NON-QUALIFIED STOCK OPTION
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THIS STOCK OPTION is granted this 21st day of April, 1998, by DIAMOND
BRANDS INCORPORATED, a Minnesota corporation (the "Company") to Thomas Knuesel
(the "Optionee").
WITNESSETH:
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WHEREAS, the Board of Directors of the Company is of the opinion that
the interests of the Company and its subsidiaries will be advanced by
encouraging and enabling those employees of the Company and its subsidiaries,
upon whose judgment, initiative and efforts the Company is largely dependent for
the successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest
in the Company will stimulate such employees and strengthen their desire to
remain with the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. Option Grant. The Company hereby grants to the Optionee an
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option to purchase 47,701 shares of Common Stock of the Company at an exercise
price equal to $ 13.976 per share.
2. Time of Exercise. This option may be exercised (in the manner
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provided in paragraph 3 hereof) in whole or in part, and from time to time after
the date hereof, subject to paragraph 7 hereunder and the following limitations:
(a) This option shall vest and become exercisable as to twenty-five
percent (25%) of the shares subject to this option on the first anniversary of
the date hereof and shall vest and become exercisable as to 1/36 of the shares
subject to this option at the end of each month thereafter.
(b) This option may not be exercised after 10 years from the date
hereof.
(c) Nothing in this option shall confer on the Optionee any right to
continue in the employ of the Company or any of its subsidiaries or to interfere
with the right of the Company or of such subsidiary to terminate the Optionee's
employment at any time.
(d) Any unvested portion of this option which, at the time of the
death or disability of Optionee or at the time of any change in control (as
defined below), is not yet fully vested shall automatically become fully vested
in Optionee or his estate, as the case may be. For purposes of this section, the
term "change in control" shall mean and refer to any change in the equityholders
of the Company which results in the majority of the outstanding stock of the
Company no longer being held by Seaver, Kent & Company, LLC or affiliates
thereof, other than as a result of an initial public offering of the common
stock of the Company.
3. Method of Exercise. This option may be exercised only by 30
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days' written notice delivered to the Treasurer of the Company and accompanied
by:
(a) The full purchase price of the shares purchased payable by a
certified or cashier's check payable to the order of the Company or such other
form of consideration acceptable to the Board of Directors of the Company; and
(b) Such other documents or representations (including without
limitation representations as to the intention of the Optionee, or the purchaser
under paragraph 4 below, to acquire the shares for investment) as the Company
may reasonably request in order to comply with securities, tax or other laws
then applicable to the exercise of the option.
4. Non-Transferability; Death. This option is not transferable by
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the Optionee otherwise than by will or the laws of descent and distribution and
is exercisable during the Optionee's lifetime only by him. If the Optionee dies
while in the employ of the Company or one of its subsidiaries, this option may
be exercised (but not later than 10 years from the date hereof) by his estate or
the person to whom the option passes by will or the laws of descent and
distribution, but only to the extent that the Optionee could have exercised this
option on the date of his death.
5. Registration. The Company shall not be required to issue or
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deliver any certificate for its Common Shares purchased upon the exercise of
this option prior to the admission of such shares to listing on any stock
exchange on which shares may at that time be listed. In the event of the
exercise of this option with respect to any shares subject hereto, if other
Common Shares of the Company are then listed, the Company shall make prompt
application for such listing with respect to the shares acquired upon the
exercise hereof. If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933, as amended, or that
delivery of the shares must be accompanied or preceded by a prospectus meeting
the requirements of the Act, the Company will use its best efforts to effect
such registration or provide such prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until registration is effected or a prospectus is available. The
Company shall be under no obligation to register the shares deliverable upon
exercise of this option unless it shall be advised by its counsel that such
shares are required to be so registered. The Optionee shall have no interest in
the shares covered by this option unless and until certificates for the shares
are issued following the exercise of this option.
6. Withholding. The Company shall have the right to require, prior
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to the issuance or delivery of any shares hereunder, payment by the Optionee of
any federal, state or local income taxes required by law to be withheld upon the
exercise of all or any part of this Option. The Company may, in its discretion
and subject to such rules as it may adopt as are necessary to prevent the
withholding from being subject to Section 16(b) of the Securities Exchange Act
of 1934, permit the Optionee to satisfy any tax withholding obligation
associated with the exercise of this option, in whole or in part, by electing to
have the Company withhold from the shares otherwise deliverable as a result of
such option exercise Common Shares having a value (based on their Fair Market
Value on the date of delivery) equal to the amount required to be withheld.
7. Termination of Employment. Upon termination of the Optionee's
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employment with the Company ("Termination"), all non-vested options granted
hereunder shall be forfeited and all
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vested options granted hereunder shall only be exercisable for a period of
thirty days following the Termination.
8. Subject to Stockholders Agreement. Shares of Common Stock of the
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Company issued upon exercise of this option are subject to all of the terms and
conditions set forth in the Stockholders Agreement dated as of April 21, 1998,
by and between the Company, Seaver Kent - TPG Partners, L.P., Seaver Kent I
Parallel, L.P., Naresh Nakra and the Stockholders named therein and Optionee.
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IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
DIAMOND BRANDS INCORPORATED
By /s/ Naresh K. Nakra
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Its President
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ACCEPTED:
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OPTIONEE
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