OUTSOURCING SERVICES GROUP, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made as of this
31st day of December, 1997, by and between OUTSOURCING SERVICES GROUP,
INC., a Delaware corporation having its principal place of business at 425
South Ninth Avenue, City of Industry, California 91716-3382 (the
"Company"), and CHRISTOPHER DENNEY, whose address is _______________________
(the "Employee").
RECITALS
a. As an inducement to Employee to joining the Company, the
Company has agreed to grant to Employee options to purchase
shares of the Company's common stock in connection with the
Employment and Non-Competition Agreement, of even date, by and
among Employee and the Company and certain of its subsidiaries
(the "Employment Agreement").
b. The Company and Employee desire to enter into this Agreement
to memorialize the grant of the options to Employee.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant. Upon the effectiveness of this Agreement, as
described in Section 20, the Company hereby grants to Employee the right to
purchase up to eighty-five thousand (85,000) shares of common stock of the
Company at a price of $10.00 per share (which price equals the fair market
value of a share of the Company's common stock as determined by the
Company's Board of Directors in good faith) (the "Initial Option"), on the
terms and conditions set forth herein. For each of the first five years
after the Effective Date (as defined herein) Employee shall participate,
along with other executives of the Company, in the annual award to all such
participants in the aggregate, of options to purchase up to 50,000 shares
of the Company's common stock at an exercise price equal to the then fair
market value as determined by the Board of Directors at the time of the
grant. Any such options granted to Employee shall be referred to herein as
"Subsequent Options." The Subsequent Options shall be issued on the terms
and conditions set forth herein. The Initial Option and Subsequent Options
are also referred to as the "Options"). Employee agrees that Employee and
any other person who may be entitled hereunder to exercise the Options
shall be bound by all terms and conditions of this Agreement.
2. Exercisability. Subject to the terms of this Agreement,
the Options granted herein shall become exercisable at the following times
and in the following amounts:
The Initial Option shall become exercisable on the
third anniversary of the Effective Date described
below. Each Subsequent Option shall become exercisable
at a rate of 20% per year on each anniversary of the
effective date of the grant of such Subsequent Option
until it is fully vested. All unvested Options shall
become exercisable on the earliest of the date (i) the
Company's common stock becomes publicly traded on a
national securities exchange or the Nasdaq stock
market, (ii) the Company completes an initial public
offering of its common stock with proceeds in excess of
$15,000,000, (iii) the Company, or its assets or
business, is sold substantially as an entirety. Each
Option granted hereunder shall lapse and expire on the
tenth (10th) anniversary of the effective date of its
grant.
If Employee does not purchase the full number of shares
Employee is entitled to purchase in any one year, the right to purchase
such shares carries over to the subsequent years during the term of the
Option.
3. Exercise. The Options may be exercised on the terms and
conditions contained herein by giving three (3) day's prior written notice
of exercise to the Company, specifying the number of shares to be purchased
and the price to be paid therefor and by delivering a check in the amount
of the purchase price payable to the Company. The purchase price may also
be paid, in whole or in part, by delivery to the Company of outstanding
shares of the Company's common stock previously held by the Employee valued
at "Fair Market Value".
For the purposes of this Agreement, "Fair Market Value" as
of a certain date (the "Determination Date") means: (a) the closing price
of a share of the Company's common stock on the principal exchange on which
shares of the Company's common stock are then trading, if any, on the
Determination Date, or, if shares were not traded on the Determination
Date, then on the nearest preceding trading day during which a sale
occurred; or (b) if such stock is not traded on an exchange but is quoted
on NASDAQ or a successor quotation system, (i) the last sales price (if the
stock is then listed as a National Market Issue under The Nasdaq National
Market System) or (ii) the mean between the closing representative bid and
asked prices (in all other cases) for the stock on the Determination Date
as reported by NASDAQ or such successor quotation system; or (c) if the
Company's stock is not publicly traded, the fair market value established
in good faith by the Board.
4. Termination of Employment.
(a) Termination of Employee. Employee shall forfeit all
Options if Employee's employment terminates prior to the date the Options
become exercisable because of Employee's resignation (unless such
resignation is for "good reason" as described below) or because of
Employee's termination for any of the following grounds specified in
section 4.01(b), (c) or (d) of Employee's Employment Agreement.
