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PEN-TAB HOLDINGS, INC.
1997 STOCK OPTION PLAN
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PEN-TAB HOLDINGS, INC.
1997 STOCK OPTION PLAN
ARTICLE I
PURPOSE OF PLAN
This 1997 Stock Option Plan (the "Plan") of Pen-Tab Holdings, Inc. (the
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"Company"), adopted by the Board of Directors of the Company effective February
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4, 1997, is intended to advance the Company's best interests by providing
additional incentives to members of the senior management of the Company or any
Subsidiary. As such, these persons will be allowed hereunder to acquire an
ownership interest in the Company. The availability and offering of stock
options under the Plan also increases the Company's and its Subsidiaries'
ability to attract and retain individuals of exceptional managerial talent upon
whom, in large measure, the sustained progress, growth, and profitability of the
Company depends. The Plan is a compensatory benefit plan within the meaning of
Rule 701 under the Securities Act of 1933, as amended (the "Securities Act")
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and, unless and until the Common Stock is publicly traded, the issuance of
options and Common Stock pursuant to the Plan is intended to qualify for the
exemption from registration under the Securities Act provided by Rule 701.
ARTICLE II
DEFINITIONS
For purposes of the Plan the following terms have the indicated meanings:
"Board" means the Board of Directors of the Company.
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"Cause" means (i) a breach of the Participant's covenants under such
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Participant's Employment Agreement with the Company (if any) or any other
agreements with the Company or its Subsidiaries, (ii) the commission by the
Participant of a felony, a crime involving moral turpitude or other act causing
material harm to the standing and reputation of the Company or any of its
Subsidiaries, or (iii) the Participant's repeated failure to comply with the
written directives of the Board.
"Class A Common" means the Company's Class A common stock, $.01 par value
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per share, or if any of such Class A Common is hereafter converted into or
exchanged for different stock or securities of the Company, such other stock or
securities, all as adjusted for any stock split, stock dividend, share
combination, share exchange, conversion, recapitalization, merger, consolidation
or reorganization.
"Class B Common" means the Company's Class B common stock, $.01 par value
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per share, or if any of such Class B Common is hereafter converted into or
exchanged for different stock
or securities of the Company, such other stock or securities, all as adjusted
for any stock split, stock dividend, share combination, share exchange,
conversion, recapitalization, merger, consolidation or other reorganization.
"Code" means the Internal Revenue Code of 1986, as amended, and any
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successor statute.
"Committee" means the Compensation Committee or such other committee of
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the Board as the Board may designate to administer the Plan or, if for any
reason the Board has not designated such a committee, the Board. The Committee,
if other than the Board, shall be composed of two or more directors as appointed
from time to time by the Board.
"Common Stock" means the Class A Common and Class B Common, or if the
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outstanding Common Stock is hereafter changed into or exchanged for different
stock or securities of the Company, such other stock or securities.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
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"Disability" means the inability, due to illness, accident, injury,
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physical or mental incapacity or other disability, of the Participant to carry
out effectively his duties and obligations to the Company or to participate
effectively and actively in the management of the Company or a Subsidiary of the
Company for a period of at least 90 consecutive days or for shorter periods
aggregating at least 120 days (whether or not consecutive) during any twelve-
month period, as determined in the reasonable judgment of the Board.
"Expiration Date" means, with respect to each Participant, the close of
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business on the day specified in the Participant's Option Agreement as the last
day a Participant can exercise options granted pursuant to such Option
Agreement, subject to earlier expiration as provided in Section 5.7 hereof.
"Fair Market Value" per share on any given date means the average of the
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closing prices of the sales of the Class A Common on all securities exchanges on
which such stock may at the time be listed, or, if there have been no sales on
any such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day such
stock is not so listed, the average of the representative bid and asked prices
quoted on the Nasdaq National Market System ("Nasdaq") as of 4:00 P.M., Eastern
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Standard Time, or, if on any day such stock is not quoted on Nasdaq, the average
of the highest bid and lowest asked prices on such day in the domestic over-the-
counter market as reported by the National Quotation Bureau, Incorporated. If at
any time the Class A Common is not listed or quoted, the Fair Market Value per
share of the Class A Common shall be the fair market value as determined by the
Committee or the Board in its reasonable business judgment.
