shall pertain to the securities
and other property, if any, that a holder of the number of shares of Common
Stock covered by the Options
23
<PAGE>
would have been entitled to receive in connection with such event.
13. Miscellaneous.
-------------
(a) Notices. All notices and other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified or
express mail, return receipt requested, postage prepaid, or by any recognized
international equivalent of such delivery, to the Company, the CD&R Fund or the
Grantee, as the case may be, at the following addresses or to such other address
as the Company, the CD&R Fund or the Grantee, as the case may be, shall specify
by notice to the others:
(i) if to the Company, to it at:
Riverwood Holding, Inc.
Suite 1200
1105 North Market Street
P.O. Box 8985
Wilmington, Delaware 19899
Attention: General Counsel
---------
(ii) if to the Grantee, to the Grantee at the address set forth on the
signature page hereof.
(iii) if to the CD&R Fund, to:
Clayton, Dubilier & Rice Fund V
Limited Partnership
Foulkstone Plaza, Suite 102
1403 Foulk Road
Wilmington, Delaware 19803
Attention: Joseph L. Rice, III
---------
All such notices and communications shall be deemed to have been received on the
date of delivery if delivered personally or on the third business day after the
mailing thereof, provided that the party giving such notice or communication
--------
shall have attempted to telephone the party or parties to which notice is being
given during regular business hours on or before the day such notice or
communication is being sent, to advise such party or parties that such notice is
being sent. Copies of any notice or other communication given under this
Agreement shall also be given to:
24
<PAGE>
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
Attention: Kevin J. Conway
---------
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.
---------
The CD&R Fund also shall be given a copy of any notice or other communication
between the Grantee and the Company under this Agreement at its address as set
forth above.
(b) Binding Effect; Benefits. This Agreement shall be binding upon
------------------------
and inure to the benefit of the parties to this Agreement and their respective
successors and assigns. Except as provided in Section 5, nothing in this
Agreement, express or implied, is intended or shall be construed to give any
person other than the parties to this Agreement or their respective successors
or assigns any legal or equitable right, remedy or claim under or in respect of
any agreement or any provision contained herein.
(c) Waiver; Amendment.
-----------------
(i) Waiver. Any party hereto or beneficiary hereof may by written
------
notice to the other parties (A) extend the time for the performance of any
-
of the obligations or other actions of the other parties under this
Agreement, (B) waive compliance with any of the conditions or covenants of
-
the other parties contained in this Agreement and (C) waive or modify
-
performance of any of the obligations of the other parties under this
Agreement, provided that any waiver of the provisions of Section 5 must be
--------
consented to in writing by the CD&R Fund. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party or
beneficiary, shall be deemed to constitute a waiver by the party or
beneficiary taking such action of compliance with any representations,
warranties, covenants or agreements contained herein. The waiver by any
party hereto or beneficiary hereof of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any preceding or
succeeding breach and no failure by a
25
<PAGE>
party or beneficiary to exercise any right or privilege hereunder shall be
deemed a waiver of such party's or beneficiary's rights or privileges
hereunder or shall be deemed a waiver of such party's or beneficiary's
rights to exercise the same at any subsequent time or times hereunder.
(ii) Amendment. This Agreement may not be amended, modified or
---------
supplemented orally, but only by a written instrument executed by the
Grantee and the Company, and (in the case of any amendment, modification or
supplement that adversely affects the rights of the CD&R Fund hereunder)
consented to by the CD&R Fund in writing. The parties hereto acknowledge
that the Company's consent to an amendment or modification of this
Agreement may be subject to the terms and provisions of the Financing
Agreements.
(d) Assignability. Neither this Agreement nor any right, remedy,
-------------
obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company or the Grantee without the prior written consent of
the other parties and the CD&R Fund. The CD&R Fund may assign from time to time
all or any portion of its rights under Section 5 to one or more persons or other
entities designated by it.
(e) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE
EXTENT THAT THE CORPORATE LAW OF THE STATE OF DELAWARE SPECIFICALLY AND
MANDATORILY APPLIES.
(f) Section and Other Headings, etc. The section and other headings
-------------------------------
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
(h) Delegation by the Board. All of the powers, duties and
-----------------------
responsibilities of the Board specified in this Agreement may, to the full
extent permitted by applicable law, be exercised and performed by any duly
constituted committee thereof to the extent authorized by the Board to
26
<PAGE>
exercise and perform such powers, duties and responsibilities.
27
<PAGE>
IN WITNESS WHEREOF, the Company and the Grantee have executed this
Agreement as of the date first above written.
RIVERWOOD HOLDING, INC.
By:______________________________
Name:
Title:
THE GRANTEE:
By:______________________________
Stephen Humphrey
Address of the Grantee:
<PAGE>
EXHIBIT 10.2
MANAGEMENT STOCK OPTION AGREEMENT
---------------------------------
MANAGEMENT STOCK OPTION AGREEMENT, dated as of March 31, 1997, between
Riverwood Holding, Inc., a Delaware corporation (the "Company"), and Stephen
Humphrey (the "Grantee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, to motivate key employees of the Company and the Subsidiaries
by providing them an ownership interest in the Company, the Board of Directors
of the Company (the "Board") has established the Riverwood Holding, Inc. Stock
Incentive Plan, as the same may be amended from time to time (the "Plan"); and
WHEREAS, on the date hereof, the Company, its indirect, wholly-owned
subsidiary, Riverwood International Corporation, a Delaware corporation
("Riverwood"), and the Grantee have entered into an Employment Agreement (as the
same may be amended from time to time, the "Employment Agreement"), providing
for, among other things, the grant to the Grantee of the stock options described
herein;
WHEREAS, the Grantee and the Company desire to enter into an agreement
to evidence and confirm the grant of such stock options on the terms and
conditions set forth herein;
NOW, THEREFORE, to evidence the stock options so granted, and to set
forth the terms and conditions governing such stock options, the Company and the
Grantee hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following meanings:
(a) "Acquisition" shall mean the series of transactions resulting in
-----------
the indirect acquisition of all of the issued and outstanding capital stock
of Former Riverwood by the Company on March 27, 1996 pursuant to the Merger
Agreement.
(b) "Affiliate" shall mean, with respect to any person, any other
---------
person controlled by, controlling or under common control with such person.
<PAGE>
(c) "Applicable Percentage" shall mean, with respect to an EBITDA
---------------------
Target for any Fiscal Year, the portion of such EBITDA Target actually
achieved by the Company and the Subsidiaries as of the end of such Fiscal
Year, expressed as a percentage.
(d) "Board" shall mean the Board of Directors of the Company.
-----
(e) "CD&R Fund" shall mean the Clayton, Dubilier & Rice Fund V
---------
Limited Partnership, a Cayman Islands exempted limited partnership, and any
successor investment vehicle managed by Clayton, Dubilier & Rice, Inc.
(f) "Cause" shall have the meaning assigned to such term in the
-----
Employment Agreement.
