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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

|For the fiscal year ended December 31, 2001 |  | Commission File Number: 333-57209
|------------------------------------------- |  | ---------------------------------

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OUTSOURCING SERVICES GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction
of incorporation or organization)

33-0597491(I.R.S. Employer Identification No.)25 Commerce Drive
Allendale, NJ(Address of principal executive offices)

07401(Zip Code)


Registrant's telephone number, including area code:(201) 785-1333

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:None

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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.    Yes /x/    No / /

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K.    /x/

Number
of shares of common stock, $.001 par value, outstanding as of the close of business on March 21, 2002: 3,373,265 shares.

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OUTSOURCING SERVICES GROUP, INC.  TABLE OF CONTENTS

|         |  |                                                                                       |  | Page
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I   |  |                                                                                       |  |     
|ITEM 1.  |  | BUSINESS                                                                              |  | 4   
|ITEM 2.  |  | PROPERTIES                                                                            |  | 12  
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 13  
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 13  
|PART II  |  |                                                                                       |  |     
|ITEM 5.  |  | MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS             |  | 14  
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                               |  | 15  
|ITEM 7.  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 17  
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 24  
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 25  
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 25  
|PART III |  |                                                                                       |  |     
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 26  
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                |  | 29  
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 33  
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 35  
|PART IV  |  |                                                                                       |  |     
|ITEM 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                      |  | 40  

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Forward-Looking Statements

Certain statements and information contained or incorporated by reference in this report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), which represent the Company's (as defined below) expectations or beliefs, including but not limited to, statements
concerning industry performance, the Company's operations, performance, financial condition, growth and acquisition strategies, margins and growth in sales of the Company's products and services. For
this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Such statements can be identified
by the use of forward-looking terminology such as "believes," "expects," "intends," "may," "will," "should," or "anticipates," or the negative, therefore, other variations thereon or comparable
terminology, or by discussions of strategy. No assurances can be given that the future results covered by the forward-looking statements will be achieved. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's control.

Such
forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or
industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the
following: general and economic business conditions, both domestic and foreign; industry and market capacity; fashion industry changes; wage rates; existing government regulations and changes in, or
failure to comply with, government regulations; liabilities and other claims asserted against the Company; competition; the loss of any significant customers; change in operating strategy or
development plans; the ability to attract or retain qualified personnel; the significant indebtedness of the Company; the availability and terms of capital to fund the expansion of the Company's
business; and other factors referenced in this Form 10-K and the Company's Form S-4 Registration Statement, file Number 333-57209, declared effective
on January 28, 1999 (the "Registration Statement"), copies of which may be obtained from the Company without cost.

We
undertake no obligation to update forward-looking statements whether as a result of new information, future events or otherwise.

Unless
the context otherwise requires, the terms "Company" and "OSG" refer to Outsourcing Services Group, Inc., a Delaware corporation, and, as applicable, its direct and indirect
subsidiaries, Aerosol Services Company, Inc. ("ASC"), Piedmont Laboratories, Inc. ("Piedmont"), Kolmar Laboratories, Inc.
("Kolmar"), Acupac Packaging, Inc. ("Acupac"), Precision Packaging and Services, Inc. ("Precision"), OSG Ivers-Lee Inc. ("Ivers-Lee") and OSG Norwich
Pharmaceutical, Inc. ("Norwich"). References to the "Kolmar Group" include Kolmar, Kolmar's wholly-owned subsidiaries, Kolmar de Mexico, S.A. de CV, Kolmar (Aust.) Pty Limited and Kolmar
Canada Inc. ("Kolmar Canada"). Unless the context otherwise requires, references to Kolmar include references to the Kolmar Group.

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PART I

ITEM 1. BUSINESS

General

The Company is a holding company that currently owns and operates seven wholly-owned subsidiaries: Piedmont, ASC, Kolmar, Acupac, Precision, Ivers-Lee
and Norwich. Located in Gainesville, Georgia, Piedmont was founded in 1985 by Samuel D. Garretson, a shareholder of the Company. The Company acquired Piedmont on September 30, 1996 (the
"Piedmont Acquisition"). Located in the City of Industry, California, ASC was founded in 1966 by Walter K. Lim, OSG's Chairman. An affiliate of the Company acquired ASC on February 14, 1994
(the "ASC Acquisition"). The affiliate was subsequently merged with the Company on June 30, 1997. Kolmar was founded in 1921 and was acquired in 1991 by CCL Industries Inc.
("CCL"), a publicly held Canadian contract packaging and manufacturing company. Kolmar's main manufacturing facility is located in Port Jervis, New York, and other smaller manufacturing
facilities are located in California, Canada and Mexico. Effective January 1, 1998, OSG acquired from CCL and its wholly-owned indirect subsidiary, CCL Industries Corporation ("CCL
Industries"), all of the outstanding shares of Kolmar and the net assets of Kolmar Canada (the "Kolmar Acquisition"). The purchase price for the Kolmar Acquisition was $78.0 million. In
April 1999, Kolmar Canada acquired certain of the operating assets of Bradcan Corporation ("Bradcan") for approximately $800,000. The Company acquired all of the issued and outstanding common
stock of Acupac on June 2, 1999 for approximately $10 million. Located in Mahwah, New Jersey, Acupac was founded by Walter Klauser and Kenneth A. Beck in 1983. On February 29,
2000, pursuant to a stock purchase agreement, the Company acquired all the issued and outstanding stock of Precision, an Ohio corporation, for approximately $42.1 million. On August 25,
2000, the Company acquired all of the outstanding stock of Ivers-Lee, located in Brampton, Ontario, for approximately $8.0 million. On June 29, 2001, the Company completed an
asset purchase acquisition of the Procter & Gamble ("P&G") North Norwich facility located in North Norwich, New York which was funded with a $10.0 million note payable to P&G, bearing 8%
interest due in June 2006. On September 6, 2001, the Company completed an asset purchase acquisition of Dermal Sciences, Inc. ("Dermal") for approximately $3.5 million. Its
operations reside at the Acupac facility located in Mahwah, New Jersey. See "Item 13."

Certain Relationships and Related Transactions

The Company is a leading provider of outsourced services including manufacturing packaging and clinical services to the North American health and beauty aid and
healthcare markets. OSG offers its customers a complete range of services, including product conceptualization, formulation, manufacturing, filling, packaging, clinical stability and microbacterial
testing services. It also provides ancillary services such as materials procurement, warehousing and distribution of finished goods. The Company's revenues are derived from the manufacturing and
packaging of health and beauty aid products, including lipstick, face powder, eye shadow, mascara, nail enamel, skin care cream and lotion, hair spray and gel, shampoo and shaving cream and gel. Other
products manufactured and packaged by the Company include household lubricants and liquid cleaners, outsourced manufacturing and packaging including clinical stability and microbacterial testing
services for the pharmaceutical and over-the-counter drug markets. The Company has developed hundreds of proprietary products that have been placed into distribution by its
customers in national and international consumer markets. Management estimates that a significant portion of the Company's revenues are derived from products that OSG has formulated. The Company has
ten manufacturing facilities strategically located in the United States, Canada and Mexico. Management believes OSG is the largest independent contract manufacturer and packager of color cosmetics,
high-end salon aerosol hair care products and shaving creams and gels in North America. The Company had net revenues $77.8 million, $220.6 million, $257.0 million,
$296.1 million, and $325.6 million for the years ended December 31, 1997, 1998, 1999, 2000 and 2001, respectively. The Company had net losses before

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extraordinary items of $0.7 million, $5.3 million, $0.3 million, $3.5 million, and $3.4 million for the years ended December 31, 1997, 1998, 1999, 2000 and
2001, respectively.

Contract
manufacturers and packagers manufacture products to customer specifications and fill containers for a wide range of industries. Contract manufacturers typically charge a
per-unit fee which varies depending on: (i) the type of product, (ii) the type of services provided (filling only versus product development, formulation, materials
procurement, etc.), (iii) the container size and order quantity, and (iv) the complexity of the manufacturing and packaging process. The contract manufacturing and packaging industry is
highly fragmented, with hundreds of independent companies typically providing a narrow scope of services in limited geographic areas. Competition is based principally on formulation capabilities,
product quality, reputation, service, dependability, and cost-effectiveness. When the cost of distribution is a significant factor in the total product cost or if customers desire
geographic proximity to suppliers, competition tends to be regionally based. Management believes that few competitors offer the scale, expertise, reputation and range of services that the Company
provides.

Product Information

The Company specializes in the manufacturing and packaging of consumer products, color cosmetics, and pharmaceutical products. For fiscal year 2001, the Company
reorganized its operating divisions to include the pharmaceutical markets.

Consumer Products Division (Aerosol, Piedmont, Precision and Acupac).The Consumer Products Division includes a broad range
of aerosol products such as hair spray, shaving cream and gel, beauty care and household cleaning products. The Company's acquisition of Dermal expanded its market sector to include treatment patches
and treated nonwovens for the health and beauty aid markets. The aerosol system is one of the most effective forms of delivering products in a cost-effective manner, while providing dosage
control, sanitary use and convenience. The aerosol products market has undergone significant change as certain states have enacted regulations requiring reduced Volatile Organic Chemicals ("VOC")
emissions, resulting in the reformulation of aerosol products to meet these new standards. The Company has reformulated over 100 products in response to legislative changes. Not only must packagers of
aerosol products obtain government permits, but the packaging process also requires specialized equipment and expertise. Management believes that the Company is the second largest independent aerosol
contract manufacturer and packager in North America, the largest in shaving creams and gels and the largest in high-end salon aerosol hair care products, on the basis of sales. Liquid
products manufactured and packaged by OSG include shampoo, conditioner, fragrance, pump hair spray and gel and non-aerosol deodorant, as well as household products such as lubricants and
liquid cleaners. For the year ended December 31, 2001, OSG's net revenues from consumer products were $181.9 million, representing approximately 55.9% of net revenues.

Kolmar Division (Port Jervis, Corona, Canada and Mexico).The Kolmar Division encompasses color cosmetic products including
lipsticks, face powder, eye shadow, mascara and nail enamel. The Company manufactures and packages color cosmetics for the entire range of cosmetic market sectors from budget to high-end.
In order to respond to and drive fashion trends, marketers continually change their product offerings. By offering product conceptualization, formulation expertise and manufacturing flexibility, the
Company helps its customers remain current with market trends. Management believes that the Company is the largest independent contract manufacturer of color cosmetics in North America, on the basis
of sales. For the year ended December 31, 2001, OSG's net revenues from color cosmetic products were $116.0 million, representing approximately 35.6% of net revenues.

Pharmaceutical Division (Norwich and Ivers-Lee).The Pharmaceutical Division provides manufacturing, packaging,
clinical trials, stability evaluation and microbacterial testing services to the pharmaceutical and over-the-counter drug markets. The division has solid dose capabilities
including blending and manufacturing, granulating, tablet pressing, blister-packing, printing and coating processes.

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For the year ended December 31, 2001, OSG's net revenues from pharmaceutical products were $27.7 million, representing 8.5% of net revenues.

Production and Manufacturing

The main goal of the Company's service offering is to provide timely delivery of high quality products to customers on a cost-effective basis. OSG
provides its customers with a full range of services including product conceptualization, formulation, manufacturing, filling, packaging, clinical trials, stability evaluation and microbacterial
testing services, materials procurement, warehousing and shipping of
finished goods. The manufacturing process incorporates several distinct steps which require coordination in order to ensure flexibility and short lead times, match product standards and achieve high
throughput. Certain pharmaceutical manufacturing suites as well as other manufacturing services within the facilities are compartmentalized (e.g., all lipsticks are manufactured and packaged in one
area of the facility) in order to ensure quality control, regulatory compliance and eliminate the potential for cross contamination of products.

In
connection with each order, OSG procures raw materials for products and packaging or accepts delivery of such materials from its customers. The raw materials are inspected by quality
control, after which OSG manufactures the product in batches. When the batch is complete, quality assurance testing is performed. In addition to the Company's own rigorous quality assurance
procedures, several of OSG's customers specify additional levels of testing throughout the formulation and manufacturing process. OSG fills the product into packaging containers for shipment to
customers or in some instances ships the final product batch in bulk form to its customers.

Employee Health and Safety Regulations.The Company's operations are subject to a variety of workers' safety laws. The United
States Occupational Safety and Health Act of 1970 ("OSHA") and analogous laws mandate general requirements for safe workplaces for all employees. The Company believes that its operations are in
material compliance with applicable employee health and safety laws.

State and Federal Regulations.The Company's manufacturing and packaging of both over-the-counter and
pharmaceutical drugs and cosmetics are subject to regulation by the U.S. Food and Drug Administration ("FDA") and by various state agencies. Any failure by the Company to remain in compliance with the
regulations promulgated by these agencies could have a material adverse effect on the Company's business.

The
Company must also adhere to state and federal regulations governing good manufacturing practices ("cGMP"), including testing, quality control, manufacturing, inspection, and
documentation requirements for certain products. Following an inspection of the Company's subsidiary Piedmont ( a non-pharmaceutical facility), the Company received a letter from the FDA warning of
observed nonconformance of and deficiencies in validation procedures and investigation of potential quality issues requesting a response about the Company's plan to correct them. The Company promptly
responded to and has worked closely with the FDA to effect the necessary remedial measures to correct the deficiencies noted including making material capital expenditures to replace water processing,
modification of testing and quality control procedures to bring the facility into full compliance. Other than the foregoing, the Company has had no material difficulty in complying with these
regulations to date. If violations of such regulations are noted during inspections in the future of the Company's manufacturing facilities, the Company may be required or may elect to cease
manufacturing and packaging at the facility in violation, pending resolution of the violation. At this time, the Company is in compliance with all state and federal regulations. In these
circumstances, the Company may also be required or may elect to recall products that were manufactured under improper conditions. Although the Company has had no difficulty in complying with these
regulations to date, there can be no assurance that any future federal or state regulation will not have a material adverse effect on the Company's business, results of operations, financial condition
or cash flows.

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Product Liability

The sale of any product can expose the seller of such product to product liability claims. The Company manufactures products principally for marketers who sell
such products to the public. However, there can be no assurance that the Company will not be named in a product liability lawsuit involving a product it produces. Although no material product
liability claims have been asserted against the Company to date, there can be no assurance that such claims will not arise in the future. The Company maintains product liability insurance which
provides coverage in the amount of $51 million per occurrence and $52 million in the aggregate for all claims arising in a policy year. A product liability claim that results in a
judgment or settlement in excess of the Company's insurance coverage could have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.

International Markets

As a result of increased international demand for cosmetic products, cosmetic companies have strategically expanded into markets such as Eastern Europe, Latin
America and the Asia-Pacific region in an effort to become global. The Company intends to capitalize on this trend by increasing its export sales, selectively entering into joint ventures
and licensing agreements, and expanding its manufacturing locations as well as product offerings on a global level. The Company currently has licensing agreements to utilize Kolmar's manufacturing
processes and trade names in Japan, Korea and Thailand, and through its Japanese licensee, now China. The Company has initiated new programs to aggressively attract international customers.

To
date, OSG has developed two control brands which are manufactured at its Mexico facility"Veronique," which is primarily exported to Russia; and, "Maria," a brand targeted
at the Latin and South American markets. The Company has developed hundreds of proprietary products that have been placed into distribution by its customers in national and international consumer
markets.

While
the Company believes that evolving economic conditions in the Far East, Southwest Asia, Russia and Latin America may alter demand for its products and services in certain foreign
countries, the Company cannot currently predict the effect on its business should international economic conditions fail to improve. The Company believes what will not change is the continued
consolidation of the cosmetic, over-the-counter and pharmaceutical business among major customers and their desire to have global reach.

International
sales and marketing efforts may be adversely affected by a number of factors, including environmental regulations, government approvals, export licenses, trade barriers,
instability in international trading relations, currency fluctuations and additional costs of marketing and support due to the Company's lack of proximity with customers. In certain cases, the
Company's sales are denominated in local currencies and, as such, the Company may be adversely affected by fluctuations in those currencies.

Sales & Marketing

The Company has 19 full-time sales representatives located at the Company's various manufacturing facilities and is organized along product Divisions.
The Company's sales efforts are supported by 35 in-house customer service representatives who are responsible for timely delivery of products and services. Marketing includes a small group
specifically focused on promoting innovation within OSG and to its customers. This innovation group is responsible for increasing customer demand for OSG products by following market trends,
suggesting new product ideas and promoting the Company through customer presentations, advertising and trade shows.

The
Company believes that its strong commitment to increasing customer demand for its products and services by following marketing trends, suggesting new product ideas and promoting the
Company through

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customer presentations, advertising and trade shows, will continue to provide the Company with a competitive advantage.

Customers

The Company's customers include over 500 companies that market branded and/or private label consumer products which include health and beauty aid, household
lubricants and liquid cleaners, and outsourced packaging for the pharmaceutical and over-the-counter drug markets. Customers include Mary Kay Inc. ("Mary Kay"), Dial
Corporation ("Dial"), Procter & Gamble Inc. ("P&G"), Sebastian International, Inc. ("Sebastian"), and WD-40 Company ("WD-40") as well as other global
branded marketers and numerous regional or niche marketers. On average, the Company's top ten customers have been with the Company and its predecessors for 20 years. The Company believes that
its ability to develop long-term relationships is due to its product formulation expertise, manufacturing reliability, consistent product quality and timely delivery. Many of OSG's
customers lack in-house manufacturing capabilities and outsource their manufacturing and packaging requirements in order to focus on marketing. Management estimates that a significant
amount of the Company's revenues are derived from customers that do not have in-house manufacturing capabilities for the products OSG manufactures. Companies with the necessary
in-house manufacturing capabilities utilize the Company's services for new product launches, lower volume brands and to supplement internal capacity.

A
small number of customers account for a significant portion of the Company's sales. For the year ended December 31, 2001, Mary Kay, Dial, P&G, Sebastian, and WD-40
accounted for 9.8%, 8.1%, 8.0%, 7.2%, and 6.1%, respectively, of the Company's revenues during this period. The Company currently sells most of its products to customers pursuant to individually
negotiated purchase orders. The Company generally does not enter into long-term contracts with its customers, and, therefore, such customers are not obligated to purchase products from the
Company for any specific period, in any specific quantity or at any specified price, except as may be provided in a particular purchase order, however, the Company did enter into a product supply
agreement for five years with P&G. See "Item 13". The five-year contract will provide a solid established base from which the Company will bring in additional products and grow the business. For the
year ended December 31, 2001, approximately 53.1% of the Company's net revenues were derived from sales to its top ten customers. Although the Company believes that its overall relations with
customers are good, there can be no assurance that such customers will continue to purchase the Company's services, continue with a particular product line which requires services which the Company
offers or contract for the Company's services in connection with any new or successor product lines. The loss of any of the Company's major customers or a significant decrease in demand for certain
products sold by such major customers, could have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.

Competition

The contract manufacturing and packaging industry is highly competitive. The consumer products, color cosmetics and pharmaceutical products sectors of this
industry are fragmented, with many of the independent contract manufacturers typically providing a narrow scope of services in limited geographic areas. Competitors include a large number of other
contract packagers, a few of which are larger than the Company and have substantially greater resources. OSG not only competes with other independent contract manufacturers, but also with marketers
that have self-manufacturing capabilities. Competition is based principally on formulation and production capabilities, quality, reputation, service, dependability and
cost-effectiveness.

The
Company's competitive position could be adversely affected by any significant consolidation of companies operating in the health and beauty aid, household and pharmaceutical and
over-the-counter drug markets, and from marketers with in-house manufacturing capabilities. In certain instances, the Company's customers that have
in-house manufacturing capabilities have increased their own in-house

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manufacturing operations. Any significant increase in in-house manufacturing by the Company's customers could adversely affect the Company's business, results of operations or financial
condition. OSG's main competitors include: Intercos Italia Spa, Marietta Corp., CCL, Accra-Pac Group, Bocchi/Medicia Inc., Packaging Advantage Corporation, Catilytica Corp. and
Patheon Inc.

Sources and Availability of Raw Materials

Some of OSG's customers provide raw materials for product manufacturing and packaging, while in other cases, OSG procures raw materials for its customers. If
customers supply raw materials, the Company charges only a per unit service revenue for its services. In the event OSG purchases raw materials from third party suppliers, OSG passes the cost of such
materials on to its customers, and charges a handling fee in addition to the service revenue. Raw materials are purchased from approved suppliers by the Company's buyers to meet specific production
requirements and customer specifications. The Company's primary raw materials consist of cans, propellants, chemicals, valves, oils, talc, wax, colorants, fragrances, thickeners, caps, bottles,
cartons and tubes. OSG strives to maintain close relationships with its suppliers, and in some cases will enter into long-term contracts with them. Additionally, certain key customers have
recently changed the way materials are sourced, resulting in greater reliance on the Company. This gives OSG greater control over its production planning and inventory levels.

The
Company's raw materials and packaging supplies are usually readily available from multiple suppliers, and the Company is not dependent on any one supplier for any of its raw
materials and packaging supplies. No single supplier accounted for more than 7% of the Company's total purchases in 2001.

Trade Names, Trademarks, Formulas and Patents

OSG owns certain trade names, trademarks, formulas and patents which are used in its business. Management believes that its manufacturing and packaging
experience, know-how and development and formulation expertise are critical in maintaining and growing its business. Management applies for patents and will vigorously protect its
intellectual property under its patents.

Environmental Compliance

The Company's operations and properties are subject to extensive federal, state, local and foreign environmental laws and regulations concerning, among other
things, emissions to air, discharges to water, the remediation of contaminated soil and groundwater, and the generation, handling, storage, transportation, treatment and disposal of waste and other
materials (collectively, "Environmental Laws"). Violations of Environmental Laws can result in civil or criminal penalties or in cease and desist or other orders against the Company. In addition, the
Company may be required to spend material amounts to comply with Environmental Laws, and may be liable with respect to contamination of sites currently or formerly owned or operated by the Company or
with respect to the off-site disposal of hazardous substances. Based upon the Company's experience to date, as well as certain indemnification agreements obtained in connection with the
ASC Acquisition, Kolmar Acquisition and the Norwich Acquisition (see Item 13), and certain insurance coverages, the Company believes that the future cost of compliance with existing Environmental Laws
and its liability for identified environmental claims will not have a material adverse effect on the Company's business, results of operations, financial condition or cash flows. There
can be no assurance, however, that the Company's obligations in this regard will not have such an effect or that the existing indemnities and insurance will be sufficient to fund such liabilities.
Furthermore, future events, such as new information, or changes in Environmental Laws (or in their interpretation or enforcement by courts or governmental agencies) may give rise to additional costs
or claims that could have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.

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Certain
environmental laws, such as the Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), and analogous state laws, impose
liability for the investigation and remediation of hazardous substances released into the environment. Courts have interpreted CERCLA to impose strict, and in some circumstances, joint and several
liability on all potentially responsible parties ("PRPs") at a site if the harm is indivisible, which means that one PRP could be held liable for the entire cost of cleanup at a site where multiple
parties contributed to the contamination. As a practical matter, however, the costs typically are allocated, according to volumetric or other standards, among the PRPs. Under CERCLA and analogous
state laws, the Company may incur liability for contamination at properties presently or formerly owned or operated by the Company or its subsidiaries or predecessors (including contamination caused
by the Company's predecessors or prior owners or operators of such sites), or at properties where such entities sent waste for off-site treatment or disposal.

In
that regard, ASC's operations are located within the boundaries of the Puente Valley Operable Unit ("OU") of the San Gabriel Valley Superfund Site. Prior to the Company's purchase of
ASC, the U.S. Environmental Protection Agency ("EPA") identified ASC as one of more than five hundred PRPs for the Puente Valley OU. Subsequently, ASC and forty-three other PRPs entered into a consent
agreement to fund certain investigatory work, which work was completed in 1997. To date, the EPA has not finally determined the remedial work that will be required at the site; however, the EPA has
issued estimates for the remedial alternatives it is considering which range from approximately $28 million to $51 million. In connection with the Company's purchase of ASC, the sellers
(who currently own the property on which ASC operates) agreed to indemnify the Company with respect to the Puente Valley OU proceeding and certain other environmental matters. Certain of the Company's
leases with the sellers also provide for offsets to the Company's rental obligations in the event that the Company incurs liability for such an indemnified matter. Based on this indemnity, the lease
off-set rights, recent EPA cost estimates of the proposed cleanup alternatives and certain preliminary estimates of ASC's share of liability, the Company believes, although there can be no
assurance, that ASC's liability at this site will not be material. In addition, prior to the Company's merger with Aerosol Services Holding Corporation ("ASHC"), the Los Angeles Regional Water Quality
Control Board ("RWQCB") requested that ASC conduct certain soil and groundwater investigation and remediation on its property. ASC has conducted the requested investigations, the RWQCB has approved
ASC's remediation plan, and remediation began in 2001. Although there can be no assurance, the Company does not believe that the costs of remediation will be material. This remediation is also the
subject of the above-referenced indemnity.

Also,
in regard to CERCLA, Kolmar and a former affiliate, Wickhen Products ("Wickhen"), have been identified as the two principal PRPs at the Carroll & Dubies Superfund site in
Port Jervis, New York.
At the Caroll & Dubies site, the remediation work and the final post-remediation facility inspection was completed in December 1999. Final clean-up costs of
$6.7 million were incurred and funded through insurance. Post-remediation monitoring, expected to last through 2005, commenced in year 2000 and is expected to cost $350,000, which
the Company has currently accrued. The entire project has been, and will continue to be, fully indemnified by CCL. Another site formerly operated by a Kolmar affiliate is currently undergoing
remediation under the direction of a state agency. See "Item 3." Legal Proceedings and "Note 13" Commitments and Contingencies. Based on the advice of outside counsel, the Company maintained an
accrual of $9,000,000 as of December 31, 2001 for this site where Kolmar may have liability for contamination caused by former operations, although it has not yet been identified as a PRP and
would have specific indemnification rights for this site from CCL. The Company believes, based on a file review by an independent consultant, that the accrual would be sufficient to fund all likely
remediation costs at the site.

