Document:

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                                                                    Exhibit 10.7

                       SOVEREIGN SPECIALTY CHEMICALS, INC.

                                STOCK OPTION PLAN

                                    ARTICLE 1

                                     GENERAL

                  1.1 Purpose. The purpose of this Sovereign Specialty
Chemicals, Inc. Stock Option Plan (the "Plan") is to provide for certain key
employees and/or directors of Sovereign Specialty Chemicals, Inc., a Delaware
corporation (the "Company"), and its subsidiaries and affiliates, an incentive
(i) to join and/or remain in the service of the Company and its subsidiaries and
affiliates, (ii) to maintain and enhance the long-term performance and
profitability of the Company and its subsidiaries and affiliates and (iii) to
acquire a proprietary interest in the success of the Company and its
subsidiaries and affiliates.

                  1.2 Definition of Certain Terms.

                           (a) "Affiliate" of any Person, means any other Person
controlling, controlled by or under common control with such Person.

                           (b) "Board" means the Board of Directors of the
Company.

                           (c) "Code" means the Internal Revenue Code of 1986,
as amended.

                           (d) "Committee" means the Committee appointed to
administer the Plan in accordance with Section 1.3.

                           (e) "Company" means Sovereign Specialty Chemicals,
Inc., a Delaware corporation.

                           (f) "Common Stock" means the shares of common stock,
$.01 par value, of the Company and any other shares into which such common stock
shall
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thereafter be exchanged by reason of a recapitalization, merger, consolidation,
split-up, combination, exchange of shares or the like.

                           (g) "Disability" means, unless otherwise set forth in
an Option Agreement or an employment or similar agreement between the Company
and the Optionee, the Optionee's inability, because of injury, illness or other
incapacity to perform services to the Company (as determined by the Board in its
good faith judgment) for a continuous period of 90 days or for 120 days out of a
continuous period of 360 days. Such disability shall be deemed to have occurred
on the 90th consecutive day or the 120th day within the specified period, as
applicable.

                           (h) "IPO" means an initial underwritten public
offering of the Common Stock registered under the Securities Act of 1933, as
amended, whether for the sale of shares of Common Stock by the Company or by
shareholders.

                           (i) "Option" means a "nonqualified" stock option, as
described in Section 1.5, granted under the Plan.

                           (j) "Option Agreement" means an agreement issued
pursuant to Section 2.1.

                           (k) "Optionee" means an employee and/or director of
the Company or any of its subsidiaries or affiliates who has been awarded any
Option under this Plan.

                           (l) "Person" any natural person, corporation, limited
liability company, partnership, firm, association, trust, government,
governmental agency or other entity, whether acting in an individual, fiduciary
or other capacity.

                           (m) "Plan" means this Sovereign Specialty Chemicals,
Inc. Stock Option Plan.

                           (n) "Shareholder Agreement" means an agreement
between the Optionee and the Company as described in Section 2.5, and in the
form in effect as of December 29, 1999.

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                           (o) "Subsidiary" of any Person shall mean any
corporation or other legal entity of which such Person (either alone or through
or together with any other Subsidiary) owns, directly or indirectly, 50% or more
of the stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity.

                           (p) "Termination With Cause," with respect to any
Optionee, means, unless otherwise set forth in an Option Agreement or an
employment or similar agreement between the Company and an Optionee, termination
by the Company or any of its Subsidiaries or Affiliates of such Optionee's
employment for: (i) misappropriation of any significant monies or significant
assets or properties of the Company or any Subsidiary, (ii) conviction of a
felony or a crime involving moral turpitude, (iii) substantial and repeated
failure to comply with directions of the Chief Executive Officer of the Company
or other superior of the Optionee or the Board of Directors of the Company or
any of its Subsidiaries or Affiliates, (iv) gross negligence or willful
misconduct, (v) chronic alcoholism or drug addiction together with Optionee's
refusal to cooperate with or participate in counseling and/or treatment of same
or (vi) any willful action or inaction of the Optionee which, in the reasonable
opinion of the Board, constitutes dereliction (willful neglect or willful
abandonment of assigned duties), or a material breach of Company or Subsidiary
policy or rules which, if susceptible to cure, is not cured by the Optionee
within five (5) days following the Optionee's receipt of written notice from the
Company advising the Optionee with reasonable specificity as to the action or
inaction viewed by the Company or Subsidiary to be dereliction or a material
breach of Company or Subsidiary policy or rules.