(g) "Change in Control" shall mean the first to occur of the
-----------------
following events after the date hereof:
(i) the acquisition by any person, entity or "group" (as
defined in Section 13(d) of the Exchange Act), other than the Company,
the Subsidiaries, any employee benefit plan of the Company or the
Subsidiaries, the CD&R Fund, any Investor or any Affiliate of the CD&R
Fund or of an Investor, of 50% or more of the combined voting power of
the Company's or Riverwood's then out standing voting securities;
(ii) the merger or consolidation of the Company or Riverwood,
as a result of which persons who were stockholders of the Company or
Riverwood, as the case may be, immediately prior to such merger or
consolidation, do not, immediately thereafter, own, directly or
indirectly, more than 50% of the combined voting power entitled to
vote generally in the election of directors of the merged or
consolidated company;
(iii) the liquidation or dissolution of the Company or
Riverwood other than a liquidation of Riverwood into the Company or
into any Subsidiary; and
(iv) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or Riverwood to one or
more persons or en-
2
<PAGE>
tities that are not, immediately prior to such sale, transfer or other
disposition, Affiliates of the Company, Riverwood, the CD&R Fund or
any Investor.
(h) "Change in Control Price" shall mean the price per share of
-----------------------
Common Stock paid in conjunction with any transaction resulting in a Change
in Control (as determined in good faith by the Board if any part of such
price is payable other than in cash).
(i) "Common Stock" shall mean the Class A Common Stock, par value
------------
$.01 per share, of the Company.
(j) "Company" shall have the meaning set forth in the introductory
-------
paragraph hereto.
(k) "Covered Options" shall have the meaning set forth in Section
---------------
4(b) hereof.
(l) "Cumulative EBITDA Target" shall mean the sum of the EBITDA
------------------------
Targets for each of the fiscal years of the Company ending December 31,
1997, 1998, 1999, 2000 and 2001 or, in the case of a determination of the
Cumulative EBITDA Target prior to December 31, 2001 pursuant to Section
3(b) or 9(b) hereof, the sum of such EBITDA Targets for each of the Fiscal
Years ending prior to such date of determination and a pro rata portion of
the EBITDA Target for the Fiscal Year which includes such date of
determination, pro-rated through the end of the most recent calendar
quarter ending on or prior to such date of determination, as the same may
be adjusted from time to time in accordance with this Agreement.
(m) "Delay Period" shall have the meaning set forth in Section 10(c)
------------
hereof.
(n) "Disability" shall have the meaning assigned to such term in the
----------
Employment Agreement.
(o) "EBITDA" shall have the meaning assigned to such term in the
------
Credit Agreement, dated as of March 21, 1996, as amended, among RIC Holding
(as successor to Former Riverwood), the other borrowers party thereto, The
Chase Manhattan Bank, as administrative agent, and the lenders party
thereto from time to time, as such agreement may be further amended from
time to time.
3
<PAGE>
(p) "EBITDA Target" shall mean, with respect to the 1997 Fiscal Year,
-------------
EBITDA of $210 million and, with respect to each subsequent Fiscal Year,
the EBITDA targeted for such Fiscal Year in the business plan of the
Company and the Subsidiaries for such Fiscal Year approved by the Board;
provided, however, that in the event the Company or any Subsidiary
consummates a significant acquisition, disposition or other corporate
transaction or series of transactions that, in the judgement of the
Executive Committee of the Board, would reasonably be expected to impact
the consolidated earnings of the Company and its subsidiaries, the EBITDA
Target for the relevant fiscal years may be appropriately adjusted by the
Board to reflect such transaction or series of transactions.
(q) "Employment Agreement" shall have the meaning set forth in the
--------------------
recitals hereto.
(r) "Exchange Act" shall mean the U.S. Securities Exchange Act of
------------
1934, as amended.
(s) "Exercise Date" shall have the meaning set forth in Section 6
-------------
hereof.
(t) "Exercise Price" shall have the meaning set forth in Section 6
--------------
hereof.
(u) "Exercise Shares" shall have the meaning set forth in Section 6
---------------
hereof.
(v) "Extraordinary Termination" shall mean a termination of the
-------------------------
Grantee's employment with the Company and the Subsidiaries by reason of the
Grantee's death, Disability or Retirement.
(w) "Fair Market Value" shall mean, as of any date, the fair market
-----------------
value on such date of a share of Common Stock as determined in good faith
by the Executive Committee of the Board. In making a determination of
Fair Market Value, the Executive Committee shall give due consideration to
such factors as it deems appropriate, including, without limitation, the
earnings and certain other financial and operating information of the
Company and the Subsidiaries in recent periods, the potential value of the
Company and the Subsidiaries as a whole, the future prospects of the
Company and the Subsidiaries and the industries in which they compete, the
history and management of the
4
<PAGE>
Company and the Subsidiaries, the general condition of the securities
markets, the fair market value of securities of companies engaged in
businesses similar to those of the Company and the Subsidiaries and a
valuation of the Common Stock, which shall be per formed, with respect
Fiscal Year, beginning with the 1997 Fiscal Year, as promptly as
practicable following the first business day of the subsequent Fiscal Year
by an independent valuation firm chosen by the Executive Committee.
Notwithstanding the foregoing, following a Public Offering, Fair Market
Value shall mean the average of the high and low trading prices for a share
of Common Stock on the primary national exchange (including NASDAQ) on
which the Common Stock is then traded on the trading day immediately
preceding the date as of which such Fair Market Value is determined. The
determination of Fair Market Value will not give effect to any restrictions
on transfer of the shares of Common Stock or the fact that such Common
Stock would represent a minority interest in the Company.
(x) "Fiscal Year" shall mean a fiscal year of the Company ending
-----------
December 31.
(y) "First Purchase Period" shall have the meaning set forth in
---------------------
Section 5(c)(i) hereof.
(z) "Financing Agreements" shall have the meaning set forth in
--------------------
Section 10(a) hereof.
(aa) "Fiscal Year" shall mean a fiscal year of the Company ending
-----------
December 31.
(bb) "Former Riverwood" shall mean the Delaware corporation known as
----------------
"Riverwood International Corporation" prior to the Acquisition, which was
merged into RIC Holding in connection with the Acquisition.
(cc) "Good Reason" shall have the meaning assigned to such term in
-----------
the Employment Agreement.
(dd) "Grant Date" shall mean the date hereof, which is the date on
----------
which the Options are granted to the Grantee.
(ee) "Grantee" shall have the meaning set forth in the introductory
-------
paragraph hereto.
5
<PAGE>
(ff) "Installment" shall mean Performance Options with respect to
-----------
7,500 shares.
(gg) "Investors" shall mean each of the investors who purchased
---------
shares of Common Stock or shares of Class B Common Stock of the Company
concurrently with the consummation of the merger contemplated by the Merger
Agreement, and their "specified affiliates", within the meaning of the
Stockholders Agreement of the Company, as amended from time to time.
(hh) "Management Stock Subscription Agreement" shall mean the
---------------------------------------
management stock subscription agreement to be entered into by the Company
and the Grantee in connection with the Grantee's exercise of any of the
Options and purchase of the Shares subject to any such Options pursuant to
Section 6 hereof.
(ii) "Merger Agreement" shall mean the Agreement and Plan of Merger,
----------------
dated as of October 25, 1995, by and among RIC Holding, its wholly owned
subsidiary, CDRO Acquisition Corporation, a Delaware corporation, and Prior
Riverwood.
(jj) "New Employer" shall mean the Grantee's employer, or the parent
------------
or a subsidiary of such employer, immediately following a Change in
Control.
(kk) "Normal Termination Date" shall mean the tenth anniversary of
-----------------------
the date hereof.
(ll) "Option Price" shall mean, with respect to an Option, the
------------
exercise price under such Option determined in accordance with Section 2(b)
hereof, except as provided otherwise in Section 3(b)(iii).