"Form" means those forms of the Internal Revenue Service used by
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taxpayers to file federal income tax returns.
"Independent Third Party" means any person who, immediately prior to the
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contemplated transaction, does not own in the aggregate in excess of 5% of the
Common Stock, (a "5% Owner"),
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who is not controlling, controlled by or under common control with any such 5%
Owner and who is not the spouse or descendent (by birth or adoption) of any such
5% Owner and/or such other persons. Notwithstanding the foregoing, in no event
shall a Participant be deemed an Independent Third Party.
"Measurement Date" means the date on which any taxable income resulting
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from the exercise of an Option is determined under applicable federal income tax
law.
"Option Agreement" has the meaning ascribed thereto in Section 6.1.
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"Option Grant" means the awarding of Options to Participants under
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Article 5.1(a).
"Option Shares" means (i) all shares of Class A Common issued upon the
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exercise of an Option, and (ii) all shares of Class A Common issued with respect
to the Class A Common referred to in clause (i) above by way of stock dividend,
stock split, share combination, share exchange or in connection with any
conversion, merger, consolidation, recapitalization, or other reorganization
affecting the Class A Common. Unless provided otherwise herein or in the terms
of Participant's Option Agreement, Option Shares will continue to be Option
Shares in the hands of any holder other than the Participant (except for the
Company), and each such transferee thereof will succeed to the rights and
obligations of a holder of Option Shares hereunder.
"Options" has the meaning set forth in Article IV.
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"Participant" means any executive or other key employee of the Company or
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any Subsidiary who has been selected to participate in the Plan by the Committee
or the Board.
"Permitted Transferee" means those persons to whom the Participant is
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authorized (1) pursuant to Section 5.9, to transfer Option Shares, or (2)
pursuant to Section 6.3, to transfer Options.
"Person" means an individual, a partnership, a corporation, a limited
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liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Repurchase Notice" has the meaning ascribed thereto in Section 5.8(b)
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hereof.
"Repurchase Option" has the meaning ascribed thereto in Section 5.8(a)
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hereof.
"Sale Notice" has the meaning ascribed thereto in Section 5.9(a) hereof.
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"Sale of the Company" means the sale of the Company to an Independent
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Third Party or group of Independent Third Parties pursuant to which such party
or parties acquire (a) substantially all of the capital stock of the Company
(whether by merger, consolidation, recapitalization, sale or transfer) or (b)
all or substantially all of the Company's assets determined on a consolidated
basis.
"Securities Act" has the meaning ascribed thereto in Article 1 hereof.
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"Shareholders Agreement" means the Shareholders Agreement, dated as of
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February 4, 1997, by and among the Company, CVC, and certain other parties, as
may be amended.
"Subsidiary" means, with respect to any Person, any corporation,
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partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of securities
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
limited liability company, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at the time owned
or controlled, directly or indirectly, by any Person or one or more Subsidiaries
of that Person or a combination thereof. For purposes hereof, a Person or
Persons shall be deemed to have a majority ownership interest in a partnership,
limited liability company, association or other business entity if such Person
or Persons shall be allocated a majority of partnership, limited liability
company, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership, limited
liability company, association or other business entity.
"Termination Date" means the date upon which a Participant's employment
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with the Company terminated including by reason of death or Disability.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the
limitations of the Plan, the Committee shall have the sole and complete
authority to: (i) select Participants, (ii) grant Options to Participants in
such forms and amounts as it shall determine, (iii) impose such limitations,
restrictions, and conditions upon such Options as it shall deem appropriate,
(iv) interpret the Plan and adopt, amend, and rescind administrative guidelines
and other rules and regulations relating to the Plan, (v) correct any defect or
omission or reconcile any inconsistency in the Plan or in any Options granted
under the Plan, and (vi) make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan. The Committee's determinations on matters within its authority shall be
conclusive and binding upon the Participants, the Company, and all other
persons. All expenses associated with the administration of the Plan shall be
borne by the Company. The Committee may, as approved by the Board and to the
extent permissible by law, delegate any of its authority hereunder to such
persons or entities as it deems appropriate.