In
November 2000, the Company was served notice of a claim asserted against Kolmar by the State of New York ("State"). The claim asserts that Kolmar is a PRP for remediation costs
incurred by the State in connection with the cleanup of the Orange County Landfill, located in New York State. Kolmar's records

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indicate it did generate some waste that was transported to the landfill, between 1979 and 1992. The State alleges that to date it has incurred over $13 million in response costs for the
landfill. Approximately thirty-five other PRPs have also been contacted by the State; apparently there are hundreds of other candidate PRPs not yet served notices. The Company established
a $750,000 reserve for off-site waste disposal which is inclusive of the Orange County landfill site. In addition, Kolmar has certain indemnification rights ($250,000 deductible) against
CCL for this claim. At December 31, 2001 the reserve was at $706,000.

In
November 2000, Kolmar (Imperial Cosmetics Division) was served notice by the State of Pennsylvania of potential PRP listing regarding ground water contamination of the
neighboring Union Metals Property. Based on the directive of the Pennsylvania Department of Environmental Protection ("PADEP") two monitoring wells were installed, sampled and tested on the Imperial
Cosmetics property. On September 27, 2001, the Company received notice from the Pennsylvania Department of Environmental Protection stating that Kolmar has been relieved of any additional
monitoring requirements related to the above site.

Piedmont's
owned facility in Gainesville, Georgia is listed on the State of Georgia's Hazardous Site Inventory ("HSI") of environmentally impacted sites due to the detection of
chlorinated solvents in the groundwater beneath the facility. The Company is continuing with the remediation and groundwater monitoring and testing which will continue through 2003.

The
Company also faces risks relating to federal and state environmental regulation of Volatile Organic Compounds ("VOCs"). Legislation requires reductions in the use of these
propellants could materially adversely affect the Company's business if the industry does not develop propellant technology and product formulations to meet such future standards. California and New
York recently have mandated reductions in VOCs in aerosol products, and it is possible that Georgia and other states may in the future pass similar legislation or enact regulations. Management
believes that all of the Company's
products meet the current regulatory standards, and management further believes, although there can be no assurance, that propellant technology and product formulations will be developed that meet the
future standards.

Employees

As of December 31, 2001, OSG employed 2,393 persons, of which 465 were salaried and involved in executive, sales, marketing and administrative activities
and 1,928 were compensated on an hourly basis. In addition, the Company utilizes local labor contract suppliers to provide a portion of its production labor force. The Company is subject to the Fair
Labor Standards Act, as well as various federal, state and local regulations that govern such matters as minimum wage requirements, overtime and working conditions. A large number of the Company's
employees, including those provided by local labor contractors, are paid at or just above the federal minimum wage level and, accordingly, changes in these laws, regulations or ordinances could have a
material adverse effect on the Company by increasing the Company's labor costs. On February 20, 2002, the Company formalized its plan to restructure and streamline functions. These changes will
effect the Company's overall employee population by less than four percent. See "Item 13."

With
the exception of Norwich, none of OSG's employees in the United States belong to a union and 250 of OSG's employees in Mexico belong to a union. The Company successfully
renegotiated its Mexican union contract in November 2000, the new contract will expire November 2002. Norwich has a collective bargaining agreement with the International Chemical
Workers Union Council of the United Food and Commercial Workers International Union Local 251C of which 166 of the 245 employees are members. The contract expires January 2004. The Company has
not experienced a significant work stoppage with its employees, nor does management anticipate any stoppage in the future. Management believes that its employee and union relationships are good. The
Company has employment agreements with certain key personnel.

11

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ERISA.Management further believes that OSG is in material compliance with all laws and regulations governing its employee
benefit plans. Management believes OSG has sufficient cash flow to meet its obligations to make pension contributions and to pay related premiums. However, there can be no assurance that future
changes in such laws or regulations, or interpretations thereof, changes in OSG's business or in market conditions affecting the value of plan assets will not require OSG to expend amounts that exceed
those that are now anticipated.

Foreign Operations and Export Sales

Portions of the Company's manufacturing operations are conducted by its wholly-owned subsidiaries, Kolmar Mexico S.A. de C.V., Kolmar Canada and
Ivers-Lee (Canada), which are located in Mexico and Canada, respectively. Accordingly, manufacturing, operations and sales in those countries, particularly in Mexico, may be affected by
economic and political conditions in those countries. The Company's business is also dependent to some extent on trading relationships between Mexico and Canada and with other countries.

Refer
to Note 14 of the Notes to the Company's consolidated financial statements beginning on page F-1 of this Form 10-K (the "Consolidated
Financial Statements") for certain financial information regarding the Company's domestic and foreign operations.

Company History

OSG, a Delaware corporation, was formed by StoneCreek Capital, Inc. (formerly, The Gordon+Morris Group) ("StoneCreek"), HarbourVest Partners, LLC
("HarbourVest") and management of Piedmont (known at that time as Aerosol Companies Holding Corporation ("ACHC")), acquired Piedmont on September 30, 1996. OSG had no operations prior to the
acquisition of Piedmont. On June 30, 1997, ASHC, an affiliated company principally owned by StoneCreek and HarbourVest, merged with ACHC (the "Merger"), and the combined entity was renamed
"Outsourcing Services Group, Inc." The Merger was accounted for as a purchase transaction and ACHC was deemed to be the accounting acquirer.

ITEM 2. PROPERTIES

The following table sets forth information with respect to OSG's facilities and the products manufactured at such facilities.

|                       |  | Manufacturing Facilities |  | Warehousing Facilities |  | Admin. and Sales Office |  |       
|---------------------- |  | ------------------------ |  | ---------------------- |  | ----------------------- |  | ------
|
|City of Industry, CA   |  | 60                       |  | Leased                 |  | 122                     |  | Leased
|Gainesville, GA        |  | 98                       |  | Owned                  |  | 146                     |  | Leased
|Port Jervis, NY        |  | 264                      |  | Owned                  |  | 34                      |  | Leased
|Corona, CA             |  | 112                      |  | Leased                 |  |                        |  |      
|Monroe, OH (3)         |  | 176                      |  | Owned                  |  | 10                      |  | Leased
|Barrie, Ontario        |  | 120                      |  | Owned                  |  | 6                       |  | Leased
|Tlalnepantla, Mexico   |  | 111                      |  | Owned                  |  |                        |  |      
|Mahwah, NJ             |  | 35                       |  | Leased                 |  | 38                      |  | Leased
|Brampton, Ontario (4)  |  | 31                       |  | Leased                 |  | 21                      |  | Leased
|Norwich, NY (5)        |  | 332                      |  | Owned                  |  | 63                      |  | Owned 
|Allendale, NJ          |  |                         |  |                       |  |                        |  |      
|Hornsby, Australia (2) |  |                         |  |                       |  |                        |  |      

---

The Company believes that its facilities are suitable and adequate for their intended purposes and have adequate production capacity to carry on
OSG's business as currently contemplated.

Refer
to Notes 11 and 13 to the Notes to the Consolidated Financial Statements regarding certain leases in which the Company has entered.

12

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ITEM 3. LEGAL PROCEEDINGS

From time to time, OSG and its subsidiaries may become party to various legal proceedings involving routine claims which are incidental to their businesses. The
legal and financial liability of OSG and its subsidiaries with respect to such matters cannot be estimated at the present time, but OSG and its subsidiaries do not expect that such matters would have
a material adverse effect on the Company's business, results of operations, financial condition or cash flows.

In
November 1999, the Company paid a settlement of $1,000,000 with a customer for a product liability claim against its Piedmont subsidiary which relates to actions taken prior to
the acquisition of the subsidiary by the Company. The Company charged the settlement to operating expenses in the third quarter of 1999. Costs to defend this claim amounted to $1,724,000. Also in
1999, the Company recorded a $1,000,000 receivable on Piedmont for indemnification from its previous ownership. In December 2000, this receivable was satisfied in full by the previous owner.

The
Company is subject to loss contingencies resulting from environmental laws and regulations, which include obligations to remove or remediate the effects on the environment of the
disposal or release of certain wastes and substances at various sites. The Company has established accruals for hazardous waste sites where it is probable that a loss has been incurred and the amount
of the loss can reasonably be estimated. The reliability and precision of the loss estimates are affected by numerous factors, such as different stages of site evaluation, the allocation of
responsibility among potentially responsible parties and the assertion of additional claims. The Company adjusts its accruals as new remediation requirements are defined, as information becomes
available permitting reasonable estimates to be made, and to reflect new and changing facts. The Company also has established receivables for insurance recoveries (for liabilities on existing sites)
that are probable of collection.

At
December 31, 2001, the Company had established accruals totaling $10,056,000 to cover various potential environmental liabilities (See Part 1, Item 1). The Company has
established a reserve of $350,000 for post-remediation work at the Carroll & Dubies site. At December 31, 2001, the Company had a long-term receivable totaling
$350,000 for insurance recoveries or indemnification proceeds related to this site, which are probable of collection. Based on the advice of outside counsel, the Company maintained an accrual of
$9,000,000 as of December 31, 2001 for a site where Kolmar may have liability for contamination caused by former operations, although it has not yet been identified as a PRP and would have
specific indemnification rights related to this site. The Company believes, based on a file review by an independent consultant, that the accrual would be sufficient to fund all likely remediation
costs at the site. In addition, the Company maintained an accrual at December 31, 2001, of
$706,000, which includes potential liabilities related to the Orange County Landfill, located in New York State.

While
it is impossible at this time to determine with certainty the ultimate outcome of the environmental matters referred to above, management believes that adequate provisions have
been made for probable losses with respect thereto and that such ultimate outcome, after provisions therefore, will not have a material adverse effect on the Company's business, results of operations,
financial condition or cash flows. Actual results could differ from those estimates.

Should
any losses be sustained in connection with any of such environmental matters in excess of provisions therefore, they will be charged to expense in the future.

There
are certain other legal proceedings and claims pending against the Company arising out of the normal course of business in which claims for money damages may or may not be
asserted. While it is not feasible to predict the outcome of these legal proceedings and claims with certainty, management believes that any ultimate liabilities in excess of reserved amounts will not
individually or in the aggregate have a material adverse effect on the Company's business, results of operations, financial condition, or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

13

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

None of the Company's equity securities are publicly traded.

The
number of shareholders of record of the Company on December 31, 2001 was 31

Private Placements of Common Stock

In connection with financing the Kolmar Acquisition, the Company sold 2,093,000 shares of its common stock, $.001 par value ("Common Stock"), for an aggregate
purchase price of $20.9 million to the Gordon + Morris Investment Partnership, L.P. ("GMIP"), Walter K. Lim and HarbourVest Partners V-Direct Fund L.P.
("HVP-V"). Effective October 1, 1996, ACHC, the sole stockholder of Piedmont, issued 700,000 shares of Common Stock to certain existing stockholders of the Company, including Walter
K. Lim, Howard C. Lim, GMIP and HarbourVest, as well as certain other new investors, at a purchase price of $10.00 per share in connection with the Piedmont Acquisition. On June 30, 1997, all
issued and outstanding ACHC and ASHC shares were exchanged for 853,380 and 413,794 shares, respectively, of Common Stock as a result of the Merger. Pursuant to the Merger, 3,750 shares of the
Company's unclassified preferred stock owned by Nancy Lim were exchanged for the Company's Series A Preferred Stock and 26,250 shares of the Company's unclassified preferred stock owned by
Walter K. Lim and Howard C. Lim were exchanged for the Company's Series B Preferred Stock. In each case, such transactions, including the conversion ratios, were approved by a majority of the
independent directors of the Company.

ASC Investment Partners, L.P.

ASC Investment Partners, L.P. ("ASCIP") was formed on February 3, 1994 as a Delaware limited partnership pursuant to an Agreement of Limited Partnership
which was amended on March 27, 1996. ASCIP acquired 100,000 shares of ASHC's common stock in ASHC's acquisition of ASC, which shares were exchanged for 75,648 shares of Common Stock in the
Merger; both transactions were on the same terms as those terms for other stockholders. Drew H. Adams and Michael S. Gordon, directors of the Company, and Bruce N. Lipian, are stockholders, officers
and directors of ASCIP's general partner and indirectly exercise voting and investment power over the shares held by ASCIP. Frank Edelstein, director of the Company, or their affiliates, is a limited
partner of ASCIP and does not exercise voting or investment power over the shares held by ASCIP.

Management Private Placement

On September 10, 1998, the Company sold, by way of a private placement, 95,000 shares of its Common Stock to certain of its and its subsidiaries' managers,
including John G. Hewson, Joseph W. Sortais, Christopher Denney and Dennis M. Nolan at a purchase price of $10.00 per share. In most cases, the Company financed up to 80% (except for Dennis M. Nolan,
for whom the Company financed 100%) of the aggregate purchase price of each manager's subscription. In each such case, the respective manager executed a promissory note and pledged all of his or her
shares to the Company to secure his or her obligation under the promissory note. The Common Stock sold to management was not registered under
the Securities Act of 1933. Joseph W. Sortais purchased less than $60,000 worth of Common Stock, 80% of which purchase was financed by the Company. Christopher Denney, John G. Hewson and Dennis M.
Nolan purchased 20,000, 10,000 and 10,000, shares of Common Stock, respectively, and the Company loaned to these individuals $160,000, $80,000 and $100,000, respectively, to finance the purchase of
such stock. As of December 31, 2001, John G. Hewson and Dennis M. Nolan owed $80,000 and $100,000, respectively, to the Company for such purchases. Indebtedness under the promissory notes
(i) bears interest at the rate of 8.0% per annum, payable on the first business day of each month commencing September 1, 1998 and (ii) is due in full upon the earlier to occur of
(a) the date on which the borrowers' shares of Common Stock are repurchased by the Company or (b) December 31, 2002. Proceeds, if any,

14

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from all such sales of Common Stock were used by the Company for general corporate purposes. On January 3, 2001, the Company repurchased 20,000 shares of common stock from Mr. Denney at
$26.00 per share less the outstanding loan amount of $160,000 for a net payment of $360,000. On January 2, 2001, Joseph Healy purchased 26,316 shares at $19.00 per share. The Company financed
50% and Mr. Healy executed a promissory note pledging his shares to the Company securing his obligation under the promissory note. Indebtedness under the promissory note (i) bears
interest at the rate of 8% per annum, and (ii) is due in full upon the earlier to occur of (a) the date on which the borrower's shares of Common Stock are repurchased by the Company or
(b) December 31, 2005.

Dividend Policy

The Company currently does not pay any dividends on its Common Stock. Any future determination as to the payment of dividends will be at the discretion of the
Company's Board of Directors and will depend upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant by its Board of Directors. The
Company intends to retain its earnings to finance the development and growth of the Company's businesses.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below for the years ended December 31, 1997, 1998, 1999, 2000 and 2001 are derived from the audited consolidated
financial statements of the Company.

The
report of Deloitte & Touche LLP, independent auditors, on the consolidated financial statements as of December 31, 2000 and 2001, and for the years ended
December 31, 1999, 2000 and 2001 is included in Item 8 to this Form 10-K. The selected financial data should be read in conjunction with, and is qualified in its entirety by,
the Consolidated Financial Statements of the Company and the notes thereto and the other financial information included in Item 14 to this Form 10-K. Such financial data should also
be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing in Item 7 to this Form 10-K.

|                                                                 |  | Years Ended December 31, |       
|---------------------------------------------------------------- |  | ------------------------ | ------
|
|
|Statements of Operations Data(a):                                |  |                          |       
|Net revenues                                                     |  | $                        | 77,835
|Gross profit                                                     |  |                          | 10,344
|Income from operations                                           |  |                          | 2,492 
|Interest expense, net(b)                                         |  |                          | 2,232 
|Loss before extraordinary item                                   |  |                          | (316  
|                                                                 |  |                          |       
|Net loss before extraordinary item(c)                            |  |                          | (735  
|Loss per share before extraordinary item                         |  |                          | (0.42 
|                                                                 |  |                          |       
|Net loss per share, basic and diluted                            |  |                          | (0.81 
|                                                                 |  |                          |       
|Other Data:                                                      |  |                          |       
|Adjusted EBITDA(d)                                               |  | $                        | 5,306 
|Net cash provided by operating activities                        |  |                          | 2,374 
|Net cash used in investing activities                            |  |                          | (1,360
|Net cash (used in) provided by financing activities (k)          |  |                          | (832  
|Depreciation and amortization(b)                                 |  |                          | 2,814 
|Capital expenditures(l)                                          |  |                          | 1,175 
|Ratio of earnings to fixed charges(f)                            |  |                          | 1.10  
|Ratio of earnings to fixed charges for subsidiary guarantors(f): |  |                          |       
|ASC                                                              |  |                          |       
|Piedmont                                                         |  |                          |       
|Kolmar U.S. operations                                           |  |                          |       
|Acupac                                                           |  |                          |       
|Precision                                                        |  |                          |       
|Balance Sheet Data (at period end):                              |  |                          |       
|Cash and short-term investments                                  |  | $                        | 588   
|Working capital                                                  |  |                          | 12,981
|Total assets                                                     |  |                          | 69,108
|Total debt                                                       |  |                          | 36,191
|Redeemable preferred stock                                       |  |                          | 4,259 
|Stockholders' equity                                             |  |                          | 9,990 

15

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NOTES TO SELECTED FINANCIAL DATA



16

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OSG, through its operating subsidiaries, ASC, Piedmont, Kolmar, Acupac, Precision, Ivers-Lee and Norwich is a full-service contract
manufacturer and packager of consumer products for marketers in the health and beauty aid, pharmaceutical and over-the-counter drug markets, household and healthcare consumer
product markets. The Company manufactures and packages a broad range of products including color cosmetics (such as lipstick, face powders and eye shadow), aerosols (such as hair spray, shaving cream
and gel and lubricants), creams, lotions and liquids (such as skin care products, shampoo, pump hair spray and household cleaning products), pharmaceutical and over-the-counter
drugs (such as allergy/cold remedies, pain relief products and prescription drugs for the treatment of osteoporosis and ulcerative colitis therapy). Management believes OSG is the largest independent
contract manufacturer and packager of color cosmetics, high-end salon aerosol hair care products and shaving creams and gels in North America.

The
Company typically charges a per-unit fee which varies depending on: (i) the type of product, (ii) the type of services provided (filling only versus product
development, formulation, materials procurement, etc.), (iii) the container size and order quantity, and (iv) the complexity of the manufacturing and packaging process. In many cases,
the Company purchases the raw and packaging materials on behalf of its
customers. In such instances, the Company passes the costs of such materials on to its customers and charges a handling fee in addition to the service fee. Typically the Company's gross margin on
purchases of

17

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raw materials on behalf of its clients is lower than its gross margin on filled goods. For the years ended December 31, 1999, 2000 and 2001, the Company purchased approximately
$145.1 million, $161.0 million and $174.4 million of raw materials for its customers, respectively. The percentage of materials purchased directly by customers versus purchased by
the Company on behalf of customers may have an impact on total revenues and cost of goods sold.

The
financial results for the year ended December 31, 1999 included twelve month's results of operations for Piedmont, ASC and Kolmar, the results of operations of Acupac for
seven months from June 2, 1999 to December 31, 1999. The financial results for the year ended December 31, 2000 included twelve months results of operations for Piedmont, ASC,
Kolmar and Acupac, the results of operations of Precision for ten months from February 29, 2000 to December 31, 2000 and the results of operations of Ivers-Lee for four
months from August 25, 2000 to December 31, 2000. The financial results for the year ended December 31, 2001 included twelve month's results of operations for Piedmont, ASC,
Kolmar, Acupac, Precision and Ivers-Lee, the results of operations of Norwich for six months from June 29, 2001 to December 31, 2001 and the results of operations of Dermal
for four months from September 6, 2001 to December 31, 2001.



As a result of refinancing the existing indebtedness in 1998 and the indebtedness incurred to consummate its acquisitions, see Item 13, the Company remains highly
leveraged. The Company's ability to pay principal and interest on its indebtedness will depend upon the future operating performance of its subsidiaries and will require a substantial portion of the
Company's cash flow from operations. The obligations of the Company's subsidiaries under the Senior Secured Credit Facility are secured by a security interest in substantially all of their assets, and
the Company's obligations under its guarantee of the Senior Secured Credit Facility are secured by substantially all of its assets.

The
following table outlines the Company's obligations and commitments for future payments concerning debt and contingencies:

|                               |  | Payments Due by Period
|------------------------------ |  | ----------------------
|
|                               |  |                       
|Senior Subordinated Notes      |  | $                     
|Senior Secured Credit Facility |  |                       
|P&G Note(a)                    |  |                       
|Operating Leases               |  |                       
|                               |  |                       
|Total Obligations              |  | $                     
|                               |  |                       

---



A small number of customers account for a significant portion of the Company's sales. For the year ended December 31, 2001, Mary Kay, Dial, P&G, Sebastian and
WD-40 accounted for 9.8%, 8.1%, 8.0%, 7.2% and 6.1%, respectively, of the Company's revenues during this period. Although the Company believes that its overall relations with customers are good, there
can be no assurance that such customers will continue to purchase the Company's services, continue with a particular product line which requires services which the Company offers or contract for the
Company's services in connection with any new or successor
product lines. The top two customers as of December 31, 1999, 2000 and 2001 had a combined accounts receivable balance of $2.8 million, $11.6 million and $4.6 million,
respectively. The loss of any of

18

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the Company's major customers or a significant decrease in demand for certain products sold by such major customers, could have a material adverse effect on the Company's business, results of
operations, financial condition or cash flows.



The Company's critical accounting policies are more fully described in Note 3 to the consolidated financial statements. However, certain of the Company's
accounting policies are particularly important to the portrayal of financial position and results of operations and require judgement by management and as a result they are subject to a degree of
uncertainty. In applying those policies, management uses its judgement to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on
historical experiences and information available from other outside sources.

The
Company believes the following critical accounting policies affect the preparation of financial statements in conformity with generally accepted accounting principles and require
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

InventoriesInventories are valued at the lower of cost or market using the first-in, first-out method. The Company provides
estimates for allowances for slow-moving and obsolete inventory based on current assessments about future demands, market conditions and related management initiatives.

Deferred Financing CostsThe Company's deferred financing costs are capitalized with respect to obtaining long-term debt
financing including legal expenses and bank fees. These costs are amortized over the repayment term of the related debt on a straight-line basis.

GoodwillThe Company amortizes its goodwill over periods ranging from 5 to 40 years. The Company evaluates the recoverability
of intangible assets by considering estimated future operating income of the Company, to which the goodwill relates, on an undiscounted cash flow basis. Management performs a review of each operating
entity on an annual basis to determine if events or changes in circumstances have occurred which would impair goodwill. Should an impairment exist, the Company would record a charge to operations to
recognize the impairment.

Long-Lived AssetsThe Company accounts for the impairment and disposition of long-lived assets in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
Long-lived assets are reviewed for events or changes in circumstances which would indicate that their carrying value may not be recoverable. The Company periodically reviews the carrying value of
long-lived assets on an undiscounted cash flow basis to determine whether or not an impairment to such value has occurred.

Revenue RecognitionThe Company manufacturers and packages products based on written agreements with customers specifying
price, units and shipping terms. Revenue is generally recognized as products are shipped to customers. When customers, under the terms of specific orders, request that the Company manufacture and
invoice goods on a bill and hold basis, the Company recognizes revenue at the time the manufacturing process is complete.

Translation of Foreign CurrenciesForeign subsidiary financial statements are translated into U.S. dollars in accordance with
SFAS No. 52,Foreign Currency Translations. The balance sheets of foreign affiliates are translated into U.S. dollars at the exchange rates in effect on
the last day of the reporting period. The statements of operations of foreign affiliates are translated into U.S. dollars at the average exchange rate effective for the entire period. The differences
from historical exchange rates are reflected in stockholders' equity as an adjustment for foreign currency translations.

19

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Results of Operations

The following table sets forth the Company's statements of operations, data for the periods indicated and the percentage relationship of each item to net revenues
(dollars in thousands):

|                                                    |  | Years Ended December 31, |        
|--------------------------------------------------- |  | ------------------------ | -------
|
|Net revenues                                        |  | $                        | 257,040
|Cost of goods sold                                  |  |                          | 219,497
|Selling, general and administrative expenses        |  |                          | 23,658 
|Income from operations                              |  |                          | 13,885 
|Interest expense, net                               |  |                          | 13,486 
|Foreign currency translation gain (loss)            |  |                          | 446    
|Net loss                                            |  |                          | (251   
|Adjusted EBITDA (unaudited)                         |  |                          | 24,373 
|Net cash provided by operating activities           |  |                          | 2,701  
|Net cash used in investing activities               |  |                          | (16,169
|Net cash provided by (used in) financing activities |  |                          | 7,251  
|Capital expenditures                                |  |                          | 5,699  

Year Ended December 31, 2001 versus Year Ended December 31, 2000

Net Revenue.Net revenues increased $29.5 million, or 10.0%, to $325.6 million for the year ended
December 31, 2001 from $296.1 million for the year ended December 31, 2000. Exclusive of acquisitions and dispositions, comparable sales increased $6.2 million and
$0.7 million in the Kolmar and Ivers-Lee (part of the Pharmaceutical Division), respectively, due largely from its Mary Kay business offset by a decrease of $2.4 million from
the Consumer Products Division. Acquisitions of Norwich, Precision and Ivers-Lee (see Item 13) contributed $17.3 million, $5.2 million and $6.8 million,
respectively, for the year ended December 31, 2001 offset by the disposition of Imperial in November 2000.