(mm) "Options" shall mean, collectively, the Performance Options and
-------
the Service Options granted to the Grantee hereby.
(nn) "Performance Options" shall mean those Options that are subject
-------------------
to the provisions of Section 3(b) hereof providing for the vesting of such
Options on the basis of the financial performance of the Company and the
Subsidiaries and/or the continued employment of the Grantee. Performance
Options have been granted to the Grantee pursuant to this Agreement with
respect to 112,500 Shares.
6
<PAGE>
(oo) "Plan" shall have the meaning set forth in the recitals hereto.
----
(pp) "Public Offering" shall mean the first day as of which sales of
---------------
Common Stock are made to the public in the United States pursuant to an
underwritten public offering of the Common Stock led by one or more
underwriters at least one of which is an underwriter of nationally
recognized standing.
(qq) "Registration and Participation Agreement" shall have the
----------------------------------------
meaning set forth in Section 7(f) hereof.
(rr) "Retirement" shall mean the Grantee's retirement from employment
---------
with the Company and the Subsidiaries at or after age 65.
(ss) "RIC Holding" shall mean RIC Holding, Inc., a Delaware
-----------
corporation and wholly owned subsidiary of the Company.
(tt) "Riverwood" shall have the meaning set forth in the recitals
---------
hereto.
(uu) "Rule 144" shall mean Rule 144 promulgated under the Securities
--------
Act.
(vv) "Second Purchase Period" shall have the meaning set forth in
----------------------
Section 5(c)(i) hereof.
(ww) "Securities Act" shall mean the U.S. Securities Act of 1933, as
--------------
amended.
(xx) "Service Options" shall mean those Options that are subject to
---------------
the provisions of Section 3(a) hereof providing for the vesting of such
Option on the basis of the Grantee's completion of service. Service
Options have been granted to the Grantee pursuant to this Agreement with
respect to 112,500 Shares.
(yy) "Shares" shall mean the shares of Common Stock subject to the
------
Options.
(zz) "Subsidiary" shall mean any corporation or other person, a
----------
majority of whose outstanding voting securities or other equity interests
are owned, directly or indirectly, by the Company.
7
<PAGE>
2. Grant of Options.
----------------
(a) Confirmation of Grant. The Company hereby evidences and confirms
---------------------
its grant to the Grantee, effective as of the date hereof, of (i) Service
-
Options to purchase 112,500 Shares and (ii) Performance Options to purchase
--
112,500 Shares. The Options are not intended to be incentive stock options
under the U.S. Internal Revenue Code of 1986, as amended. This Agreement is
subordinate to, and the terms and conditions of the Options granted hereunder
are subject to, the terms and conditions of the Plan. If there is any
inconsistency between the terms hereof and the terms of the Plan, the terms of
the Plan shall govern.
(b) Option Price. The Service Options and the Performance Options
------------
shall each be divided into three equal tranches, each such tranche covering
37,500 Shares and, subject to section 3(b) below, having a per share exercise
price for the Shares covered thereby determined in accordance with the following
schedule:
<TABLE>
<CAPTION>
Number of
Shares Covered
Number of Shares by Each Per
Covered By Each Tranche of Share
Tranche of Service Performance Exercise
Options Options Price
<S> <C> <C>
37,500 Shares 37,500 Shares $100
37,500 Shares 37,500 Shares $ 75
37,500 Shares 37,500 Shares $ 50
</TABLE>
3. Exercisability.
--------------
(a) Service Options. Except as otherwise provided in this Agreement
---------------
and subject to the continuous employment of the Grantee with the Company or one
or more of the Subsidiaries until the applicable vesting date, each tranche of
Service Options shall become vested and exercisable in five annual installments,
on each of the first five anniversaries of the Grant Date, at the rate of 10%,
20%, 30%, 20% and 20%, respectively; provided that, if, on or prior to the fifth
--------
anniversary of the Grant Date, (x) the Grantee's employment is terminated by
-
reason of an Extraordinary Termination or (y)(i)the CD&R Fund and, if
- -
8
<PAGE>
applicable, its Affiliates effect a sale or other disposition of all of the
Common Stock then held by the CD&R Fund and its Affiliates to one or more
persons other than any person who is a general or limited partner or Affiliate
of the CD&R Fund and (ii) thereafter, the Grantee's employment is terminated by
--
the Company other than for Cause or by the Grantee for Good Reason, all Service
Options held by the Grantee as of the effective date of such Extraordinary
Termination or termination under the foregoing clause (y)(ii), whichever is
applicable, shall become immediately 100% vested and exercisable.
(b) Performance Options. Except as otherwise provided in this
-------------------
Agreement and subject to the continuous employment of the Grantee with the
Company or one or more of the Subsidiaries until the applicable vesting date as
follows:
(i) the Applicable Percentage of an Installment of each tranche of
Performance Options shall become vested and exercisable on each of the
first five anniversaries of the Grant Date, provided in the case of any
such Installment that the Executive Committee of the Board determines that
Company has achieved at least 75% of the EBITDA Target for the Fiscal Year
ending immediately prior to such anniversary date;
(ii) 100% of any Performance Options that, as of the fifth
anniversary of the Grant Date, have not become vested and exercisable in
accordance with the preceding clause (i) shall become vested and
exercisable as of the date of such fifth anniversary if the Executive
Committee of the Board determines that Company has achieved 100% of the
Cumulative EBITDA Target for the five Fiscal Years ending December 31,
2001; and
(iii) if any Performance Options have not become vested and
exercisable in accordance with either of the preceding clauses (i) or (ii)
as of the fifth anniversary of the Grant Date, (x) as of the date of such
fifth anniversary, and as of each anniversary of the Grant Date occurring
thereafter, the Option Price for any Performance Options that have not
become vested and exercisable in accordance with this clause (iii) as of
such date, shall increase by 10% and (y) the lesser of (A) 100% of each
-
tranche of such unvested Performance Options and (B) Performance Options
-
covering 7,500 Shares of each tranche of such unvested
9
<PAGE>
Performance Options shall become vested and exercisable as of each of the
sixth through ninth anniversaries of the Grant Date if the Executive
Committee of the Board determines that Company has achieved at least 100%
of the EBITDA Target for the Fiscal Year ending immediately prior to such
anniversary date;
provided that if, on or prior to the fifth anniversary of the Grant Date, (x)
- -------- -
the Grantee's employment is terminated by reason of an Extraordinary Termination
or (y)(i) the CD&R Fund and, if applicable, its Affiliates effect a sale or
- -
other disposition of all of the Common Stock then held by the CD&R Fund and its
Affiliates to one or more persons other than any person who is a general or
limited partner or Affiliate of the CD&R Fund and (ii) thereafter, the Grantee's
--
employment is terminated by the Company other than for Cause or by the Grantee
for Good Reason, then the excess of (x) a proportionate share of each tranche of
-
Performance Options, over (y) the number of Performance Options of such tranche
-
that have previously become vested pursuant to Section 3(b)(i) shall vest and
become exercisable as of such date of termination. Such proportionate share of
each tranche of Performance Options that shall become vested and exercisable
shall equal the product of (i) the percentage obtained by dividing (x) the
- -
cumulative EBITDA actually achieved by the Company during the period commencing
on January 1, 1997 and ending on the last day of the most recent calendar
quarter ending on or prior to the effective date of the Extraordinary
Termination or other termination, whichever is applicable, as determined by the
Executive Committee of the Board, by (y) the Cumulative EBITDA Target,
-
multiplied by (ii) the total number of Shares initially subject to such tranche
--
of Performance Options. Any Performance Options held by the Grantee as of the
date of an Extraordinary Termination or other termination, whichever is
applicable, that have not become vested and exercisable on or prior to such date
of termination in accordance with this Section 3(b) shall terminate and be
cancelled immediately on such date.
