SUNDERLAND INDUSTRIAL HOLDINGS CORPORATION
Nonqualified Stock Option Agreement
This Nonqualified Stock Option Agreement (the "Agreement") is entered into
as of April 24, 1997 ("Grant Date"), between SUNDERLAND INDUSTRIAL HOLDINGS
CORPORATION, a Delaware corporation (the "Company"), and MICHAEL M. FARRELL, an
executive employee of the Company's indirect subsidiary, Precise Technology,
Inc. (the "Optionee").
1. Grant of Options. Pursuant to the Company's 1997 Key Employee
Nonqualified Stock Option Plan, a copy of which is attached hereto (the "Plan"),
and authorization by the Board of Directors of the Company ("Board"), the
Company hereby grants to the Optionee (i) an option (the "First Option") to
purchase 400 shares of the Company's common stock, par value $.01 per share
("Stock"); and (ii) an option (the "Second Option") to purchase 75 shares of
Stock, at the prices and on such other terms and conditions as are hereinafter
provided. Such options to purchase Stock shall hereinafter be collectively
referred to as the "Options." The Options shall not constitute an "incentive
stock option" as that term is used in Section 422 of the Internal Revenue Code
of 1986, as amended ("Code"). The Optionee agrees that as holder of the Options
such Optionee shall have no rights of or as a shareholder or otherwise in
respect of any of the shares of Stock as to which the Options shall not have
effectively been exercised as herein provided.
2. Option Price. The Options shall be exercisable at a price of $1,500.00
per share of Stock.
3. Exercise Period.
A. Except as provided in Paragraph 13, the First Option may be exercised by
the Optionee, in whole or in part, prior to the earlier of (i) the termination
of the Optionee's employment with the Company or any of its subsidiaries for any
reason, or (ii) January 31, 2005, in accordance with the following schedule:
40% commencing on the Grant Date
60% commencing April 1, 1998
80% commencing April 1, 1999
100% commencing April 1, 2000
B. Except as provided in Paragraph 13, the Second Option may be exercised
by the Optionee, in whole or in part, prior to the earlier of (i) the
termination of the Optionee's employment with the Company or any of its
subsidiaries for any reason, or (ii) January 31, 2005, as follows:
25 % of the Second Option shall become exercisable 90 days
after the Board's determination of the "EBITDA" (i.e.,
earnings before interest, taxes, depreciation and
amortization as conclusively determined by the Board in its
sole discretion) of the Company for the year ended December
31, 1997 if such EBITDA shall exceed $16.4MM.
25% of the Second Option shall become exercisable 90 days
after the Board's determination of the EBITDA of the Company
for the year ended December 31, 1998 if such EBITDA shall
exceed the "1998 Target."
25% of the Second Option shall become exercisable 90 days
after the Board's determination of the EBITDA of the Company
for the year ended December 31, 1999 if such EBITDA shall
exceed the "1999 Target."
25% of the Second Option shall become exercisable 90 days
after the Board's determination of the EBITDA of the Company
for the year ended December 31,2000 if such EBITDA shall
exceed the "2000 Target."
In each year, if any, in which the EBITDA requirements, as set forth above,
shall not have been met, twenty-five percent (25%) of the Second Option shall be
immediately canceled and of no further force and effect. The 1998, 1999, and
2000 Targets shall be determined by the Board in its reasonable business
discretion on or before April l of each respective year.
4. Exercise of the Option. The Options shall be exercised by delivery to
the Company of a written statement in the form attached hereto entitled
"Nonqualified Stock Option Exercise Form." At the time of exercise of the
Options by such delivery, the Optionee shall pay such amount as required under
Paragraph 5 herein together with an amount in cash equal to the amount of all
applicable withholding taxes (or, in the Board's sole discretion, a withholding
authorization acceptable to the Board). Upon receipt of such payment for the
Stock being purchased and compliance by the Optionee with the terms and
conditions hereunder, the Company shall cause certificates for such Stock to be
delivered to the Optionee within ten (10) business days after the Company's
receipt of such payment.