(b) Termination by Employee for "Good Reason." If
Employee's employment is terminated by Employee for "good reason", Employee
shall have the right to exercise the (i) Initial Option at any time prior
to the Initial Option's expiration; and (ii) Subsequent Options for twelve
(12) months following Employee's termination, but only to the extent that
the Subsequent Options were exercisable on such date of termination.
For purposes of this Agreement, Employee's resignation for
"good reason" means any of the following:
(i) Without the Employee's prior written consent, a
reduction in Employee's current salary;
(ii) The taking of any action by the Company that would
substantially diminish the aggregate value of the benefits provided to the
Employee under the Employee's medical, health, accident, disability, life
insurance, thrift and retirement plans in which Employee was participating
on the date of this Agreement, other than any such reduction which is (a)
required by law, (b) implemented in connection with a general concessionary
arrangement affecting all employees or affecting the group of employees
(senior management) of which the Employee is a member or (c) generally
applicable to all beneficiaries of such plans;
(iii) Resignation as a result of unlawful
discrimination or other unlawful acts committed against employee, as
evidenced by a settlement, arbitration award or final court order; or
(iv) Any other "good reason" described in the
Employment Agreement.
(c) Death. If Employee's employment is terminated for
death, or having ceasing to be an employee, but during the period during
which Employee could have exercised the Options granted hereunder in
accordance with the terms of this Agreement, Employee should die,
Employee's executor or administrator of Employee's estate shall have the
right for twelve (12) months following such death to exercise the Options,
but only to the extent that the Options were exercisable on the date of
Employee's death.
(d) Disability. If Employee's employment is terminated for
disability, Employee or his administrator or legal guardian, shall have the
right for twelve (12) months following such termination to exercise the
Options granted hereunder, but only to the extent that the Options were
exercisable on the date of termination.
(e) Other. If Employee's employment is terminated for any
reason other than as set forth in Sections 4(a), (b), (c) and (d) above,
Employee shall have sixty (60) days following such termination to exercise
the Options granted hereunder, but only to the extent that the Options were
exercisable on the date of termination.
5. Transferability. The Options shall be transferable only by
will or by the laws of descent and distribution to the estate (or other
personal representative) of Employee and shall be exercisable during
Employee's lifetime only by Employee. Except as otherwise provided herein,
any attempt at alienation, assignment, pledge, hypothecation, transfer,
sale, attachment, execution or similar process, whether voluntary or
involuntary, with respect to all or any part of this option or any right
under this Agreement, shall be null and void and, at the Company's option,
shall cause Employee's rights under this Agreement to terminate.
6. Withholding Requirements. In the event the Company
determines that it is required to withhold state or federal income taxes as
a result of the exercise of the Options, Employee shall be required, as a
condition to the exercise thereof, to make arrangements satisfactory to the
Company to enable it to satisfy such withholding requirements.
7. Rights as a Stockholder. Employee, or any permitted
transferee of Employee, shall have no rights as a stockholder with respect
to any shares covered by the Options until the date of the issuance of a
stock certificate for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior
to the date such stock certificate is issued, except as provided in Section
8 of this Agreement. This Agreement shall not confer upon Employee any
right of continued employment by the Company or interfere in any way in the
Company's right to terminate Employee.
8. Recapitalization. The number of shares of Common Stock
covered by the Options and the exercise price thereof shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of common stock resulting from a subdivision or consolidation
of such shares or the payment of a stock dividend (but only of common
stock) or any other increase or decrease in the number of issued shares of
common stock effected without receipt of consideration by the Company.
Subject to any required action by stockholders, if the Company is the
surviving corporation in any merger or consolidation, the Options shall
pertain and apply to the securities to which a holder of the number of
shares of common stock subject to the Options would have been entitled.
The foregoing adjustments shall be made by the Company's
Board of Directors, whose determination shall be conclusive and binding on
the Company and Employee.
Except as expressly provided in this Section 8, Employee
shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class,
or by reason of any dissolution, liquidation, merger, consolidation or
spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares subject to the
Options or the exercise price thereof.
The Options shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or
assets.
9. Securities Act and Other Regulatory Requirements. If
through any act or omission of Employee the exercise of the Options or the
sale of any of the underlying shares of stock would, in the opinion of
counsel for the Company, violate the Securities Act of 1933 (or any other
federal or state statutes having similar requirements) as it may be in
effect at that time, then the Options shall not be exercisable and the
Company shall not be obligated to sell any shares subject to the Options.