Notwithstanding the foregoing provisions of this paragraph (b), 100%
of the Performance Options shall become vested and exercisable nine years and
six months following the Grant Date regardless of whether any EBITDA Target has
been achieved, subject to the continuous employment of the Grantee with the
Company or one or more of the Subsidiaries until such date.
10
<PAGE>
(c) Conditions. The Board, in its sole discretion, may accelerate
----------
the vesting or exercisability of any Option, all Options or any class of
Options, at any time and from time to time. Shares eligible for purchase may,
subject to the provisions hereof, thereafter be purchased, at any time and from
time to time on or after such anniversary until the date one day prior to the
date on which the Options terminate, provided that any such purchase shall be
effected pursuant to and subject to Sections 5 and 6 hereof and the provisions
contained in the Management Stock Subscription Agreement related to the purchase
of such Shares.
4. Termination of Options.
----------------------
(a) Normal Termination Date. Unless an earlier termination date
-----------------------
shall occur as specified in subsection (b), the Options shall terminate and be
cancelled on the Normal Termination Date.
(b) Early Termination. If the Grantee's employment is voluntarily or
-----------------
involuntarily terminated for any reason, any Options held by the Grantee that
have not become vested and exercisable on or before the effective date of such
termination shall terminate and be cancelled immediately upon such termination
of employment. Subject to the provisions of Section 5(c), all Options held by
the Grantee on the date of such termination that shall have become vested and
exercisable on or before the effective date of such termination (such Options,
the Covered Options") shall remain exercisable for whichever of the following
periods is applicable, and if not exercised within such period, shall terminate
and be cancelled upon the expiration of such period: (i) if the Grantee's
-
employment is terminated by reason of an Extraordinary Termination, the Covered
Options shall remain exercisable solely until the first to occur of (A) the one
-
year anniversary of the Grantee's termination of employment or (B) the Normal
-
Termination Date and (ii) if the Grantee's employment is terminated for any
--
reason other than (x) an Extraordinary Termination or (y) for Cause, the Covered
- -
Options shall remain exercisable for a period of 60 days after the earliest to
occur of (x) the expiration of the Second Purchase Period (as defined in
-
Section 5(c)(i) hereof), (y) the receipt by the Grantee of written notice that
-
the CD&R Fund does not intend to exercise its right to purchase the Covered
Options pursuant to Section 5(c)(i) and (z) the Normal Termination Date.
-
Notwithstanding anything else contained in this Agreement, if the Grantee's
employment is
11
<PAGE>
terminated for Cause, all Options (whether or not then exercisable) shall
terminate and be cancelled immediately upon such termination. Nothing in this
Agreement shall be deemed to confer on the Grantee any right to continue in the
employ of the Company or any Subsidiary, or to interfere with or limit in any
way the right of the Company or any Subsidiary to terminate such employment at
any time.
5. Restrictions on Exercise; Non-Transferability of Options;
---------------------------------------------------------
Repurchase of Options.
- ---------------------
(a) Restrictions on Exercise. The Options may be exercised only with
------------------------
respect to full shares of Common Stock. No fractional shares of Common Stock
shall be issued. Notwithstanding any other provision of this Agreement, the
Options may not be exercised in whole or in part, and no certificates
representing Shares shall be delivered, (i) (A) unless all requisite approvals
- -
and consents of any govern mental authority of any kind having jurisdiction
over the exercise of the Options shall have been secured, (B) unless the
-
purchase of the Shares upon the exercise of the Options shall be exempt from
registration under applicable U.S. federal and state securities laws, and
applicable non-U.S. securities laws, or the Shares shall have been registered
under such laws, and (C) unless all applicable U.S. federal, state and local and
-
non-U.S. tax withholding requirements shall have been satisfied or (ii) if such
--
exercise would result in a violation of the terms or provisions of or a default
or an event of default under any of the Financing Agreements. The Company shall
use commercially reasonable efforts to obtain the consents and approvals
referred to in clause (i)(A) of the preceding sentence and to obtain the consent
of the parties to the Financing Agreements referred to in clause (ii) of the
preceding sentence so as to permit the Options to be exercised.
(b) Non-Transferability of Options. Except as contemplated by
------------------------------
Section 5(c), the Options may be exercised only by the Grantee or by the
Grantee's estate. Except as contemplated by Section 5(c), the Option is not
assignable or transferable, in whole or in part, and it may not, directly or
indirectly, be offered, transferred, sold, pledged, assigned, alienated,
hypothecated or otherwise disposed of or encumbered (including without
limitation by gift, operation of law or otherwise) other than by will or by the
laws of descent and distribution to the estate of the Grantee upon the Grantee's
death, provided that the deceased Grantee's beneficiary or the representative of
--------
the Grantee's estate shall acknowledge and agree in writing, in a form
12
<PAGE>
reasonably acceptable to the Company, to be bound by the provisions of this
Agreement and the Plan as if such beneficiary or the estate were the Grantee.
(c) Purchase of Options on Termination of Employment.
------------------------------------------------
(i) Termination of Employment. If the Grantee's employment is
-------------------------
terminated for any reason other than for Cause, the Company shall have an
option to purchase all or any portion of the Covered Options and shall have
30 days from the date of the Grantee's termination of employment (such 30-
day period being hereinafter referred to as the "First Purchase Period")
during which to give notice in writing to the Grantee (or, if the Grantee's
employment was terminated by the Grantee's death, the Grantee's estate) of
its election to exercise or not to exercise such right to purchase the
Covered Options. The Company hereby undertakes to use reasonable efforts
to act as promptly as practicable following such termination to make such
election. If the Company (i) fails to give notice that it intends to
-
exercise its right to purchase the Covered Options within the First
Purchase Period, or (ii) chooses to purchase none or only a portion of the
--
Covered Options, by giving such notice, the CD&R Fund shall have the right
to purchase all or any portion of the Covered Options not purchased by the
Company, and shall have until the expiration of the earlier of (x) 30 days
-
following the end of the First Purchase Period, or (y) 30 days from the
-
date of receipt by the CD&R Fund of written notice that the Company does
not intend to exercise its right with respect to all of the Covered Options
(such 30-day period being hereinafter referred to as the "Second Purchase
Period"), to give notice in writing to the Grantee (or the Grantee's
estate) of the CD&R Fund's exercise of its right to purchase all or any
portion of such Covered Options. If the rights of the Company and the CD&R
Fund to purchase all of the Covered Options granted in this subsection
are not fully exercised as provided herein other than as a result of any
deferral of the payment of the Purchase Price therefor pursuant to Section
10 hereof, the Grantee (or the Grantee's estate) shall be entitled to
retain any Covered Options not so purchased, subject to all of the
provisions of this Agreement (including, without limitation, Sec tion
4(b)).
13
<PAGE>
(ii) Purchase Price, etc. All purchases pursuant to this Section 5(c)
-------------------
by the Company or the CD&R Fund shall be for a purchase price and effected
in the manner prescribed by Sections 5(f), (g) and (h).