Cost of Goods Sold.Cost of goods sold increased $28.4 million, or 11.3%, to $279.5 million for the year ended
December 31, 2001 from $251.1 million for the year ended December 31, 2000. The Kolmar Division inclusive of dispositions increased $2.4 million due largely from increases
in material costs of $7.4 million, utilities of $0.2 million, and depreciation of $0.2 million offset by reductions in labor of
$1.2 million and Imperial of $4.3 million. The increase in cost of goods sold in the Consumer Products Division was $9.7 million. The increase was primarily attributable to
Precision cost of goods sold of $4.2 million, as well as increases, net of acquisitions, in material costs of $1.9 million, labor costs of $1.6 million, lab expenses of
$1.4 million and waste disposal costs of $0.6 million. The continued product mix change toward a higher proportion of personal care products sales resulted in increased cost of goods
sold. The increase in cost of goods sold in the Pharmaceutical Division was $16.1 million. The increase was primarily attributable to Norwich and Ivers-Lee cost of goods sold which
contributed $10.4 million and $5.2 million, respectively. Total cost of goods sold as a percentage of sales increased slightly to 85.8% for the year ended December 31, 2001 from
84.8% for the year ended December 31, 2000. The increase is due to the product mix change in the Kolmar and Consumer Products Division as mentioned above offset by a decrease in the percentage
of cost of goods sold in the Pharmaceutical Division which carries a lower cost to produce in relation to other existing OSG operating segments.

SG&A Expenses.Selling, general and administrative expenses ("SG&A") increased $1.3 million, or 4.4% to $31.8 for the
year ended December 31, 2001 from $30.5 million for the year ended December 31, 2000. The increase was attributable to SG&A expenses of Precision, Ivers-Lee and
Norwich which contributed $0.6 million, $1.1 million and $1.4 million, respectively, offset by the Imperial disposition of

20

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$3.3 million in November 2000, as well as an increase of $0.8 million to support the new corporate research and development center and $0.4 million related to senior
management severance costs.

Interest Expense.Interest expense increased $0.6 million, or 3.4%, to $17.6 million for the year ended
December 31, 2001 from $17.0 million for the year ended December 31, 2000. Total indebtedness increased $1.4 million to $162.9 million at December 31, 2001
from $161.4 million at December 31, 2000. The indebtedness increase was due to the Norwich acquisition of $10.0 million, the Dermal acquisition of $3.5 million (see "Item
13") and the final payment related to the Ivers-Lee acquisition in March 2001 of $2.3 million offset by paydowns on the senior secured revolving loans of $8.6 million.

Adjusted EBITDA.Adjusted EBITDA, as defined in Item 6, "Selected Financial Data", of this Form 10-K,
decreased $1.0 million, or 3.4%, to $28.9 million for the year ended December 31, 2001 from $29.9 million for the year ended December 31, 2000.

Capital Expenditures.Capital expenditures, exclusive of capital assets acquired as part of business acquisitions, were
$11.4 million for the year ended December 31, 2001 and consisted primarily of replacements of existing assets and the acquisition of new assets to meet customer needs and improve
information systems.

Year Ended December 31, 2000 versus Year Ended December 31, 1999

Net Revenue.Net revenues increased $39.0 million, or 15.2%, to $296.1 million for the year ended
December 31, 2000 from $257.0 million for the year ended December 31, 1999. The increase was primarily due to the full year's impact of the Acupac acquisition (May 1999)
and the acquisitions of Precision (February 2000) and Ivers-Lee (August 2000).

Cost of Goods Sold.Cost of goods sold increased $31.6 million, or 14.4%, to $251.1 million for the year ended
December 31, 2000 from $219.5 million for the year ended December 31, 1999. The increase was primarily due to the full year's impact of the Acupac acquisition and the acquisitions
of Precision and Ivers-Lee. As a percentage of net revenues, total cost of goods sold were 84.8% for the year ended December 31, 2000 compared to 85.4% for the year ended
December 31, 1999. The decrease in the percentage of cost of goods sold to sales in fiscal 2000 as compared to fiscal 1999 is reflective of a key color cosmetic customer no longer requiring
Kolmar to purchase the packaging components.

SG&A Expenses.Selling, general and administrative expenses ("SG&A") increased $6.8 million, or 28.7%, to
$30.5 million for the year ended December 31, 2000 from $23.7 million for the year ended December 31, 1999. The increase was primarily due to the acquisitions of Acupac,
Precision and Ivers-Lee, the impact of non-recurring expenses in the Kolmar Division for manufacturing consulting services of $1.5 million and the loss associated with
the sale of Imperial Cosmetics Division, $1.2 million (which included an $0.8 million write-off of goodwill). As a percentage of net revenues, SG&A was 10.3% for the year
ended December 31, 2000 and 9.2% for the year ended December 31, 1999.

Interest Expense.Interest expense increased $3.5 million, or 26.0%, to $17.0 million for the year ended
December 31, 2000 from $13.5 million for the year ended December 31, 1999. Total indebtedness increased $49.0 million from $112.4 million at December 31, 1999
to $161.4 million at December 31, 2000. The increase was primarily due to funding the Precision and Ivers-Lee acquisitions.

Adjusted EBITDA.Adjusted EBITDA, as defined in Item 6, "Selected Financial Data", of this Form 10-K,
increased $5.6 million, or 22.8%, to $29.9 million for the year ended December 31, 2000 from $24.4 million for the year ended December 31, 1999.

Capital Expenditures.Capital expenditures, exclusive of capital assets acquired as part of business acquisitions, were
$6.9 million for the year ended December 31, 2000 and consisted primarily of replacements of existing assets and the acquisition of new assets to meet customer needs.

21

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Liquidity and Capital Resources

OSG had cash and short-term investments of $3.9 million and $4.1 million, working capital of $20.4 million and
$40.0 million and long-term debt of $162.9 million and $161.4 million as of December 31, 2001 and 2000, respectively. The Company's primary source of liquidity
during the year was cash flows generated through its operations. Cash provided by operations was $27.9 million and $6.0 million for the years ended December 31, 2001 and 2000,
respectively. Net cash used in investing activities was $17.9 million which excludes $10.0 million to acquire Norwich in June 2001 whereas the price was financed by the seller
under a five year promissory note and $52.4 million for the years ended December 31, 2001 and 2000, respectively. See "Item 13". Net cash used in investing activities for the year ended
December 31, 2001 included the final payment for the Ivers-Lee acquisition of $2.3 million, increased capital expenditures of $11.4 million and the acquisitions of
Norwich and Dermal of $0.8 million and $3.5 million, respectively. Net cash used in investing activities for the year ended December 31, 2000 included the acquisition of Precision
in February 2000 of $42.1 million and Ivers-Lee in August 2000 for $5.5 million and capital expenditures of $6.9 million. Net cash used in financing
activities was $10.3 million for the year ended December 31, 2001 and net cash provided by financing activities was $47.6 million for the year ended December 31, 2000. Net
cash used in financing activities for the year ended December 31, 2001 included paydowns of $8.6 million, increase in deferred financing costs of $0.7 million and the repurchase
of stock of $1.0 million. Net cash provided by financing activities for the year ended December 31, 2000 included borrowing on the revolving loan to fund the acquisitions of Precision
and Ivers-Lee.

As
a result of refinancing the existing indebtedness in 1998 and the indebtedness incurred to consummate its acquisitions, the Company remains highly leveraged. As of December 31,
2001, the Company's long-term debt was $162.9 million of which $105.0 million bears an interest rate of 107/8% per annum, $10.0 million, secured by
assets and real property located in Norwich, NY, bearing an interest rate of 8% per annum related to the Norwich acquisition (see Item 13) and $47.9 million bears an interest rate at the
prime rate (4.75% at December 31, 2001) plus .75% and Euro notes with a blended interest rate of 2.80% plus 2.25%. As of December 31, 2001, the Company's subsidiaries had
$5.3 million available under the Senior Secured Credit Facility. The Senior Secured Credit Facility bears interest at 5.50%, a floating rate based on (1) the Prime Lending Rate (defined
as the rate which Bankers Trust Company ("BTCo") announces as its prime lending rate from time to time), plus 0.75% or (2) the Eurodollar Rate (defined as the rate of the offered quotation, if
any, to first class banks in the Eurodollar market by BTCo for U.S. dollar deposits) for one, two, three or nine months, in each case plus 2.25%. The obligations of the Company's subsidiaries under
the Senior Secured Credit Facility are secured by a security interest in substantially all of their assets, and the Company's obligations under its guarantee of the Senior Secured Credit Facility are
secured by substantially all of its assets. The terms of the Senior Subordinated Notes and the Senior Secured Credit Facility have restrictive covenants that restrict the Company's ability to pay
dividends, sell certain assets, and incur additional borrowings. In accordance with these restrictive covenants, the Company may not declare and pay cash dividends to third party holders of its common
stock. Furthermore, the Company is
required to maintain certain financial ratios and satisfy financial condition tests. On March 21, 2002, the Company received an amendment to their Senior Secured Credit Facility which reset the
Minimum EBITDA, the Funded Debt Coverage ratio and Fixed Charge Coverage ratio effective as of December 31, 2001 and for future quarters, such that the Company was in compliance at
December 31, 2001. Additionally, the amendment extended the term to April 7, 2003 and the interest rate was increased 0.5% to either prime plus 1.25% or Libor plus 2.75% effective for
fiscal year 2002 and beyond. The Company's ability to pay principal and interest on its indebtedness will depend upon the future operating performance of its subsidiaries and will require a
substantial portion of the Company's cash flow from operations. For the year ended December 31, 2000, the Company's ratio of earnings to fixed charges was less than 1 to 1 and earnings were
insufficient to cover fixed charges by $2.7 million. For the year ended December 31, 2001, the Company's ratio of earnings to fixed charges was less than 1 to 1 and earnings were
insufficient to cover fixed charges by $3.5 million.

22

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The
Company anticipates that its primary uses of working capital in future periods will be to service its indebtedness and provide funds for operations. Should the Company seek to
acquire additional businesses, it will have to incur additional indebtedness and possibly raise additional equity. The Company's ability to grow through acquisitions is dependent upon the availability
of such financing, as well as the availability of acquisition candidates and the terms on which such candidates may be acquired, which may be adversely affected by competition for such acquisitions.
The Company regularly examines opportunities for strategic acquisitions or other companies or lines of business. The Company historically has financed its acquisitions through a combination of
borrowings under bank credit facilities, seller-provided financing, internally generated cash flows and the issuance of equity and debt securities and anticipates that it may from time to time issue
additional debt and/or equity securities either as direct consideration for such acquisitions or to raise additional funds to be used (in whole or in part) in payment for acquired businesses or
assets. There can be no assurance as to whether or when any acquired business would contribute positive operating results commensurate with the associated acquisition cost.

The
Company believes that cash on hand, cash flow from operations and available borrowings under the Senior Secured Credit Facility will be sufficient to meet the Company's presently
anticipated working capital and capital expenditure needs through fiscal 2002.

The
Company's capital expenditures are expected to rise over historical levels in an effort to modernize certain aerosol, liquid, and packaging production lines. The Company's capital
expenditures will be primarily for replacements and modernization of existing assets and new customer requirements.

Recently Issued Accounting Standards

Statement of Financial Accounting Standards (SFAS) No. 133,Accounting for Derivative Instruments and Hedging
Activities,is effective for all fiscal years beginning after June 15, 2000. SFAS No. 133, as
amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under
SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company adopted SFAS 133 effective January 1, 2001. The
Company does not hold any derivative instruments or embedded derivative instruments, therefore, the adoption of SFAS No. 133 did not have an impact on the financial position, results of
operations, or cash flows of the Company.

On
June 29, 2001, SFAS No. 141,Business Combinations, was approved by the Financial Accounting Standards Board (FASB). SFAS
No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. In addition, goodwill and certain intangible assets will
remain on the balance sheet and not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for
impairment, and write-downs may be necessary. The Company implemented SFAS No. 141 on July 1, 2001.

On
June 29, 2001, SFAS No. 142,Goodwill and Other Intangible Assets,was approved by the FASB. SFAS No. 142 changes
the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on January 1, 2002 and it has not determined the impact, if any, that this statement will have on the
financial position and results of operations of the Company.

In
August 2001, the FASB issued SFAS No. 143,Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective January 1, 2003. The Company

23

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does not believe that the adoption of this statement will have a material impact on their results of operations, financial condition or cash flows.

In
October 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS No. 144
supersedes FASB Statement No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective January 1, 2002. The
Company does not believe that the adoption of this statement will have a material impact on their results of operations, financial condition or cash flows.

Certain Trends and Uncertainties

Historically, the Company has grown its business through acquisitions and investments in its operations. During 2002, the Company intends to examine opportunities
to potentially make significant investments in the growth of its business through acquisitions and strategic investments. The impact of these decisions on future profitability cannot be predicted with
any certainty. The Company's commitment to growth may increase its vulnerability to unforeseen downturns in its markets and shifts in competitive conditions. However, the Company believes that
significant opportunities exist in the markets for each of its product lines and services, and continued investment in its marketing and sales capabilities and product development will enhance its
opportunities for long-term growth and profitability.

Backlog

At December 31, 2001, the backlog of the Company amounted to approximately $71 million, as compared to approximately $72 million at
December 31, 2000. All of the Company's backlog at December 31, 2001 is expected to be delivered within the next 12 months.

Inflation

The Company does not believe that inflation has had a material impact on the Company in the past, although there can be no assurance that this will be the case in
the future.

Seasonality

Historically the Company has not been subject to seasonal fluctuations across any of its product lines, although there can be no assurance that this will be the
case in the future.

Foreign Exchange Risks

The Company, through Kolmar, conducts business in Canada and Mexico. Other than in Mexico, the Company has not borne any material losses as a result of changes in
exchange rates. The Company has used the U.S. dollar as the functional currency for reporting the results of its Mexican operations. The Company had a gain of $0.1 million and a loss of
$0.1 million related to exchange rate changes in Mexico during 2001 and 2000, respectively, which have been included in the determination of net loss for the applicable year.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, the Company is exposed to a variety of risks including market risk associated with interest rate movements. The Company's
exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio and long-term debt. As of December 31,

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2001, OSG's investment portfolio was immaterial to the Company and consisted of highly liquid investments.

The
Company's long-term debt primarily consists of $105.0 million of Senior Subordinated Notes, the Senior Secured Credit Facility and the P & G note. The Senior
Subordinated Notes consists of $105.0 million bearing interest at a fixed rate of 107/8% and the P & G note consists of $10.0 million bearing interest at 8% related to the
Norwich acquisition (See "Item 13"). Given the fixed interest rate on the Senior Subordinated Notes, the impact of interest rate changes would not have a material impact on the Company's results of
operations. The Senior Secured Credit Facility bears interest at a variable rate of interest. As of December 31, 2001, OSG had $47.9 million outstanding under the Senior Secured Credit
Facility that include a U.S. base revolver loan bearing interest at the prime rate (4.75% at December 31, 2001) plus .75% and Euro notes with a blended interest rate of 2.80% plus 2.25%.

Refer
to Item 7 of this Form 10-K for a discussion regarding foreign exchange risks.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See "Index to Consolidated Financial Statements" on page F-1 for a listing of the Consolidated Financial Statements submitted as part of this
Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

Set forth below is certain biographical information relating to the directors and executive officers of the Company, as of December 31, 2001.

|Name                |  | Age |  | Position with the Company                                               
|------------------- |  | --- |  | ------------------------------------------------------------------------
|Joseph Healy        |  | 55  |  | Director, Chief Executive Officer, President                            
|Perry Morgan        |  | 42  |  | Chief Financial Officer, Vice President and Secretary                   
|John G. Hewson, Jr. |  | 51  |  | PresidentKolmar Division                                               
|Kenneth Beck        |  | 42  |  | Senior Vice President of Business DevelopmentConsumer Products Division
|Robert Jaegly       |  | 48  |  | Senior Vice President of OperationsConsumer Products Division          
|Louis Arp           |  | 47  |  | Vice President, Director of OperationsPharmaceutical Division          
|Christopher Calhoun |  | 39  |  | Vice President, Quality and Regulatory AffairsPharmaceutical Division  
|Walter K. Lim       |  | 75  |  | Director, Chairman                                                      
|Howard C. Lim       |  | 65  |  | Director                                                                
|Michael S. Gordon   |  | 65  |  | Director                                                                
|Drew H. Adams       |  | 40  |  | Director, Assistant Secretary                                           
|Frank Edelstein     |  | 76  |  | Director                                                                
|Robert M. Wadsworth |  | 41  |  | Director                                                                

Joseph M. Healy.Mr. Healy joined the Company as its Chief Executive Officer in July 2000. Prior to joining the
Company, Mr. Healy was the President and Chief Executive Officer of Reckitt & Colman, Inc., a global manufacturer and marketer of household/food and personal care products. Prior
thereto, Mr. Healy was President of the L&F Household Products Division. Earlier in his career, Mr. Healy held key managerial positions in sales, marketing and new product development at
L&F Products. Mr. Healy holds a B.A. degree from Fairleigh Dickinson University. Mr. Healy serves on several industry boards, including the Cosmetics, Toiletries, Fragrances Association
and Consumer Specialty Product Association.

Perry Morgan.Mr. Morgan joined the Company as its Controller in April 1998. In June 1999,
Mr. Morgan was appointed Chief Financial Officer of the Company. From 1989 to 1998, Mr. Morgan worked at the Earle M. Jorgensen Company ("Jorgensen") in a variety of senior management
positions, including Controller, and as General Manager of Operations for Jorgensen's largest distribution facility located in Chicago, Illinois. Prior thereto, Mr. Morgan held various
positions with Shepherd Machinery Company and Laventhol & Horwath. Mr. Morgan is a Certified Public Accountant. He holds a B.A. degree in Business Administration from the University of
Nevada at Las Vegas.

John G. Hewson, Jr.Mr. Hewson was appointed President of the Kolmar Division in July 2000. Prior to this
appointment, Mr. Hewson was Senior Vice President of Sales and Marketing upon consummation of the Kolmar Acquisition. From December 1996 to December 1997, Mr. Hewson served
as the Chief Operating Officer of ASC and Piedmont Labs. From 1986 to 1996, Mr. Hewson was with DowBrands L.P. (which was acquired by The Lamaur Corporation in 1996) in a variety of senior
management positions, including Vice President Manufacturing Services and Strategic Planning. Prior to that, Mr. Hewson served as Corporate Director of Purchasing for Carter Hawley
Hale, Inc. and was the Assistant Director of

26

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International Materials Management and Strategic Planning for Richardson/Vicks Inc. Mr. Hewson holds a B.A. degree from Colgate University and an M.B.A. from Rutgers University.

Kenneth Beck.Mr. Beck was named Senior Vice President of Business Development for OSG's Consumer Products Division in
October 2001. Previously, Mr. Beck served as President of the OSG Unit Dose Division. From 1983 to 1999, Mr. Beck served as Vice President and General Manager of Acupac
Packaging, Inc., a company he co-founded, until its acquisition by OSG in July 2000. Mr. Beck holds a B.A. degree in Engineering from Worcester Polytechnic Institute.

Robert Jaegly.Mr. Jaegly was named Senior Vice President of Operations for OSG's Consumer Products Division in
October 2001. Mr. Jaegly joined the Company as Vice President of Manufacturing Services in 2000. Mr. Jaegly was previously with Reckitt Benckiser Inc. and L&F Products,
where he held various positions in senior management including Vice President of Purchasing- Americas and Director of Quality and Plant Manager. Prior to joining Reckitt Benckiser Inc., he held
management positions at Dentsply International and Allied Signal. Mr. Jaegly holds a B.S. in Operations Management from the University of Toledo.

Louis Arp.Mr. Arp joined the Company as Vice President, Director of Operations for OSG's Pharmaceutical Division in
July 2001. Prior to joining the Company, Mr. Arp was Plant Manager for Procter & Gamble's North Norwich, New York's global pharmaceutical operation. Prior to joining
Procter & Gamble, Mr. Arp held positions with G.D. Searle and Syntex Laboratories. Mr. Arp holds a B.A. degree in Economics from Denison University and an M.B.A. from the
University of Minnesota.

Christopher Calhoun.Mr. Calhoun joined the Company as Vice President, Quality and Regulatory Affairs for OSG's
Pharmaceutical Division in July 2001. Prior to joining the Company, Mr. Calhoun was the Associate Director of Global Quality Assurance-Operations for the Procter & Gamble's
Pharmaceuticals located in Mason, Ohio. In his role, Mr. Calhoun had quality responsibility for systems and personnel at sites in Norwich, New York, Canada, Puerto Rico, France and Germany.
Mr. Calhoun spent 17 years with Procter & Gamble in a variety of technical and managerial roles in product supply, development and quality. Mr. Calhoun holds a B.S. degree
in Chemical Engineering from Clarkson University.

Walter K. Lim.Mr. Lim has been Chairman of the Board of Directors of the Company since October 1996 and was
the President of ASC from its founding in 1966 until December 1997. Prior to
founding ASC, Mr. Lim was a partner in Pacific Aerosols, Inc., a Plant Manager and Chemist at National Aerosol Co., Inc., and Chief Chemist with Purepac Corporation.
Mr. Lim serves on the Board of Directors of the Chemical Specialty Manufacturing Association and is a member of the Society of Cosmetic Chemists, the Beauty and Barber Supply Institute and the
National Cosmetology Association, Inc. Mr. Lim holds a B.S. degree in Chemistry from the University of California, Los Angeles.

Howard C. Lim.Mr. Lim has been a director of the Company since October 1996 and was the Executive Vice
President, Chief Financial Officer and Treasurer of ASC from 1968 to 1997. Prior to joining the Company, Mr. Lim was Chief of Laboratory Services for the Crenshaw Medical Center Hospital in Los
Angeles. Mr. Lim holds a B.S. degree in Medical Technology from the University of Southern California and an M.B.A. in Management and Finance from Pepperdine University, School of Business and
Management.

Michael S. Gordon.Mr. Gordon became a director of the Company in November 2001. Mr. Gordon has been
Chairman of StoneCreek Capital since 1992 and was previously a principal with a predecessor firm, Kelso & Company from 1980 to 1992. Prior thereto, Mr. Gordon was with The Gillette
Company in Boston for 17 years. Mr. Gordon is currently a director of International House of Pancakes Corp., FoodHandler, Inc. and Delafoil, Inc. Mr. Gordon is a
Certified Public Accountant. He holds a B.S. degree

27

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in Economics from the Wharton School, University of Pennsylvania and an M.B.A. in Finance from Boston University.

Drew H. Adams.Mr. Adams has been a director of the Company since January 1998 and Assistant Secretary of the
Company since consummation of the Kolmar Acquisition. He has been employed with StoneCreek since 1993 where he is currently a Managing Director. Mr. Adams was primarily responsible for the
acquisitions of Piedmont and Kolmar by the Company. From 1987 to 1993, Mr. Adams worked in Wells Fargo Bank's Corporate Banking Group. Mr. Adams was a Vice President with Wells Fargo
when he joined StoneCreek in 1993. Mr. Adams holds a B.A. degree in Marketing and an M.B.A. in Finance from Texas Christian University.

Frank Edelstein.Mr. Edelstein has been a director of the Company since October 1996. He has been employed as a
Vice President of StoneCreek since March 1992. From 1987 to 1992, Mr. Edelstein was a Vice President with Kelso & Company, Inc. Prior thereto, he held various positions
with Continental Corporation, Automatic Data Processing, Inc., Leisure Technology, Inc., Olivetti Corp. of America, B. Manischewitz Corp. and Devegh & Co. Mr. Edelstein
holds a B.A. degree in Mathematics and Economics from New York University in 1948 and completed Masters Studies in Mathematic Statistics & Business at Columbia University in 1949.
Mr. Edelstein is a director of Arkansas Best Corp., International House of Pancakes Corp. and Ceradyne.

Robert M. Wadsworth.Mr. Wadsworth has been a director of the Company since October 1996. He has been a
Managing Director of HarbourVest and its predecessor, HVP, since 1986. Prior thereto, he held
various positions with Booz, Allen & Hamilton. Mr. Wadsworth currently serves on the Board of Directors of Concord Communications, Banyon Worldwide Inntech Group Plc., and
Switchboard, Inc. Mr. Wadsworth also serves on the boards of directors of several private companies and the advisory boards of several U.S. venture capital firms. Mr. Wadsworth
holds a B.S. degree in Systems Engineering and Computer Science from the University of Virginia and an M.B.A. from Harvard Business School.

Each
of the directors listed above serves for a term of one year until the next annual meeting of stockholders or until their respective successors are duly elected and qualified. The
Stockholders' Agreement, dated June 30, 1997, as amended on December 31, 1997 among certain stockholders of the Company, sets forth specific procedures for the election of directors.
Refer to Item 13 under "Stockholder Agreement and Registration Rights Agreement" of this Form 10-K for a discussion of the Stockholders Agreement. Executive officers are elected
annually and serve at the pleasure of the Board of Directors. Walter K. Lim and Howard C. Lim are brothers.

Compensation Committee

The Board of Directors has appointed a Compensation Committee. The Compensation Committee consisted of Frank Edelstein, John H. Morris and Robert M. Wadsworth up
to November, 2001. Subsequently from November, 2001, the Compensation Committee consists of Frank Edelstein, Michael S. Gordon and Robert M. Wadsworth. The Compensation Committee determines and
reports to the Board of Directors with respect to compensation for the Company's executive officers.

