AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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This Agreement and Plan of Merger involves

REXNORD CORP | CHASE ACQUISITION I, INC | CHASE MERGER SUB, INC | RBS GLOBAL, INC. | TC GROUP, L.L.C

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: New York Date: 7/27/2006
Law Firm: O?Melveny & Myers LLP;Latham & Watkins LLP

AGREEMENT AND PLAN OF MERGER, Parties: rexnord corp , chase acquisition i inc , chase merger sub inc , rbs global inc. , tc group l.l.c

Exhibit 2.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

dated as of

May 24, 2006

by and among

CHASE ACQUISITION I, INC.,

CHASE MERGER SUB, INC.,

RBS GLOBAL, INC.

and

TC GROUP, L.L.C.

		Page

ARTICLE I. CERTAIN DEFINITIONS		2

ARTICLE II. THE MERGER		12

2.1	Conversion of Company Shares and Vested Options	12
2.2	Payment and Exchange of Certificates	13
2.3	Effective Time of Merger; Closing Date	15
2.4	Estimated Adjustment Amount	15
2.5	Adjustment Amount	16
2.6	Holder Allocable Expenses	18
2.7	Exchange Agent	19
2.8	Lost Certificate	20
2.9	Dissenting Common Shares	20
2.10	No Liability	20

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY		21

3.1	Corporate Organization of the Company	21
3.2	Subsidiaries	21
3.3	Due Authorization	21
3.4	No Conflict	22
3.5	Governmental Authorities; Consents	22
3.6	Capitalization of the Company	22
3.7	Capitalization of Subsidiaries	23
3.8	Financial Statements	24
3.9	Undisclosed Liabilities	24
3.10	Litigation and Proceedings	24
3.11	Legal Compliance	25
3.12	Contracts; No Defaults	25
3.13	Employee Benefit Plans	27
3.14	Labor Relations	31
3.15	Taxes	31
3.16	Brokers’ Fees	32
3.17	Insurance	32
3.18	Licenses, Permits and Authorizations	32
3.19	Machinery, Equipment and Other Tangible Property	32
3.20	Real Property	33
3.21	Intellectual Property	33
3.22	Environmental Matters	34
3.23	SEC Documents	35
3.24	Absence of Certain Changes or Events	35
3.25	Related Party Transactions	36
3.26	Customers; Suppliers	36
3.27	Recalls	36
3.28	Foreign Corrupt Practices Act	36

3.29	Invensys and Falk Indemnities	37
3.30	No Additional Representation or Warranties	37

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB		37

4.1	Corporate Organization	37
4.2	Due Authorization	38
4.3	No Conflict	38
4.4	Litigation and Proceedings	39
4.5	Governmental Authorities; Consents	39
4.6	Financial Ability	39
4.7	Brokers’ Fees	40
4.8	No Outside Reliance	40
4.9	Acquisition of Interests for Investment	40

ARTICLE V. COVENANTS OF THE COMPANY		41

5.1	Conduct of Business	41
5.2	Inspection; Cooperation	43
5.3	HSR Act and Foreign Antitrust Approvals	45
5.4	No Solicitations	45
5.5	Stockholder Approval	45
5.6	Payoff Letter	45
5.7	Options	46
5.8	Labor Organizations	46
5.9	Termination of Affiliate Agreements	46
5.10	Capital Expenditures	46
5.11	Section 280G	47

ARTICLE VI. COVENANTS OF ACQUIROR		47

6.1	HSR Act and Foreign Antitrust Approvals	47
6.2	Indemnification and Insurance	48
6.3	Employment Matters	49
6.4	Financing	50

ARTICLE VII. JOINT COVENANTS		51

7.1	Confidentiality	51
7.2	Support of Transaction	51
7.3	Reasonable Best Efforts	52
7.4	Advise of Changes	52
7.5	Debt Tender	52

ARTICLE VIII. CLOSING		53

8.1	Filing of Certificate of Merger	53
8.2	Closing	54

ARTICLE IX. CONDITIONS TO OBLIGATIONS		54

9.1	Conditions to Obligations of Acquiror, Merger Sub and the Company	54
9.2	Conditions to Obligations of Acquiror and Merger Sub	54
9.3	Conditions to the Obligations of the Company	55