(d) Notice of Termination. The Company shall give written notice of
---------------------
any termination of the Grantee's employment to the CD&R Fund, except that if
such termination (if other than as a result of death) is by the Grantee, the
Grantee shall give written notice of such termination to the Company and the
Company shall give written notice of such termination to the CD&R Fund.
(e) Public Offering. In the event that a Public Offering has been
---------------
consummated, neither the Company nor the CD&R Fund shall have any rights to
purchase the Covered Options pursuant to Section 5(c).
(f) Purchase Price. Subject to Section 10(c) hereof, the purchase
--------------
price to be paid to the Grantee (or the Grantee's estate) for the Covered
Options purchased pursuant to Section 5(c) shall be equal to the excess, if any,
of (i) the Fair Market Value, as of the effective date of the termination of
-
employment that gives rise to the right of the Company and the CD&R Fund to, of
the Shares which may be purchased upon exercise of such Covered Options over
(ii) the aggregate Option Price of such Covered Options.
--
(g) Payment. The completion of a purchase pursuant to this Section 5
-------
shall take place at the principal office of the Company on the tenth business
day following the receipt by the Grantee (or the Grantee's estate) of the CD&R
Fund's or the Company's notice of its exercise of the right to purchase the
Covered Options pur suant to Section 5(c). Subject to Section 10 hereof, the
purchase price shall be paid by delivery to the Grantee (or the Grantee's
estate) of a check for the purchase price payable to the order of the Grantee
(or the Grantee's estate), against delivery of such instruments as the Company
may reasonably request, signed by the Grantee (or the Grantee's estate), free
and clear of all security interests, liens, claims, encumbrances, charges,
options, restrictions on transfer, proxies and voting and other agreements of
whatever nature.
(h) Application of the Purchase Price to Certain Loans. The Grantee
--------------------------------------------------
agrees that the Company and the CD&R Fund shall be entitled to apply any amounts
to be paid by the Company or the CD&R Fund, as the case may be, to pur-
14
<PAGE>
chase the Covered Options pursuant to this Section 5 to discharge any
indebtedness of the Grantee to the Company or any Subsidiary, or indebtedness
that is guaranteed by the Company or any Subsidiary, including, but not limited
to, any indebtedness of the Grantee incurred to purchase any shares of Common
Stock.
(i) Withholding. Whenever Shares are to be issued pursuant to the
-----------
Options, the Company may require the recipient of the Shares to remit to the
Company an amount sufficient to satisfy any applicable U.S. federal, state and
local and non-U.S. tax withholding requirements as a condition to the issuance
of such Shares. In the event any cash is paid to the Grantee or the Grantee's
estate or beneficiary pursuant to this Section 5, the Company shall have the
right to withhold an amount from such payment sufficient to satisfy any
applicable U.S. federal, state and local and non-U.S. tax withholding
requirements. If shares of Common Stock are traded on a national securities
exchange or bid and ask prices for shares of Common Stock are quoted on the
NASDAQ, the Company may, if requested by the Grantee, withhold Shares to satisfy
the minimum applicable withholding requirements, subject to the provisions of
the Plan and any rules adopted by the Board regarding compliance with applicable
law, including, but not limited to, Section 16(b) of the Exchange Act.
6. Manner of Exercise. To the extent that any outstanding Options
------------------
shall have become and remain vested and exercisable as provided in Sections 3
and 4 and subject to such reasonable administrative regulations as the Board may
have adopted, such Options may be exercised, in whole or in part, by notice to
the Secretary of the Company in writing given on the date as of which the
Grantee will so exercise the Options (the "Exercise Date"), specifying the
number of whole Shares with respect to which the Options are being exercised
(the "Exercise Shares"), subject to the execution by the Company and the Grantee
of a Management Stock Subscription Agreement substantially in the form attached
to the Plan as Exhibit A ("Management Stock Subscription Agreement"), or in such
other form as may be agreed upon by the Company and the Grantee, such Management
Stock Subscription Agreement to contain (unless a Public Offering shall have
occurred prior to the Exercise Date) provisions corresponding to Section 5(c)
hereof, and the delivery to the Company by the Grantee, on or within five days
following the Exercise Date, in accordance with the Management Stock
Subscription Agreement, full payment for the Exercise Shares in United States
dollars in cash, or cash equivalents
15
<PAGE>
satisfactory to the Company, and in an amount equal to the product of the number
of Exercise Shares, multiplied by the aggregate Option Price for such Exercise
Shares (such amount, the "Exercise Price"). Upon execution by the Company and
the Grantee of the Management Stock Subscription Agreement and delivery to the
Company by the Grantee of the Exercise Price, the Company shall deliver to the
Grantee a certificate or certificates representing the Exercise Shares,
registered in the name of the Grantee and bearing appropriate legends as
provided in Section 7(b) hereof. If, as of the Exercise Date, shares of Common
Stock are traded on a U.S. national securities exchange or bid and ask prices
for shares of Common Stock are quoted over NASDAQ, the Grantee may, in lieu of
tendering cash, tender shares of Common Stock that have been owned by the
Grantee for at least six months, having an aggregate Fair Market Value on the
Exercise Date equal to the Exercise Price or may deliver a combination of cash
and such shares of Common Stock having an aggregate Fair Market Value equal to
the difference between the Exercise Price and the amount of such cash as payment
of the Exercise Price, subject to such rules and regulations as may be adopted
by the Board to provide for the compliance of such payment procedure with
applicable law, including Section 16(b) of the Exchange Act. The Company may
require the Grantee to furnish or execute such other documents as the Company
shall reasonably deem necessary (i) to evidence such exercise, (ii) to determine
- --
whether registration is then required under the Securities Act and (iii) to
---
comply with or satisfy the requirements of the Securities Act, applicable state
or non-U.S. securities laws or any other law.
7. Grantee's Representations, Warranties and Covenants.
---------------------------------------------------
(a) Investment Intention. The Grantee represents and warrants that
--------------------
the Options have been, and any Exercise Shares will be, acquired by the Grantee
solely for the Grantee's own account for investment and not with a view to or
for sale in connection with any distribution thereof. The Grantee agrees that
the Grantee will not, directly or indirectly, offer, transfer, sell, pledge,
hypothecate or otherwise dispose of all or any of the Options or any of the
Exercise Shares (or solicit any offers to buy, purchase or otherwise acquire or
take a pledge of all or any of the Options or any of the Exercise Shares),
except in compliance with the Securities Act and the rules and regulations of
the Commission thereunder, and in compliance with applicable state securities or
"blue sky" laws and non-U.S. securities
16
<PAGE>
laws. The Grantee further understands, acknowledges and agrees that none of the
Exercise Shares may be transferred, sold, pledged, hypothecated or otherwise
disposed of unless the provisions of the related Management Stock Subscription
Agreement shall have been complied with or have expired.
(b) Legends. The Grantee acknowledges that any certificate
-------
representing the Exercise Shares shall bear an appropriate legend, which will
include, without limitation, the following language:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, DATED AS OF
_______, AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT
ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF SUCH MANAGEMENT STOCK SUBSCRIPTION AGREEMENT, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY. THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE ENTITLED TO CERTAIN OF THE BENEFITS OF AND ARE BOUND
BY CERTAIN OF THE OBLIGATIONS SET FORTH IN A REGISTRATION AND
PARTICIPATION AGREEMENT, DATED AS OF MARCH 27, 1996, AMONG THE COMPANY
AND CERTAIN STOCKHOLDERS OF THE COMPANY, AS THE SAME MAY BE AMENDED
FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE OR NON-U.S.