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ARTICLE IV
LIMITATION ON AGGREGATE SHARES
The number of shares of Class A Common with respect to which stock
purchase options ("Options") may be granted under the Plan shall not exceed, in
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the aggregate, 527,777 shares, subject to adjustment in accordance with Section
6.4. To the extent that any Options expire unexercised or are canceled,
terminated, or forfeited in any manner without the issuance of Class A Common
thereunder, or if any Options are exercised and the shares of Common Stock
issued thereunder are repurchased by the Company, such shares shall again be
made available under the Plan. The shares of Class A Common available under the
Plan may consist of authorized and unissued shares, treasury shares, or a
combination thereof, as the Committee shall determine.
ARTICLE V
AWARDS
5.1 GRANT OF OPTIONS.
(a) GRANT. The Committee may grant Options to Participants from time to
time in accordance with this Article V. Options granted under the Plan shall be
nonqualified stock options and are not intended to be "incentive stock options"
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within the meaning of Code (S)422 or any successor provision.
(b) EXERCISE PRICE. The exercise price per share of Class A Common under
each Option shall be determined by the Committee at the time of grant.
(c) EXERCISABILITY. Subject to Section 5.6, Options shall be exercisable
at such time or times as the Committee shall determine.
(d) OPTION TERM. The Committee shall determine the term of each Option,
which term shall not exceed ten years from the date of grant of the Option.
5.2 EXERCISE PROCEDURE. Options shall be exercisable by written notice to
the Company's Secretary (which notice shall constitute notice to the Company)
accompanied by payment in full of the applicable exercise price. Payment of
such exercise price may be made by check, bank draft, money order or wire
transfer of immediately available funds.
5.3 EXCHANGE OF PREVIOUSLY ACQUIRED STOCK. The Committee, in its discretion
and subject to such conditions as the Committee may determine, may permit the
exercise price for the shares being acquired upon the exercise of an Option to
be paid, in full or in part, by the delivery to the Company of Class A Common.
Any Class A Common so delivered shall be treated as the payment of cash equal to
the Fair Market Value of such Class A Common.
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5.4 WITHHOLDING TAX REQUIREMENTS.
(a) AMOUNT OF WITHHOLDING. It shall be a condition to the exercise of
any Option that the Participant exercising the Option make appropriate payment
or other provision acceptable to the Company with respect to any withholding tax
requirement arising from such exercise. The amount of withholding tax required,
if any, with respect to any Option exercise (the "Withholding Amount") shall be
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determined by the Treasurer or other appropriate officer of the Company, and the
Participant shall furnish such information and make such representations as such
officer requires to make such determination.
(b) WITHHOLDING PROCEDURE. If the Company determines that withholding
tax is required with respect to any Option exercise, the Company shall notify
the Participant of the Withholding Amount, and the Participant shall pay to the
Company an amount not less than the Withholding Amount. In lieu of making such
payment, the Participant may pay the Withholding Amount by either (i) delivering
to the Company a number of shares of Class A Common having an aggregate Fair
Market Value as of the Measurement Date not less than the Withholding Amount, or
(ii) directing the Company to withhold and not deliver or issue to the
Participant a number of shares of Class A Common, otherwise issuable upon the
exercise of the Option, having an aggregate Fair Market Value as of the
Measurement Date not less than the Withholding Amount. In addition, if the
Committee approves, a Participant may elect pursuant to the prior sentence to
deliver or direct the withholding of shares of Class A Common having an
aggregate Fair Market Value in excess of the minimum Withholding Amount but not
in excess of the Participant's applicable highest marginal combined federal
income and state income tax rate, as estimated in good faith by such
Participant. Any fractional share interests resulting from the delivery or
withholding of shares of Class A Common to meet withholding tax requirements
shall be settled in cash. All amounts paid to or withheld by the Company and
the value of all shares of Class A Common delivered to or withheld by the
Company pursuant to this Section 5.4 shall be deposited in accordance with
applicable law by the Company as withholding tax for the Participant's account.
If the Treasurer or other appropriate officer of the Company determines that no
withholding tax is required with respect to the exercise of any Option, but it
is determined subsequently that the exercise resulted in taxable income as to
which withholding is required (as a result of a disposition of shares or
otherwise), the Participant shall promptly, upon being notified of the
withholding requirement, pay to the Company (by means acceptable to the Company)
the amount required to be withheld.