Audit Committee

The Board of Directors has appointed an Audit Committee. The Audit Committee currently consists of Michael S. Gordon, Drew H. Adams, and Frank Edelstein. The
Audit Committee reports to the Board of Directors with respect to financial reporting.

Director Compensation

Directors are reimbursed for their out-of-pocket expenses incurred in attending meetings of the Board of Directors of the Company and its
subsidiaries. Frank Edelstein and Howard C. Lim receive an annual fee of $35,000 for serving as directors on the Board of Directors of the Company.

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Howard
C. Lim entered into an Amendment and Termination of Employment Contract (the "Lim Termination Contract"), effective December 31, 1997, with ASC. Mr. Lim's employment
terminated with ASC upon the closing of the Kolmar Acquisition. Mr. Lim serves as a member of the Board of Directors and beginning February 14, 1999 receives $35,000 per year for such
service or such other amount as OSG pays outside directors for as long as he continues to hold at least 33% of the shares of Common Stock held by him on December 31, 1997. As severance,
Mr. Lim received a lump sum payment of $403,722 plus accrued but unused vacation and received medical, automobile and health insurance until February 14, 1999. Mr. Lim is
restricted from competing with the Company or ASC for a period of five years following termination of employment and will not solicit customers or employees.

Samuel
D. Garretson entered into an Amendment and Termination of Employment Contract (the "Garretson Termination Contract"), effective December 31, 1997, with Piedmont.
Mr. Garretson's employment terminated with Piedmont upon the closing of the Kolmar Acquisition. Mr. Garretson served as a member of the Board of Directors. In addition, Piedmont agreed
not to exercise its call rights with respect to Mr. Garretson's shares under the Stockholder Agreement (as defined under Item 13 of this Form 10-K). Mr. Garretson is
restricted from competing with the Company or Piedmont for a period of five years following termination of employment and will not solicit customers or employees. Effective December 9, 2000,
Mr. Garretson retired as a Director of the Company.

ITEM 11. EXECUTIVE COMPENSATION

The following tables set forth the annual compensation of the Company's Chief Executive Officer and the most highly compensated executive officers (the "Named
Executive Officers") for the fiscal years ended December 31, 2000 and December 31, 2001.

Summary Compensation Table

|                                                                           |  | Annual Compensation |  |  
|-------------------------------------------------------------------------- |  | ------------------- |  | -
|
|
|Joseph M. Healy
President and Chief Executive Officer,
beginning July 2000 |  | 2000                |  | $
|Perry Morgan
Chief Financial Officer                                       |  | 2000                |  |  
|Christopher Denney
President and Chief Executive Officer                   |  | 2000                |  |  
|Dennis Nolan
PresidentAerosol Liquids Division                            |  | 2000                |  |  
|Walter K. Lim
Chairman and Director Research and Development               |  | 2000                |  |  
|John G. Hewson
PresidentKolmar Division                                   |  | 2000                |  |  
|Kenneth Beck
PresidentUnit Dose Division                                  |  | 2000                |  |  

---

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Option/SAR Grants in 2000

|                   |  | Individual Grants
|------------------ |  | -----------------
|
|Christopher Denney |  | 8,750            
|Dennis Nolan       |  | 8,750            
|John G. Hewson     |  | 8,750            
|Perry Morgan       |  | 8,750            
|Perry Morgan       |  | 15,000           
|Joseph Healy       |  | 150,000          

---

Summary Compensation Table

|                                                                                                                |  | Annual Compensation |  |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------- |  | -
|
|
|Joseph M. Healy
President and Chief Executive Officer                                                           |  | 2001                |  | $
|Perry Morgan
Chief Financial Officer                                                                            |  | 2001                |  |  
|Dennis Nolan
PresidentAerosol Liquids Division,
through July 2001                                              |  | 2001                |  |  
|Walter K. Lim
Chairman and Director Research and Development                                                    |  | 2001                |  |  
|John G. Hewson
PresidentKolmar Division                                                                        |  | 2001                |  |  
|Kenneth Beck
Senior Vice President of Business DevelopmentConsumer Products Division                           |  | 2001                |  |  
|Robert Jaegly
Senior Vice President of OperationsConsumer Products Division                                    |  | 2001                |  |  
|Louis Arp
Vice President,
Director of OperationsPharmaceutical Division, beginning July 2001                   |  | 2001                |  |  
|Christopher Calhoun
Vice President,
Quality and Regulatory AffairsPharmaceutical Division, beginning July 2001 |  | 2001                |  |  

---

Option/SAR Grants in Last Fiscal Year

NONE GRANTED IN 2001.

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Employment Contracts, Termination of Employment and Change-in-Control Arrangements

Joseph M. Healy entered into an employment agreement (the "Healy Agreement") with the Company, effective July 19, 2000, which has an initial term of three
years and may be extended by mutual agreement for additional years on mutually agreeable terms. Mr. Healy will serve as President and Chief Executive Officer of the Company. The Company will
pay to Mr. Healy a base salary of $300,000 per year and a performance bonus to be determined by the Company's Board of Directors. Upon the effective time of the Healy Agreement,
Mr. Healy received options to purchase 150,000 shares of Common Stock at the price of $19.00 per share pursuant to a stock option agreement. The options are exercisable on the earlier of
(A) the third anniversary of this Agreement or (B) the date, if any, prior to such third anniversary on which (i) the date the Common Stock becomes publicly traded,
(ii) the date the Company completes an initial public offering of its Common Stock with proceeds in excess of $15 million, or (iii) the date the Company (or its assets) is sold
substantially as an entirety. At December 31, 2000, Mr. Healy was, along with other executives, eligible to participate in a stock option program providing for annual awards for the
years 2001 and 2002, of options to purchase up to 60,000 shares of Company stock in the aggregate. If Mr. Healy resigns for good reason (as such term is defined in the Healy Agreement) or dies
or becomes disabled, the Company will pay Mr. Healy or his representative his base salary through the balance of the term of the Employment Agreement. During the employment term and continuing
for a period of two years after the date of the expiration of Mr. Healy's employment (unless Mr. Healy is terminated by the Company without cause), Mr. Healy will not solicit
customers or employees of the Company.

Christopher
Denney entered into an employment agreement (the "Denney Agreement") with the Company, effective January 1, 1998, which had an initial term of three years.
Mr. Denney has retired from the Company effective December 31, 2000 and will not solicit customers or employees of the Company for a period of two years.

Perry
Morgan and John G. Hewson (the "Executives") have entered into employment agreements with the Company, effective July 1, 2001, which have a term of two years and may be
extended by mutual agreement for additional years on the same or mutually agreeable terms. Mr. Morgan serves as Chief Financial Officer and Mr. Hewson serves as President of the Kolmar
Division of the Company. The Company will pay to Mr. Morgan and Mr. Hewson a base salary of $185,000 and $240,000, respectively, per year and a performance bonus to be determined by the
Company's Board of Directors. All options that the executives have prior to the date of this agreement, or may receive subsequent to the date of this agreement, pursuant to the Company's amended and
restated 1998 Stock Option Plan (the "Plan") are and shall remain subject to the terms and conditions specified in the Plan and related separate agreements, and are not affected in any way by these
employment agreements. If either Executive resigns for good reason (as such term is defined in the Employer Agreements), the Company will pay
such Executive his base salary and benefits through the balance of the term. If either Executive dies or becomes disabled, the Company will pay such Executive his base salary and benefits through the
balance of the term of the agreement. During the employment term and continuing for a period of one year after the date of the expiration of each Executive's employment (unless the Executive is
terminated by the Company without cause), the Executive will not solicit or take away any customer or employee of the Company.

Dennis
Nolan entered into an employment agreement with the Company, effective February 1, 1998, which has a term of three years and may be extended by mutual agreement for
additional years on the same or mutually agreeable terms. Mr. Nolan will serve as Chief Operating Officer of the Company. The Company will pay to Mr. Nolan a base salary of $235,000 per
year and a performance bonus to be determined by the Company's Board of Directors. Upon the effective time of the agreements, Mr. Nolan was eligible to receive an option to purchase 20,000
shares of Common Stock at the price of $10 per share. The option is exercisable on the earlier of (i) January 31, 2001, (ii) the Common Stock becoming publicly traded,
(iii) the Company completing an initial public offering of its Common Stock with proceeds in excess of $15,000,000, or (iv) the Company (or its assets) is sold substantially as an
entirety. For each of the five years after January 1, 1998, Mr. Nolan, along with other executives, will be eligible to participate in a

31

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stock option program providing for an annual award, to all such participants in the aggregate, of options to purchase up to 60,000 shares of Company stock. If either Executive resigns for good reason
(as such term is defined in the Employer Agreements), the Company will pay such Executive his base salary and benefits through the balance of the term. If either Executive dies or becomes disabled,
the Company will pay such Executive his base salary and benefits through the balance of the term of the agreement. During the employment term and continuing for a period of two years after the date of
the expiration of each Executive's employment (unless the Executive is terminated by the Company without cause), the Executive will not solicit or take away any customer or employee of the Company.
Effective, August 1, 2001, Mr. Nolan entered into a separation agreement with the Company. The Company will honor its obligations under the Mr. Nolan's employment agreement and
under the Company's stockholder agreement. Mr. Nolan is entitled to eighteen months of salary including benefits as defined under the employee health benefit plan.

Mr. Walter
K. Lim does not have an employment agreement with the Company.

The
annual compensation of senior management were discussed and approved by the compensation committee in meetings held throughout 2001.

Compensation Committee Interlocks and Insider Participation

As noted previously, the members of the Compensation Committee during 2001 consisted solely of Frank Edelstein, Michael S. Gordon and Robert M. Wadsworth. None of
these individuals have ever been an officer or employee of the Company or any of its subsidiaries. and none of the executive officers of the Company served as a member of the compensation committee
(or other board
committee performing equivalent functions or, in the absence of such committee, the entire Board of Directors) of another entity during 2001. In addition, Michael S. Gordon and Robert M. Wadsworth are
principals of StoneCreek and HarbourVest, respectively, and are part of the management service agreements as outlined in Item 13.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial ownership of the Common Stock as of December 31, 2001 (i) by each person
known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock, (ii) by each director and Named Executive Officer and (iii) by all directors and
executive officers of the Company as a group (except as otherwise listed below, the address of each person listed is c/o Outsourcing Services Group, Inc., 25 Commerce Drive, Allendale, NJ
07401).

|                                                                                                   |  | Shares Beneficially Owned | 
|-------------------------------------------------------------------------------------------------- |  | ------------------------- | 
|
|
|Gordon+Morris Investment Partnership, L.P. (1)
18500 Von Karman Avenue, Suite 450
Irvine, CA 92612 |  | 1,279,970                 | 
|HarbourVest Partners IV-Direct Fund L.P. (2)
One Financial Center, 44th Floor
Boston, MA 02111     |  | 343,916                   | 
|HarbourVest Partners V-Direct Fund L.P. (3)
One Financial Center, 44th Floor
Boston, MA 02111      |  | 1,100,000                 | 
|Joseph Healy (4)(15)                                                                               |  | *                         | 
|John G. Hewson (5)                                                                                 |  | *                         | 
|Dennis M. Nolan (6)                                                                                |  | *                         | 
|Perry Morgan (7)                                                                                   |  | *                         | 
|Walter K. Lim (8)                                                                                  |  | 230,110                   | 
|Howard C. Lim                                                                                      |  | 185,609                   | 
|Frank Edelstein (9)                                                                                |  | *                         | 
|Drew H. Adams (10)                                                                                 |  | 1,279,970                 | 
|John H. Morris (1)(11)                                                                             |  | 1,355,618                 | 
|Robert M. Wadsworth (12)                                                                           |  | 1,443,916                 | 
|Michael S. Gordon (1)(13)                                                                          |  | 1,355,618                 | 
|Bruce N. Lipian (1)(14)                                                                            |  | 1,355,618                 | 
|All directors and executive officers as a group (12 persons)(16)                                   |  | 3,215,253                 | 

---

33

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34

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Stockholder Agreement and Registration Rights Agreement

In connection with the Merger, each stockholder of the Company at that time executed an amended and restated stockholder agreement, dated June 30, 1997
(the "Original Stockholder Agreement"), setting forth the rights, obligations and restrictions by and among the Company and its stockholders. In contemplation of the Kolmar Acquisition, on
December 31, 1997, the Original Stockholder Agreement was amended by an amendment to stockholder agreement (the "First Amendment"). The Stockholder Agreement was also amended in
November 2000 in connection with the resignation of Christopher Denney from his position of Chief Executive Officer of the Company ("Second Amendment"). The Original Stockholder Agreement and
the First and Second Amendments are collectively referred to herein as the "Stockholder Agreement." The rights, obligations and restrictions set forth in the Stockholder Agreement include, but are not
limited to, the following: (a) restrictions on sales, pledges and other transfers of Common Stock by the Company's stockholders (the "Stockholders"), except in certain circumstances;
(b) the right of certain individuals who are part of management of the Company to sell their shares of Common Stock to the Company upon termination of employment by the Company without cause or
upon the death or disability, retirement or resignation for "good reason" (as defined therein) of such person; (c) the right of the Company to purchase shares of Common Stock of certain
Stockholders in certain circumstances; (d) restrictions on the purchase of shares of Common Stock by the Company in certain circumstances; (e) a right of first refusal in favor of the
Company and the Stockholders in certain circumstances; and (f) the right to compel a sale or merger of the Company. The obligation of the Company to purchase shares of Common Stock of certain
management employees pursuant to clause (b) above may be deferred in certain circumstances, including to the extent that the Company is prohibited by any debt instruments entered into by the
Company or any of its affiliates or by law. In the event such payment is deferred, it shall accrue interest at a rate of 9% per annum until paid in full.

The
Stockholder Agreement requires that, unless certain events have occurred, each Stockholder will nominate, elect and vote all of such Stockholder's shares of Common Stock to continue
in office a Board of Directors consisting of nine members, two of whom will be designated by Walter K. Lim and Howard C. Lim (the "Founders") and must be reasonably acceptable to GMIP; two of whom
will be designated by HarbourVest; three of whom will be designated by GMIP; one of whom will be designated by HarbourVest and GMIP; and one of whom will be Joseph Healy, so long as he is Chief
Executive Officer of the Company and is willing to serve. The persons designated by the Founders,
HarbourVest and GMIP may be changed from time to time by the Founders, HarbourVest and GMIP, respectively; provided, however, that Walter K. Lim and Howard C. Lim will each be one of the directors
named by the Founders so as long as he holds at least thirty-three percent (33%) of the Common Stock he held on December 31, 1997 and is willing to serve. If both Michael S. Gordon and John H.
Morris are no longer principals of the manager of GMIP, then HarbourVest will have the right to name one of the directors GMIP would otherwise have the right to name, provided that HarbourVest is, at
such time, the beneficial owner of at least ten percent (10%) of the Common Stock. If either GMIP and its affiliates or HarbourVest and its affiliates no longer hold at least 33% of the highest number
of shares of Common Stock held by them at any time, the rights of GMIP or HarbourVest, as appropriate, to name a director will terminate. On each date that any one of the Founders ceases to be a
director for any reason, the number of directors to be named by the Founders will decrease by one, and when both of the Founders cease to be directors, the Founders shall no longer have the right to
name any directors. Following the resignation of any Founder as a director, HarbourVest and GMIP shall be entitled to jointly designate the person(s) who shall assume the vacant seat(s). If Joseph
Healy ceases to be a director because he is no longer Chief Executive Officer, such directorship will be filled by the incoming Chief Executive Officer.

Certain
parties to the Original Stockholder Agreement previously entered into a registration rights agreement providing certain piggyback registration rights relating to their shares of
Common Stock.

35

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Management Service Agreements

The Company, ASC, Piedmont, Kolmar and StoneCreek are parties to an Amended and Restated Management Services Agreement, dated January 8, 1998 (the
"Management Services Agreement"), which supersedes all prior management agreements with StoneCreek. Pursuant to this agreement, StoneCreek agreed to provide financial advisory, consulting and other
management services to the Company. The Company paid StoneCreek a fee of $800,000 upon the closing of the Kolmar Acquisition and will pay StoneCreek (i) provided certain conditions are met, an
annual fee of $350,000 which is subject to adjustment in the event of further acquisitions and/or dispositions, (ii) provided certain ownership conditions are met at the closing of each
acquisition of an additional business an amount equal to 1% (or a different amount agreed to by the parties up to 2%) of the total consideration paid to third parties, including assumption of debt,
(iii) provided certain ownership conditions are met, upon the sale of the Company or any of its subsidiaries, an amount equal to 1% (or a different amount agreed to by the parties up to 2%) of
the consideration received, including the assumption of debt, (iv) at the closing of a debt refinancing transaction an amount equal to 0.5% (or a different amount agreed to by the parties up to
1%) of the amount refinanced and (v) reasonable out-of-pocket expenses. This agreement contains broad indemnification provisions benefiting StoneCreek. The Management
Services Agreement was approved by a majority of the independent directors of the Company. The Company paid StoneCreek $371,000, $506,000 and $594,000 for the years ended December 31, 1999,
2000 and 2001, respectively.

The
Company is also party to a letter agreement with HarbourVest, dated January 8, 1998 (the "HarbourVest Agreement"), a copy of which has been filed as an exhibit to the
Registration Statement File Number 333-57209, whereby HarbourVest has agreed to provide a representative to serve on the Company's Board of Directors and to render financial and business
advice to OSG. In return, the Company will (i) reimburse the HarbourVest designated OSG director for all reasonable expenses related to attending meetings, (ii) provided certain
ownership conditions are met, pay HarbourVest a $115,000 annual financial advisory fee, $50,000 of which shall be paid in cash and the remainder of which shall accrue, all subject to increase if the
management fees paid to StoneCreek are increased and (iii) pay HarbourVest a fee of 1/3 of the fee received by StoneCreek or any of its affiliates under the Management Services
Agreement upon the sale of OSG or any of its subsidiaries or, if approved by OSG's Board of Directors, upon the acquisition of additional businesses. The HarbourVest Agreement was approved by a
majority of the independent directors of the Company. The Company paid HarbourVest $50,000 for each of the years ended December 31, 1999, 2000 and 2001. The Company believes that these fees
paid to StoneCreek and HarbourVest were made in the ordinary course of business on terms no less favorable than could have been obtained from a third party in an arms-length transaction.

Purchases from the Lims

The Company leases its manufacturing and warehouse facilities located in the City of Industry, CA as well as certain equipment located therein, from Walter K.
Lim, Sylvia Lim, Howard C. Lim, Nancy Lim, and their affiliates. The Company believes these leases were entered into in the ordinary course of business on terms no less favorable than could be
obtained from a third party in an arms-length transaction and were approved by the Board of Directors of the Company. Between January 1, 1995 and December 31, 2001 and during
2001, the Company paid approximately $6.4 million and $1.0 million, respectively, to Walter K. Lim, Sylvia Lim, Howard C. Lim, Nancy Lim, and their affiliates, under all such leases.

The
Company has sold products to companies controlled by Walter K. Lim, Howard C. Lim, and their affiliates, in the amount of $196,000, $29,000 and $53,000 for the years ended
December 31, 1999, 2000 and 2001, respectively. The Company believes that these sales were made in the ordinary course of business on terms no less favorable than could have been obtained from
a third party in an arms-length transaction.

36

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Equipment Leases

The Company leases certain manufacturing and data processing equipment from a partnership comprised of two of the Company's stockholders, Howard C. Lim and Walter
K. Lim. The Company believes these leases were entered into in the ordinary course of business on terms no less favorable than could be obtained from a third party in an arms-length
transaction. Lease payments under these
equipment leases between January 1, 1995 and December 31, 2001 and during 2001 were approximately $0.6 million and $24,000, respectively.

Amendment to Certificate of Incorporation

In accordance with the Kolmar Acquisition, the Company's Certificate of Incorporation was amended with respect to its Preferred Stock in order to extend the
redemption date of the Preferred Stock until after March 1, 2006.

Private Placements

Refer to Item 5 of this Form 10-K for a description of certain private placements of Common Stock to affiliates and management of the Company.

The Merger

Effective June 30, 1997, pursuant to the Merger, ACHC was merged with ASHC, a related company owned principally by the same investor group. The combined
entity was renamed "Outsourcing Services Group, Inc." As a result of the Merger, the Company became the sole common stockholder of ASC and Piedmont. The merger agreement also amended the
capital structure such that the existing stockholders of ACHC received approximately 1.22 new shares of Common Stock for each old share of ACHC common stock that they owned prior to the Merger and the
existing stockholders of ASHC received approximately .76 new shares of Common Stock for each old share of ASHC common stock that they owned prior to the Merger. Because ACHC stockholders received a
majority of the Common Stock in the new company, ACHC has been determined to be the accounting acquirer. The fair value of the Common Stock issued to stockholders of ASHC was $4,058,000 as of
June 30, 1997.

Kolmar Acquisition Agreement

As of January 1, 1998, OSG acquired all of the shares of Kolmar from CCL Industries and certain assets relating to Kolmar's Canadian operations from CCL.
Upon consummation of the Kolmar Acquisition, Kolmar became a wholly-owned subsidiary of OSG and those other assets purchased from CCL were transferred to Kolmar Canada, an Ontario corporation formed
for such purpose, which became a wholly-owned subsidiary of Kolmar. Pursuant to the Kolmar Acquisition Agreement and subject to a $134,000 minimum threshold in one lawsuit, CCL retained liability for
all disclosed litigation. The Kolmar Acquisition Agreement contains typical representations and warranties, which for the most part survived until the earlier of (i) July 8, 1999 or
(ii) delivery of Kolmar's audited financial statements for the year ended December 31, 1998. Certain representations and warranties made with respect to compliance with
environmental laws survive until January 8, 2003. CCL and CCL Industries agreed to indemnify the Company for losses resulting from inaccuracies or breaches of representations and warranties and
breaches of certain covenants contained in the agreement. Subject to a $750,000 minimum threshold and for certain environmental liabilities subject to a $250,000 minimum threshold, CCL and CCL
Industries' liability for indemnification is limited to $6.5 million (this limit is $12.0 million with respect to losses resulting from environmental matters related to certain
facilities and there is no limit with respect to losses from environmental matters related to certain other facilities). Pursuant to the terms of the Kolmar Acquisition Agreement, OSG is required to
indemnify CCL and CCL Industries for losses resulting from breaches or inaccuracies of its representations and warranties and for losses arising from the Company's

37

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conduct of Kolmar's business, its real property and environmental matters, to the extent that the losses relate to actions or occurrences after the closing date.

Acupac Acquisition

On June 2, 1999, the Company acquired all of the issued and outstanding capital stock of Acupac for approximately $10.0 million. Acupac is primarily
a provider of outsourced packaging services to the health and beauty aids, household and consumer product markets. This acquisition was accounted for as a purchase.

Precision Acquisition Agreement

On February 29, 2000, pursuant to a stock purchase agreement dated February 29, 2000, the Company acquired all of the issued and outstanding stock
of Precision Packaging and Services, Inc., an Ohio Corporation ("Precision"), and the related real estate from the Susan L. Purkrabek Small Business Trust, an electing small business trust, the
David G. Knust Small Business Trust, an electing small business trust and K.P. Properties, an Ohio general partnership controlled by Ms. Purkrabek and Mr. Knust (the "Sellers") for
approximately $42.1 million. Precision is a contract manufacturer of consumer products (i.e., high speed liquid filling, cartoning, shrink wrapping, packaging) for some of the largest U.S.
consumer products companies. The Company plans for Precision to continue in this line of business. The Company drew against its existing revolving credit facility to pay Sellers.

Ivers-Lee Limited Acquisition Agreement

On August 25, 2000, pursuant to a stock purchase agreement, the Company acquired all of the outstanding stock of Ivers-Lee Limited
("Ivers-Lee"), and TMJ Specialty Tool and Design Limited ("TMJ"), corporations organized under the laws of Ontario (together, Ivers-Lee and TMJ are the "Companies" and each a
"Company"), from the Ken Young Family Trust (the "Trust"), Pallasade Holdings Inc., a corporation organized under the laws of Ontario ("Pallasade"; together with the Trust, the
"Ivers-Lee Shareholders"), and Elizabeth Young (the "TMJ Shareholder", together with the
Ivers-Lee Shareholders, the "Sellers") for approximately $8.0 million of which $2.3 million was paid to the seller in the first quarter 2001. Ivers-Lee is
primarily a provider of outsourced packaging services to the pharmaceutical, health and beauty aids, household and consumer product markets for some of the largest U.S. and Canadian consumer product
companies. The Company plans for Ivers-Lee to continue in this line of business. The Company drew against its existing revolving credit facility to pay Sellers.

Sale of Imperial

In November 2000, Kolmar sold its wholly-owned Imperial Cosmetics Services division through an asset purchase agreement to Imperial Cosmetics, L.P. The business
was sold as an asset deal for $1.5 million for the real property, equipment, inventory and prepaid assets less assumed liabilities of approximately $250,000. During 2000, the Imperial Cosmetics
Services division suffered losses from operations of $783,000 and sustained an additional $1.2 million in deal related losses (including $0.8 million write-off of goodwill).

Norwich Asset Acquisition

On June 29, 2001, the Company completed an asset purchase acquisition for the Procter & Gamble ("P&G") North Norwich facility located in North
Norwich, New York which was funded with a $10.0 million note payable to P&G, bearing 8% interest due in June 2006. OSG Norwich Pharmaceutical, Inc. ("Norwich") also entered into a
Product Supply Agreement ("PSA") for five years with P&G. The Company will manufacture prescription and over-the-counter pharmaceutical products at the plant.