ARTICLE X. TERMINATION/EFFECTIVENESS		56

10.1	Termination	56
10.2	Effect of Termination	57

ARTICLE XI. HOLDER REPRESENTATIVE		57

11.1	Acknowledgement	57
11.2	Designation and Replacement of Holder Representative	58
11.3	Authority and Rights of the Holder Representative; Limitations on Liability	58
11.4	Representations and Warranties	59

ARTICLE XII. MISCELLANEOUS		59

12.1	Nonsurvival of Representations and Warranties	59
12.2	Waiver	60
12.3	Notices	60
12.4	Assignment	61
12.5	Rights of Third Parties	61
12.6	Expenses	62
12.7	Governing Law	62
12.8	Captions; Counterparts	62
12.9	Schedules and Annexes	63
12.10	Construction	63
12.11	Entire Agreement	64
12.12	Amendments	64
12.13	Publicity	64
12.14	Severability	64
12.15	Jurisdiction; Waiver of Jury Trial	64
12.16	Withholding	65

iii

Schedules

Schedule 1.1		Permitted Liens

Schedule 1.1(b)		Knowledge

Schedule 2.1(d)		Rollover Shares and Options

Schedule 3.2		Subsidiaries of the Company

Schedule 3.4		Exceptions to No Conflict Representation

Schedule 3.5		Governmental Authorities; Consents

Schedule 3.6		Capitalization of the Company

Schedule 3.7		Ownership Interests

Schedule 3.8		Financial Statements

Schedule 3.9		Liabilities

Schedule 3.10		Litigation and Proceedings

Schedule 3.11		Legal Compliance

Schedule 3.12		Contracts

Schedule 3.13		Employee Benefits

Schedule 3.14		Labor Relations

Schedule 3.15		Taxes

Schedule 3.16		Brokers’ Fee

Schedule 3.17		Insurance

Schedule 3.18		Licenses, Permits, and Authorizations

Schedule 3.19		Machinery, Equipment, and Other Property

Schedule 3.20		Real Property

Schedule 3.21		Intellectual Property

Schedule 3.22		Environmental Matters

Schedule 3.24		Absence of Certain Changes

Schedule 3.25		Related Party Transactions

Schedule 3.26		Customers; Suppliers

Schedule 3.27		Product Recalls

Schedule 4.3		No Conflict Representation

Schedule 4.5		Governmental Authorities; Consents

Schedule 4.7		Brokers’ Fees

Schedule 5.1		Conduct of Business

Schedule 5.9		Affiliate Agreements

Schedule 5.10		Capital Expenditures

Schedule 7.5		Terms of Debt Tender Offer

Annexes

Annex A – Certificate of Merger

Annex B – Holder Acknowledgement

Annex C – Escrow Agreement

Annex D – Debt Commitment Letter

Annex E – Equity Commitment Letter

Annex F – Rollover Agreement

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this “ Agreement ”), dated as of May 24, 2006, is entered into by and among CHASE ACQUISITION I, INC., a Delaware corporation (“ Acquiror ”), CHASE MERGER SUB, INC., a Delaware corporation and a wholly-owned subsidiary of Acquiror (“ Merger Sub ”), RBS GLOBAL, INC., a Delaware corporation (the “ Company ”), and TC GROUP, L.L.C., a Delaware limited liability company (“ TC Group ”), solely in its capacity as the initial Holder Representative hereunder.

PLAN OF MERGER

A. Acquiror, Merger Sub and the Company (Merger Sub and the Company sometimes being referred to herein as the “ Constituent Corporations ”) are hereby adopting a plan of merger, providing for the merger of Merger Sub with and into the Company, with the Company being the surviving corporation. This merger (the “ Merger ”) shall be consummated in accordance with this Agreement and evidenced by a Certificate of Merger between Merger Sub and the Company in substantially the form of Annex A hereto (the “ Certificate of Merger ”), such Merger to be consummated as of the Effective Time of the Merger (as defined below).

B. Upon consummation of the Merger, the separate corporate existence of Merger Sub shall cease and the Company, as the surviving corporation in the Merger (hereinafter referred to for the periods on and after the Effective Time of the Merger as the “ Surviving Corporation ”), shall continue its corporate existence under the Delaware General Corporation Law (the “ DGCL ”) as a wholly-owned subsidiary of Acquiror.