                  1.3 Administration.

                           (a) Subject to Section 1.3(e), the Plan shall be
administered by a committee of the Board which shall consist of at least two
directors and which shall have the power of the Board to authorize awards under
the Plan. The members of the

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Committee shall be appointed by, and may be changed from time to time in the
discretion of, the Board.

                           (b) The Committee shall have the authority (i) to
exercise all of the powers granted to it under the Plan, (ii) to construe,
interpret and implement the Plan and any Option Agreement executed pursuant to
Section 2.1 in accordance with the terms thereof, (iii) to prescribe, amend and
rescind rules and regulations relating to the Plan, (iv) to make all
determinations necessary or advisable in administering the Plan, (v) to correct
any defect, supply any omission and reconcile any inconsistency in the Plan, and
(vi) to grant Options on such terms, not inconsistent with the Plan, as it shall
determine.

                           (c) The determination of the Committee on all matters
relating to the Plan or any Option Agreement shall be conclusive.

                           (d) No member of the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
award thereunder.

                           (e) Notwithstanding anything to the contrary
contained herein: (i) until the Board shall appoint the members of the
Committee, the Plan shall be administered by the Board; and (ii) the Board may,
in its sole discretion, at any time and from time to time, resolve to administer
the Plan. In either of the foregoing events, the term "Committee" as used herein
shall be deemed to mean the Board.

                  1.4 Persons Eligible for Awards. Awards under the Plan may be
made from time to time to such key employees and/or directors of the Company or
its subsidiaries and/or affiliates as the Committee shall in its sole discretion
select.

                  1.5 Types of Awards Under the Plan. Awards may be made under
the Plan in the form of stock options, which shall be "nonqualified" stock
options subject to the provisions of section 83 of the Code, all as more fully
set forth in Article 2.

                  1.6 Shares Available for Awards.

                           (a) Subject to Section 3.4 (relating to adjustments
upon changes in capitalization), the maximum number of shares of Common Stock
with respect to

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which Options may be awarded under the Plan shall be 240,713 shares. Shares of
Common Stock covered by Options granted under the Plan which expire or terminate
for any reason shall again become available for award under the Plan.

                           (b) Shares that are issued upon the exercise of
Options awarded under the Plan shall be authorized and unissued or treasury
shares of Common Stock.

                           (c) Without limiting the generality of the preceding
provisions of this Section 1.6, the Committee may, but solely with the
Optionee's consent, agree to cancel any award of Options under the Plan and
issue new Options in substitution therefor, provided that the Options as so
substituted shall satisfy all of the requirements of the Plan as of the date
such new Options are awarded.

                                    ARTICLE 2

                                  STOCK OPTIONS

                  2.1 Agreements Evidencing Stock Options

                           (a) Options awarded under the Plan shall be evidenced
by Option Agreements which shall not be inconsistent with the terms and
provisions of the Plan, and which shall contain such provisions as the Committee
may in its sole discretion deem necessary or desirable. Without limiting the
generality of the foregoing, the Committee may in any Option Agreement impose
such restrictions or conditions upon the exercise of an Option or upon the sale
or other disposition of the shares of Common Stock issuable upon exercise of an
Option as the Committee may in its sole discretion determine. By accepting an
award pursuant to the Plan each Optionee shall thereby agree that each such
award and shares of Common Stock acquired upon exercise of an Option shall be
subject to all of the terms and provisions of the Plan, including, but not
limited to, the provisions of Sections 1.3(d) and 2.5.

                           (b) Each Option Agreement shall set forth the number
of shares of Common Stock subject to the Option granted thereby.

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                           (c) Each Option Agreement shall set forth the amount
payable by the Optionee to the Company upon exercise of the Option evidenced
thereby. Unless otherwise determined by the Committee, the Option exercise price
per share of Common Stock of a "nonqualified" stock option shall be not less
than the fair market value of the Common Stock on the date of grant, adjusted as
determined by the Committee to reflect changes in capitalization as contemplated
by Section 3.4.