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Dermal Asset Acquisition

On September 6, 2001, the Company completed an asset purchase acquisition of Dermal Sciences, Inc. ("Dermal") for approximately $3.5 million,
which was funded entirely from available borrowings under the Senior Secured Credit facility. Dermal is primarily a provider of treatment patches and treated nonwovens for the health and beauty aid
markets. Its operations will reside at the Company's Acupac facility located in Mahwah, New Jersey.

Restructuring

On February 20, 2002, the Company formalized its plan to restructure its business processes, practices and organization to streamline functions and remain
competitive. The restructuring includes some position eliminations, the elimination of duplicate or overlapping functions, and in some cases, redeployment and retraining. It is important to note that
these changes will effect the Company's overall employee population by less than four percent.

Management
believes that full implementation will occur during the course of 2002. Those employees affected by job elimination will be offered severance benefits to help with the
transition, as well as assistance to prepare for their job search. Management is committed to ensuring the Company's ongoing success by creating a stronger, more capable business, which will benefit
the vast majority of the Company's employees.

In
connection with the implementation of the restructuring plan, the Company will record a pre-tax restructuring charge of $1.0 million in the first quarter of 2002
related to severance costs. Additional costs related to legal fees, training, hiring and job placement, etc. will approximate $1.1 million which will be recorded as incurred. The total
restructuring charge will approximate $2.1 million for fiscal year 2002.

Sale of Australia

On February 20, 2002, the Company sold the land and buildings of its Kolmar (Aust) Pty, Ltd., a wholly owned subsidiary for $2.1 million to
Tismor Properties Pty Limited and Shehade Hajje and Dawn Hajje. The net proceeds of the sale of the property will be used to pay down the Company's revolving credit facility. The land and building
sold had been held by the Company and leased to J.C. Allan Australia Pty Limited since October 1998 in conjunction with the Company's sale of the operating assets and business to J.C. Allan Australia
Pty Limited at that time.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

|       |  |                                                                                                                                                                                                                        
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)(1) |  | See page F-1 for a listing of financial statements submitted as part of this report.                                                                                                                                   
|(a)(2) |  | All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are shown in the financial statements or are inapplicable, and therefore have been
omitted.
|(a)(3) |  | The following exhibits are included or incorporated by reference in this report.                                                                                                                                       

|Exhibit No. |     | Description                                                                                                                                                                                                                                                                                                                                                                
|----------- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         | (1) | Certificate of Incorporation of Aerosol Services Holding Corporation ("ASHC") (which later changed its name to "Outsourcing Services Group, Inc."), as amended to date.                                                                                                                                                                                                    
|3.2         | (1) | By-Laws of ASHC.                                                                                                                                                                                                                                                                                                                                                           
|3.3         | (1) | Articles of Incorporation of ASC Merger Corp. ("ASCMC") (which later changed its name to "Aerosol Services Company, Inc."), as amended to date.                                                                                                                                                                                                                            
|3.4         | (1) | By-Laws of ASCMC, as amended to date.                                                                                                                                                                                                                                                                                                                                      
|3.5         | (1) | Certificate of Incorporation of Kolmar Laboratories, Inc. ("Kolmar"), as amended to date.                                                                                                                                                                                                                                                                                  
|3.6         | (1) | By-Laws of Kolmar, as amended to date.                                                                                                                                                                                                                                                                                                                                     
|3.7         | (1) | Restated Articles of Incorporation of Piedmont Laboratories, Inc. ("Piedmont"), as amended to date.                                                                                                                                                                                                                                                                        
|3.8         | (1) | By-Laws of Piedmont.                                                                                                                                                                                                                                                                                                                                                       
|4.1         | (1) | Indenture, dated March 3, 1998, among the Company, the Guarantors listed therein and U.S. Bank Trust National Association (formerly First Trust National Association), as Trustee, relating to the 10.875% Series B Senior
Subordinated Notes due 2006 of the Company (the "New Notes") and the 107/8% Senior Subordinated Notes due 2006 of the Company (the "Old Notes").
|4.2         | (1) | Registration Rights Agreement, dated as of March 3, 1998, by and among the Company, the Guarantors listed therein and BT.                                                                                                                                                                                                                                                  
|4.3         | (1) | Registration Rights Agreement, dated as of February 14, 1994, by and among ASHC and the investors that are parties thereto.                                                                                                                                                                                                                                                
|9.1         | (1) | Amended and Restated Stockholder Agreement, dated as of June 30, 1997, among the Company and certain stockholders listed herein.                                                                                                                                                                                                                                           
|9.2         | (1) | Amendment to Stockholder Agreement, dated December 31, 1997, among the Company and certain stockholders listed therein.                                                                                                                                                                                                                                                    
|10.1        | (1) | Credit Agreement, dated as of January 8, 1998 ("Credit Agreement"), among the Company, as guarantor, Aerosol Services Company, Inc. ("Aerosol"), Piedmont and additional subsidiaries of the Company, as Borrowers, the
Lenders party thereto, BT Commercial Corporation, as Agent, and Heller Financial, Inc., as Co-Agent.                                               
|10.2        | (1) | Amendment and Waiver No. 1, dated as of April 29, 1998, to the Credit Agreement, by and among the Company, Aerosol and Piedmont, as initial Borrowers, Kolmar, as an additional Borrower, each financial institution from
time to time party to the Credit Agreement, BT Commercial Corporation, as Agent for Lenders and Heller Financial, Inc., as Co-Agent.             
|10.3        | (1) | Outsourcing Services Group, Inc. 1998 Stock Option Plan.                                                                                                                                                                                                                                                                                                                   
|10.4        | (1) | Stock Option Agreement, dated December 31, 1997, between the Company and Christopher Denney.                                                                                                                                                                                                                                                                               
|10.5        | (1) | Amended and Restated Warrant Agreement between the Company and Chase Capital, L.P., dated January 8, 1998.                                                                                                                                                                                                                                                                 
|10.6        | (1) | Amended and Restated Management Services Agreement, dated January 8, 1998, by and between The Gordon+Morris Group, the Company, Aerosol, Piedmont and Kolmar.                                                                                                                                                                                                              

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|10.7  | (1) | Advisory and Financial Services Agreement by and between the Company and HarbourVest Partners LLC, dated January 8, 1998.                                                                                                                                                                                                                                       
|----- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8  | (1) | Employment and Non-Competition Agreement between the Company and Christopher Denney, dated January 9, 1998.                                                                                                                                                                                                                                                     
|10.9  | (1) | Share and Asset Purchase Agreement, dated October 28, 1997, between CCL Industries, Inc., CCL Industries Corporation and the Company.                                                                                                                                                                                                                           
|10.10 | (1) | Amendment to Share and Asset Purchase Agreement, dated January 1, 1998, between CCL Industries, Inc., CCL Industries Corporation and the Company.                                                                                                                                                                                                               
|10.11 | (1) | Modification Agreement, dated January 8, 1998, between CCL Industries, Inc., CCL Industries Corporation and the Company.                                                                                                                                                                                                                                        
|10.12 | (1) | Agreement and Plan of Merger, dated June 20, 1997, by and between Aerosol Companies Holding Corporation ("ACHC") and ASHC.                                                                                                                                                                                                                                      
|10.13 | (1) | Amendment and Termination of Employment Contract, dated December 31, 1997, for Howard C. Lim.                                                                                                                                                                                                                                                                   
|10.14 | (1) | Amendment and Termination of Employment Contract, dated December 31, 1997, for Samuel D. Garretson.                                                                                                                                                                                                                                                             
|10.15 | (1) | Employment, Non-Disclosure and Limited Non-Competition Agreement between the Company and Joseph W. Sortais.                                                                                                                                                                                                                                                     
|10.16 | (1) | Employment, Non-Disclosure and Limited Non-Competition Agreement between the Company and John G. Hewson.                                                                                                                                                                                                                                                        
|10.17 | (1) | Employment, Non-Disclosure and Limited Non-Competition Agreement between the Company and Dennis Nolan.                                                                                                                                                                                                                                                          
|10.18 | (2) | Stock Option Agreement, dated June 30, 1998, between the Company and Dennis Nolan.                                                                                                                                                                                                                                                                              
|10.19 | (2) | Stock Option Agreement, dated June 30, 1998, between the Company and John G. Hewson.                                                                                                                                                                                                                                                                            
|10.20 | (2) | Stock Option Agreement, dated June 30, 1998, between the Company and Joseph Sortais.                                                                                                                                                                                                                                                                            
|10.21 | (b) | Stock purchase agreement dated February 29, 2000, between the Company and Precision Packaging Services, Inc. ("Precision") to acquire all the issued and outstanding stock of Precision.                                                                                                                                                                        
|10.22 | (2) | Employment and Non-Competition Agreement between the Company and Joseph Healy, dated July 19, 2000.                                                                                                                                                                                                                                                             
|10.23 | (2) | Stock purchase agreement dated August 25, 2000 between the Company and Ivers-Lee Limited ("Ivers-Lee") to acquire all the issued and outstanding stock of Ivers-Lee.                                                                                                                                                                                            
|10.24 | (2) | Settlement Agreement and Mutual Release dated December 8, 2000, between the Company, Piedmont Laboratories, Inc. and Samuel Garretson.                                                                                                                                                                                                                          
|10.25 | (2) | Retirement Agreement, dated December 1, 2000, for Christopher Denney                                                                                                                                                                                                                                                                                            
|10.26 |     | Amendment and Waiver No. 2, dated as of February 22, 1999, to the Credit Agreement, by and among the Company, Aerosol and Piedmont, as initial borrowers, Kolmar, as an additional Borrower, each financial
institution from time to time party to the Credit Agreement, BT Commercial Corporation, as Agent for Lenders and Heller Financial Inc., as Co-Agent.
|10.27 |     | Amendment and Waiver No. 3, dated as of February 29, 2000, to the Credit Agreement, by and among the Company, Aerosol, Piedmont, Kolmar, Acupac and Precision as initial borrowers, each financial institution from
time to time party to the Credit Agreement, BT Commercial Corporation, as Agent for Lenders and Heller Financial Inc., as Co-Agent.         
|10.28 |     | Amendment and Waiver No. 4, dated as of January 11, 2001, to the Credit Agreement, by and among the Company, Aerosol, Piedmont, Kolmar, Acupac and Precision as initial borrowers, each financial institution from
time to time party to the Credit Agreement, BT Commercial Corporation, as Agent for Lenders and Heller Financial Inc., as Co-Agent.          

41

---

|10.29 |  | Amendment and Waiver No. 5, dated as of August 15, 2001, to the Credit Agreement, by and among the Company, Aerosol, Piedmont, Kolmar, Acupac and Precision as initial borrowers, each financial institution from
time to time party to the Credit Agreement, BT Commercial Corporation, as Agent for Lenders and Heller Financial Inc., as Co-Agent.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.30 |  | Employment, Non-Disclosure and Limited Non-Competition Agreement, dated January 1, 2001, between the Company and Perry Morgan.                                                                                                                                                                                                                       
|10.31 |  | Employment, Non-Disclosure and Limited Non-Competition Agreement, dated January 1, 2001, between the Company and John G. Hewson.                                                                                                                                                                                                                     
|10.32 |  | Promissory Note, dated January 2, 2001, between Joseph Healy and the Company.                                                                                                                                                                                                                                                                        
|10.33 |  | Asset Sale and Purchase Agreement, dated June 29, 2001, between Procter & Gamble Pharmaceuticals, Inc., and Ohio Corporation formerly known as Norwich Eaton Pharmaceuticals, Inc., and a wholly-owned subsidiary of
the Procter & Gamble Company and OSG Norwich Pharmaceuticals, Inc., a wholly owned subsidiary of the Company.                   
|10.34 |  | Promissory Note, dated June 29, 2001, between OSG Norwich Pharmaceuticals, Inc. and Procter & Gamble Pharmaceuticals, Inc.                                                                                                                                                                                                                           
|10.35 |  | Chemical Manufacturing Supply Agreement, dated June 29, 2001, between OSG Norwich Pharmaceuticals, Inc. and Procter & Gamble Pharmaceuticals S.A.R.L.                                                                                                                                                                                                
|10.36 |  | Asset Purchase Agreement, dated September 6. 2001, between Acupac Packaging, Inc. and Craig J. Berry, Kim R. Berry, and Dermal Sciences, Inc.                                                                                                                                                                                                        
|10.37 |  | Employment, Nondisclosure and Non-Competition Agreement, dated September 6, 2001, between Acupac Packaging, Inc. and Craig Berry.                                                                                                                                                                                                                    
|12.1  |  | Statement regarding the computation of ratio of earnings to fixed charges for the Company.                                                                                                                                                                                                                                                           
|12.2  |  | Statement regarding the computation of ratio of earnings to fixed charges for each of Aerosol (Guarantors only).                                                                                                                                                                                                                                     
|12.3  |  | Statement regarding the computation of ratio of earnings to fixed charges for Piedmont (Guarantors only).                                                                                                                                                                                                                                            
|12.4  |  | Statement regarding the computation of ratio of earnings to fixed charges for Kolmar (Guarantors only).                                                                                                                                                                                                                                              
|12.5  |  | Statement regarding the computation of ratio of earnings to fixed charges for Acupac (Guarantors only).                                                                                                                                                                                                                                              
|12.6  |  | Statement regarding the computation of ratio of earnings to fixed charges for Precision (Guarantors only).                                                                                                                                                                                                                                           
|21.1  |  | Subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                         

---



42

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS    OUTSOURCING SERVICES GROUP, INC.

|Financial Statements:         |                                                                                                                   | 
|----------------------------- | ----------------------------------------------------------------------------------------------------------------- | 
|                              | Independent Auditors' Report                                                                                      | 
|                              | Consolidated Balance Sheets as of December 31, 2000 and 2001                                                      | 
|                              | Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 1999, 2000 and 2001 | 
|                              | Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 2000 and 2001              | 
|                              | Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001                        | 
|                              | Notes to consolidated financial statements                                                                        | 
|Financial Statement Schedule: |                                                                                                                   | 
|                              | Schedule IIValuation and Qualifying Accounts and Reserves                                                        | 

All
other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

F-1

---

INDEPENDENT AUDITORS' REPORT

To
the Board of Directors
Outsourcing Services Group, Inc.
Allendale, New Jersey

We
have audited the accompanying consolidated balance sheets of Outsourcing Services Group, Inc. and its subsidiaries (the "Company") as of December 31, 2000 and 2001, and
the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for the years ended December 31, 1999, 2000 and 2001. Our audits also included the
financial statement schedule listed in the index at Item 8. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and the financial statement schedule based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Outsourcing Services Group, Inc. and its subsidiaries as
of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

LOGO

Parsippany,
New Jersey
March 21, 2002

F-2

---



OUTSOURCING SERVICES GROUP, INC.        CONSOLIDATED BALANCE SHEETS        AS OF DECEMBER 31, 2000 AND 2001        (Dollars in thousands, except for per
share data)

|                                                                                                       |                                                                                                                                                                  | 2000                                                                    |         | 2001    |        
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------- | ------- | -------
|ASSETS                                                                                                 |                                                                                                                                                                 
|CURRENT ASSETS:                                                                                        |                                                                                                                                                                  |                                                                         |         |         |        
|                                                                                                       | Cash                                                                                                                                                             |                                                                         | $       | 3,801   |        
|                                                                                                       | Short-term investments                                                                                                                                           |                                                                         |         | 254     |        
|                                                                                                       | Accounts receivable, net                                                                                                                                         |                                                                         |         | 47,928  |        
|                                                                                                       | Other receivables                                                                                                                                                |                                                                         |         | 1,815   |        
|                                                                                                       | Inventories, net                                                                                                                                                 |                                                                         |         | 32,907  |        
|                                                                                                       | Prepaid expenses and other current assets                                                                                                                        |                                                                         |         | 1,043   |        
|                                                                                                       | Deferred income taxes, current                                                                                                                                   |                                                                         |         | 4,212   |        
|                                                                                                       |                                                                                                                                                                  |                                                                         |         |         |        
|                                                                                                       |                                                                                                                                                                  | Total current assets                                                    |         |         | 91,960 
|PROPERTY AND EQUIPMENT, net                                                                            |                                                                                                                                                                  |                                                                         | 43,057  |         |        
|GOODWILL AND OTHER INTANGIBLES, net                                                                    |                                                                                                                                                                  |                                                                         | 102,272 |         |        
|DEFERRED INCOME TAXES, non-current                                                                     |                                                                                                                                                                  |                                                                         |        |         |        
|DEFERRED FINANCING COSTS, net                                                                          |                                                                                                                                                                  |                                                                         | 5,260   |         |        
|ENVIRONMENTAL INSURANCE RECEIVABLE                                                                     |                                                                                                                                                                  |                                                                         | 350     |         |        
|DUE FROM CCL                                                                                           |                                                                                                                                                                  |                                                                         | 7,126   |         |        
|OTHER ASSETS                                                                                           |                                                                                                                                                                  |                                                                         | 602     |         |        
|                                                                                                       |                                                                                                                                                                  |                                                                         |         |         |        
|                                                                                                       |                                                                                                                                                                  | TOTAL ASSETS                                                            |         | $       | 250,627
|                                                                                                       |                                                                                                                                                                  |                                                                         |         |         |        
|LIABILITIES, REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY                                      |                                                                                                                                                                 
|CURRENT LIABILITIES:                                                                                   |                                                                                                                                                                  |                                                                         |         |         |        
|                                                                                                       | Accounts payable                                                                                                                                                 |                                                                         | $       | 33,067  |        
|                                                                                                       | Accrued expenses                                                                                                                                                 |                                                                         |         | 18,621  |        
|                                                                                                       | Deferred income taxes, current                                                                                                                                   |                                                                         |         |        |        
|                                                                                                       | Income taxes payable                                                                                                                                             |                                                                         |         | 186     |        
|                                                                                                       | Other current liabilities                                                                                                                                        |                                                                         |         | 108     |        
|                                                                                                       |                                                                                                                                                                  |                                                                         |         |         |        
|                                                                                                       |                                                                                                                                                                  | Total current liabilities                                               |         |         | 51,982 
|DEFERRED INCOME TAXES, non-current                                                                     |                                                                                                                                                                  |                                                                         | 820     |         |        
|ENVIRONMENTAL CONTINGENCIES AND OTHER LIABILITIES                                                      |                                                                                                                                                                  |                                                                         | 11,774  |         |        
|LONG-TERM DEBT                                                                                         |                                                                                                                                                                  |                                                                         | 161,447 |         |        
|                                                                                                       |                                                                                                                                                                  |                                                                         |         |         |        
|                                                                                                       |                                                                                                                                                                  | Total liabilities                                                       |         |         | 226,023
|REDEEMABLE SERIES A PREFERRED STOCK, $.001 par value; 3,750 shares authorized, issued and outstanding  |                                                                                                                                                                  |                                                                         | 375     |         |        
|REDEEMABLE SERIES B PREFERRED STOCK, $.001 par value; 26,250 shares authorized, issued and outstanding |                                                                                                                                                                  |                                                                         | 4,514   |         |        
|COMMITMENTS AND CONTINGENCIES                                                                          |                                                                                                                                                                  |                                                                         |         |         |        
|STOCKHOLDERS' EQUITY:                                                                                  |                                                                                                                                                                  |                                                                         |         |         |        
|                                                                                                       | Common stock, $.001 par value; 6,000,000 shares authorized; 3,375,483 and 3,373,265 shares issued and outstanding as of December 31, 2000 and 2001, respectively |                                                                         |         | 3       |        
|                                                                                                       | Common stock warrants                                                                                                                                            |                                                                         |         | 663     |        
|                                                                                                       | Additional paid-in capital                                                                                                                                       |                                                                         |         | 31,092  |        
|                                                                                                       | Notes receivable from stockholders                                                                                                                               |                                                                         |         | (740    | )      
|                                                                                                       | Accumulated deficit                                                                                                                                              |                                                                         |         | (10,870 | )      
|                                                                                                       | Accumulated other comprehensive loss                                                                                                                             |                                                                         |         | (433    | )      
|                                                                                                       |                                                                                                                                                                  |                                                                         |         |         |        
|                                                                                                       |                                                                                                                                                                  | Total stockholders' equity                                              |         |         | 19,715 
|                                                                                                       |                                                                                                                                                                  |                                                                         |         |         |        
|                                                                                                       |                                                                                                                                                                  | TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY |         | $       | 250,627
|                                                                                                       |                                                                                                                                                                  |                                                                         |         |         |        

See notes to consolidated financial statements.

F-3

---



OUTSOURCING SERVICES GROUP, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS        FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001        (Dollars in thousands, except for per share data)

|                                                                         |  | Year Ended December 31, |          
|------------------------------------------------------------------------ |  | ----------------------- | ---------
|
|NET REVENUES                                                             |  | $                       | 257,040  
|COST OF GOODS SOLD                                                       |  |                         | 219,497  
|                                                                         |  |                         |          
|GROSS PROFIT                                                             |  |                         | 37,543   
|SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES                            |  |                         | 23,658   
|                                                                         |  |                         |          
|INCOME FROM OPERATIONS                                                   |  |                         | 13,885   
|FOREIGN CURRENCY TRANSLATION GAIN (LOSS)                                 |  |                         | 446      
|INTEREST EXPENSE, NET                                                    |  |                         | 13,486   
|                                                                         |  |                         |          
|INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES                |  |                         | 845      
|PROVISION (BENEFIT) FOR INCOME TAXES                                     |  |                         | 1,096    
|                                                                         |  |                         |          
|NET LOSS                                                                 |  |                         | (251     
|ACCRETION AND DIVIDENDS ON PREFERRED STOCK                               |  |                         | (248     
|                                                                         |  |                         |          
|NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                             |  |                         | (499     
|                                                                         |  |                         |          
|OTHER COMPREHENSIVE INCOME (LOSS)                                        |  |                         | (8       
|                                                                         |  |                         |          
|COMPREHENSIVE LOSS                                                       |  | $                       | (259     
|                                                                         |  |                         |          
|BASIC AND DILUTED LOSS PER SHARE:                                        |  |                         |          
|NET LOSS PER SHAREBASIC AND DILUTED                                     |  | $                       | (0.07    
|                                                                         |  |                         |          
|NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERSBASIC AND DILUTED |  | $                       | (0.14    
|                                                                         |  |                         |          
|WEIGHTED AVERAGE COMMON SHARESBASIC AND DILUTED                         |  |                         | 3,444,182
|                                                                         |  |                         |          

See
notes to consolidated financial statements.

F-4

---

OUTSOURCING SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(Dollars in thousands)

|                                                            |  | Shares    |   | Amount |   | Common
stock
warrants |   | Additional Paid-in Capital |  | Notes receivable from stockholders |        | Accumulated deficit |   | Accumulated other comprehensive income (loss) |   | Total stockholders' equity |        
|----------------------------------------------------------- |  | --------- | - | ------ | - | --------------------- | - | -------------------------- |  | ---------------------------------- | ------ | ------------------- | - | --------------------------------------------- | - | -------------------------- | -------
|BALANCE, 1/1/1999                                           |  | 3,455,174 |   | $      | 3 |                       | $ | 663                        |  | $                                  | 32,272 |                     | $ | (772                                          | ) | $                          | (6,584 
|Repurchase and cancellation of common stock                 |  | (13,191   | ) |        |   |                       |   |                            |  |                                    | (132   | )                   |   | 8                                             |   |                            |        
|Accretion of redeemable Series B preferred stock            |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            | (210   
|Payment of dividends on Series A redeemable preferred stock |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            | (38    
|Net loss                                                    |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            | (251   
|Foreign currency translation adjustment                     |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            |        
|                                                            |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            |        
|BALANCE, 12/31/1999                                         |  | 3,441,983 |   | $      | 3 |                       | $ | 663                        |  | $                                  | 32,140 |                     | $ | (764                                          | ) | $                          | (7,083 
|Repurchase and cancellation of common stock                 |  | (66,500   | ) |        |   |                       |   |                            |  |                                    | (1,048 | )                   |   | 24                                            |   |                            |        
|Accretion of redeemable Series B preferred stock            |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            | (210   
|Payment of dividends on Series A redeemable preferred stock |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            | (37    
|Net loss                                                    |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            | (3,540 
|Foreign currency translation adjustment                     |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            |        
|                                                            |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            |        
|BALANCE, 12/31/2000                                         |  | 3,375,483 |   | $      | 3 |                       | $ | 663                        |  | $                                  | 31,092 |                     | $ | (740                                          | ) | $                          | (10,870
|Issuance of common stock                                    |  | 26,316    |   |        |   |                       |   |                            |  |                                    | 500    |                     |   | (250                                          | ) |                            |        
|Repurchase and cancellation of common stock                 |  | (28,534   | ) |        |   |                       |   |                            |  |                                    | (1,403 | )                   |   | 160                                           |   |                            |        
|Accretion of redeemable Series B preferred stock            |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            | (210   
|Payment of dividends on Series A redeemable preferred stock |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            | (37    
|Net loss                                                    |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            | (3,411 
|Minimum pension liability                                   |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            |        
|Foreign currency translation adjustment                     |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            |        
|                                                            |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            |        
|BALANCE, 12/31/2001                                         |  | 3,373,265 |   | $      | 3 |                       | $ | 663                        |  | $                                  | 30,189 |                     | $ | (830                                          | ) | $                          | (14,528
|                                                            |  |           |   |        |   |                       |   |                            |  |                                    |        |                     |   |                                               |   |                            |        

See notes to consolidated financial statements.