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) (A) SUCH DISPOSITION
- -
IS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (B) THE HOLDER HEREOF SHALL HAVE
-
DELIVERED TO THE COMPANY AN OPINION OF COUNSEL, WHICH OPINION AND
COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT SUCH DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
SUCH ACT OR (C) A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
-
COMMISSION, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, SHALL
HAVE BEEN OBTAINED WITH RESPECT TO SUCH DISPOSITION AND (ii) SUCH
--
DISPOSITION IS
17
<PAGE>
PURSUANT TO REGISTRATION UNDER ANY APPLICABLE STATE AND NON-U.S.
SECURITIES LAWS OR AN EXEMPTION THEREFROM."
(c) Securities Law Matters. The Grantee acknowledges receipt of
----------------------
advice from the Company that (i) the Exercise Shares have not been registered
-
under the Securities Act or qualified under any state securities or "blue sky"
or non-U.S. securities laws, (ii) it is not anticipated that there will be any
--
public market for the Exercise Shares, (iii) the Exercise Shares must be held
---
indefinitely and the Grantee must continue to bear the economic risk of the
investment in the Exercise Shares unless the Exercise Shares are subsequently
registered under the Securities Act and such state laws or an exemption from
registration is available, (iv) while the Company is currently obligated under
--
its Financing Agreements to file periodic reports with the Commission and,
accordingly, Rule 144 may be presently available with respect to sales of
securities of the Company, the Company has made no covenant to the Grantee to
continue to make Rule 144 available, (v) when and if the Exercise Shares may be
-
disposed of without registration in reliance upon Rule 144, such disposition can
be made only in limited amounts in accordance with the terms and conditions of
such Rule, (vi) the Company does not plan to file reports with the Commission or
--
make public information concerning the Company available unless required to do
so by law or the terms of its Financing Agreements, (vii) if the exemption
---
afforded by Rule 144 is not available, sales of the Exercise Shares may be
difficult to effect because of the absence of public information concerning the
Company, (viii) a restrictive legend in the form heretofore set forth shall be
----
placed on the certificates representing the Exercise Shares and (ix) a notation
--
shall be made in the appropriate records of the Company indicating that the
Exercise Shares are subject to restrictions on transfer set forth in this
Agreement and, if the Company should in the future engage the services of a
stock transfer agent, appropriate stop-transfer restrictions will be issued to
such transfer agent with respect to the Exercise Shares.
(d) Compliance with Rule 144. If any of the Exercise Shares are to
------------------------
be disposed of in accordance with Rule 144, the Grantee shall transmit to the
Company an executed copy of Form 144 (if required by Rule 144) no later than the
time such form is required to be transmitted to the Commission for filing and
such other documentation as the Company may reasonably require to assure
compliance with Rule 144 in connection with such disposition.
18
<PAGE>
(e) Ability to Bear Risk. The Grantee covenants that the Grantee
--------------------
will not exercise all or any of the Options unless (i) the financial situation
-
of the Grantee is such that the Grantee can afford to bear the economic risk of
holding the Exercise Shares for an indefinite period and (ii) the Grantee can
--
afford to suffer the complete loss of the Grantee's investment in the Exercise
Shares.
(f) Registration; Restrictions on Sale upon Public Offering. The
--------------------------------------------------------
Grantee acknowledges and agrees that in respect of any Exercise Shares purchased
upon exercise of all or any of the Options, the Grantee shall be entitled to the
rights and subject to the obligations created under the Registration and
Participation Agreement, dated as of March 27, 1996, among the Company and
certain stockholders of the Company, as the same may be amended, modified or
supplemented from time to time (the "Registration and Participation Agreement"),
to the extent set forth therein. The Grantee agrees that, in the event that the
Company files a registration statement under the Securities Act with respect to
an underwritten public offering of any shares of its capital stock, the Grantee
will not effect any public sale or distribution of any shares of the Common
Stock (other than as part of such public offering), including but not limited
to, pursuant to Rule 144 or Rule 144A under the Securities Act, during the 20
days prior to and the 180 days after the effective date of such registration
statement. The Grantee further understands and acknowledges that any sale,
transfer or other disposition of the Exercise Shares by him following a public
offering will be subject to compliance with, and may be limited under, the
federal securities laws and/or state "blue sky" and/or non-U.S. securities laws.
(g) Section 83(b) Election. The Grantee agrees that, within 20 days
----------------------
of any Exercise Date that occurs prior to a Public Offering, the Grantee shall
give notice to the Company in the event the Grantee has made or intends to make
an election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended, with respect to the Exercise Shares purchased on such date, and
acknowledges that the Grantee will be solely responsible for any and all tax
liabilities payable by the Grantee in connection with the Grantee's exercise of
any Options or receipt of any Exercise Shares or attributable to the Grantee's
making or failing to make such an election.
8. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the Grantee
19
<PAGE>
that (a) the Company has been duly incorporated and is an existing corporation
-
in good standing under the laws of the State of Delaware, (b) this Agreement has
-
been duly authorized, executed and delivered by the Company and constitutes a
valid and legally binding obligation of the Company enforceable against the
Company in accordance with its terms and (c) the Exercise Shares, when issued,
-
delivered and paid for, upon exercise of the Options in accordance with the
terms hereof and the Management Stock Subscription Agreement, will be duly
authorized, validly issued, fully paid and nonassessable, and free and clear of
any liens or encumbrances other than those created pursuant to this Agreement,
the Management Stock Subscription Agreement or otherwise in connection with the
transactions contemplated hereby.
9. Change in Control.
-----------------
(a) Service Options and Vested Performance Options. Subject to
----------------------------------------------
Section 9(d), in the event of a Change in Control prior to the fifth anniversary
of the Grant Date, (i) each then outstanding Service Option (regardless of
-
whether such Service Option is at such time otherwise exercisable), (ii) each
--
then outstanding Performance Option that shall have become vested and
exercisable in accordance with Section 3(b) hereof prior to the Change in
Control, if any, and (iii) an additional one fifth of each tranche of the
---
Performance Options shall be canceled in exchange for a payment in cash of an
amount equal to the excess, if any, of (i) the product of the Change in Control
-
Price multiplied by the aggregate number of Shares covered by all such Options,
(ii) over the aggregate Option Price for all such Options.
--
(b) Performance Options. Subject to Section 9(d), in the event of a
-------------------
Change of Control prior to the fifth anniversary of the Grant Date and prior to
the date as of which any of the Performance Options shall have become vested and
exercisable in accordance with Section 3(b)(i) hereof, a proportionate share
(determined in accordance with the immediately succeeding sentence) of each
tranche of then outstanding Performance Options shall be canceled in exchange
for a payment in cash of an amount equal to the excess, if any, of (i) the
-
product of the Change in Control Price multiplied by the number of Shares
covered by such canceled proportionate share of such tranche of Performance
Options (ii) over the aggregate Option Price for such canceled proportionate
--
share of such tranche of Performance Options. The proportionate share of each
tranche of the Performance Options that shall be so canceled shall be equal
20
<PAGE>
to the product of (A) the percentage obtained by dividing (x) the cumulative
- -
EBITDA actually achieved by the Company during the period commencing on January
1, 1997 and ending on the last date of the Fiscal Year ending immediately
preceding the effective date of the Change in Control by (y) the Cumulative
-
EBITDA Target multiplied by (B) the total number of Shares initially subject to
-
such tranche of the Performance Options.