C. On and after the Effective Time of the Merger, the Surviving Corporation shall thereupon and thereafter possess all of the rights, privileges, powers and franchises, of a public as well as a private nature, of the Constituent Corporations, and shall become subject to all the restrictions, disabilities and duties of each of the Constituent Corporations; and all rights, privileges, powers and franchises of each Constituent Corporation, and all property, real, personal and mixed, and all debts due to each such Constituent Corporation, on whatever account, and all choses in action belonging to each such corporation, shall become vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall become thereafter the property of the Surviving Corporation as they are of the Constituent Corporations; and the title to any real property vested by deed or otherwise or any other interest in real estate vested by any instrument or otherwise in either of such Constituent Corporations shall not revert or become in any way impaired by reason of the Merger; but all Liens upon any property of either Constituent Corporation shall thereafter attach to the Surviving Corporation and shall be enforceable against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it; all of the foregoing in accordance with the applicable provisions of the DGCL.

D. At the Effective Time of the Merger, the Certificate of Incorporation and Bylaws of the Surviving Corporation shall be the Certificate of Incorporation and Bylaws of the Merger Sub as in effect immediately prior to the Effective Time of the Merger, until thereafter amended as provided therein and under the DGCL, and the officers of the Surviving Corporation shall be the officers of the Company immediately prior to the Effective Time of the Merger, and

the directors of the Surviving Corporation shall be the directors of the Merger Sub immediately prior to the Effective Time of the Merger. Each of the directors of the Company immediately prior to the Effective Time of the Merger shall tender their written resignation (in a form reasonably acceptable to Acquiror), effective as of the Closing Date.

E. On the date hereof, Acquiror and Cypress Industrial Holdings, LLC and Cypress Holdings, LLC (together, the “ Rollover Stockholders ”) are entering into an agreement in the form attached as Annex F (the “ Rollover Agreement ”), pursuant to which the Rollover Stockholders will, immediately prior to the Effective Time of the Merger, contribute to a parent company of Acquiror (“ Acquiror Parent ”) certain shares of Common Stock held by the Rollover Stockholders in exchange for the issuance by Acquiror Parent to such Rollover Stockholders of shares of the capital stock of Acquiror Parent, and Parent will thereafter and immediately prior to the Effective Time of the Merger contribute such shares of Common Stock to Acquiror.

F. On the date hereof, each of the Board of Directors of the Company and the holders of Common Stock who hold, in the aggregate, a number of shares of Common Stock entitled to cast votes in excess of that number of votes necessary for the adoption and approval of this Agreement and the transactions contemplated hereby by the stockholders of the Company, have approved and adopted this Agreement, the other Transactions Documents and the transactions contemplated hereby and thereby.

G. For certain limited purposes, and subject to the terms set forth herein, TC Group shall serve as a representative of the holders of Common Stock and Vested Options.

H. Certain capitalized terms used herein have the meanings ascribed to such terms in Article I hereof.

AGREEMENT

In order to consummate the Merger, and in consideration of the mutual agreements hereinafter contained, Acquiror, Merger Sub, the Company and TC Group agree as follows:

ARTICLE I.
CERTAIN DEFINITIONS

As used herein, the following terms shall have the following meanings:

“ Acquiror ” has the meaning specified in the Preamble hereto.

“ Acquiror Cure Period ” has the meaning specified in Section 10.1(c).

“ Acquiror Parent Options ” has the meaning specified in Section 2.1(a).

“ Acquiror Parent ” has the meaning specified in Section entitled “Plan of Merger”.

“ Acquisition Agreements ” has the meaning specified in Section 3.29.

“ Action ” means any claim, action, suit, audit, assessment, arbitration or inquiry, or any proceeding or investigation, by or before any Governmental Authority.

“ Adjustment Amount ” has the meaning specified in Section 2.5(c).

“ Affiliate ” means, with respect to any specified Person, any Person that, directly or indirectly, controls, is controlled by, or is under common control with, such specified Person, through one or more intermediaries or otherwise. For purposes of this definition, “control” shall mean, when used with respect to any Person, the power to direct the management and policies of such Person, directly or indirectly, through the ownership of voting securities, by contract or otherwise.

“ Agent ” has the meaning specified in Section 5.6.

“ Aggregate Fully-Diluted Common Shares ” has the meaning specified in Section 2.1(d).

“ Aggregate Option Exercise Price ” has the meaning specified in Section 2.1(d).

“ Agreement ” has the meaning specified in the preamble hereto.

“ Alternative Financing ” shall have the meaning specified in Section 6.4.