5. Payment of Option Price.
A. At the time of exercise of the Options, the Optionee shall pay to the
Company either (i) the full Option Price for the Stock being purchased in cash,
or, (ii) with the consent of the Company in the sole discretion of the Board, a
minimum of ten percent (10%) of the Option Price for the Stock being purchased
in cash together with delivery of a promissory note and
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pledge of the Optionee's Stock in forms acceptable to the Board, in the Board's
sole discretion, providing for the payment of the balance of the Option Price.
B. Notwithstanding the foregoing, Optionee may elect to exercise the
Options, in whole or in part, to the extent the Options are then exercisable, by
receiving shares of Stock equal to the value (as herein determined) of the
portion of such Options then being exercised after deduction of the exercise
price, in which event the Company shall issue to Optionee the number of shares
of stock determined by using the following formula:
X = Y (A-B) x (100% - C)
A
where: X = The number of shares of Stock to be issued to
Optionee under the provisions of this
Paragraph 5.
Y = The number of shares of Stock that would
otherwise be issued upon such exercise.
A = The Fair Market Value (as hereinafter
defined) of one share of Stock.
B = The exercise price of the Options specified
in Paragraph 2.
C = Applicable income tax withholding rate.
Fair Market Value Defined. As used in this Agreement, "Fair
Market Value" shall mean (i) if the Stock is publicly
traded, the average closing market price (or if no shares
of Stock are traded on any date within such period, the
average of the closing bid and asked price on such date)
for the twenty business days immediately prior to the date
on which such value is to be determined, or (ii) if the
Stock is not publicly traded, the fair market value, on the
applicable date, of the shares of Stock then being valued
as determined in good faith by the Board of Directors.
6. Compliance With Securities Laws. The exercise of the Options and the
issuance of Stock pursuant thereto shall be contingent upon either the prior
registration of the Stock under the Securities Act of 1933, as amended (the
"Securities Act") and such federal and state laws, rules, and regulations as may
be applicable or promulgated thereunder, or a determination by the Company that
the issuance of such Stock will be a transaction exempt from such registration.
The Company anticipates that shares of Stock, when and if issued to the
Optionee, will be "restricted securities" as that term is defined in Rule 144
under the Securities Act and, accordingly, such shares of Stock must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from registration is available. The Optionee understands and agrees
that the Company is not under any obligation to register shares of Stock or to
comply with Regulation A or any other exemption under the Securities Act. As a
condition to the grant and/or
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exercise of the Options, the Optionee agrees to execute one or more
undertakings, in the form prescribed by the Board, that the Stock is being
acquired for investment only and without any present intention of resale or
other distribution, or that the Stock will not be offered for sale or other
distribution otherwise and pursuant to such condition or conditions as the Board
approves. The Company shall have the right to place upon any certificate or
certificates evidencing shares of Stock any such legends as the Board may
prescribe, including legends providing that the shares are subject to
registration requirements under the Securities Act and state securities laws and
that the shares are subject to the terms of this Agreement and the Plan.
7. Non-transferability and Termination of Options. Except as otherwise
provided in Paragraph 8, the Options shall not be transferable or assignable
and, during the Optionee's lifetime, shall be exercisable solely by the
Optionee. Except as otherwise provided in Paragraph 8, the Options shall
terminate upon termination of the Optionee's employment with the Company or its
subsidiaries for any reason or any attempted sale, transfer or assignment of any
such Options, whether voluntarily or involuntarily. A transfer of employment
between and among the Company and its subsidiaries shall be considered as
continuing employment and shall not be a termination of employment for purposes
of this Agreement. In addition, temporary interruptions in employment caused by
sickness or other approved leave of absence shall not constitute termination of
employment for purposes of this Agreement.