5.5 NOTIFICATION OF INQUIRIES AND AGREEMENTS. Each Participant and each
Permitted Transferee shall notify the Company in writing within 10 days after
the date such Participant or Permitted Transferee (i) first obtains knowledge of
any Internal Revenue Service inquiry, audit, assertion, determination,
investigation, or question relating in any manner to the value of Options
granted hereunder; (ii) includes or agrees (including, without limitation, in
any settlement, closing, or other similar agreement) to include in gross income
with respect to any Option granted under this Plan (A) any amount in excess of
the amount reported on Form 1099 or Form W-2 to such Participant by the Company,
or (B) if the Participant received no such Form, any amount; and (iii) sells,
disposes, or otherwise transfers Option Shares acquired pursuant to this Plan.
Upon request, a Participant or Permitted Transferee shall provide to the Company
any information or document relating to any event described in the preceding
sentence which the Company (in its sole discretion)
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requires in order to calculate and substantiate any change in the Company's tax
liability as a result of such event.
5.6 CONDITIONS AND LIMITATIONS ON EXERCISE.
(a) TIMING OF EXERCISE. At the discretion of the Committee at the time
of grant, Options may only be exercised, in one or more installments, to the
extent such Options have become vested. In each case as the Committee shall
decide at the time Options are granted, Options shall vest upon (i) the
fulfillment of certain conditions, and (ii) the passage of specified periods of
time.
(b) VESTING OF OPTION. The Option shall be subject to such vesting
provisions as the Committee shall set forth at the time that the Options are
granted under the Option Agreement. In the event of a Sale of the Company, the
Committee may provide, in its discretion, that the Options held by Participants
who are then employed by the Company shall become immediately vested; provided
that such Participants have been continuously employed by the Company from the
date of the Option grant to the date of the Sale of the Company, and that such
Options shall terminate if not exercised as of the date of the Sale of the
Company.
5.7 EXPIRATION OF OPTIONS.
(a) NORMAL EXPIRATION. In no event shall any part of any Option be
exercisable after the Expiration Date.
(b) EARLY EXPIRATION UPON TERMINATION OF EMPLOYMENT. Any part of any
Option that was not vested and exercisable on a Participant's Termination Date
shall expire and be forfeited on such date, and any part of any Option that was
vested and exercisable on the Termination Date shall also expire and be
forfeited; provided, however, that if a Participant (i) dies or becomes subject
to any Disability, the part of a Participant's Options that are vested and
exercisable shall expire 90 days from the date of death or Disability, but in no
event after the Expiration Date, (ii) retires (with the approval of the
Committee), the part of Participant's Options that are vested and exercisable
shall expire 60 days from the date of retirement, or (iii) is discharged other
than for Cause, the part of Participant's Options that are vested and
exercisable shall expire 30 days from the date of discharge, but in no event
after the Expiration Date. In the event of the death of a Participant, Options
that are vested as of the date of death may be exercised by only the executor or
administrator of the Participant's estate or the person or persons to whom the
Participant's rights under the Options pass by will or by the laws of descent
and distribution.
5.8 RIGHT TO REPURCHASE OPTION SHARES UPON TERMINATION OF EMPLOYMENT.
(a) REPURCHASE RIGHT. In the event a Participant's employment with the
Company is terminated for any reason (including death or Disability), the Option
Shares (whether held by such Participant or one or more Permitted Transferees
and including any Option Shares acquired subsequent to such termination of
employment) will be subject to repurchase by the Company, CVC and Hodes pursuant
to the terms and conditions set forth in this Section 5.8 (the "Repurchase
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Option") at a price per share determined as of the Termination Date equal to the
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Fair Market Value thereof. Notwithstanding the foregoing, if the Participant's
employment was terminated for Cause
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or by reason of the Executive's voluntary resignation, then the purchase price
for each Option Share will be the lower of (x) Fair Market Value as of the
Termination Date and (y) the price paid by the Participant for such Option
Shares.
(b) REPURCHASE ELECTION. (i) The Company may elect to purchase all or
any portion of the Option Shares by delivery of written notice (the "Company
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Repurchase Notice") to the holder or holders of the Option Shares, a copy of
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which shall be delivered to CVC and Alan Hodes, within 120 days after the
Termination Date (or within 270 days after the Termination Date if such
termination was caused by death or Disability). The Company Repurchase Notice
will set forth the number of Option Shares to be acquired from such holder, the
aggregate consideration to be paid for such shares, and the time and place for
the closing of the transaction.