F-5

---



OUTSOURCING SERVICES GROUP, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001        (Dollars in
thousands)

|                                                                                |                                                | Year Ended December 31,                   |        
|------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------- | -------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |                                                |                                           |        
|Net loss                                                                        |                                                | $                                         | (251   
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                                |                                           |        
|Depreciation and amortization                                                   |                                                |                                           | 8,892  
|Amortization of deferred financing costs                                        |                                                |                                           | 1,471  
|Foreign currency translation                                                    |                                                |                                           | 446    
|Provision for doubtful accounts                                                 |                                                |                                           | 748    
|Deferred income taxes                                                           |                                                |                                           | (222   
|Change in operating assets and liabilities, net of assets acquired:             |                                                |                                           |        
|                                                                                | Accounts receivable                            |                                           |        
|                                                                                | Inventories                                    |                                           |        
|                                                                                | Prepaid expenses and other current assets      |                                           |        
|                                                                                | Other assets                                   |                                           |        
|                                                                                | Trade accounts payable                         |                                           |        
|                                                                                | Income tax payable/receivable                  |                                           |        
|                                                                                | Accrued expenses and other current liabilities |                                           |        
|                                                                                |                                                |                                           |        
|                                                                                |                                                | Net cash provided by operating activities |        
|                                                                                |                                                |                                           |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |                                                |                                           |        
|Capital expenditures                                                            |                                                |                                           | (5,699 
|Sale of property and equipment                                                  |                                                |                                           | 227    
|Other                                                                           |                                                |                                           | (169   
|Short-term investments                                                          |                                                |                                           | 1      
|Acquisition of Acupac and Bradcan Corporation, net of cash acquired (1999)      |                                                |                                           | (10,529
|Acquisition of Precision Packaging and Ivers-Lee, net of cash acquired (2000)   |                                                |                                           |       
|Acquisition of Norwich and Dermal, net of cash acquired (2001)                  |                                                |                                           |       
|                                                                                |                                                |                                           |        
|                                                                                |                                                | Net cash used in investing activities     |        
|                                                                                |                                                |                                           |        

See
notes to consolidated financial statements.

F-6

---

|                                                                                                                                                                                                                                                                               |                                                     | Year Ended December 31, |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------- | ----------------------- | ------
|
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                                                                                                                                                                          |                                                     |                         |       
|Deferred financing acquisition                                                                                                                                                                                                                                                 |                                                     |                         |      
|Net borrowings (payments) on revolving loans                                                                                                                                                                                                                                   |                                                     |                         | 7,413 
|Payment of dividends on preferred stock                                                                                                                                                                                                                                        |                                                     |                         | (38   
|Repurchase/cancellation of stock                                                                                                                                                                                                                                               |                                                     |                         | (124  
|                                                                                                                                                                                                                                                                               |                                                     |                         |       
|                                                                                                                                                                                                                                                                               | Net cash provided by (used in) financing activities |                         |       
|                                                                                                                                                                                                                                                                               |                                                     |                         |       
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                                                                                                                                                                                        |                                                     |                         |      
|                                                                                                                                                                                                                                                                               |                                                     |                         |       
|NET INCREASE (DECREASE) IN CASH                                                                                                                                                                                                                                                |                                                     |                         | (6,217
|CASH, beginning of year                                                                                                                                                                                                                                                        |                                                     |                         | 8,747 
|                                                                                                                                                                                                                                                                               |                                                     |                         |       
|CASH, end of year                                                                                                                                                                                                                                                              |                                                     | $                       | 2,530 
|                                                                                                                                                                                                                                                                               |                                                     |                         |       
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                                                                                                                                                                                               |                                                     |                         |       
|                                                                                                                                                                                                                                                                               | Cash paid during the year for:                      |                         |       
|                                                                                                                                                                                                                                                                               |                                                     | Interest                |       
|                                                                                                                                                                                                                                                                               |                                                     | Income taxes            |       
|SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS                                                                                                                                                                                                                                  |                                                     |                         |       
|                                                                                                                                                                                                                                                                               | Accretion attributable to preferred stock (Note 9)  |                         | $     
|The Company acquired all the capital stock of Acupac Packaging (1999), Bradcan Corporation (1999), Precision Packaging (2000) and net assets of Ivers-Lee (2000), Norwich (2001) and Dermal (2001). In conjunction with the
acquisitions, liabilities were assumed as follows: |                                                     |                         |       
|                                                                                                                                                                                                                                                                               | Fair value of assets acquired                       |                         | $     
|                                                                                                                                                                                                                                                                               | Intangible assets acquired                          |                         |       
|                                                                                                                                                                                                                                                                               | Cash paid for capital stock                         |                         |       
|                                                                                                                                                                                                                                                                               | Cash paid for assets                                |                         |       
|                                                                                                                                                                                                                                                                               |                                                     |                         |       
|                                                                                                                                                                                                                                                                               | Liabilities assumed                                 |                         | $     
|                                                                                                                                                                                                                                                                               |                                                     |                         |       

See
notes to consolidated financial statements.

F-7

---



OUTSOURCING SERVICES GROUP, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

1. ORGANIZATION AND BACKGROUND

Outsourcing Services Group, Inc. (the "Company" or "OSG") is a leading provider of outsourced services including manufacturing packaging and clinical
services to the North American health and beauty aid and healthcare markets. OSG offers its customers a complete range of services, including product conceptualization, formulation, manufacturing,
filling, packaging, clinical trials, stability evaluation and microbacterial testing services. It also provides ancillary services such as materials procurement, warehousing and distribution of
finished goods. The Company's revenues are derived from the manufacturing and packaging of health and beauty aid products, including lipstick, face powder, eye shadow, mascara, nail enamel, skin care
cream and lotion, hair spray and gel, shampoo and shaving cream and gel. Other products manufactured and packaged by the Company include household lubricants and liquid cleaners and outsourced
manufacturing, packaging and clinical stability and microbacterial testing services for the pharmaceutical and over-the-counter drug markets.

OSG
is the successor to a holding company called Aerosol Companies Holding Corporation ("ACHC"). ACHC was formed by an investor group consisting of StoneCreek Capital, formerly known as
The Gordon+ Morris Group ("StoneCreek") and HarbourVest Partners, LLC plus management of Piedmont Laboratories, Inc. ("Piedmont"), to acquire Piedmont on October 1, 1996 for
approximately $14,060,000. Piedmont was acquired primarily through the issuance of debt and equity securities.

OSG
consists of the following subsidiaries, Aerosol Services Company, Inc. ("ASC"), Piedmont Laboratories, Inc. ("Piedmont"), Kolmar Laboratories, Inc. ("Kolmar"), Acupac Packaging, Inc.
("Acupac"), Precision Packaging and Services, Inc. ("Precision"); OSG Ivers-Lee Inc. ("Ivers-Lee") and OSG Norwich Pharmaceutical, Inc. ("Norwich"). References to the "Kolmar Group" include Kolmar,
Kolmar's wholly-owned subsidiaries, Kolmar de Mexico, S.A. de CV, Kolmar (Aust.) Pty Limited and Kolmar Canada Inc. ("Kolmar Canada"). Unless the context otherwise requires, references to Kolmar
include references to the Kolmar Group.

2. MERGERS, ACQUISITIONS AND DISPOSALS

Effective January 1, 1998, the Company acquired from CCL Industries ("CCL"), all of the outstanding shares of Kolmar
Laboratories, Inc. and the net assets of Kolmar Canada Inc. (collectively referred to as the Kolmar Group), for $78.0 million, subject to certain post-closing
adjustments. The Kolmar Group designs, manufactures, contracts for manufacture, and sells a variety of cosmetics, creams and lotions, and fragrances to retailers and wholesale distributors principally
in the United States, Canada, Mexico and Australia. The acquisition has been treated as a purchase for accounting purposes. Accordingly, the assets acquired and liabilities assumed have been recorded
at their estimated fair values at the date of acquisition.

In
April 1999, a subsidiary of the Company (Kolmar Canada, Inc.) acquired certain of the operating assets of Bradcan Corporation ("Bradcan") for approximately $800,000.
This acquisition was accounted for as a purchase.

On
June 2, 1999, the Company acquired all of the issued and outstanding capital stock of Acupac for approximately $10.0 million. Acupac is primarily a provider of
outsourced packaging services to the health and beauty aids, household and consumer product markets. This acquisition was accounted for as a purchase.

F-8

---

On
February 29, 2000, the Company acquired all of the issued and outstanding stock of Precision for approximately $42.1 million. Precision is a contract manufacturer of
high-speed liquid filling, cartoning, shrink wrapping and packaging for some of the largest U.S. consumer products companies. On August 25, 2000, the Company acquired
Ivers-Lee for approximately $8.0 million of which $2.3 million was paid in the first quarter of 2001. Ivers-Lee is primarily a provider of outsourced packaging
services to the pharmaceutical, health and beauty aids, household and consumer product markets for some of the largest U.S. and Canadian consumer products companies. Both of the acquisitions were
accounted for as purchases. The results of operations of Precision and Ivers-Lee are included in the 2000 financial statements for all periods subsequent to their respective acquisition
dates.

Assuming
that the Precision and Ivers-Lee acquisitions had occurred on January 1, 2000, unaudited pro forma consolidated net revenues and net losses for the year ended
December 31, 2000 would have been $310.4 million and ($2.8) million, respectively. Assuming that the Acupac, Precision and Ivers-Lee acquisitions had occurred on
January 1, 1999, unaudited pro forma consolidated net revenues and net
income for the year ended December 31, 1999 would have been $310.4 million and $7.8 million, respectively.

In
November 2000, Kolmar sold its wholly-owned Imperial Cosmetics Services division through an asset purchase agreement to Imperial Cosmetics, L.P.. The business was sold as an
asset deal for $1.5 million for the real property, equipment, inventory and prepaid assets less assumed liabilities of approximately $250,000. During 2000, the Imperial Cosmetics Services
division suffered losses from operations of $783,000 and sustained an additional $1.2 million in deal related losses (including $0.8 million write-off of goodwill).

On
June 29, 2001, the Company completed an asset purchase acquisition for the Procter & Gamble ("P&G") North Norwich facility located in North Norwich, New York which was
funded with a $10.0 million note payable to P&G, bearing 8% interest due in June 2006. Norwich also entered into a Product Supply Agreement ("PSA") for five years with P&G. The Company
manufactures prescription and over-the-counter pharmaceutical products at the plant.

On
September 6, 2001, the Company completed an asset purchase acquisition of Dermal Sciences, Inc. ("Dermal") for approximately $3.5 million. Dermal is primarily a
provider of treatment patches and treated nonwovens for the health and beauty aid markets. Its operations will reside at the Company's Acupac facility located in Mahwah, New Jersey.

Assuming
that the Norwich and Dermal acquisitions had occurred on January 1, 2001, unaudited pro forma consolidated net revenues and net losses for the year ended
December 31, 2001 would have been $327.3 million and ($2.9) million, respectively, however, pro forma results do not include historical data for Norwich.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Critical Accounting Policies

Use of Estimates and AssumptionsThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the

F-9

---

date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

InventoriesInventories are valued at the lower of cost or market using the first-in, first-out method.

Deferred Financing CostsDeferred financing costs are capitalized costs associated with obtaining long-term debt
financing including legal expenses and bank fees. These costs are being amortized over the repayment term of the related debt on a straight-line basis. Deferred financing costs are
presented net of accumulated amortization of $3,799,000 and $5,392,000 in 2000 and 2001, respectively.

GoodwillGoodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill is
amortized over periods ranging from 5 to 40 years. The Company subjects the carrying value of the goodwill to an annual review for impairment. The Company evaluates the recoverability of
intangible assets by considering estimated future operating income of the Company, to which the goodwill relates, on an undiscounted cash flow basis. OSG management performs a review of each operating
entity on an annual basis (unless circumstances dictate that a review is needed in an interim period) to determine if events or changes in circumstances have occurred which would impair goodwill.
Should an impairment exist, the Company would record a charge to operations to recognize the impairment of its intangible assets. Goodwill is presented net of accumulated amortization of $15,396,000
in 2000 and $21,520,000 in 2001.

Long-Lived AssetsThe Company accounts for the impairment and disposition of long-lived assets in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121,Accounting for the Impairment Of Long-Lived Assets and for Long-Lived Assets to be
Disposed of.In accordance with SFAS No. 121, long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their
carrying value may not be recoverable. The Company periodically reviews the carrying value of long-lived assets on an undiscounted cash flow basis to determine whether or not an impairment
to such value has occurred.

Revenue RecognitionThe Company manufactures and packages products based on written agreements with customers specifying
price, units and shipping terms. Revenue is generally recognized as products are shipped to customers. When customers, under the terms of specific orders, request that the Company manufacture and
invoice goods on a bill and hold basis, the Company recognizes revenue at the time the manufacturing process is completed. The Company estimates and records provisions for sales returns and allowances
based on its experience. Total sales returns and allowances were $1,364,000, $1,396,000 and $1,089,000 for the years ended December 31, 1999, 2000 and 2001, respectively.

Translation of Foreign CurrenciesForeign subsidiary financial statements are translated into U.S. dollars in accordance with
SFAS No. 52,Foreign Currency Translations. The balance sheets of foreign affiliates are translated into U.S. dollars at the exchange rates in effect on
the last day of the reporting period. The statements of operations of foreign affiliates are translated into U.S. dollars at the average exchange rate effective for the entire period. The differences
from historical exchange rates are reflected in stockholders' equity as an adjustment for foreign currency translations.

F-10

---

Other Accounting Policies

Principles of ConsolidationThe consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated.

Short-term InvestmentsShort-term investments consist of certificate of deposits with an original
maturity of greater than three months and a remaining maturity of less than one year. Short-term investments are stated at cost which approximates market value.

Property and EquipmentProperty and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation
and amortization are provided principally using the straight-line method over the estimated useful lives of the related assets ranging from 3 to 20 years. Expenditures for major
renewals and betterments are capitalized, while minor replacements, maintenance and repairs, which do not extend the asset lives, are charged to operations as incurred.

Income TaxesThe Company accounts for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes.Under this method, deferred income taxes
are recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Concentration of Credit RiskFinancial instruments which potentially expose the Company to concentration of credit risk
consist primarily of cash and trade accounts receivable. The Company maintains cash balances with financial institutions that are in excess of federally insured limits. The Company's products are
primarily sold to product marketers which, in turn, sell or distribute to retail stores and salons. These customers can be affected by changes in economic, competitive, or other factors. The Company
makes substantial sales to relatively few, large customers. Credit limits, ongoing credit evaluations, and account monitoring procedures are utilized to minimize the risk of loss. Collateral is
generally not required.

Fair Value of Financial InstrumentsThe Company's consolidated balance sheets include the following financial instruments:
short-term investments, trade accounts receivable, trade accounts payable, and long-term debt. The Company considers the carrying amounts in the financial statements to
approximate fair value of these financial instruments due to the relatively short period of time between the origination of the instruments and their expected realization or the interest rates which
approximate current market rates.

Major CustomersDuring the years ended December 31, 1999, 2000 and 2001, the two largest customers together accounted
for revenues of approximately 24%, 18% and 18%, respectively. These two customers had a combined accounts receivable balance of $2,800,000, $11,600,000 and $4,600,000 as of December 31, 1999,
2000 and 2001, respectively. A decision by a significant customer to decrease the amount purchased from the Company or to cease utilizing the Company's services could have a material effect on the
Company's financial condition and results of operations.

Research and Development CostsResearch and development costs are expensed when incurred. Included in selling, general and
administrative expenses during the years ended December 31, 1999, 2000

F-11

---

and 2001, is approximately $2,128,000, $3,083,000 and $3,150,000, respectively, relating to research and development for improvements to the Company's products.

Other IntangiblesOther intangibles at December 31, 2001 consist of non-compete agreements.

Basic and Diluted Net Loss Per ShareThe Company has adopted SFAS No. 128,Earnings per
Share, which requires a dual presentation of basic and diluted earnings per share (EPS). Basic EPS excludes dilution and is computed by dividing net income or loss attributable
to common stockholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue
common stock (ie. convertible preferred stock, warrants to purchase common stock, and common stock options using the treasury stock method) were exercised or converted into common stock. Potential
common shares of 138,500, 410,725 and 305,100 in 1999, 2000 and 2001, respectively, have been excluded from the diluted EPS computation as their effect would be antidilutive. In the computation of
loss per share, the net loss attributable to common stockholders includes the accretion and payment of dividends on the Series A and B preferred stock totaling $248,000, $247,000 and $247,000,
in 1999, 2000 and 2001, respectively.

Accounting for Stock-Based CompensationThe Company accounts for Stock-Based Awards to Employees using the intrinsic value
method in accordance with APB Opinion No. 25,Accounting for Stock Issued to Employees.

ReclassificationsCertain prior year amounts have been reclassified to conform with the current year presentation.

New Accounting PronouncementsStatement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,as
amended, establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS No. 133, certain contracts that were not formerly considered derivatives may now meet
the definition of a derivative. The Company adopted SFAS No. 133 effective January 1, 2001. The Company does not hold any derivative instruments or embedded derivative instruments,
therefore, the adoption of SFAS No. 133 did not have an impact on the financial position, results of operations, or cash flows of the Company.

On
June 29, 2001, SFAS No. 141,Business Combinations, was approved by the Financial Accounting Standards Board (FASB). SFAS
No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. In addition, goodwill and certain intangible assets will
remain on the balance sheet and not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for
impairment, and write-downs may be necessary. The Company implemented SFAS No. 141 on July 1, 2001.

On
June 29, 2001, SFAS No. 142,Goodwill and Other Intangible Assets,was approved by the FASB. SFAS No. 142 changes
the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon
adoption of this statement. Amortization expense related to goodwill was $3,866,000, $6,052,000 and $6,124,000 in 1999, 2000 and 2001, respectively. The Company is required to implement SFAS
No. 142 on January 1, 2002 and it has not determined the impact, if any, that this statement will have on the financial position and results of operations of the Company.

F-12

---

In
August 2001, the FASB issued SFAS No. 143,Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective January 1, 2003. The Company does not believe that the adoption of
this pronouncement will have a material impact on their results of operations, financial position or cash flows.

In
October 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for the impairment of

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Concluded)

long-lived
assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes FASB Statement No. 121,Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. However, SFAS No. 144 retains the fundamental provisions of SFAS
No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be
disposed of by sale. SFAS No. 144 is effective January 1, 2002. The Company does not believe that the adoption of this pronouncement will have a material impact on their results of
operations, financial position or cash flows.

4. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at December 31:

2000

2001(in thousands)Accounts receivable

$
49,313

$
32,844Less allowance for doubtful accounts


(1,385
)

(1,447
)$
47,928

$
31,397


5. INVENTORIES

Inventories consisted of the following at December 31:

2000

2001(in thousands)Raw materials

$
25,300

$
21,022Work-in-process


6,171


4,030Finished goods


5,945


5,73737,416


30,789Less reserve for excess and obsolete inventories


(4,509
)

(2,340
)$
32,907

$
28,449


F-13

---

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31:

|                                               |  | 2000 |         | 2001 |  
|---------------------------------------------- |  | ---- | ------- | ---- | -
|
|Land                                           |  | $    | 1,149   |      | $
|Building                                       |  |      | 15,356  |      |  
|Equipment                                      |  |      | 34,784  |      |  
|Leasehold improvements                         |  |      | 1,521   |      |  
|Furniture and fixtures                         |  |      | 2,550   |      |  
|Construction-in-progress                       |  |      | 330     |      |  
|Computer equipment                             |  |      | 906     |      |  
|                                               |  |      |         |      |  
|                                               |  |      | 56,596  |      |  
|Less accumulated depreciation and amortization |  |      | (13,539 | )    |  
|                                               |  |      |         |      |  
|                                               |  | $    | 43,057  |      | $
|                                               |  |      |         |      |  

7. INCOME TAXES

The provision (benefit) for income taxes for the years ended December 31, 1999, 2000 and 2001 is as follows:

|                                     |         | 1999 |       | 2000 |   | 2001  |     
|------------------------------------ | ------- | ---- | ----- | ---- | - | ----- | ----
|
|Current:                             |         |      |       |      |   |       |     
|                                     | Federal |      | $     | 808  |   | $     | 855 
|                                     | State   |      |       | 177  |   |       | 105 
|                                     | Foreign |      |       | 333  |   |       | 332 
|                                     |         |      |       |      |   |       |     
|                                     |         |      | 1,318 |      |   | 1,292 |     
|Deferred:                            |         |      |       |      |   |       |     
|                                     | Federal |      |       | (241 | ) |       | (489
|                                     | State   |      |       | 132  |   |       | 122 
|                                     | Foreign |      |       |     |   |       |    
|                                     |         |      |       |      |   |       |     
|                                     |         |      | (109  | )    |   | (367  | )   
|Valuation allowance                  |         |      | (113  | )    |   | (96   | )   
|                                     |         |      |       |      |   |       |     
|Provision (Benefit) for income taxes |         | $    | 1,096 |      | $ | 829   |     
|                                     |         |      |       |      |   |       |     

A reconciliation between the provision (benefit) for income taxes, as required by applying the federal statutory rate of 35% to that included in
the financial statements, is as follows for the years ended December 31, 1999, 2000 and 2001:

|                                               |  | 1999  |    | 2000  |    | 2001  |   
|---------------------------------------------- |  | ----- | -- | ----- | -- | ----- | --
|Income tax expense (benefit) at statutory rate |  | 35.0  | %  | (35.0 | %) | (35.0 | %)
|State tax expense, net of federal benefit      |  | 24.0  | %  | 5.6   | %  | 5.0   | % 
|Meals and entertainment                        |  | 3.6   | %  | 2.2   | %  | 0.9   | % 
|Goodwill                                       |  | 107.9 | %  | 49.1  | %  | 22.2  | % 
|Change in valuation allowance                  |  | (13.3 | %) | 0.0   | %  | 0.0   | % 
|Tax rate differential on foreign earnings      |  | (27.5 | %) | 8.6   | %  | 4.9   | % 
|Other                                          |  | (1.0  | %) | 0.4   | %  | (0.7  | %)
|                                               |  |       |    |       |    |       |   
|                                               |  | 128.7 | %  | 30.9  | %  | (2.7  | %)
|                                               |  |       |    |       |    |       |   

F-14

---

Deferred taxes are recorded based upon the differences between the financial statements and tax bases of assets and liabilities. Temporary
differences which give rise to deferred income tax assets and liabilities are as follows:

1999

2000

2001(in thousands)Current deferred taxes:Deferred tax assets:Allowance for bad debts

$
530

$
547

$
451Accrued liabilities


1,379


1,560


1,644Inventory capitalization


488


537


451Inventory reserve


1,033


1,600


654Contamination reserve


9


9


9Deferred acquisition costs


52


211


269Charitable contributions


27


68


LIFO adjustment


37


19


3,555


4,551


3,478Deferred tax liabilities:State taxes


(257
)

(227
)

(97
)Amortization








(61
)Foreign








(41
)Other


(17
)

(112
)

(171
)(274
)

(339
)

(370
)Net current deferred tax asset


3,281


4,212


3,108Noncurrent deferred taxes:Deferred tax assets:Net operating loss carryover


2,692


1,584


4,209Deferred compensation


527


512


477Tax credits


171


846


1,275SFAS #87 Pension liability adjustment








536Charitable contributions








1763,390


2,942


6,673Deferred tax liabilities:Property and equipment


(2,483
)

(2,385
)

(2,224
)Goodwill


(812
)

(1,124
)

(1,304
)Foreign








(178
)State taxes


(111
)

(13
)

(115
)(3,406
)

(3,522
)

(3,821
)Valuation allowancelong term


(339
)

(240
)

0Net noncurrent deferred tax asset (liability)


(355
)

(820
)

2,852Net deferred tax assets

$
2,926

$
3,392

$
5,960


F-15

---

At
December 31, 2001, the Company had federal, state, and foreign net operating loss carryforwards of approximately $9,080,000, $8,190,000 and $1,370,000, respectively. The
federal and state net operating losses begin to expire in 2009 and 2002, respectively. Of the total federal net operating loss carryforward, $2,280,000 may be utilized in future years only to
the extent of Aerosol's taxable income. As of December 31, 2001, the Company's valuation allowance of $240,000 was released and taken as a reduction of goodwill in the current year tax
provision, as the valuation allowance relates to an acquired entity's deferred tax assets, which were utilized during 2001.

The
Company has federal minimum tax credits of $664,000, which can be carried forward indefinitely. The Company also has foreign tax credits of $377,000, and a California Manufacturers
Investment tax credit carryforward of $234,000, which will begin to expire in 2004.

8. LONG-TERM DEBT

Long-term debt consists of the following as of December 31:

2000

2001(in thousands)Senior subordinated notes

$
105,000

$
105,000Senior secured credit facility


56,447


47,869P&G note





10,000Total long-term debt

$
161,447

$
162,869


Senior Subordinated NotesOn March 3, 1998, the Company repaid indebtedness incurred in conjunction with the Kolmar
Group acquisition, using the proceeds from the issuance of $105 million senior subordinated notes which are due in 2006. Interest on the notes accrues from their date of original issuance and
is payable semiannually in arrears on March 1 and September 1 of each year at the rate of 10.875% per annum. The notes are redeemable, in whole or in part, at the option of the Company,
on or after March 1, 2003 at the redemption price of 110.875% of the aggregate principal amount to be redeemed plus accrued and unpaid interest to the redemption date.

The
notes are subordinated in right of payment to all existing and future senior debt of the Company. The notes contain covenants which, among other things, limit the Company's ability
to incur additional indebtedness, pay dividends and enter into certain transactions. The Company was in compliance with such debt covenants at December 31, 2001.