8. Retirement, Disability of Optionee or Death. If the Optionee retires on
or after the attainment of age 65, becomes permanently and totally disabled
within the meaning of Section 22(e)(3) of the Code or dies while in the employ
of the Company or one of its subsidiaries, the Options may be exercised during
the time period from the date of the Optionee's retirement, permanent and total
disability, or death until the expiration of one year after the date of the
Optionee's retirement, permanent and total disability, or death by the Optionee
or by the deceased Optionee's personal representative, as applicable, or by any
person who acquired the Options by bequest or inheritance as a result of the
death of the Optionee, subject to the terms and conditions set forth herein.
9. Call. At any time after a "Call Event" (as hereafter defined) the
Company shall have the irrevocable right, but not the obligation, at its sole
discretion to repurchase some or all of the Stock Optionee purchased under the
Plan and this Agreement. The purchase price in connection with a Call Event
defined in paragraphs (1) and (2) below shall be the Fair Market Value per share
and the purchase price in connection with a Call Event defined in paragraphs (3)
through (8) below shall be seventy-five percent (75%) of the Fair Market Value
per share. Such purchase price shall be payable in the discretion of the Board
either (i) in cash within ninety (90) days of the date of purchase, or (ii) by
the Company's delivery of a promissory note providing for equal annual
installments of principal payments over a period of up to five (5) years with
interest on the unpaid balance at a rate determined by the Board in its sole
discretion; provided, however, that in the event any life insurance on
Optionee's life is obtained by the Company pursuant to paragraph 15.c., below,
and as a result of Optionee's death, proceeds of such life insurance are paid to
the Company, the Company shall use such proceeds (up to the purchase price) as
and for a cash payment hereunder, with the balance of the purchase price, if
any, payable in the discretion of the
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Board as specified herein. As used herein, the term "Call Event" shall mean any
one or more of the following:
(1) The termination of the Optionee's employment with the Company and its
subsidiaries for any reason;
(2) The proposed or attempted voluntary sale, assignment, transfer,
conveyance or other disposition, mortgage, pledge, grant of security
interest in or other encumbrance of, any or all shares of Stock by the
Optionee;
(3) The Optionee making an assignment for the benefit of creditors;
(4) The Optionee instituting, or having instituted against him, any
bankruptcy, insolvency, reorganization, arrangement, debt adjustment,
liquidation or receivership proceedings in which he is alleged to be
insolvent or unable to pay his debts as they mature, and the Optionee
shall consent thereto or admit in writing the material allegations of
the petitions filed in said proceedings, or said proceedings shall
remain undismissed after ninety (90) days;
(5) The attachment of the Optionee's shares of Stock for any reason and
such attachment remains undismissed after ninety (90) days;
(6) The rendering of a final judgment against the Optionee in any legal or
equitable proceeding which (i) purports to or attempts to sell,
assign, transfer, convey or otherwise dispose of, mortgage, pledge,
grant a security interest in or otherwise encumber, any or all shares
of Stock or (ii) otherwise effects any of the foregoing;
(7) The institution of any execution process against the Optionee's shares
of Stock; or
(8) The existence of any other situation or legal proceeding involving the
Optionee such that the Optionee's shares of Stock may be involuntarily
sold, transferred, assigned, or otherwise disposed of.
In the event the Company undertakes an initial public offering or sells all
or substantially all of its stock or assets within the six (6) month period
following such purchase, the Company shall pay to the Optionee (a) in the case
of a purchase in connection with a Call Event defined in paragraphs (1) or (2),
above, the difference between the purchase price and the Fair Market Value of
the Stock on the date of such transaction and (b) in the case of a purchase in
connection with a Call Event defined in paragraphs (3) through (8) above,
seventy-five percent
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(75%) of the difference between the purchase price and the Fair Market Value of
the Stock on the date of such transaction.