Further, the Board of Directors of the Company may require
as a condition of issuance of any shares under the Options that Employee
furnish a written representation that Employee is acquiring the shares for
investment and not with a view to distribution to the public.
10. Shares subject to Shareholder Agreement. Shares issued to
Employee upon exercise of the Options granted hereunder shall be subject to
the Company's Amended and Restated Stockholder Agreement, dated as of June
30, 1997, as it may be amended from time to time (the "Stockholder
Agreement"). In connection with the issuance of the shares of Company
common stock, Employee shall take such actions and shall execute such
documents as the Company shall require for Employee to become a party to
the Stockholder Agreement.
11. Legends. Each certificate representing shares of the
Company's common stock issued upon exercise of the Options shall bear upon
its face the following legends in addition to any legends required by
applicable state law:
(a) "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN
THE OPINION OF COUNSEL TO THE STOCKHOLDER, WHICH COUNSEL
MUST BE, AND THE FORM AND SUBSTANCE OF WHICH OPINION ARE,
SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS
EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH
THE ACT, SUCH LAWS AND THE STOCKHOLDER AGREEMENT, DATED AS
OF JUNE 30, 1997, AS AMENDED."
(b) "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER CONDITIONS, AS
SPECIFIED IN A STOCKHOLDER AGREEMENT ENTERED INTO AS OF THE
30TH DAY OF JUNE, 1997, AS AMENDED, COPIES OF WHICH ARE ON
FILE AT THE OFFICE OF THE ISSUER AND WILL BE FURNISHED
WITHOUT CHARGE TO THE HOLDER OF SUCH SHARES UPON WRITTEN
REQUEST."
Employee shall be bound by the requirements of such legends to
the extent that such legends are applicable.
12. Effect of Exercise. Upon the exercise of all or any part of
the Options, the number of shares of common stock subject to the Options
under this Agreement shall be reduced by the number of shares with respect
to which such exercise is made.
13. Notices. Any notices to be given hereunder by either party
to the other shall be in writing and may be effected by personal delivery,
by courier, or by mail (registered or certified), postage prepaid with
return receipt requested, or by facsimile confirmed by mail. Mailed
notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph. Mailed notices shall be deemed communicated as of
four (4) calendar days after mailing. Notices delivered personally or by
courier shall be deemed delivered when actually received.
14. Entire Agreement. This Agreement supersedes any and all
other agreements (other than the Employment Agreement), either oral or in
writing, between the parties hereto with respect to the employment of the
employee by the company and contains all the covenants and agreements
between the parties with respect to such employment in any manner
whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, orally or otherwise,
have been made by any party, which are not embodied herein, and that no
other prior agreement, statement or promise not contained in this Agreement
shall not be valid or binding. Any modification of this Agreement will be
effective only if it is in writing signed by the party to be charged. To
the extent that this Agreement and the Company's 1998 Stock Option Plan are
in conflict, the terms of this Agreement control.
15. No Conflict. The Company hereby represents and warrants
that this Agreement and the Options granted hereunder do not violate or
conflict with covenants of the Company's (and certain of its subsidiaries'
financing agreements entered into on or about the Effective Date.
16. Partial Invalidity. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall nevertheless continue in full
force without being impaired or invalidated in any way.
17. Choice of Law; Counterparts. This Agreement, and all rights
and obligations hereunder, shall be governed by the laws of the State of
New York. This Agreement may be executed in one or more counterparts, each
of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same
instrument.
18. Successor. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors,
heirs, beneficiaries, executors and administrators.
19. Paragraph Headings. Paragraph headings are for convenience
only and are not part of the context.
20. Effective Date. This Agreement shall become effective upon
the closing contemplated by the Share and Asset Purchase Agreement among
CCL Industries, Inc., CCL Industries Corporation and Outsourcing Services
Group, Inc. dated October 28, 1997. Provided such closing occurs, the
"Effective Date" for purposes of this Agreement shall be December 31, 1997.
[Signature Page Follows]
[SIGNATURE PAGE OPTION AGREEMENT]
IN WITNESS WHEREOF, this Agreement is executed as of the date
first written above.
"Company"
OUTSOURCING SERVICES GROUP, INC.
By: /s/ Joseph Sortais
----------------------------------------
Name: Joseph Sortais
-------------------------------------
Title: Chief Financial Officer
-------------------------------------
"Employee"
/s/ Christopher Denney
-------------------------------------------
CHRISTOPHER DENNEY