Senior Secured Credit FacilityThe senior secured credit facility allows for maximum borrowings of $70.0 million, of
which $5.3 million was available on December 31, 2001. Amounts borrowed under the credit facility include a U.S. based revolving loan bearing interest at the prime rate (4.75% at
December 31, 2001) plus .75% and Euro notes with a blended interest rate of 2.80% plus 2.25%. Borrowings under the credit facility are collateralized by substantially all assets of the Company.
The credit facility contains covenants which, among other things, require minimum levels for earnings and certain financial ratios and place restrictions on capital expenditures. On March 21,
2002, the Company received an amendment to their senior secured credit facility which reset the Minimum EBITDA, the Funded Debt Coverage ratio and Fixed Charge Coverage ratio, as defined in the
agreement, effective as of December 31, 2001 and for future quarters, such that the Company was in compliance at December 31,

F-16

---

2001. Additionally, the amendment extended the term to April 7, 2003 and the interest rate was increased 0.5% to either prime plus 1.25% or Libor plus 2.75% effective for fiscal year 2002 and
beyond.

P&G Note-On June 29, 2001, the Company completed an asset purchase acquisition of the P&G North Norwich facility
located in North Norwich, New York which was funded with a $10.0 million note payable to P&G bearing 8% interest. The outstanding principal including accrued and unpaid interest are due
June 30, 2006. The note is collateralized by certain assets and real property as defined in the security agreement.

9. REDEEMABLE PREFERRED STOCK

The holders of Series A preferred stock are entitled to non-cumulative dividends at a rate of $2.50 per share, per quarter, accruing from the
date of issuance, payable quarterly. If current dividends are not declared and paid with respect to any dividend payment date, then the holders of the Series A preferred stock are entitled to
receive an increased cumulative dividend in cash equal to $3.25 per share for the first dividend period for which a dividend was not declared. Subsequently, the amount of the unpaid dividend shall
increase by 2.5% or 3.25% of the liquidation preference per quarter, depending on whether subsequent dividend payments are made.

The
holders of Series B preferred stock are entitled to cumulative dividends at a rate of $2.00 per share, per quarter, accruing from June 30, 1997, payable quarterly. The
Series B dividends shall accrue and be cumulative whether or not they have been declared. At any time after June 30, 2000, the Company may, at the option of the Board of Directors,
redeem all or part of the outstanding shares of the Series A and Series B preferred stock at a redemption price of $100.00 and $145.97 per share, respectively, plus an amount equal to
all accrued and unpaid dividends. The Company is required to redeem all outstanding shares on the earlier of June 30, 2006, an initial public offering of the Company's common stock or a
liquidation, dissolution, or winding up of the Company. Holders of Series A and Series B preferred stock have a liquidation preference of $100.00 and $145.97 per share, respectively,
plus an amount equal to all accrued and unpaid dividends. Except as required by law, the holders of Series A and Series B preferred stock are not entitled to vote on any matters.

As
of December 31, 2000 and 2001, cumulative and undeclared dividends in arrears amounted to $693,000 and $903,000, respectively. The accrued dividends are being accreted annually
as an increase to the value of the preferred stock and a reduction in retained earnings.

10. STOCKHOLDERS' EQUITY

Management Private PlacementOn September 10, 1998, the Company sold, by way of a private
placement, 95,000 shares of its Common Stock to certain officers at a purchase price of $10.00 per share. The
Company financed all or a portion of the aggregate purchase price of the stock purchases on behalf of the officers. The related promissory notes bear interest at the rate of 8.0% per annum which is
payable on the first business day of each month commencing September 1, 1998. Principal is payable in full no later than December 31, 2002. The notes receivable have been reflected as a
reduction to equity in the accompanying financial statements.

F-17

---

Issuance of StockOn January 2, 2001, Joseph Healy purchased 26,316 shares at $19.00 per share. The
Company financed 50% and Mr. Healy executed a promissory note pledging his shares to the Company securing his obligation under the promissory note.

Repurchase of StockOn December 9, 2000, the Company repurchased 62,500 shares of common stock from Mr. Sam
Garretson to settle an outstanding receivable. On January 3, 2001, the Company repurchased 20,000 shares of common stock from Mr. Christopher Denney. Mr. Denney also exercised his
option for the purchase of 85,000 shares of Common Stock.

WarrantsIn conjunction with the June 30, 1997 merger (Note 2), OSG issued warrants to a stockholder of ASHC to
purchase 80,883 shares of its common stock at a price of $0.01 per share, exercisable any time after June 30, 2002. Such warrants were recorded at the fair market value of $663,000 and were
considered part of the acquisition price of ASHC. The warrants expire on June 30, 2007. The Company may not call the warrants prior to June 30, 2003. Thereafter, the Company may, from
time to time, call all of the outstanding warrants at a call price equal to the fair market value of a share of common stock as of the call date less the exercise price in effect on the date which the
call price is paid.

OptionsIn September 1998, the Company adopted a stock option plan providing for the granting of options to officers,
directors and key employees to purchase up to 750,000 shares of the Company's Common Stock at prices not less than the fair market value of the stock at the date of grant. The option expiration dates
are determined at the date of grant, but may not exceed ten years On January 3, 2001, the Company repurchased 85,000 shares from Mr. Christopher Denney.

Changes
in shares under options for the year ended December 31, 1999, 2000 and 2001 are summarized as follows:

|                                                               |  | Year ended
December 31, 1999 |   | Year ended
December 31, 2000 |       | Year ended
December 31, 2001
|-------------------------------------------------------------- |  | ---------------------------- | - | ---------------------------- | ----- | ----------------------------
|
|OUTSTANDING, beginning of year                                 |  | 150,000                      |   | $                            | 10.00 |                             
|Granted                                                        |  | 8,500                        |   | $                            | 10.00 |                             
|Cancelled                                                      |  | (20,000                      | ) | $                            | 10.00 |                             
|                                                               |  |                              |   |                              |       |                             
|OUTSTANDING, end of year                                       |  | 138,500                      |   | $                            | 10.00 |                             
|                                                               |  |                              |   |                              |       |                             
|Options exercisable, end of year                               |  | 37,305                       |   | $                            | 10.00 |                             
|Exercise price ranges                                          |  | $10.00                       |   | $10.00$21.34                |       | $10.00$21.34               
|Weighted average fair value of options granted during the year |  |                              |   | $                            | 3.40  |                             

The
options outstanding at December 31, 1999, 2000 and 2001 have a weighted average remaining contractual life of 8.10, 8.50 and 8.0 years, respectively.

The
Company accounts for its stock option plan in accordance with the provisions of APB Opinion No. 25,Accounting for Stock Issued to
Employees. Had compensation cost for the stock option plan been determined based on the fair value at the grant date consistent with the method of SFAS No. 123, Accounting for Stock-Based
Compensation, the Company's net loss and net loss per share would have been as follows:

F-18

---

Year ended
December 31, 1999

Year ended
December 31, 2000

Year ended
December 31, 2001(in thousands,
except per share data)

(in thousands,
except per share data)

(in thousands,
except per share data)Actual net loss

$
(251
)
$
(3,540
)
$
(3,411
)Pro forma net loss


(382
)

(5,624
)

(4,373
)Actual net loss per share


(0.07
)

(1.03
)

(1.01
)Pro forma net loss per share


(0.11
)

(1.46
)

(1.19
)


The fair value of each option grant was estimated at the grant date using the Black-Scholes option-pricing model for the years ended
December 31, 1999, 2000 and 2001, assuming a risk-free interest rate of 5.62%, 5.75% and 7.00%, respectively, zero volatility, zero dividend yield, and expected lives of
96 months.

The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options and warrants which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single measure of the fair value of the employee stock options.

11. RELATED PARTY TRANSACTIONS

The Company leases a plant facility, two adjacent warehouses, and land from stockholders of the Company and from a partnership of three of the Company's
stockholders. Lease expenses for these facilities and land were $925,000, $946,000 and $973,000 for the years ended December 31, 1999, 2000 and 2001, respectively. Various manufacturing and
data processing equipment is also leased from a partnership of two of the Company's stockholders. Lease expenses for this equipment for the years ended December 31, 1999, 2000 and 2001, were
$85,000, $28,000 and $24,000, respectively. (Note 13).

The
Company recorded sales to affiliated companies, which are wholly owned by two of the Company's stockholders, during the years ended December 31, 1999, 2000 and 2001, in the
amount of $196,000, $29,000 and $53,000, respectively. At December 31, 2000 and 2001, the Company had $6,300 and $9,300, respectively, in affiliated company accounts receivable, which are
included in trade accounts receivable.

Management Service AgreementsPursuant to a management services agreement with StoneCreek, the Company paid StoneCreek
$800,000 upon closing of the acquisition of the Kolmar Group (Note 2) and will pay StoneCreek, in exchange for management services, (i) an annual fee of $350,000, which is subject to
adjustment, and (ii) up to 2% of the total consideration received or paid in various transactions. The Company is also a party to a letter agreement with HarbourVest Partners, LLC (HV),
pursuant to which the Company will pay HV, in exchange for financial and business advisory services, (i) an annual fee of $115,000 and (ii) one-third of the fee, under
certain conditions, received by StoneCreek under its management services agreement with the Company. The Company paid StoneCreek $371,000, $506,000 and $594,000 for the years ended December 31,
1999, 2000 and 2001, respectively. The Company paid HV $50,000 for each of the years ended December 31, 1999, 2000 and 2001.

F-19

---

12. BENEFIT PLANS

(a) Profit Sharing

The Company has eliminated the profit-sharing plans for its eligible employees, as of January 1, 1999. Contributions to the plan were at the discretion of
the Board of Directors. During the year ended December 31, 1998, the Company contributed $50,000 to the plan.

(b) Pension Plan

Kolmar Group sponsors a non-contributory defined benefit pension plan for all its employees who have attained 21 years of age and have
completed one year of continuous service. Pension benefits vest after five years of service and are based on years of service and average earnings. Contributions to the plan are based on actuarial
estimates and ERISA funding requirements. The plan's assets are invested in a broad range of securities, including U.S. Treasury Bonds and foreign and U.S. publicly traded companies. The Company does
not fund any non-contributory defined benefit pension plans outside of the U.S.

The
following table sets forth the change in benefit obligations and plan assets of the pension plan as determined by independent actuarial valuations:

Year ended
December 31,1999

2000

2001(in thousands)Change in benefit obligation:Benefit obligation at beginning of year

$
18,373

$
17,953

$
18,881Service cost


593


581


538Interest cost


1,205


1,264


1,323Actuarial loss


(1,317
)

(10
)

(67
)Benefits paid


(901
)

(907
)

(965
)Benefit obligation at end of year

$
17,953

$
18,881

$
19,710Change in plan assets:Fair value of plan assets at beginning of year

$
17,132

$
17,211

$
17,178Actual return on plan assets


980


874


336Benefits paid


(901
)

(907
)

(965
)Fair value of plan assets at end of year

$
17,211

$
17,178

$
16,549Funded status

$
(742
)
$
(1,703
)
$
(3,161
)Additional minimum liability








(1,364
)Unrecognized actuarial gain


1,670


2,128


3,053Prepaid (liability) benefit cost

$
928

$
425

$
(1,472
)


F-20

---

The
following table lists the components of the net periodic benefit cost of the pension plan and the assumptions used:

1999

2000

2001(dollars in thousands)Service cost-benefits earned during the period

$
593

$
581

$
538Interest cost on projected benefit obligation


1,205


1,264


1,323Amortization of actuarial loss








11Expected return on plan assets


(1,336
)

(1,342
)

(1,339
)Net periodic pension cost

$
462

$
503

$
533Discount rate


7.0
%

7.0
%

7.0
%Expected long-term rate of return on assets


8.0
%

8.0
%

8.0
%Rate of increase in compensation levels


4.5
%

4.5
%

4.5
%


(c) 401(k) Plan

The Company maintains a defined contribution plan (the "Plan") to provide eligible employees with additional income upon retirement. Under the Plan, employees can
contribute a portion of their base salary which is governed by IRS regulations. The Company, at the discretion of the Board of Directors, matches a designated percentage of the employees
contributions. The payroll deductions are considered tax deferred under the Section 401(a) of the Internal Revenue Code. The Company's contributions to the Plan, including administrative costs,
were $320,000, $308,000 and $494,000 in 1999, 2000 and 2001, respectively.

13. COMMITMENTS AND CONTINGENCIES

LeasesThe Company leases warehouse and office space under operating leases having terms from 3 to
12 years. Each lease is subject to an upward annual rental adjustment based upon the percentage change in the Consumer Price Index. The Company is responsible for insurance and property taxes
on the facilities. The Company also has equipment under operating leases having terms from 1 to 5 years.

Total
rent expense on operating leases for the years ended December 31, 1999, 2000 and 2001 was $2,973,000, $3,672,000 and $3,772,000, respectively.

Minimum
annual rentals and lease payments in the aggregate are:

Year ending December 31:

Related Party

Other

Total(in thousands)2002

$
1,009

$
2,646

$
3,6552003


1,046


2,361


3,4072004


1,085


2,202


3,2872005


1,125


2,135


3,2602006


1,167


1,432


2,599Thereafter


4,242


1,225


5,467$
9,674

$
12,001

$
21,675


F-21

---

Self-Insurance ProgramsThe Company participates in a self-insured group health and workers
compensation program for employees of Piedmont, Kolmar, Aerosol, Acupac, Precision and Norwich. Under such programs, the first $50,000 to $100,000 of claims for each employee will be paid by the
Company. The Company has accrued $1,945,000 and $1,909,000 as of December 31, 2000 and 2001, respectively, for unpaid and incurred but not reported claims.

Product Liability InsuranceThe Company maintains product liability insurance which provides coverage in the amount of
$51 million per occurrence and $52 million in the aggregate. A product liability claim that results in a judgment or settlement in excess of the Company's insurance coverage could have a
material adverse effect on the Company's business, results of operations, financial condition, or cash flows.

Environmental Regulation and ComplianceThe Company's operations and properties are subject to extensive federal, state, local
and foreign environmental laws and regulations concerning, among other things, emissions to air, discharges to water, the remediation of contaminated soil and groundwater, and the generation,
handling, storage, transportation, treatment and disposal of waste and other materials (collectively, "Environmental Laws"). Violations of Environmental Laws can result in civil or criminal penalties
or in cease and desist or other orders against the Company. In addition, the Company may be required to spend material amounts to comply with Environmental Laws, and may be liable with respect to
contamination of sites currently or formerly owned or operated by the Company or with respect to the off-site disposal of hazardous substances. Based upon the Company's experience to date,
as well as certain indemnification agreements obtained in connection with the ASC Acquisition, Kolmar Acquisition and the Norwich Acquisition, and certain insurance coverages, the Company believes
that the future cost of compliance with existing Environmental Laws and its liability for identified environmental claims will not have a material adverse effect on the Company's business, results of
operations, financial condition or cash flows.

Certain
environmental laws, such as the Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"), and analogous state laws, impose
liability for the investigation and remediation of hazardous substances released into the environment. Courts have interpreted CERCLA to impose strict, and in some circumstances, joint and several
liability on all potentially responsible parties ("PRPs") at a site if the harm is indivisible, which means that one PRP could be held liable for the entire cost of cleanup at a site where multiple
parties contributed to the contamination. Under CERCLA and analogous state laws, the Company may incur liability for contamination at properties presently or formerly owned or operated by the Company
or its subsidiaries or predecessors (including contamination caused by the Company's predecessors or prior owners or operators of such sites), or at properties where such entities sent waste for
off-site treatment or disposal.

In
that regard, ASC's operations are located within the boundaries of the Puente Valley Operable Unit ("OU") of the San Gabriel Valley Superfund Site. Prior to the Company's purchase of
ASC, the U.S. Environmental Protection Agency ("EPA") identified ASC as one of more than five hundred PRPs for the Puente Valley OU. Subsequently, ASC and forty-three other PRPs entered into a consent
agreement to fund certain investigatory work, which work was completed in 1997. To date, the EPA has not finally determined the remedial work that will be required at the site; however, the EPA has
issued estimates for the remedial alternatives it is considering which range from approximately $28 million to $51 million. In connection with the Company's purchase of ASC, the sellers
(who currently own the property on which ASC operates) agreed to indemnify the Company with respect to the Puente Valley OU proceeding and

F-22

---

certain other environmental matters. Certain of the Company's leases with the sellers also provide for offsets to the Company's rental obligations in the event that the Company incurs liability for
such an indemnified matter. Based on this indemnity, the lease off-set rights, recent EPA cost estimates of the proposed cleanup alternatives and certain preliminary estimates of ASC's
share of liability, the Company believes, although there can be no assurance, that ASC's liability at this site will not be material. In addition, prior to the Company's merger with Aerosol Services
Holding Corporation
("ASHC"), the Los Angeles Regional Water Quality Control Board ("RWQCB") requested that ASC conduct certain soil and groundwater investigation and remediation on its property. ASC has conducted the
requested investigations, the RWQCB has approved ASC's remediation plan, and remediation began in 2001. Although there can be no assurance, the Company does not believe that the costs of remediation
will be material. This remediation is also the subject of the above-referenced indemnity.

Also,
in regard to CERCLA, Kolmar and a former affiliate, Wickhen Products ("Wickhen"), have been identified as the two principal PRPs at the Carroll & Dubies Superfund site in
Port Jervis, New York. At the Caroll & Dubies site, the remediation work and the final post-remediation facility inspection was completed in December 1999. Final
clean-up costs of $6.7 million were incurred and funded through insurance. Post-remediation monitoring, expected to last through 2005, commenced in year 2000 and is
expected to cost $350,000, which the Company has accrued. The entire project has been, and will continue to be, fully indemnified by CCL. Another site formerly operated by a Kolmar affiliate is
currently undergoing remediation under the direction of a state agency. Based on the advice of outside counsel, the Company maintained an accrual of $9,000,000 as of December 31, 2001 for this
site where Kolmar may have liability for contamination caused by former operations, although it has not yet been identified as a PRP and would have specific indemnification rights for this site from
CCL. The Company believes, based on a file review by an independent consultant, that the accrual would be sufficient to fund all likely remediation costs at the site.

In
November 2000, the Company was served notice of a claim asserted against Kolmar by the State of New York ("State"). The claim asserts that Kolmar is a PRP for remediation costs
incurred by the State in connection with the cleanup of the Orange County Landfill, located in New York State. Kolmar's records indicate it did generate some waste that was transported to the
landfill, between 1979 and 1992. The State alleges that to date it has incurred over $13 million in response costs for the landfill. Approximately thirty-five other PRPs have also
been contacted by the State; management believes there are hundreds of other candidate PRPs not yet served notices. The Company established a $750,000 reserve for off-site waste disposal
which is inclusive of the Orange County landfill site. In addition, Kolmar has certain indemnification rights ($250,000 deductible) against CCL for this claim. At December 31, 2001 the reserve
was at $706,000.

In
November 2000, Kolmar (Imperial Cosmetics Division) was served notice by the State of Pennsylvania of potential PRP listing regarding ground water contamination of the
neighboring Union Metals Property. Based on the directive of the Pennsylvania Department of Environmental Protection ("PADEP") two monitoring wells were installed, sampled and tested on the Imperial
Cosmetics property. On September 27, 2001, the Company received notice from the Pennsylvania Department of Environmental Protection stating that Kolmar has been relieved of any additional
monitoring requirements related to the above site.

F-23

---

Piedmont's
owned facility in Gainesville, Georgia is listed on the State of Georgia's Hazardous Site Inventory ("HSI") of environmentally impacted sites due to the detection of
chlorinated solvents in the groundwater beneath the facility. The Company is continuing with the remediation and groundwater monitoring and testing which will continue through 2003.

The
Company also faces risks relating to federal and state environmental regulation of Volatile Organic Compounds ("VOCs"). Legislation requires reductions in the use of these
propellants could materially adversely affect the Company's business if the industry does not develop propellant technology and product formulations to meet such future standards. California and New
York recently have mandated reductions in VOCs in aerosol products, and it is possible that Georgia and other states may in the future pass similar legislation or enact regulations. Management
believes that all of the Company's products meet the current regulatory standards, and management further believes, although there can be no assurance, that propellant technology and product
formulations will be developed that meet the future standards.

LitigationThere are certain other legal proceedings and claims pending against the Company arising out of the normal course
of business which claims for monetary damages are asserted. While it is not feasible to predict the outcome of these legal proceedings and claims with certainty, management is of the belief that any
ultimate liabilities will not individually or in the aggregate have a material adverse effect on the Company's financial position, results of operations or cash flows.

In
November 1999, the Company paid a settlement of $1,000,000 with a customer for a product liability claim against Piedmont which relates to actions taken prior to the
acquisition of the subsidiary by the Company. Concurrently, a $1,000,000 receivable was set up by the Company against the prior owner of Piedmont. The Company charged the settlement to operating
expenses in the third quarter of 1999. Costs to defend this claim amounted to $1,362,000 in 1999. In December 2000, this receivable was satisfied in full by the previous owner.

Employment AgreementsThe Company has employment agreements with three executives, expiring on various dates through
July 2003. Each of the employment agreements are renewable based on the mutual agreement of the executive and the Company. Annual base salaries under the agreements are $725,000. Each of the
agreements also provide for performance bonuses.

Noncompete AgreementsThe Company has noncompete agreements in connection with acquisitions in the years 1999 and 2001,
expiring on various dates through September 2006.

14. BUSINESS SEGMENT INFORMATION

The Company operates multiple business segments specializing in the manufacturing and packaging of aerosol and liquid products, color cosmetics, and
pharmaceutical markets. The Company provides contract manufacturing and packaging of health and beauty aid products as well as household and automotive products and packaging for the pharmaceutical
and over-the-counter drug markets. The Company has operating facilities in the U.S., Mexico, and Canada.

During
the fiscal 2001, the Company reorganized its operating divisions into three operating divisions whose respective members are as follows: Kolmar Divisionthe Kolmar
Group, Consumer Products DivisionASC, Piedmont, Precision and Acupac and the Pharmaceutical DivisionIvers-Lee and Norwich.

F-24

---

Net
revenues, income (loss) from operations, identifiable assets and depreciation and amortization by business segment for the year ended December 31, 1999, are as follows:

|                              |  | Kolmar
Division |         | Consumer
Products
Division |   | Pharmaceutical
Division |   | Corporate |   | Total
|----------------------------- |  | --------------- | ------- | -------------------------- | - | ----------------------- | - | --------- | - | -----
|
|Net revenues                  |  | $               | 126,310 |                            | $ | 130,730                 |   | $         |  |      
|Income (loss) from operations |  |                 | 7,820   |                            |   | (1,193                  | ) |           |  |      
|Identifiable assets           |  |                 | 114,207 |                            |   | 75,506                  |   |           |  |      
|Depreciation and amortization |  |                 | 3,870   |                            |   | 5,022                   |   |           |  |      

Net
revenues, income (loss) from operations, identifiable assets and depreciation and amortization by business segment for the year ended December 31, 2000, are as follows:

|                              |  | Kolmar
Division |         | Consumer
Products
Division |   | Pharmaceutical
Division |  | Corporate |       | Total
|----------------------------- |  | --------------- | ------- | -------------------------- | - | ----------------------- |  | --------- | ----- | -----
|
|Net revenues                  |  | $               | 114,080 |                            | $ | 179,173                 |  | $         | 2,821 |      
|Income (loss) from operations |  |                 | 3,469   |                            |   | 8,459                   |  |           | (25   | )    
|Identifiable assets           |  |                 | 113,797 |                            |   | 121,967                 |  |           | 9,339 |      
|Depreciation and amortization |  |                 | 4,263   |                            |   | 7,934                   |  |           | 191   |      

Net
revenues, income from operations, identifiable assets and depreciation and amortization by business segment for the year ended December 31, 2001, are as follows:

|                              |  | Kolmar
Division |         | Consumer
Products
Division |   | Pharmaceutical
Division |  | Corporate |        | Total
|----------------------------- |  | --------------- | ------- | -------------------------- | - | ----------------------- |  | --------- | ------ | -----
|
|Net revenues                  |  | $               | 115,993 |                            | $ | 181,876                 |  | $         | 27,704 |      
|Income from operations        |  |                 | 7,016   |                            |   | 1,156                   |  |           | 1,782  |      
|Identifiable assets           |  |                 | 94,070  |                            |   | 113,583                 |  |           | 22,769 |      
|Depreciation and amortization |  |                 | 4,090   |                            |   | 8,627                   |  |           | 1,231  |      

Net
revenues, income (loss) from operations, identifiable assets and depreciation and amortization by geographic region for the year ended December 31, 1999, are as follows:

|                              |  | United States |         | Mexico |   | Canada |  | Other (1) |        | Total
|----------------------------- |  | ------------- | ------- | ------ | - | ------ |  | --------- | ------ | -----
|
|Net revenues                  |  | $             | 233,989 |        | $ | 10,568 |  | $         | 12,483 |      
|Income (loss) from operations |  |               | 12,235  |        |   | 930    |  |           | 749    |      
|Identifiable assets           |  |               | 177,963 |        |   | 6,248  |  |           | 13,653 |      
|Depreciation and amortization |  |               | 8,362   |        |   | 267    |  |           | 202    |      

F-25

---

Net
revenues, income (loss) from operations, identifiable assets and depreciation and amortization by geographic region for the year ended December 31, 2000, are as follows:

|                              |  | United States |         | Mexico |   | Canada |  | Other (1) |        | Total
|----------------------------- |  | ------------- | ------- | ------ | - | ------ |  | --------- | ------ | -----
|
|Net revenues                  |  | $             | 266,932 |        | $ | 11,527 |  | $         | 17,615 |      
|Income (loss) from operations |  |               | 13,451  |        |   | 437    |  |           | 727    |      
|Identifiable assets           |  |               | 220,233 |        |   | 7,548  |  |           | 22,083 |      
|Depreciation and amortization |  |               | 11,247  |        |   | 262    |  |           | 823    |      

Net
revenues, income (loss) from operations, identifiable assets and depreciation and amortization by geographic region for the year ended December 31, 2001, are as follows:

|                              |  | United States |         | Mexico |   | Canada |  | Other (1) |        | Total
|----------------------------- |  | ------------- | ------- | ------ | - | ------ |  | --------- | ------ | -----
|
|Net revenues                  |  | $             | 286,556 |        | $ | 11,049 |  | $         | 27,968 |      
|Income (loss) from operations |  |               | 11,374  |        |   | 513    |  |           | 2,440  |      
|Identifiable assets           |  |               | 218,043 |        |   | 5,913  |  |           | 18,660 |      
|Depreciation and amortization |  |               | 12,625  |        |   | 257    |  |           | 1,149  |      

---

15. SUBSEQUENT EVENTS



On February 20, 2002, the Company formalized its plan to restructure its business processes, practices and organization to streamline functions and remain
competitive. The restructuring include some position eliminations, the elimination of duplicate or overlapping functions, and in some cases, redeployment and retraining. These changes will effect the
Company's overall employee population by less than four percent.