Notwithstanding the provisions of this Agreement to the contrary, in the
event the Optionee proposes to dispose of any or all of his shares of Stock
acquired as a result of the Optionee's exercise of the Options (the "Offered
Shares"), pursuant to a bona fide offer therefor from a third party (the
"Purchase Offer"), the Optionee shall give written notice to the Company (the
"Offer Notice"), stating that he has received the Purchase Offer, the terms
thereof (the "Purchase Offer Terms"), and the identity of the third party who
made the Purchase Offer. The Company shall have the right to purchase the
Offered Shares by delivering to the Optionee a written notice of its intention
to do so (a "Purchase Notice") within forty-five (45) days of having received
the Offer Notice. In such Purchase Notice, the Company shall advise the Optionee
as to whether it elects to purchase the shares of Stock on the Purchase Offer
Terms or for an amount equal to the Fair Market Value of such shares of Stock
and the Optionee shall sell such shares of Stock to the Company for such
consideration within two (2) days of the Optionee's receipt of such Purchase
Notice, with payment by the Company of such purchase price to be as specified in
the first paragraph of this Paragraph 9.
10. Adjustment for Stock Dividend, or Stock Split or Capital Contribution.
In the event that a stock dividend is hereafter paid on outstanding Stock, or in
the event that the number of outstanding shares of Stock is hereafter increased
as a result of a stock split, and the Option is then unexercised, the number of
shares of Stock subject to the Option shall thereupon be increased by that
number of shares of Stock which would have been distributed with respect to the
Stock subject to the Option if the Stock subject to the Option had been
outstanding at the time of the dividend or stock split and the Option price per
share shall be adjusted to reflect such increased number of shares of Stock
subject to the Option. If any shareholder of the Company or any other person
should make a contribution to the capital of the Company without receiving any
securities of the Company in exchange therefor, then, and in such event, the
Option price per share shall be increased by an amount which is equal to the
amount of such contribution to the capital of the Company divided by the number
of issued and outstanding shares of common stock of the Company at the time of
such contribution.
11. Additional Adjustments. In the event that there is any change in the
number of outstanding shares of Stock (other than issuance of Stock for
consideration approved by the Board) for which an adjustment is not provided by
Paragraph 10 of this Agreement, and the Option is then unexercised, the Board
may, in its sole discretion, require an adjustment in the number or kind of
shares of Stock subject to the Option and the option price and such adjustment
shall be binding and effective for all purposes hereof.
12. Elimination of Fractional Shares. Any addition or adjustment provided
for in Paragraphs 10 and 11 hereof may be limited to the extent necessary to
prevent fractions of shares of Stock from becoming available under the Option.
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13. Termination Upon Reorganization or Merger. In the event that
outstanding shares of Stock, are hereafter changed into or exchanged for a
different number or kind of shares of stock or securities of another corporation
or corporations, whether as a result of a reorganization, recapitalization,
reclassification, merger, consolidation or otherwise, or in the event all or
substantially all of the Stock or assets of the Company are sold to a third
party (any such event being a "Change in Control"), and any portion of the First
Option is not yet exercisable, then all of the First Option shall immediately
become exercisable and the Company shall give at least ten (l0) business days'
prior notice of such Change in Control to the Optionee. The Optionee shall have
ten (10) business days from the date of receipt of said notice to exercise the
First Option. In the event any portion of the First Option is not exercised
within the above-referenced ten (10) day period, such portion of the First
Option shall automatically be canceled. In the event of a Change in Control,
then the Optionee shall have ten (10) business days from receipt of the notice
provided above to exercise that portion of the Second Option which is already
exercisable and that portion of the Second Option which is not yet exercisable
shall automatically be canceled. In the event that any portion of the Second
Option so exercisable is not exercised within the above-referenced ten (10) day
period, such portion of the Second Option shall also automatically be canceled.
Upon cancellation of all of the Options, this Agreement shall terminate.
14. Optionee Bound by the Plan. The Optionee hereby agrees to be bound by
all applicable provisions of the Plan. If any of the terms and provisions of
this Agreement are inconsistent or in conflict with the terms and provisions of
the Plan, the Plan shall supersede and prevail over such inconsistent provisions
hereof. The Board shall have authority, subject to the express provisions of the
Plan and this Agreement, to establish, amend, and rescind rules and regulations
relating to the Plan, and to make all other determinations in the judgment of
the Board necessary or desirable for the administration of the Plan. The Board
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in this Agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect and it shall be the sole and final judge
of such expediency. All actions by the Board under the provisions of this
Paragraph 14 shall be conclusive for all purposes.