“ Ancillary Agreements ” has the meaning specified in Section 5.6.

“ Antitrust Authorities ” means the Antitrust Division of the United States Department of Justice, the United States Federal Trade Commission or the antitrust or competition law authorities of any other jurisdiction (whether United States, foreign or multinational).

“ Apollo ” has the meaning specified in Section 4.6.

“ Apollo Investors ” has the meaning specified in Section 12.13.

“ Audited Financial Statements ” has the meaning specified in Section 3.8.

“ Auditor ” has the meaning specified in Section 2.5(b).

“ Business Day ” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

“ Carlyle ” means The Carlyle Group and its Affiliates.

“ Cash and Cash Equivalents ” of any Person as of any date means the cash and cash equivalents required to be reflected as cash and cash equivalents on a consolidated balance sheet of such Person and its Subsidiaries as of such date prepared in accordance with GAAP (it being understood that Cash and Cash Equivalents shall not be reduced by the amount of uncleared checks to the extent uncleared checks are treated as a current liability on the Closing Balance Sheet).

“ Cash Per Fully-Diluted Common Share ” has the meaning specified in Section 2.1(d).

“ Certificate of Merger ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Certificates ” has the meaning specified in Section 2.2(b).

“ Closing ” has the meaning specified in Section 8.2.

“ Closing Balance Sheet ” has the meaning specified in Section 2.5(a).

“ Closing Date ” has the meaning specified in Section 8.2.

“ Closing Date Cash ” means the lesser of (i) the Cash and Cash Equivalents of the Company and its Subsidiaries as of the Closing Date (determined without giving effect to the consummation of the Merger or the financing transactions in connection therewith or the payments made pursuant to Section 7.5 (other than payment by the Company of expenses incurred in connection with the Debt Tender Offer pursuant to Section 12.6(e))), minus (A) the amount of Cash and Cash Equivalents of any Subsidiaries of the Company that are required by a Governmental Authority, applicable law, or any Contract to be retained in the Peoples Republic of China (excluding Hong Kong); and (B) 40% of all other Cash and Cash Equivalents of the Company and its Subsidiaries that are held by Subsidiaries of the Company organized under the laws of the Peoples Republic of China (excluding Hong Kong) and (ii) $6,000,000.

“ Closing Date Funded Debt ” has the meaning specified in Section 2.5(a).

“ Closing Date Net Working Capital ” has the meaning specified in Section 2.5(a).

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Common Shares ” has the meaning specified in Section 2.1(a).

“ Common Stock ” means the common stock, par value $.01 per share, of the Company.

“ Company ” has the meaning specified in the preamble hereto.

“ Company Cure Period ” has the meaning specified in Section 10.1(b).

“ Company SEC Documents ” has the meaning specified in Section 3.23.

“ Confidential and Proprietary Information ” means all information about or relating to the business of the Company, including all Intellectual Property Rights (other than information which is in the public domain (i) at the time of receipt thereof by the Company or (ii) at the time of its use or disclosure by the Company).

“ Confidentiality Agreement ” has the meaning specified in Section 12.11.

“ Consent Solicitation ” has the meaning specified in Section 7.5(e).

“ Constituent Corporations ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Contracts ” means any, whether written or oral, contracts, agreements, subcontracts, leases, licenses, bonds, indentures, notes and purchase orders.

“ Dalong Acquisition ” means that certain transaction contemplated by that certain Equity Acquisition Agreement among Shanghai Electric (Group) Company, Shanghai Dalong Machinery Co., Ltd, Shanghai General Machinery (Group) Company (“Dalong”) and RBS China Holdings, L.L.C., dated December 16, 2005.

“ Debt Financing ” has the meaning specified in Section 4.6.

“ Debt Financing Commitment ” has the meaning specified in Section 4.6.

“ Debt Tender Offer ” has the meaning specified in Section 7.5(a).

“ Debt Tender Premium ” means the payments made to the holders of the Senior Subordinated Notes pursuant to the Debt Tender Offer in excess of the principal amount of the sum of the Senior Subordinated Notes held by such holders and the accrued interest thereon.

“ Determination Date ” has the meaning specified in Section 2.5(b).

“ DGCL ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Dissenting Common Shares ” has the meaning specified in Section 2.1(a).

“ Dissenting Stockholders ” has the meaning specified in Section 2.1(a).