                  2.2 Term of Options.

                           Each Option Agreement shall set forth the period
during which the Option evidenced thereby shall be exercisable, whether in whole
or in part, such periods to be determined by the Committee in its discretion.

                  2.3 Exercise of Options. Subject to the provisions of this
Article 2, each Option granted under the Plan shall be exercisable as follows:

                           (a) An Option shall become exercisable at such times
and subject to such conditions as the applicable Option Agreement may provide.

                           (b) Unless the applicable Option Agreement otherwise
provides, an Option granted under the Plan may be exercised from time to time as
to all or part of the shares as to which such Option shall then be exercisable.

                           (c) An Option shall be exercisable by the filing of a
written notice of exercise with the Company, on such form and in such manner as
the Committee shall in its sole discretion prescribe.

                           (d) Unless the applicable Option Agreement otherwise
provides, any written notice of exercise of an Option shall be accompanied by
payment of the exercise price for the shares being purchased. Such payment shall
be made by certified or official bank check payable to the Company (or the
equivalent thereof as may be set forth in an Option Agreement or as may be
acceptable to the Committee). Subject to Section 3.10 of the Plan, as soon as
practicable after receipt of such payment and the satisfaction

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of the withholding taxes referred to in Section 3.3, the Company shall deliver
to the Optionee a certificate or certificates for the shares of Common Stock so
purchased.

                  2.4 Termination of Options.

                           (a) Notwithstanding anything to the contrary in this
Plan, except as the Option Agreement, the Shareholder Agreement or the Committee
may otherwise provide or as set forth in Section 2.4(b), Section 2.4(d), Options
granted to an Optionee (and already vested but not yet exercised) shall
terminate on the date which is 45 days after termination of his employment with
the Company for any reason (other than by reason of death or disability in which
case the Options shall terminate on the date which is 180 days after the date of
such termination).

                           (b) Notwithstanding anything to the contrary in this
Plan, unless otherwise determined by the Committee or as set forth in an Option
Agreement, all Options granted to an Optionee shall immediately expire and cease
to be exercisable and all rights granted to an Optionee under this Plan and such
Optionee's Option Agreement shall immediately expire in the event of a
Termination With Cause of the Optionee by the Company at any time.

                           (c) Unless the applicable Option Agreement expressly
provides otherwise, Options awarded to Optionees under the terms of the Plan
will be exercisable only in accordance with the following vesting schedule:

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<TABLE>
<CAPTION>
                                                            Cumulative
                                                          Percentage of
                  Applicable Date                          Total Shares
                  ---------------                          ------------
<S>                                                       <C>
         On the first anniversary of the date of
         the Option Agreement                                   20%
         On the second anniversary of the date of
         the Option Agreement                                   40%
         On the third anniversary of the date of
         the Option Agreement                                   60%
         On the fourth anniversary of the date of
         the Option Agreement                                   80%
         On the fifth anniversary of the date of
         the Option Agreement                                  100%
</TABLE>

The Committee may modify this vesting schedule in any manner that it deems
appropriate in any Option Agreement or otherwise, and may provide different
vesting schedules in different Option Agreements in its sole discretion. Except
as the Committee may otherwise provide or as otherwise set forth in an Option
Agreement, in the event that Optionee's employment with the Company is
terminated for any reason prior to the date on which the Optionee's right to
exercise the Options has fully vested pursuant to this Section 2.4(c), the
Options will immediately cease to be exercisable with respect to any and all
shares which have not vested as of the date of such termination. The Committee
may accelerate the vesting of any Options at any time.

                           (d) Unless otherwise set forth in an Option Agreement
or as determined by the Committee, in the event of a Non-Control Transaction (as
hereinafter defined), (A) all outstanding Options shall remain outstanding and
subject to the terms and conditions of the Plan, including the vesting schedule
contained in Section 2.4(c), and (B) each Optionee shall only be entitled to
receive in respect of each share of Common Stock subject to the Option, upon
exercise of such Option after the vesting thereof, the same amount and kind of
stock, securities, cash, property or other consideration that each holder of a
share of Common Stock was entitled to receive in the Non-Control Transaction in
respect of a share. Unless otherwise set forth in an Option Agreement or as
determined by the Committee, in the event of a Transaction (as hereinafter
defined), each outstanding Option shall vest immediately prior thereto, and, as

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of the date of the occurrence of the Transaction (the "Transaction Date"), the
Company shall have the right to cancel any or all Options which have not been
exercised as of the Transaction Date, subject to the payment of the purchase
price described below. The purchase price payable by the Company to the Optionee
upon the cancellation of each unexercised Option will be the fair market value
of the Common Stock underlying each such Option determined as of the Transaction
Date less the aggregate exercise price of each such Option. The fair market
value will be determined in good faith by the Board based on the value being
paid to or received by the holders of Common Stock in such Transaction for their
shares of Common Stock.