(ii) If for any reason the Company does not elect to purchase all of the
Option Shares pursuant to such Repurchase Option, CVC and Alan Hodes shall be
entitled to exercise the Repurchase Option for the Option Shares the Company has
not elected to purchase (the "Available Shares"). As soon as practicable after
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the Company has determined that there will be Available Shares, but in any event
within 120 days after the Termination Date (or within 270 days after the
Termination Date if such termination was caused by death or Disability), the
Company shall give written notice (the "Option Notice") to CVC and Alan Hodes
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setting forth the number of Available Shares. CVC and Alan Hodes may elect to
purchase all or a portion of the Available Shares by giving written notice to
the holder or holders of the Available Shares within 45 days after the Option
Notice has been given by the Company (each a "Shareholder Repurchase Notice").
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In the event CVC and Alan Hodes elect to purchase more shares than the Available
Shares, each of CVC and Alan Hodes shall be entitled to purchase the Available
Shares pro rata based on their ownership of Common Stock.
(c) CLOSING OF REPURCHASE. The closing of the repurchase transaction
will take place on the date designated by the Company in the Company Repurchase
Notice or by CVC and/or Alan Hodes in the Shareholder Repurchase Notice(s),
which date shall not be more than 30 days nor less than 10 days after the
delivery of such notice. The applicable purchasers will pay for the Option
Shares to be purchased pursuant to the Repurchase Option by delivering to such
Participant or Permitted Transferees a check in the amount of the aggregate sale
price of the Option Shares to be repurchased. The Participant and each other
seller will deliver the certificates representing the Option Shares to be sold,
duly endorsed in form, for transfer to the applicable purchaser or its designee,
and the applicable purchaser will be entitled to receive customary
representations and warranties from the Participant or Permitted Transferee
regarding title to the Option Shares.
5.9 RESTRICTIONS ON OPTION SHARES. The Option Shares shall be subject to the
terms and conditions of the Shareholders Agreement and shall be deemed
"Shareholder Shares" for all purposes thereof.
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ARTICLE VI
GENERAL PROVISIONS
6.1 WRITTEN AGREEMENT. The terms and conditions of each Option granted
hereunder shall be embodied in a written agreement (the "Option Agreement") that
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shall be signed by the Participant to whom the Option is granted and be subject
to the terms and conditions set forth herein.
6.2 LISTING, REGISTRATION, AND LEGAL COMPLIANCE. If at any time the
Committee, in its discretion, determines that the listing, registration, or
qualification of the shares subject to Options upon any securities exchange or
under any state or federal securities or other law or regulation, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of Options or the purchase or
issuance of shares thereunder, no Options may be granted or exercised, in whole
or in part, unless such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options will supply the
Company with such certificates, representations, and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent, or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may impose, at any time, any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Committee may, in its discretion and without the Participant's consent, so
reduce such period on not less than 15 days' written notice to the holders
thereof.
6.3 OPTIONS NOT TRANSFERRABLE. Options may not be transferred other than by
will or by the laws of descent and distribution and, during the lifetime of the
Participant to whom they were granted, may be exercised only by such Participant
(or, if such Participant is incapacitated, by such Participant's legal guardian
or legal representative).
6.4 ADJUSTMENTS. In the event of a reorganization, recapitalization, stock
dividend, stock split, or such other combination or other change in the shares
of Common Stock, the Board or the Committee may, in order to prevent the
dilution or enlargement of rights under the Plan or outstanding Options, and as
such Board or Committee determines to be appropriate and equitable, adjust (1)
the number and type of shares as to which options may be granted under the Plan,
(2) the number and type of shares covered by outstanding Options, (3) the
exercise prices specified therein, and (4) other provisions of this Plan
specifying a number of shares.
6.5 RIGHTS OF PARTICIPANTS. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time (with or without cause), or to confer upon
any Participant any right to continue in the employ of the Company or any
Subsidiary for any period of time, or to continue to receive such Participant's
current (or other) rate of compensation. No employee shall have a right to be
selected as a Participant or, having been so selected, to be selected again as
such.