(c) Timing of Option Cancellation Payments; Discretionary
-----------------------------------------------------
Acceleration. Notwithstanding the provisions of the preceding paragraphs (a)
- ------------
and (b), the Board (as constituted immediately prior to the Change in Control)
may determine, in its discretion, to accelerate the exercisability or cause the
cancellation and payment, calculated as provided in Section 9(a), in respect of
all or any additional portion of the Performance Options. The cash payments
described in paragraphs (a) and (b) above shall be payable in full, as soon as
reasonably practicable, but in no event later than, 30 days following the Change
in Control.
(d) Alternative Options. Notwithstanding Sections 9(a), 9(b) and 9
-------------------
(c) hereof, no cash settlement or other payment shall be made with respect to
any Option in the event that the transaction constituting the Change in Control
is accounted for using the "pooling of interest" method of accounting. In such
event, the portion of each Option then held by the Grantee that, but for the
provisions of this paragraph (d), would have been settled for cash pursuant to
paragraphs (a) or (b) of this Section 9 in connection with the Change in
Control, shall become fully vested immediately prior to the consummation of such
transaction and the Grantee shall have the right, subject to compliance with all
applicable securities laws, to (i) exercise such portion of the Options in
-
connection with the Change in Control or (ii) provided such opportunity is made
--
available by the New Employer, exchange such portion of the Options for fully
exercisable options to purchase common stock of the New Employer having
substantially equivalent economic value to the Options being exchanged therefor
(determined at the time of the Change in Control).
10. Certain Restrictions on Repurchases
-----------------------------------
(a) Financing Agreements, etc. Notwithstanding any other provision
-------------------------
of this Agreement, the Company shall not be obligated or permitted to pay the
purchase price for any Covered Options that the Company may elect to purchase
from
21
<PAGE>
the Grantee pursuant to Section 5(c) if (i) the payment of such purchase price
-
would result in a violation of the terms or provisions of, or result in a
default or an event of default under, (A) the Credit Agreement, dated as of
-
March 21, 1996 (the "Credit Agreement"), among Riverwood, the other borrowers
----------------
party thereto, The Chase Manhattan Bank, as administrative agent, and the
lenders party thereto from time to time, (B) the Equipment Packaging Machinery
-
Credit Agreement, dated as of March 21, 1996 (the "PMC Agreement"), among
Riverwood International Machinery, Inc., The Chase Manhattan Bank, as
administrative agent, and the lenders party thereto from time to time, (C) the
-
Indenture, dated as of March 27, 1996, as supplemented, among Riverwood, as
issuer, the Company and RIC Holding, Inc., as guarantors, and Fleet National
Bank of Connecticut, as trustee (the "Senior Note Indenture"), (D) the
-
Indenture, dated as of March 27, 1996, as supplemented, among Riverwood, as
issuer, the Company and RIC Holding, as guarantors, and Fleet National Bank of
Massachusetts, as trustee (together with the Senior Note Indenture, the
"Indentures"), or (E) any other guarantee, financing or security agreement or
-
document entered into (I) by Former Riverwood or any of its subsidiaries prior
-
to the Acquisition that remains outstanding in any part on or after the
Acquisition, (II) by the Company or any Subsidiary in connection with the
--
Acquisition, or the financing of the Acquisition, or (III) otherwise from time
---
to time in connection with the operations of the Company or the Subsidiaries
(the Credit Agreement, the Indentures and such other agreements and documents,
as each may be amended, modified or supplemented from time to time, are referred
to herein as the "Financing Agreements"), in each case as the same may be
--------------------
amended,modified or supplemented from time to time, (ii) the payment of such
--
purchase price would violate any of the terms or provisions of the Certificate
of Incorporation of the Company or (iii) the Company has no funds legally
---
available therefor under the General Corporation Law of the State of Delaware.
(b) Delay of Purchase. In the event that the payment of the purchase
-----------------
price for any Covered Options by the Company otherwise permitted under Section
5(c) is prevented solely by the terms of Section 10(a), (i) the payment of such
-
purchase price will be postponed and will be made without the application of
further conditions or impediments (other than as set forth in Section 5 hereof
or in this Section 10) at the first opportunity thereafter when the Company has
funds legally available therefor and when the payment of such purchase price
will not result in any
22
<PAGE>
default, event of default or violation under any of the Financing Agreements or
in a violation of any term or provision of the Certificate of Incorporation of
the Company and (ii) the Grantee's right to receive payment of such purchase
--
price shall rank against other similar rights with respect to shares of Common
Stock or options in respect thereof according to priority in time of the
effective date of the event giving rise to any such right, provided that any
--------
such right as to which a common date determines priority shall be of equal
priority and shall share pro rata in any purchase payments made pursuant to
clause (i) above.
(c) Purchase Price Adjustment. In the event that the payment of the
-------------------------
purchase price for any Covered Options from the Grantee is delayed pursuant to
this Section 10, the purchase price for such Covered Options when the purchase
price is eventually paid as contemplated by Section 10(b) shall be the sum of
(a) the purchase price of such Covered Options determined in accordance with
-
Section 5(f) at the time that the purchase would have been paid but for the
operation of this Section 10, plus (b) an amount equal to interest on such
-
purchase price for the period from the date on which the purchase price would
have been paid but for the operation of this Section 10 to the date on which
such purchase price is actually paid (the "Delay Period"), at an annual rate of
interest equal to the weighted average cost of the Company's bank indebtedness
outstanding during the Delay Period.
11. No Rights as Stockholder. The Grantee shall have no voting or
------------------------
other rights as a stockholder of the Company with respect to any Shares covered
by the Options until the exercise of the Options and the issuance of a
certificate or certificates to the Grantee for such Shares. No adjustment shall
be made for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
12. Capital Adjustments. The number and price of the Shares covered
-------------------
by the Options shall be proportionately adjusted to reflect any stock dividend,
stock split or share combination of the Common Stock or any recapitalization of
the Company. Subject to any required action by the stock holders of the
Company and Section 9 hereof, in any merger, consolidation, reorganization,
exchange of shares, liquidation or dissolution, the Options shall pertain to the
securities and other property, if any, that a holder of the number of shares of
Common Stock covered by the Options
23
<PAGE>
would have been entitled to receive in connection with such event.
13. Miscellaneous.
-------------
(a) Notices. All notices and other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified or
express mail, return receipt requested, postage prepaid, or by any recognized
international equivalent of such delivery, to the Company, the CD&R Fund or the
Grantee, as the case may be, at the following addresses or to such other address
as the Company, the CD&R Fund or the Grantee, as the case may be, shall specify
by notice to the others:
(i) if to the Company, to it at:
Riverwood Holding, Inc.
Suite 1200
1105 North Market Street
P.O. Box 8985
Wilmington, Delaware 19899
Attention: General Counsel
---------
(ii) if to the Grantee, to the Grantee at the address set forth on the
signature page hereof.
(iii) if to the CD&R Fund, to:
Clayton, Dubilier & Rice Fund V
Limited Partnership
Foulkstone Plaza, Suite 102
1403 Foulk Road
Wilmington, Delaware 19803
Attention: Joseph L. Rice, III
---------
All such notices and communications shall be deemed to have been received on the
date of delivery if delivered personally or on the third business day after the
mailing thereof, provided that the party giving such notice or communication
--------
shall have attempted to telephone the party or parties to which notice is being
given during regular business hours on or before the day such notice or
communication is being sent, to advise such party or parties that such notice is
being sent. Copies of any notice or other communication given under this
Agreement shall also be given to:
24
<PAGE>
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
Attention: Kevin J. Conway
---------
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.