“ Effective Time of the Merger ” has the meaning specified in Section 2.3.

“ Employee Options ” has the meaning specified in Section 2.2(b).

“ Employee Plans ” has the meaning specified in Section 3.13(a)(i).

“ Environmental Claim ” means any claim, action, litigation, notice of violation, consent order, consent decree, or written notice by any Person alleging potential liability arising out of, based on or resulting from (a) the presence or Release of any Hazardous Materials in, on, from or under any of the Owned Real Property or Leased Real Property, any property formerly owned or occupied by the Company, or any third party location to which the Company sent, or caused to be sent, Hazardous Materials or (b) any violation or alleged violation of any Environmental Law.

“ Environmental Laws ” means all applicable civil and criminal foreign, U.S., federal, state or local laws, statutes, ordinances, common law, rules, or regulations relating to

pollution or protection of the environment, human health and safety, and natural resources, including those relating to Releases of Hazardous Materials or otherwise relating to the use, treatment, storage, transport or handling of Hazardous Materials.

“ Equity Financing ” has the meaning specified in Section 4.6.

“ Equity Financing Commitment ” has the meaning specified in Section 4.6.

“ ERISA ” has the meaning specified in Section 3.13(a)(ii).

“ Escrow Agent ” has the meaning specified in Section 2.5(d).

“ Escrow Agreement ” has the meaning specified in Section 2.5(d).

“ Escrow Amount ” means $10,000,000.

“ Escrow Percentage ” means, with respect to any holder of Common Shares and/or Vested Options, a ratio (expressed as a percentage) equal to: (x) the sum of the number of Common Shares held by such holder as of immediately prior to the Effective Time of the Merger (excluding Rollover Shares, if any) and the number of Common Shares issuable upon exercise of any Vested Options (excluding Rollover Options, if any) held by such holder immediately prior to the Effective Time of the Merger divided by (y) the Aggregate Fully-Diluted Common Shares (excluding Rollover Shares, if any, and Common Shares issuable upon exercise of Rollover Options, if any).

“ Estimated Adjustment Amount ” has the meaning specified in Section 2.4(b).

“ Estimated Closing Date Cash ” has the meaning specified in Section 2.4(a).

“ Estimated Closing Date Funded Debt ” has the meaning specified in Section 2.4(a).

“ Estimated Closing Date Net Working Capital ” has the meaning specified in Section 2.4(a).

“ Evaluation Materials ” means this Agreement (together with the Schedules and Annexes hereto) and the other Transaction Documents and, as to any party hereto, means all other non-public information furnished to such party by the other parties hereto in connection with the transactions contemplated hereby relating to the disclosing party or the disclosing party’s Affiliates (including non-public information relating to Apollo, the holders of the Common Stock and their respective Affiliates), whether furnished orally or in writing or gathered by inspection, together with analyses, compilations, studies or other documents prepared by any party, or by such party’s agents, representatives (including attorneys, accountants and financial advisors) or employees, which contain or otherwise reflect such information, provided that the term Evaluation Materials shall not include information that (i) is or becomes generally available to the public other than as a result of a disclosure in violation of the terms hereof or the Confidentiality Agreement, (ii) was or becomes available to a party hereto on a non-confidential basis from a source other than any other party hereto or their

representatives and Affiliates, provided that such source is not prohibited from disclosing such information by a contractual, legal or fiduciary obligation to any party hereto or any of their respective representatives or Affiliates, or (iii) has been or is independently developed by the party to which such information was furnished and not derived from the Evaluation Materials.

“ Exchange Act ” has the meaning specified in Section 3.23(b).

“ Exchange Agent ” has the meaning specified in Section 2.2(a).

“ Existing Credit Agreement ” has the meaning specified in Section 5.6.

“ Falk Agreement ” has the meaning specified in Section 3.29.

“ Financing ” has the meaning specified in Section 4.6.

“ Financing Commitments ” has the meaning specified in Section 4.6.

“ Fully-Diluted Percentage ” means, with respect to any holder of Common Shares and/or Vested Options, a ratio (expressed as a percentage) equal to (x) the sum of the number of Common Shares (excluding Rollover Shares, if any) held by such holder as of immediately prior to the Effective Time of the Merger and the number of Common Shares issuable upon the exercise of any Vested Options (including Rollover Options, if any) held by such holder as of immediately prior to the Effective Time of the Merger, divided by (y) the Aggregate Fully-Diluted Common Shares (including Rollover Options, if any, but excluding Rollover Shares, if any).