Management
believes that full implementation will occur during the course of 2002. Those employees affected by job elimination will be offered severance benefits to help with the
transition, as well as assistance to prepare for their job search.

In
connection with the implementation of the restructuring plan, the Company will record pre-tax restructuring and other unusual charges of $1.0 million in the first
quarter of 2002 related to severance costs. Additional costs related to legal fees, training, hiring and job placement, etc. will approximate $1.1 which will be recorded as incurred. The total
restructuring and other unusual charges will approximate $2.1 for fiscal year 2002.



On February 20, 2002, the Company sold its land and buildings of its Kolmar (Aust) Pty, Ltd., a wholly-owned subsidiary for $2.1 million to
Tismor Properties Pty Limited and Shehade Hajje and Dawn Hajje. The net proceeds of the sale of the property will be used to pay down the Company's revolving

F-26

---

credit facility. The land and building sold had been held by the Company and leased to J.C. Allan Australia Pty Limited since October 1998 in conjunction with the Company's sale of the
operating assets and business to J.C. Allan Australia Pty Limited at that time.

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

|                                  |         | Three Months Ended |       
|--------------------------------- | ------- | ------------------ | ------
|
|
|2001                              |         |                    |       
|Net Revenues                      |         | $                  | 81,022
|Gross Profit                      |         |                    | 12,146
|Income (loss) before income taxes |         |                    | 162   
|Net (loss) income                 |         |                    | (194  
|Net (loss) income per share       |         |                    |       
|                                  | Basic   |                    | $     
|                                  | Diluted |                    |       
|2000                              |         |                    |       
|Net Revenues                      |         | $                  | 68,212
|Gross Profit                      |         |                    | 9,848 
|(Loss) income before income taxes |         |                    | (273  
|Net (loss) income                 |         |                    | (801  
|Net (loss) income per share       |         |                    |       
|                                  | Basic   |                    | $     
|                                  | Diluted |                    |       

17. GUARANTOR INFORMATION

The payment obligations of the Company under the Notes are guaranteed by certain of the Company's wholly-owned domestic subsidiaries ("Guarantors"). Such
guarantees are full, unconditional and joint and several. Separate financial statements of the Guarantors are not presented because the Company's management has determined that they would not be
material to investors. The following financial information presents the condensed consolidating balance sheets as of December 31, 2000 and 2001 and the condensed consolidating statements of
operations and cash flows for the years ended December 31, 1999, 2000 and 2001 of the Guarantors, representing Kolmar, ASC, Piedmont, Acupac and Precision and the non guarantors which consist
of Kolmar Canada, Kolmar de Mexico S.A. de C.V., Kolmar (Aust.) Pty., Limited Kolmar Laboratories, Inc. (London), Ivers-Lee and Norwich. The financial information is intended to
provide information for the Guarantor and nonguarantor operations of the Company, based on amounts derived from the financial statements of the Company, for the years ended December 31, 1999,
2000 and 2001.

F-27

---

Condensed Consolidating Balance Sheet
As of December 31, 2000

|                                                                       |  | Combined
Guarantors |         | Combined
Nonguarantors |   | OSG    |   | Eliminations |         | Consolidated
Total
|---------------------------------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | ------ | - | ------------ | ------- | ------------------
|
|ASSETS:                                                                |  |                     |         |                        |   |        |   |              |         |                   
|Current assets:                                                        |  |                     |         |                        |   |        |   |              |         |                   
|Cash and short-term investments                                        |  | $                   | 1,605   |                        | $ | 2,445  |   | $            | 5       |                   
|Accounts receivable, net                                               |  |                     | 41,254  |                        |   | 6,674  |   |              |        |                   
|Other receivables                                                      |  |                     | 1,649   |                        |   | 90     |   |              | 76      |                   
|Inventories, net                                                       |  |                     | 28,246  |                        |   | 4,661  |   |              |        |                   
|Prepaid expenses and other current assets                              |  |                     | 4,933   |                        |   | 405    |   |              | (83     | )                 
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|Total current assets                                                   |  |                     | 77,687  |                        |   | 14,275 |   |              | (2      | )                 
|Property and equipment, net                                            |  |                     | 37,457  |                        |   | 5,381  |   |              | 219     |                   
|Goodwill and other intangibles, net                                    |  |                     | 91,579  |                        |   | 10,693 |   |              |        |                   
|Intercompany receivable (payable)                                      |  |                     | 44,409  |                        |   | (5,872 | ) |              | (38,537 | )                 
|Investment in subsidiaries                                             |  |                     |        |                        |   |       |   |              | 108,207 |                   
|Other long-term assets                                                 |  |                     | 7,985   |                        |   | 46     |   |              | 5,307   |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|Total assets                                                           |  | $                   | 259,117 |                        | $ | 24,523 |   | $            | 75,194  |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY       |  |                     |         |                        |   |        |   |              |         |                   
|Current liabilities:                                                   |  |                     |         |                        |   |        |   |              |         |                   
|Accounts payable                                                       |  | $                   | 29,464  |                        | $ | 3,603  |   | $            |        |                   
|Other current liabilities                                              |  |                     | 14,117  |                        |   | 1,385  |   |              | 3,413   |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|Total current liabilities                                              |  |                     | 43,581  |                        |   | 4,988  |   |              | 3,413   |                   
|Long-term debt, less current portion                                   |  |                     | 56,447  |                        |   |       |   |              | 105,000 |                   
|Other liabilities                                                      |  |                     | 13,271  |                        |   | 19     |   |              | (696    | )                 
|Intercompany loan                                                      |  |                     | 50,388  |                        |   | 12,427 |   |              | (62,815 | )                 
|Redeemable preferred stock                                             |  |                     |        |                        |   |       |   |              | 4,889   |                   
|Stockholders' equity                                                   |  |                     | 95,430  |                        |   | 7,089  |   |              | 25,403  |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|Total liabilities, redeemable preferred stock and stockholders' equity |  | $                   | 259,117 |                        | $ | 24,523 |   | $            | 75,194  |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   

F-28

---

Condensed Consolidating Balance Sheet
As of December 31, 2001

|                                                                       |  | Combined
Guarantors |         | Combined
Nonguarantors |   | OSG    |   | Eliminations |         | Consolidated
Total
|---------------------------------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | ------ | - | ------------ | ------- | ------------------
|
|ASSETS:                                                                |  |                     |         |                        |   |        |   |              |         |                   
|Current assets:                                                        |  |                     |         |                        |   |        |   |              |         |                   
|Cash and short-term investments                                        |  | $                   | 1,740   |                        | $ | 2,108  |   | $            | 30      |                   
|Accounts receivable, net                                               |  |                     | 25,678  |                        |   | 5,811  |   |              | (92     | )                 
|Other receivables                                                      |  |                     | 1,334   |                        |   | 59     |   |              | 563     |                   
|Inventories, net                                                       |  |                     | 24,566  |                        |   | 3,883  |   |              |        |                   
|Prepaid expenses and other current assets                              |  |                     | 715     |                        |   | 508    |   |              | 3,442   |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|Total current assets                                                   |  |                     | 54,033  |                        |   | 12,369 |   |              | 3,943   |                   
|Property and equipment, net                                            |  |                     | 38,426  |                        |   | 18,448 |   |              | 1,389   |                   
|Goodwill and other intangibles, net                                    |  |                     | 90,072  |                        |   | 9,619  |   |              |        |                   
|Intercompany receivable (payable)                                      |  |                     | 47,090  |                        |   | (926   | ) |              | (46,164 | )                 
|Investment in subsidiaries                                             |  |                     |        |                        |   |       |   |              | 109,848 |                   
|Other long-term assets                                                 |  |                     | 7,546   |                        |   | (93    | ) |              | 7,602   |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|Total assets                                                           |  | $                   | 237,167 |                        | $ | 39,417 |   | $            | 76,618  |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY       |  |                     |         |                        |   |        |   |              |         |                   
|Current liabilities:                                                   |  |                     |         |                        |   |        |   |              |         |                   
|Accounts payable                                                       |  | $                   | 23,938  |                        | $ | 3,688  |   | $            | 558     |                   
|Other current liabilities                                              |  |                     | 10,973  |                        |   | 5,374  |   |              | 5,464   |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|Total current liabilities                                              |  |                     | 34,911  |                        |   | 9,062  |   |              | 6,022   |                   
|Long-term debt, less current portion                                   |  |                     | 47,869  |                        |   | 10,000 |   |              | 105,000 |                   
|Other liabilities                                                      |  |                     | 10,907  |                        |   | 400    |   |              | 351     |                   
|Intercompany loan                                                      |  |                     | 51,689  |                        |   | 11,126 |   |              | (62,815 | )                 
|Redeemable preferred stock                                             |  |                     |        |                        |   |       |   |              | 5,099   |                   
|Stockholders' equity                                                   |  |                     | 91,791  |                        |   | 8,829  |   |              | 22,961  |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   
|Total liabilities, redeemable preferred stock and stockholders' equity |  | $                   | 237,167 |                        | $ | 39,417 |   | $            | 76,618  |                   
|                                                                       |  |                     |         |                        |   |        |   |              |         |                   

F-29

---

Condensed Consolidating Statement of Operations
For the Year ended December 31, 1999

|                                                |  | Combined
Guarantors |         | Combined
Nonguarantors |   | OSG    |  | Eliminations |        | Consolidated
Total |  
|----------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | ------ |  | ------------ | ------ | ------------------ | -
|
|Net revenues                                    |  | $                   | 234,831 |                        | $ | 23,051 |  | $            |       |                    | $
|Cost of goods sold                              |  |                     | 201,567 |                        |   | 18,772 |  |              |       |                    |  
|                                                |  |                     |         |                        |   |        |  |              |        |                    |  
|Gross profit                                    |  |                     | 33,264  |                        |   | 4,279  |  |              |       |                    |  
|Selling, general and administrative expense     |  |                     | 28,404  |                        |   | 2,512  |  |              | (7,258 | )                  |  
|                                                |  |                     |         |                        |   |        |  |              |        |                    |  
|Income from operations                          |  |                     | 4,860   |                        |   | 1,767  |  |              | 7,258  |                    |  
|Foreign currency translation loss               |  |                     |        |                        |   | 446    |  |              |       |                    |  
|Interest expense, net                           |  |                     | 2,563   |                        |   | 862    |  |              | 10,061 |                    |  
|                                                |  |                     |         |                        |   |        |  |              |        |                    |  
|Income (loss) before provision for income taxes |  |                     | 2,297   |                        |   | 1,351  |  |              | (2,803 | )                  |  
|Provision (benefit) for income taxes            |  |                     | 1,754   |                        |   | 334    |  |              | (992   | )                  |  
|                                                |  |                     |         |                        |   |        |  |              |        |                    |  
|Net income (loss)                               |  | $                   | 543     |                        | $ | 1,017  |  | $            | (1,811 | )                  | $
|                                                |  |                     |         |                        |   |        |  |              |        |                    |  

Condensed Consolidating Statement of Operations
For the Year ended December 31, 2000

|                                                |  | Combined
Guarantors |         | Combined
Nonguarantors |   | OSG    |   | Eliminations |        | Consolidated
Total |  
|----------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | ------ | - | ------------ | ------ | ------------------ | -
|
|Net revenues                                    |  | $                   | 267,377 |                        | $ | 29,407 |   | $            |       |                    | $
|Cost of goods sold                              |  |                     | 226,849 |                        |   | 24,941 |   |              |       |                    |  
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  
|Gross profit                                    |  |                     | 40,528  |                        |   | 4,466  |   |              |       |                    |  
|Selling, general and administrative expense     |  |                     | 34,285  |                        |   | 3,376  |   |              | (7,207 | )                  |  
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  
|Income (loss) from operations                   |  |                     | 6,243   |                        |   | 1,090  |   |              | 7,207  |                    |  
|Foreign currency translation gain               |  |                     |        |                        |   | (252   | ) |              |       |                    |  
|Interest expense, net                           |  |                     | 5,331   |                        |   | 836    |   |              | 10,832 |                    |  
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  
|Income (loss) before provision for income taxes |  |                     | 912     |                        |   | 2      |   |              | (3,625 | )                  |  
|Provision (benefit) for income taxes            |  |                     | 1,905   |                        |   | 333    |   |              | (1,409 | )                  |  
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  
|Net loss                                        |  | $                   | (993    | )                      | $ | (331   | ) | $            | (2,216 | )                  | $
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  

F-30

---

Condensed Consolidating Statement of Operations
For the Year ended December 31, 2001

|                                                |  | Combined
Guarantors |         | Combined
Nonguarantors |   | OSG    |   | Eliminations |        | Consolidated
Total |  
|----------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | ------ | - | ------------ | ------ | ------------------ | -
|
|Net revenues                                    |  | $                   | 269,357 |                        | $ | 56,354 |   | $            |       |                    | $
|Cost of goods sold                              |  |                     | 237,792 |                        |   | 41,704 |   |              | 93     |                    |  
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  
|Gross profit                                    |  |                     | 31,565  |                        |   | 14,650 |   |              | (93    | )                  |  
|Selling, general and administrative expense     |  |                     | 25,637  |                        |   | 10,624 |   |              | (4,464 | )                  |  
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  
|Income from operations                          |  |                     | 5,928   |                        |   | 4,026  |   |              | 4,371  |                    |  
|Foreign currency translation gain               |  |                     |        |                        |   | (254   | ) |              |       |                    |  
|Interest expense, net                           |  |                     | 5,840   |                        |   | 1,367  |   |              | 10,368 |                    |  
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  
|Income (loss) before provision for income taxes |  |                     | 88      |                        |   | 2,405  |   |              | (5,997 | )                  |  
|Provision (benefit) for income taxes            |  |                     | 80      |                        |   | 1,024  |   |              | (1,197 | )                  |  
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  
|Net income (loss)                               |  | $                   | 8       |                        | $ | 1,381  |   | $            | (4,800 | )                  |  
|                                                |  |                     |         |                        |   |        |   |              |        |                    |  

F-31

---

Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 1999

|                                                                                                        |  | Combined
Guarantors |         | Combined
Nonguarantors |   | OSG    |   | Eliminations |         | Consolidated
Total |  
|------------------------------------------------------------------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | ------ | - | ------------ | ------- | ------------------ | -
|
|Cash flows from operating activities                                                                    |  |                     |         |                        |   |        |   |              |         |                    |  
|Net income (loss)                                                                                       |  | $                   | 543     |                        | $ | 1,017  |   | $            | (1,811  | )                  | $
|Total adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |  |                     | (10,282 | )                      |   | 2,861  |   |              | (19,932 | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |         |                    |  
|Net cash provided by (used in) operating activities                                                     |  |                     | (9,739  | )                      |   | 3,878  |   |              | (21,743 | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |         |                    |  
|Cash flows from investing activities                                                                    |  |                     |         |                        |   |        |   |              |         |                    |  
|Capital expenditures                                                                                    |  |                     | (4,393  | )                      |   | (1,266 | ) |              | (40     | )                  |  
|Other                                                                                                   |  |                     |        |                        |   | (168   | ) |              |        |                    |  
|Sales of property, plant or equipment, net                                                              |  |                     | 79      |                        |   | 148    |   |              |        |                    |  
|Acquisition of Acupac Packaging and Bradcan Corporation, net of cash                                    |  |                     | (9,732  | )                      |   | (797   | ) |              |        |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |         |                    |  
|Net cash used in investing activities                                                                   |  |                     | (14,046 | )                      |   | (2,083 | ) |              | (40     | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |         |                    |  
|Cash flows from financing activities                                                                    |  |                     |         |                        |   |        |   |              |         |                    |  
|Net borrowings on revolving loans                                                                       |  |                     | 7,413   |                        |   |       |   |              |        |                    |  
|Repayment (borrowing) of debt due to affliliate                                                         |  |                     | 11,464  |                        |   | (1,389 | ) |              | 20,230  |                    |  
|Payment of dividends                                                                                    |  |                     | (1,750  | )                      |   |       |   |              | 1,712   |                    |  
|Repurchase of management stock                                                                          |  |                     |        |                        |   |       |   |              | (124    | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |         |                    |  
|Net cash provided by financing activities                                                               |  |                     | 17,127  |                        |   | (1,389 | ) |              | 21,818  |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |         |                    |  
|Net increase in cash                                                                                    |  |                     | (6,658  | )                      |   | 406    |   |              | 35      |                    |  
|Cash, beginning of year                                                                                 |  |                     | 8,568   |                        |   | 178    |   |              | 1       |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |         |                    |  
|Cash, end of year                                                                                       |  | $                   | 1,910   |                        | $ | 584    |   | $            | 36      |                    | $
|                                                                                                        |  |                     |         |                        |   |        |   |              |         |                    |  

F-32

---

Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2000

|                                                                                                        |  | Combined
Guarantors |         | Combined
Nonguarantors |   | OSG    |   | Eliminations |        | Consolidated
Total |  
|------------------------------------------------------------------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | ------ | - | ------------ | ------ | ------------------ | -
|
|Cash flows from operating activities                                                                    |  |                     |         |                        |   |        |   |              |        |                    |  
|Net income (loss)                                                                                       |  | $                   | (993    | )                      | $ | (331   | ) | $            | (2,216 | )                  | $
|Total adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |  |                     | 8,227   |                        |   | (1,456 | ) |              | 2,800  |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Net cash provided by (used in) operating activities                                                     |  |                     | 7,234   |                        |   | (1,787 | ) |              | 584    |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Cash flows from investing activities                                                                    |  |                     |         |                        |   |        |   |              |        |                    |  
|Capital expenditures                                                                                    |  |                     | (6,042  | )                      |   | (698   | ) |              | (179   | )                  |  
|Other                                                                                                   |  |                     | 1,065   |                        |   | 351    |   |              |       |                    |  
|Sales of property, plant or equipment, net                                                              |  |                     | 934     |                        |   |       |   |              |       |                    |  
|Acquisition of Precision and Ivers-Lee, net of cash                                                     |  |                     | (42,117 | )                      |   | 5,709  |   |              |       |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Net cash used in investing activities                                                                   |  |                     | (46,160 | )                      |   | (6,056 | ) |              | (179   | )                  |  
|Cash flows from financing activities                                                                    |  |                     |         |                        |   |        |   |              |        |                    |  
|Net borrowings on revolving loans                                                                       |  |                     | 49,034  |                        |   |       |   |              |       |                    |  
|Repayment (borrowing) of debt due to affiliate                                                          |  |                     | (8,412  | )                      |   | 9,413  |   |              | (1,001 | )                  |  
|Increase in deferred financing costs                                                                    |  |                     |        |                        |   |       |   |              | (350   | )                  |  
|Payment of dividends                                                                                    |  |                     | (1,976  | )                      |   |       |   |              | 1,939  |                    |  
|Repurchase of management stock                                                                          |  |                     |        |                        |   |       |   |              | (1,024 | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Net cash provided by financing activities                                                               |  |                     | 38,646  |                        |   | 9,413  |   |              | (436   | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Effect of exchange rate changes on cash                                                                 |  |                     | (279    | )                      |   | 291    |   |              |       |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Net increase in cash                                                                                    |  |                     | (559    | )                      |   | 1,861  |   |              | (31    | )                  |  
|Cash, beginning of year                                                                                 |  |                     | 1,910   |                        |   | 584    |   |              | 36     |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Cash, end of year                                                                                       |  | $                   | 1,351   |                        | $ | 2,445  |   | $            | 5      |                    | $
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  

F-33

---

Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2001

|                                                                                                        |  | Combined
Guarantors |         | Combined
Nonguarantors |   | OSG    |   | Eliminations |        | Consolidated
Total |  
|------------------------------------------------------------------------------------------------------- |  | ------------------- | ------- | ---------------------- | - | ------ | - | ------------ | ------ | ------------------ | -
|
|Cash flows from operating activities                                                                    |  |                     |         |                        |   |        |   |              |        |                    |  
|Net income (loss)                                                                                       |  | $                   | 8       |                        | $ | 1,381  |   | $            | (4,800 | )                  | $
|Total adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |  |                     | 23,507  |                        |   | 7,175  |   |              | 624    |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Net cash provided by (used in) operating activities                                                     |  |                     | 23,515  |                        |   | 8,556  |   |              | (4,176 | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Cash flows from investing activities                                                                    |  |                     |         |                        |   |        |   |              |        |                    |  
|Capital expenditures                                                                                    |  |                     | (7,085  | )                      |   | (3,045 | ) |              | (1,277 | )                  |  
|Short-term investments                                                                                  |  |                     | 3       |                        |   |       |   |              |       |                    |  
|Sales of property, plant or equipment, net                                                              |  |                     |        |                        |   | 80     |   |              |       |                    |  
|Acquisition of Norwich, Dermal and Ivers-Lee                                                            |  |                     | (3,517  | )                      |   |       |   |              | (3,090 | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Net cash used in investing activities                                                                   |  |                     | (10,599 | )                      |   | (2,965 | ) |              | (4,367 | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Cash flows from financing activities                                                                    |  |                     |         |                        |   |        |   |              |        |                    |  
|Net payments on revolving loans                                                                         |  |                     | (8,578  | )                      |   |       |   |              |       |                    |  
|Repayment (borrowing) of debt due to affiliate                                                          |  |                     | (1,380  | )                      |   | (6,247 | ) |              | 7,627  |                    |  
|Increase in deferred financing costs                                                                    |  |                     |        |                        |   |       |   |              | (700   | )                  |  
|Payment of dividends                                                                                    |  |                     | (2,700  | )                      |   |       |   |              | 2,663  |                    |  
|Repurchase/cancellation of stock                                                                        |  |                     |        |                        |   |       |   |              | (993   | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Net cash provided by (used in) financing activities                                                     |  |                     | (12,658 | )                      |   | (6,247 | ) |              | 8,597  |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Effect of exchange rate changes on cash                                                                 |  |                     | (119    | )                      |   | 318    |   |              | (29    | )                  |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Net increase (decreases) in cash                                                                        |  |                     | 139     |                        |   | (338   | ) |              | 25     |                    |  
|Cash, beginning of year                                                                                 |  |                     | 1,351   |                        |   | 2,445  |   |              | 5      |                    |  
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  
|Cash, end of year                                                                                       |  | $                   | 1,490   |                        | $ | 2,107  |   | $            | 30     |                    | $
|                                                                                                        |  |                     |         |                        |   |        |   |              |        |                    |  

F-34

---



OUTSOURCING SERVICES GROUP, INC.        SCHEDULE II        VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

|                                           |      | (In thousands)
|------------------------------------------ | ---- | --------------
|
|
|
|Allowance for Doubtful Accounts:           |      |               
|Year ended December 31,                    |      |               
|                                           | 1999 |               
|                                           | 2000 |               
|                                           | 2001 |               
|Reserve for Excess and Obsolete Inventory: |      |               
|Year ended December 31,                    |      |               
|                                           | 1999 |               
|                                           | 2000 |               
|                                           | 2001 |               

F-35

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

| |  | OUTSOURCING SERVICES GROUP, INC.
| |  | --------------------------------
| |  | BY:                             

Date:
March 27, 2002

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|Signature                         |  | Title                                                                                              |  | Date          
|--------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --------------
|                                  |  |                                                                                                    |  |               
|/s/JOSEPH HEALYJoseph Healy       |  | Chief Executive Officer, President and Director (Principal Executive Officer)                      |  | March 27, 2002
|/s/PERRY MORGANPerry Morgan       |  | Chief Financial Officer, Vice President and Secretary (Principal Financial and Accounting Officer) |  | March 27, 2002
|/s/WALTER K. LIMWalter K. Lim     |  | Chairman of the Board and Director                                                                 |  | March 27, 2002
|/s/DREW H. ADAMSDrew H. Adams     |  | Director                                                                                           |  | March 27, 2002
|/s/FRANK EDELSTEINFrank Edelstein |  | Director                                                                                           |  | March 27, 2002
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|/s/HOWARD C. LIMHoward C. Lim             |  | Director |  | March 27, 2002
|----------------------------------------- |  | -------- |  | --------------
|/s/MICHAEL S. GORDONMichael S. Gordon     |  | Director |  | March 27, 2002
|/s/ROBERT M. WADSWORTHRobert M. Wadsworth |  | Director |  | March 27, 2002

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