15. Miscellaneous.
a. No Shareholder Rights. The Optionee shall not, by virtue of holding the
Option, be entitled to any rights of a shareholder of the Company or any of its
subsidiaries.
b. Lock-Up. The Optionee agrees that in connection with an initial public
offering of the Stock he will, if required by the Board, agree to such
restrictions on the resale of his Stock as shall be agreed to by other members
of management in connection therewith.
c. Life Insurance. The Optionee understands that the Company may, but shall
not be required to, obtain a life insurance policy on Optionee's life in order
to enable the Company to comply with its obligations under the Agreement and
Optionee hereby agrees to cooperate with the Company in obtaining any such
insurance including submitting applications and submitting to physical
examinations in connection therewith.
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d. Continued Employment. Nothing herein shall be deemed to create any
employment agreement or guaranty of continued employment or limit in any way the
Company's or any subsidiary's right to terminate the Optionee's employment at
any time.
e. Legend. The certificates for the shares of Stock issued pursuant to
exercise of the Options shall bear the following legend:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under any state
securities laws, and may not be sold or otherwise disposed of until
the sale shall have been registered under said Act and any applicable
state securities laws, or until the Corporation shall have received an
opinion of counsel satisfactory to it that such shares may be legally
sold or otherwise transferred without such registration. The shares
represented by this certificate have been issued pursuant to the
exercise of an option to purchase such shares and are subject to
certain restrictions on transfer contained in the Corporation's 1997
Key Employee Nonqualified Stock Option Plan and a Nonqualified Stock
Option Agreement entered into pursuant to such Plan.
f. Entire Agreement. This Agreement, together with the Plan,
constitutes the entire agreement of the Company and its subsidiaries
and the Optionee regarding the subject matter of this Agreement and
the Plan; and all prior or contemporaneous agreements, understandings,
representations and statements, written or oral, are hereby merged
herein.
g. Binding Effect. This Agreement shall be binding upon the
parties hereto, their successors, heirs and permitted assigns.
16. Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to be part
hereof.
17. Delaware Law to Apply. The place of administration of the
Plan and this Agreement shall be conclusively deemed to be within the
State of Delaware, and the validity, construction, interpretation,
administration, and effect of the Plan and this Agreement and the
rights of any person having or claiming to have an interest therein or
thereunder shall be governed by and determined exclusively and solely
in accordance with the laws of the State of Delaware.
18. Counterparts. This Agreement may be executed in multiple
counterparts; each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall
constitute but one agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed.
OPTIONEE SUNDERLAND INDUSTRIAL HOLDINGS
CORPORATION
/s/ Michael M. Farrell /s/ William L. Remley
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MICHAEL M. FARRELL Title:
-----------------------------------
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SUNDERLAND INDUSTRIAL HOLDINGS CORPORATION
NONQUALIFIED STOCK OPTION EXERCISE FORM
The undersigned holder of an option to purchase shares of common
stock, par value $.01 per share, of Sunderland Industrial Holdings
Corporation (the "Company") under a Nonqualified Stock Option
Agreement with the Company dated ___________________ hereby exercises
his [First/Second] Option to purchase ________ shares of such common
stock of the Company at the option price of $ _______________ per
share in accordance with the terms and conditions of such Nonqualified
Stock Option Agreement.
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Date of Exercise Signature of Person
Exercising Option
Please type or print legibly your name as you want it to appear
on your stock certificate, your address and your social security
number in the space provided below.
Name: __________________________________________________________________________
Address:________________________________________________________________________
(Street)
________________________________________________________________________
(City) (State) (Zip Code)
Social Security Number:_________________________________________________________
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