                  Unless otherwise provided in an Option Agreement or as
determined by the Committee, "Transaction" means (i) the approval by members or
stockholders of the liquidation or dissolution of SSCI Investors LLC, a Delaware
limited liability company ("Investors LLC"), or the Company, (ii) a sale or
other disposition of 51% or more of the outstanding interests or voting stock,
respectively, of Investors LLC or the Company, (iii) the merger or consolidation
of Investors LLC or the Company with or into any entity, or (iv) a sale or other
disposition of substantially all of the assets of Investors LLC or the Company;
provided, however, that the term "Transaction" shall exclude each transaction
which is a "Non-Control Transaction." Unless otherwise provided in an Option
Agreement, "Non-Control Transaction" means (i) any transaction following which
AEA Investors Inc. and/or its affiliates, participants, investors and/or
employees own, directly or indirectly, a majority of the outstanding interests
or shares of voting stock of the purchasing or surviving entity, as applicable,
(ii) a merger or consolidation following which those persons who owned directly
or indirectly a majority of the outstanding interests or shares of voting stock
of Investors LLC and/or the Company immediately prior to such merger or
consolidation will own directly or indirectly a majority of the outstanding
interests or shares of voting stock of the surviving corporation, (iii) a sale
or other disposition of interests or capital stock, respectively, of Investors
LLC or the

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Company following which those persons who owned directly or indirectly a
majority of the outstanding interests or shares of voting stock immediately
prior to such sale will own directly or indirectly a majority of the outstanding
interests or shares of voting stock of the purchasing entity, (iv) a sale or
other disposition of substantially all of the assets of Investors LLC or the
Company to an affiliate of Investors LLC or the Company or (v) an IPO of the
Company or (vi) any transaction following which Investors LLC, AEA Investors
Inc, a Delaware Corporation ("AEA"), any Person controlling or controlled by AEA
or any officers, directors, employees, participants, shareholders or AEA or
members of Investors LLC (the "Investors LLC Parties") constitute a majority of
the directors of the Board or have a right to elect a majority of the Board.

                  2.5 Shareholder Agreements.

                           By accepting an award pursuant to the Plan each
Optionee shall thereby agree to execute the Shareholder Agreement and any Option
granted pursuant to the Plan shall not be deemed granted unless and until the
Optionee executes the Shareholder Agreement. Each such award and shares of
Common Stock acquired upon exercise of an Option shall be subject to all of the
terms and provisions of the Shareholder Agreement.

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                                    ARTICLE 3

                                  MISCELLANEOUS

                  3.1 Amendment of the Plan; Modification of Awards.

                           (a) The Board may, without stockholder approval, from
time to time suspend or discontinue the Plan or revise or amend it in any
respect whatsoever, except that no such suspension, discontinuance, revision or
amendment shall adversely alter or impair any rights or obligations under any
award theretofore made under the Plan without the consent of the person to whom
such award was made.

                           (b) With the consent of the Optionee and subject to
the terms and conditions of the Plan (including Section 3.1(a)), the Committee
may amend outstanding Option Agreements with such Optionee, for example, to (i)
accelerate the time or times at which an Option may be exercised or (ii) extend
the scheduled expiration date of the Option.

                  3.2 Nonassignability. Unless otherwise provided in an Option
Agreement or as determined by the Committee, no right granted to any Optionee
under the Plan or under any Option Agreement shall be assignable or transferable
other than by will or by the laws of descent and distribution. Unless otherwise
determined by the Committee, during the life of the Optionee, all rights granted
to the Optionee under the Plan or under any Option Agreement shall be
exercisable only by him.