---------
The CD&R Fund also shall be given a copy of any notice or other communication
between the Grantee and the Company under this Agreement at its address as set
forth above.
(b) Binding Effect; Benefits. This Agreement shall be binding upon
------------------------
and inure to the benefit of the parties to this Agreement and their respective
successors and assigns. Except as provided in Section 5, nothing in this
Agreement, express or implied, is intended or shall be construed to give any
person other than the parties to this Agreement or their respective successors
or assigns any legal or equitable right, remedy or claim under or in respect of
any agreement or any provision contained herein.
(c) Waiver; Amendment.
-----------------
(i) Waiver. Any party hereto or beneficiary hereof may by written
------
notice to the other parties (A) extend the time for the performance of any
-
of the obligations or other actions of the other parties under this
Agreement, (B) waive compliance with any of the conditions or covenants of
-
the other parties contained in this Agreement and (C) waive or modify
-
performance of any of the obligations of the other parties under this
Agreement, provided that any waiver of the provisions of Section 5 must be
--------
consented to in writing by the CD&R Fund. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party or
beneficiary, shall be deemed to constitute a waiver by the party or
beneficiary taking such action of compliance with any representations,
warranties, covenants or agreements contained herein. The waiver by any
party hereto or beneficiary hereof of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any preceding or
succeeding breach and no failure by a
25
<PAGE>
party or beneficiary to exercise any right or privilege hereunder shall be
deemed a waiver of such party's or beneficiary's rights or privileges
hereunder or shall be deemed a waiver of such party's or beneficiary's
rights to exercise the same at any subsequent time or times hereunder.
(ii) Amendment. This Agreement may not be amended, modified or
---------
supplemented orally, but only by a written instrument executed by the
Grantee and the Company, and (in the case of any amendment, modification or
supplement that adversely affects the rights of the CD&R Fund hereunder)
consented to by the CD&R Fund in writing. The parties hereto acknowledge
that the Company's consent to an amendment or modification of this
Agreement may be subject to the terms and provisions of the Financing
Agreements.
(d) Assignability. Neither this Agreement nor any right, remedy,
-------------
obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company or the Grantee without the prior written consent of
the other parties and the CD&R Fund. The CD&R Fund may assign from time to time
all or any portion of its rights under Section 5 to one or more persons or other
entities designated by it.
(e) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, EXCEPT TO THE
EXTENT THAT THE CORPORATE LAW OF THE STATE OF DELAWARE SPECIFICALLY AND
MANDATORILY APPLIES.
(f) Section and Other Headings, etc. The section and other headings
-------------------------------
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
(h) Delegation by the Board. All of the powers, duties and
-----------------------
responsibilities of the Board specified in this Agreement may, to the full
extent permitted by applicable law, be exercised and performed by any duly
constituted committee thereof to the extent authorized by the Board to
26
<PAGE>
exercise and perform such powers, duties and responsibilities.
27
<PAGE>
IN WITNESS WHEREOF, the Company and the Grantee have executed this
Agreement as of the date first above written.
RIVERWOOD HOLDING, INC.
By: /s/ B. Charles Ames
------------------------------
Name: B. Charles Ames
Title: chief executive officer
THE GRANTEE:
By: /s/ Stephen Humphrey
------------------------------
Stephen Humphrey
Address of the Grantee:
3350 Cumberland Circle
Suite 1400
Atlanta, Georgia 30339
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RIVERWOOD
HOLDING, INC.'S CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF
OPERATIONS FOR THE PERIOD ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<CASH> 9,354
<SECURITIES> 838
<RECEIVABLES> 151,262
<ALLOWANCES> 923
<INVENTORY> 202,890
<CURRENT-ASSETS> 374,159
<PP&E> 1,781,439
<DEPRECIATION> 107,599
<TOTAL-ASSETS> 2,661,047
<CURRENT-LIABILITIES> 342,197
<BONDS> 1,600,721
0
0
<COMMON> 75
<OTHER-SE> 601,247
<TOTAL-LIABILITY-AND-EQUITY> 2,661,047
<SALES> 267,188
<TOTAL-REVENUES> 267,188
<CGS> 235,209
<TOTAL-COSTS> 235,209
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 197
<INTEREST-EXPENSE> 38,901
<INCOME-PRETAX> (40,498)
<INCOME-TAX> 901
<INCOME-CONTINUING> (41,399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,844)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
RIVERWOOD HOLDING, INC.
RECONCILIATION OF (LOSS) INCOME FROM OPERATIONS TO EBITDA
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
U.S.
Coated Timberlands/
Board Container- Wood
COMPANY System board Products Corporate Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST QUARTER 1997:
(Loss) Income from Operations $15,779 $(13,006) - $ (4,512) $(1,739)
Depreciation and amortization 20,949 3,803 - 358 25,110
Purchased asset costs (A) 6,219 911 - - 7,130
Other non-cash charges (B) 1,538 254 - 110 1,902
Dividends from equity investments - - - 750 750
- ---------------------------------------------------------------------------------------------------
Pro Forma EBITDA (C) $44,485 $ (8,038) - $ (3,294) $33,153
===================================================================================================
===================================================================================================
</TABLE>
<TABLE>
<S>
PREDECESSOR
FIRST QUARTER 1996:
<S> <C> <C> <C> <C> <C>
(Loss) Income from Operations $24,638 $ (5,955) $13,868 $(16,901) $15,650
Depreciation and amortization 17,800 4,332 1,735 571 24,438
Other non-cash charges (B) 1,265 261 945 232 2,703
Dividends from equity investments - - - - -
Pro forma adjustments 3,471 120 218 9,533 13,342
- ---------------------------------------------------------------------------------------------------
Pro Forma EBITDA (C) $47,174 $ (1,242) $16,766 $ (6,565) $56,133
===================================================================================================
</TABLE>
Notes:
- ------
(A) Under the terms and definitions of the Company's debt agreements, certain
expenses and costs are excluded from the Company's (Loss) Income from
Operations in determining EBITDA (as defined below), including
amortization, depreciation or expenses associated with the write-up of
inventory, fixed assets and intangible assets in accordance with APB 16 and
APB Opinion No. 17, "Intangible Assets", collectively referred to as the
"Purchased asset costs."
(B) Other non-cash charges include non-cash charges deducted for pension,
postretirement and postemployment benefits, depletion of prepaid timber and
amortization of premiums on hedging contracts in determining net income
other than Purchased asset costs (see above).
(C) Pro Forma EBITDA is defined as consolidated net income (exclusive of non-
cash charges resulting from purchase accounting during the first quarter of
1997) before consolidated interest expense, consolidated income taxes,
consolidated depreciation and amortization, cost of timber harvested and
other non-cash charges deducted in determining consolidated net income and
extraordinary items and the cumulative effect of accounting changes and
earnings of, but including dividends from, non-controlled affiliates
calculated in accordance with definitions in the Company's debt agreements
and on a pro forma basis to exclude Other Costs (see Note 6 in Notes to
Condensed Consolidated Financial Statements) of the Predecessor. The
Company believes that EBITDA provides useful information regarding the
Company's debt service ability, but should not be considered in isolation
or as a substitute for the Condensed Consolidated Statements of Operations
or cash flow data.