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6.6 AMENDMENT, SUSPENSION, AND TERMINATION OF PLAN. The Board or the
Committee may suspend or terminate the Plan, or any portion thereof, at any time
and may amend it from time to time in such respects as the Board or the
Committee may deem advisable; provided, however, that no such amendment shall be
made without shareholder approval, to the extent such approval is required by
law, agreement, or the rules of any exchange upon which the Common Stock is
listed, and no such amendment, suspension, or termination shall impair the
rights of Participants under outstanding Options without the consent of the
Participants affected thereby, except as provided below. No Options shall be
granted hereunder after the tenth anniversary of the adoption of the Plan.
6.7 AMENDMENT OF OUTSTANDING OPTIONS. The Committee may amend or modify any
Option in any manner to the extent that the Committee would have had initial
authority under the Plan to grant such Option; provided, however, that except as
expressly contemplated elsewhere herein, or in any Option Agreement, no such
amendment or modification shall impair the rights of any Participant under any
outstanding Option without the consent of such Participant.
6.8 INDEMNIFICATION. In addition to such other rights of indemnification as
they may have as members of the Board or the Committee, the members of the
Committee shall be indemnified by the Company against (i) all costs and expenses
reasonably incurred by them in connection with any action, suit, or proceeding
to which they or any of them may be party by reason of any action or omission
undertaken in connection with the Plan or any Option granted under the Plan, and
(ii) all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit, or proceeding.
Notwithstanding the foregoing, any such Committee member shall be entitled to
the indemnification rights set forth in this Section 6.8 only if such member (1)
acted in good faith and in a manner that such member reasonably believed to be
in, and not opposed to, the best interests of the Company, and (2) with respect
to any criminal action or proceeding, (A) had no reasonable cause to believe
that such conduct was unlawful, and (B) upon the institution of any such action,
suit, or proceeding, gave the Company written notice thereof as well as an
opportunity to defend the same before undertaking to defend it on his own
behalf.
6.9 RESTRICTED SECURITIES. All Class A Common issued pursuant to the terms
of this Plan shall constitute "restricted securities," as that term is defined
in Rule 144 promulgated by the Securities and Exchange Commission pursuant to
the Securities Act, and may not be transferred except in compliance with the
registration requirements of the Securities Act or an exemption therefrom. In
connection with any such transfer, the Company may require the transferor to
provide a written opinion of counsel to the effect that such transfer complies
with the Securities Act and other applicable securities laws. The certificates
representing the Option Shares shall bear the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
___________, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND APPLICABLE STATE SECURITIES
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LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER
AGREEMENTS AS SET FORTH IN THE COMPANY'S 1997 STOCK OPTION PLAN, A COPY
OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL
PLACE OF BUSINESS WITHOUT CHARGE."
In addition, each Participant agrees by acceptance of the Option not to
effect any public sale or distribution of any equity securities of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 180 days after the
effectiveness of any underwritten Demand Registration or any underwritten
Piggyback Registration (as such terms are defined in the Registration Rights
Agreement dated as of February 4, 1997 between the Company and certain of its
shareholders), except as part of such underwritten registration if otherwise
permitted.
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PEN-TAB HOLDINGS, INC.
AGREEMENT EVIDENCING A GRANT OF A NONQUALIFIED
STOCK OPTION UNDER 1997 STOCK OPTION PLAN
This OPTION AGREEMENT (the "Agreement") is made as of ___________,
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1997, between Pen-Tab Holdings, Inc. a Virginia corporation (the "Company"), and
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_________________________ ("Grantee"). Capitalized terms used but not defined
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herein shall have the meanings assigned to such terms in the Plan (as defined
below).
1. Grant of Option. Pursuant to the Pen-Tab Holdings, Inc. 1997
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Stock Option Plan (the "Plan"), the Company hereby grants to Grantee, as of the
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grant date specified above, a nonqualified stock option (the "Option") to
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purchase ________________ shares of the Company's Class A common stock, par
value $.01 per share, (the "Class A Common") (which number of shares may be
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adjusted as provided in the Plan) at the exercise price per share of $1.00,
subject to the terms and conditions set forth herein and in the Plan.
2. Grantee Bound by Plan. Attached hereto as Annex A is a copy of
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the Plan which is incorporated herein by reference and made a part hereof.
Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound
by all the terms and provisions thereof. Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Plan. The Plan should be
carefully examined before any decision is made to exercise the Option.
3. Exercise of Option. Subject to Section 5, the Option may be
------------------
exercised by written notice to the Company's Secretary at any time and from time
to time but only to the extent it has become vested. An Option shall not be
exercisable, in any event, after the tenth anniversary of grant. An Option may
not be exercised for a fraction of a share of Common Stock. Options are subject
to cancellation as provided in the Plan.
4. Vesting of Options.
------------------
(a) Normal Vesting. Subject to the earlier expiration of any
--------------
Options pursuant to Section 5.7 of the Plan, the Option shall vest and become
---
exercisable in the amounts set forth opposite the dates set forth below:
Vesting Date Vested Percentage of Option
------------ ---------------------------
First anniversary of the date hereof 20%
Second anniversary of the date hereof 40%
Third anniversary of the date hereof 60%
Fourth anniversary of the date hereof 80%
Fifth anniversary of the date hereof 100%
(b) Acceleration of Vesting on a Sale of the Company.
------------------------------------------------
(i) If the Grantee has been continuously employed by the
Company from the date of the grant of the Option until the event of a Sale
of the Company, the portion of the Option which has not vested as of the
date of such Sale of the Company shall be deemed to be immediately vested
and will become exercisable. If the Grantee elects to exercise any portion
of the Option in connection with the Sale of the Company, such exercise,
subject to the Grantee's compliance with Section 5, will be deemed to occur
immediately prior to the consummation of such Sale of the Company.
(ii) Notwithstanding any other provisions of this Option, if all
or any portion of the payments or benefits provided under Section 4(b), by
reason of acceleration of vesting or otherwise, either alone or together
with other payments or benefits which the Grantee receives or is then
entitled to receive from the Company and any of its Subsidiaries would
constitute a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), the acceleration of
vesting upon a sale of the Company shall apply only to so much of the
Option that does not cause such acceleration to be subject to the excise
tax imposed by Section 4999 of the Code; but only if, by reason of such
limited acceleration, the Grantee's net after tax benefit shall exceed the
net after tax benefit if such reduction were not made. "Net after tax
benefit" for purposes of this Section 4(b)(ii) shall mean the sum of (w)
the total amount payable to the Grantee under this Section 4, plus (x) all
----
other payments and benefits which the Grantee receives or is then entitled
to receive from the Company and any of its Subsidiaries that would
constitute a "parachute payment" within the meaning of Section 280G of the
Code, less (y) the amount of federal income taxes payable with respect to
----
the payment and benefits described in (w) and (x) above, calculated at the
maximum marginal income tax rate for each year in which such payments and
benefits shall be paid to the Grantee (based upon the rate in effect for
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such year as set forth in the Code at the time of the first payment of the
foregoing), less (z) the amount of excise taxes imposed with respect to the
----
payments and benefits described in (w) and (x) above by Section 4999 of the
Code.
5. Conditions to Exercise. The Option may not be exercised by
----------------------
Grantee unless the following conditions are met:
(a) Grantee shall deliver an executed Joinder to the Shareholders
Agreement, dated as of _________, 1997, by and among the Company, CVC and
certain other parties, as may be amended from time to time (the "Shareholders
------------
Agreement"), in the form of Exhibit A to the Shareholders Agreement;
- --------- ---------
(b) legal counsel for the Company must be satisfied at the time
of exercise that the issuance of shares of Common Stock upon exercise will be in
compliance with the Securities Act, and applicable United States federal, state,
local, and foreign laws; and
(c) Grantee must pay at the time of exercise the full purchase
price for the shares of Common Stock being acquired hereunder pursuant to
Section 5.2 of the Plan and must pay, or make adequate provision for the payment
of, the withholding amount pursuant to Section 5.4 of the Plan.