                  3.3 Withholding of Taxes. The Company shall be entitled to
withhold an amount sufficient to satisfy any federal, state and other
governmental tax requirements related to an Option. Whenever, under the Plan,
shares of Common Stock are to be delivered upon exercise of an Option, the
Company shall be entitled to require as a condition of delivery that the
Optionee remit an amount sufficient to satisfy all federal, state and other
governmental tax withholding requirements related thereto, which may, in the
sole discretion of the Committee, include delivery or withholding of shares of
Common Stock.

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                  3.4 Adjustments Upon Changes in Capitalization. Except as
otherwise provided in an Option Agreement, the exercise price for Options and
the number of shares of Common Stock or other property which may be issued
pursuant to the exercise of Options granted under the Plan shall be
automatically adjusted to reflect any stock splits, reverse stock splits or
dividends paid in the form of Common Stock, and equitably adjusted as determined
by the Committee to be appropriate and reasonable for any other increase or
decrease in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of any other stock dividend or other extraordinary
dividend after the effective date of this Plan, or other increase or decrease in
the number of such shares of Common Stock or any substantial sale of the assets
of the Company; provided, however, that, unless otherwise determined by the
Committee, any Options to purchase fractional shares of Common Stock resulting
from any such adjustment shall be eliminated. Adjustments under this Section 3.4
shall be made by the Committee, whose determination as to what adjustments shall
be made, and the extent thereof, shall be final, binding and conclusive.

                  3.5 Right of Discharge Reserved. Nothing in this Plan or in
any Option Agreement shall confer upon any employee or other person the right to
continue in the employment or service of the Company or any of its subsidiaries
or affiliates or affect any right which the Company or any of its subsidiaries
or affiliates may have to terminate the employment or service of such employee
or other person.

                  3.6 No Rights as a Stockholder. No Optionee or other person
holding an Option shall have any of the rights of a stockholder of the Company
with respect to shares subject to an Option until the issuance of a stock
certificate to him for such shares. Except as otherwise provided in Sections
2.4(d) or 3.4, no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in

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cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.

                  3.7 Nature of Payments.

                           (a) Any and all payments of shares of Common Stock or
cash hereunder shall be granted, transferred or paid in consideration of
services performed by the Optionee for the Company or any of its subsidiaries or
affiliates.

                           (b) All such grants, issuances and payments shall
constitute a special incentive payment to the Optionee and shall not, unless
otherwise determined by the Committee, be taken into account in computing the
amount of salary or compensation of the Optionee for the purposes of determining
any pension, retirement, death or other benefits under (i) any pension,
retirement, life insurance or other benefit plan of the Company or any of its
subsidiaries or affiliates or (ii) any agreement between the Company or any of
its subsidiaries or affiliates and the Optionee.

                  3.8 Non-Uniform Determinations.

                           The Committee's determinations under the Plan need
not be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, awards under the Plan (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the
Committee shall be entitled, among other things, to make non-uniform and
selective determinations, and to enter into non-uniform and selective Option
Agreements, as to (i) the persons to receive awards under the Plan, (ii) the
terms and provisions of awards under the Plan and (iii) the treatment of awards
under the Plan pursuant to Section 3.4 hereof.

                  3.9 Other Payments or Awards. Nothing contained in the Plan
shall be deemed in any way to limit or restrict the Company or any of its
subsidiaries or affiliates or the Committee from making any award or payment to
any person under any other plan, arrangement or understanding, whether now
existing or hereafter in effect.

                  3.10 Restrictions.

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                           (a) If the Committee shall at any time determine that
any Consent (as hereinafter defined) is necessary or desirable as a condition
of, or in connection with, the granting of any award under the Plan, the
issuance or purchase of shares or the exercise of other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, if (i) the Committee is entitled under the Plan to
make any payment in cash, Common Stock or both, and (ii) the Committee
determines that a Consent is necessary or desirable as a condition of, or in
connection with, payment in any one or more of such forms, the Committee shall
be entitled to determine not to make any payment whatsoever until such Consent
shall have been obtained in the manner aforesaid. In such event, the Committee
will use reasonable efforts to obtain such Consent.

                           (b) The term "Consent" as used herein with respect to
any Plan Action means (i) any and all listings, registrations, qualifications or
similar requirements in respect thereof upon any securities exchange or under
any federal, state or local law, rule or regulation, (ii) any and all written
agreements and representations by the grantee with respect to the disposition of
shares, or with respect to any other matter, which the Committee shall deem
necessary or desirable to comply with the terms of any such listing,
registration, qualification or similar requirement or to obtain an exemption
from the requirement that any such listing, qualification or registration be
made and (iii) any and all consents, clearances and approvals in respect of a
Plan Action by any governmental or other regulatory bodies.

                  3.11 Section Headings. The section headings contained herein
are for the purposes of convenience only and are not intended to define or limit
the contents of said sections.

                  3.12 Effective Date and Term of Plan.

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                           (a) This Plan shall be deemed adopted and become
effective upon the approval thereof by the Board and shareholders of the
Company.

                           (b) Subject to Section 3.1 (a) hereof, the Plan shall
terminate 10 years after the date on which it becomes effective, and no awards
shall thereafter be made under the Plan. Notwithstanding the foregoing, all
awards made under the Plan prior to the date on which the Plan terminates shall
remain in effect until such awards have been satisfied or terminated in
accordance with the terms and provisions of the Plan.

                                     - 15 -<PAGE>   1
                                                                    Exhibit 10.8

                       SOVEREIGN SPECIALTY CHEMICALS, INC.
                                STOCK OPTION PLAN

                       NONQUALIFIED STOCK OPTION AGREEMENT

                  NONQUALIFIED STOCK OPTION AGREEMENT dated as of December 29,
1999 between Sovereign Specialty Chemicals, Inc., a Delaware corporation (the
"Company") and Robert B. Covalt (the "Optionee").

                  The Company's Compensation Committee or the Company's Board of
Directors acting as the Committee (in either case, the "Committee") has
determined that the Optionee is one of the key employees of the Company, and
that the objectives of the Company's Stock Option Plan (the "Plan") will be
furthered by awarding to the Optionee Options under the Plan. Capitalized terms
defined in the Plan and not otherwise defined herein shall have the meaning
given such terms in the Plan.

                  In consideration of the foregoing and of the mutual
undertakings set forth in this Nonqualified Stock Option Agreement, the Company
and the Optionee agree as follows:

                  SECTION 1. Grant of Option.

                  1.1 The Company hereby grants to the Optionee an option (the
"Option") to purchase 48,000 shares of Common Stock ("Common Stock") of the
Company, at a purchase price of $129.50 per share.

                  1.2 The Option granted hereby is intended to be a
"nonqualified" stock option subject to the provisions of section 83 of the Code
and is not intended to qualify as an "incentive stock option" subject to the
provisions of section 422 of the Code.

                  SECTION 2. Exercisability.

                  2.1 Subject to Section 4 hereof, the Option shall become
vested and exercisable with respect to 1/16th of the number of shares of Common
Stock covered thereby on each March 31, June 30, September 30 and December 31
during the period commencing on the date hereof and ending on December 31, 2003.

                  2.2 In the event the Optionee's employment is terminated by
reason of the Optionee's death or Disability following the third anniversary of
the date hereof, the Option shall become exercisable in full.

                  2.3 Subject to Section 4 and other terms of the Plan, the
Option will terminate as to any and all shares of Common Stock for which the
Option has not yet been exercised on December 28, 2009.
<PAGE>   2
                  SECTION 3. Method of Exercise.

                  3.1 The Option or any part thereof may be exercised only by
giving written notice to the Company in the form of Exhibit A hereto, which
notice shall state the election to exercise the Option and the number of whole
shares of Common Stock with respect to which the Option is being exercised. Such
notice must be accompanied by payment of the full purchase price for the number
of shares purchased.

                  3.2 Payment of the purchase price shall be made by certified
or official bank check payable to the Company. As soon as it is practicable
after it receives payment of the purchase price, the Company shall deliver to
the Optionee a certificate or certificates for the shares of Common Stock
acquired pursuant to the Option.

                  SECTION 4. Termination of Employment.