6. Transferability.
---------------
(a) Transfer Restrictions. This Option may not be sold,
---------------------
assigned, transferred, pledged, hypothecated, or otherwise disposed of by
Grantee, except by will or by the laws of descent and distribution and is
exercisable during Grantee's lifetime only by Grantee (or, if Grantee is
incapacitated, by Grantee's legal guardian or legal representative). If Grantee
or anyone claiming under or through Grantee attempts to violate this Paragraph
6, such attempted violation shall be null, void, and without effect, and the
Company's obligation hereunder shall terminate. If at the time of Grantee's
death the Option has not been fully exercised, Grantee's estate or any person
who acquires the right to exercise the Option by bequest or inheritance or by
reason of Grantee's death may, at any time within 90 days after the date of
Grantee's death (but in no event after the expiration of ten years from the
grant date), exercise the Option with respect to the number of shares
(determined under Paragraph 4 above) as to which Grantee could have exercised
the Option at the time of Grantee's death, or with respect to such greater
number of shares as determined by the Committee in its sole discretion. The
applicable requirements of Paragraph 5 above must be satisfied at the time of
such exercise.
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(b) Additional Transfer Restrictions. Any Option Shares received
--------------------------------
upon exercise of this Option (i) are subject to the repurchase right set forth
in Section 5.8 of the Plan and (ii) shall constitute "Shareholder Shares" for
all purposes of the Shareholders Agreement and shall be subject to the
restrictions and obligations of the Shareholders Agreement.
7. Administration. Any action taken or decision made by the
--------------
Company, the Board, or the Committee or its delegates arising out of or in
connection with the construction, administration, interpretation or effect of
the Plan or this Agreement shall lie within its sole and absolute discretion, as
the case may be, and shall be final, conclusive, and binding on Grantee and all
persons claiming under or through Grantee. By accepting this grant or other
benefit under the Plan, Grantee and each person claiming under or through
Grantee shall be conclusively deemed to have indicated acceptance and
ratification of, and consent to, any action taken under the Plan by the Company,
the Board, or the Committee or its delegates.
8. No Rights as Shareholder. Unless and until a certificate or
------------------------
certificates representing such shares of Common Stock shall have been issued to
Grantee (or any person acting under Paragraph 7 above), Grantee shall not be or
have any of the rights or privileges of a shareholder of the Company with
respect to shares of Common Stock acquired upon exercise of the Option.
9. Investment Representation. Grantee hereby represents and
-------------------------
warrants that the shares of Common Stock that Grantee may acquire by exercising
the Option shall be acquired for investment without a view to distribution,
within the meaning of the Securities Act, and shall not be sold, transferred,
assigned, pledged, or hypothecated in the absence of an effective registration
statement for the shares of Common Stock under the Securities Act and applicable
state securities laws or an applicable exemption from the registration
requirements of the Act and any applicable state securities laws. Grantee also
agrees that the shares of Common Stock that Grantee may acquire by exercising
the Option will not be sold or otherwise disposed of in any manner that would
constitute a violation of any applicable federal or state securities laws.
10. Listing and Registration of Common Stock. The Company, in its
----------------------------------------
discretion, may postpone the issuance, delivery, or both, of shares of Common
Stock upon any exercise of the Option until completion of such stock exchange
listing, or registration, or other qualification of such shares under any state
and/or federal law, rule or regulation as the Company may consider appropriate.
11. Rights of Participants. Neither this Agreement nor the Plan
----------------------
creates any employment rights in Grantee and the Company shall have no liability
for terminating Grantee's employment or materially reducing Grantee's
responsibilities.
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12. Notices. Any notice hereunder to the Company shall be addressed
-------
to the attention of the president of the Company, and any notice hereunder to
Grantee shall be addressed to Grantee at Grantee's last address on the records
of the Company, subject to the right of the Company or Grantee to designate at
any time hereafter in writing some other address. Any notice shall be deemed to
have been duly given when delivered personally, one day following dispatch if
sent by reputable overnight courier, fees prepaid, or three days following
mailing if sent by registered mail, return receipt requested, postage prepaid
and addressed as set forth above.
13. Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of any successors to the Company and all persons lawfully
claiming under Grantee.
14. GOVERNING LAW. THE CORPORATE LAW OF VIRGINIA SHALL GOVERN ALL
-------------
ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS SHAREHOLDERS. ALL
OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
* * * * *
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IN WITNESS WHEREOF, the Company and Grantee have executed this Agreement as
of the date first above written.
PEN-TAB HOLDINGS, INC.
____________________________
Name:
Title:
GRANTEE
____________________________
Employee's Signature
____________________________
Name of Employee (Print)
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ANNEX A
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Pen-Tab Holdings, Inc.
1997 Stock Option Plan
See attached.
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