                  4.1 Death or Disability. In the event the Optionee's
employment is terminated by reason of the Optionee's death or Disability, the
Option, to the extent vested and exercisable on the date of termination (after
giving effect to Section 2.2 hereof) shall remain exercisable by the Optionee or
by the Optionee's legatee or legatees under his will, or by his personal
representatives or distributees, as applicable, for a period of 180 days
following such termination of employment.

                  4.2 Termination for Cause. In the event of a Termination With
Cause of the Optionee by the Company at any time, the Option shall immediately
expire and cease to be exercisable and all rights granted to the Optionee under
this Agreement shall immediately expire.

                  4.3 Other Termination of Employment. If the employment of the
Optionee is terminated under any circumstance other than those set forth in
Sections 4.1 or 4.2 hereof, the Optionee may, at any time within forty five (45)
days after his or her termination of employment, exercise the Option to the
extent, but only to the extent, that the Option or portion thereof was
exercisable on the date of termination.

                  4.4 Repurchase and Cancellation. Any Common Stock issued
pursuant to exercise of this Option is subject to the right of the Company to
purchase set forth in Section 4.5 of the Shareholder Agreement between the
Optionee and the Company, dated December 29, 1999 (the "Shareholder Agreement"),
and any unexercised Options are subject to cancellation as set forth in 4.5 of
the Shareholder Agreement.

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                  SECTION 5. Nonassignability.

                  No right granted to the Optionee under the Plan or this
Agreement shall be assignable or transferable (whether by operation of law or
otherwise and whether voluntarily or involuntarily), other than by will or by
the laws of descent and distribution. All rights granted to the Optionee under
the Plan or this Agreement shall be exercisable only by the Optionee or his
estate, heirs or personal representatives.

                  SECTION 6. Right of Discharge Reserved.

                  Nothing in the Plan or in this Agreement shall confer upon the
Optionee any right to continue in the employ or service of the Company or affect
any right which the Company may have to terminate the employment or services of
the Optionee.

                  SECTION 7. No Rights as a Stockholder.

                  Neither the Optionee nor any person succeeding to the
Optionee's rights hereunder shall have any right as a stockholder with respect
to any shares subject to the Option until the date of the issuance of a stock
certificate to him or her for such shares. Except for adjustments made pursuant
to Section 3.4 of the Plan, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary, and whether in
cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.

                  SECTION 8. Plan Provisions to Prevail.

                  This Agreement shall be subject to all of the terms and
provisions of the Plan and the Shareholder Agreement, which are incorporated
hereby and made a part hereof. In the event there is any inconsistency between
the provisions of this Agreement and the Plan or the Shareholder Agreement, the
provisions of the Plan or the Shareholder Agreement, as applicable, shall
govern.

                  SECTION 9. Optionee's Acknowledgments.

                  By entering into this Agreement the Optionee agrees and
acknowledges that (a) he has received and read a copy of the Plan and accepts
this Option subject to the terms and provisions of the Plan, and (b) that no
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any award thereunder. As a condition to
the issuance of shares of Common Stock under this Option, the Optionee
authorizes the Company to withhold in accordance with applicable law from any
compensation payable to him any taxes required to be withheld by the Company
under federal, state, or local law as a result of his exercise of this Option.

                                       3
<PAGE>   4
                  SECTION 10. Section Headings.

                  The Section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
Sections.

                  SECTION 11. Notices.

                  Any notice to be given to the Company hereunder shall be in
writing and shall be addressed to the Secretary of the Company, Christine J.
Smith, c/o AEA Investors Inc., 65 East 55th Street, New York, New York 10022 or
at such other address as the Company may hereinafter designate to the Optionee
by notice as provided herein. Any notice to be given to Optionee shall be given
at the address set forth on the first page hereof, or at such other address as
Optionee may hereinafter designate to the Company by notice as provided herein.
Notices hereunder shall be deemed to have been duly given when personally
delivered or mailed by registered or certified mail to the party entitled to
receive them.

                  SECTION 12. Successors and Assigns.

                  This Agreement shall be binding upon and inure to the benefit
of the parties hereto and the successors and assigns of the Company and, to the
extent set forth in Section 5, the estate, heirs or personal representatives of
the Optionee.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

                                      SOVEREIGN SPECIALTY CHEMICALS, INC.

                                        By:_____________________________________

                                        ________________________________________
                                        Robert B. Covalt

                                       4

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