“ Funded Debt ” of the Company as of any date means all indebtedness of the Company and its consolidated Subsidiaries for borrowed money (including capitalized leases), together with accrued and unpaid interest thereon, required to be reflected as indebtedness on a consolidated balance sheet of the Company and its consolidated Subsidiaries as of such date prepared in accordance with GAAP, which, as of the Closing Date, shall include the Debt Tender Premium.

“ Funding Amount ” has the meaning specified in Section 2.2(a).

“ GAAP ” has the meaning specified in Section 2.5(a).

“ Governmental Authority ” means any Federal, state, municipal, local or foreign government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, court, tribunal, arbitrator or arbitral body.

“ Governmental Order ” means any order, judgment, injunction, decree, writ, stipulation, determination or award entered by or with any Governmental Authority.

“ Hazardous Materials ” means all materials, wastes or substances defined by, or regulated under, any Environmental Law as a hazardous waste, hazardous material, hazardous substance, extremely hazardous waste, restricted hazardous waste, contaminant, pollutant, toxic

waste, or toxic substance, including petroleum, petroleum products, asbestos, urea formaldehyde and polychlorinated biphenyls.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

“ Holder Acknowledgment ” means an agreement or certificate signed by a holder of Vested Options acknowledging cancellation of all Options held by such holder in a form attached as Annex B hereto.

“ Holder Allocable Expenses ” has the meaning specified in Section 2.6.

“ Holder Representative ” has the meaning specified in Section 11.1.

“ Intellectual Property Rights ” has the meaning specified in Section 3.21.

“ Invensys Agreement ” has the meaning specified in Section 3.29.

“ Leased Real Property ” means all real property leased by the Company or any of its Subsidiaries, the lease of which may not be terminated at will, or by giving notice of 90 days or less, without cost or penalty and provides for annual rental payments in excess of $500,000.

“ Lien ” means any mortgage, deed of trust, collateral security arrangement, pledge, title imperfection, title defect, hypothecation, conditional or installment sales agreement, charge, easement, encroachment, encumbrance, security interest or other lien, reservation or restriction of any kind.

“ Majority Holders ” has the meaning specified in Section 11.2.

“ Material Adverse Effect ” means, with respect to any Person, any event or circumstance that, individually or in the aggregate with other events or circumstances, has, or would be reasonably expected to have, a material adverse effect on (i) the business, results of operations or condition (financial or other) of such Person or (ii) the ability of such Person or its Subsidiaries to perform its obligations hereunder and to consummate the transactions contemplated hereby; provided , however , that in no event would any of the following, alone or in combination, be deemed to constitute, nor shall any of the following (including the effect of any of the following) be taken into account in determining whether there has been or will be, a “Material Adverse Effect” on or in respect of any Person: (a) any change in economic, business or financial market conditions generally, to the extent that such change does not disproportionately affect such Person and its Subsidiaries, taken as a whole, relative to other participants in such Persons’ industries, (b) any change generally affecting any of the industries in which such Person or its Subsidiaries operates, to the extent that such change does not disproportionately affect such Person and its Subsidiaries, taken as a whole, relative to other Persons in such industries, (c) the announcement or the execution of this Agreement or the pendency or consummation of the Merger, (d) the compliance with the terms of this Agreement or the taking of any action required by this Agreement or (e) any acts of terrorism or war, to the extent that such acts do not disproportionately affect such Person and its Subsidiaries, taken as a whole, relative to any other Person.

“ Merger ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Merger Consideration ” has the meaning specified in Section 2.1(c).

“ Merger Sub ” has the meaning specified in the preamble hereto.

“ Monthly Financial Statements ” has the meaning specified in Section 5.2(c).

“Multiemployer Plan ” has the meaning specified in Section 3.13(a)(iii).

“ New Holder Representative ” has the meaning specified in Section 11.2.

“ Non-US Plan ” has the meaning specified in Section 3.13(iv).

“ Offer Documents ” has the meaning specified in Section 7.5(b).

“ Options ” means all options to purchase Common Shares (whether vested or unvested).

“ Option Plans ” means each of the RBS Global, Inc. Stock Option Plan and the Non-Qualified Stock Option Agreement by and between the Company and Cypress Industrial Holdings, LLC, dated November 25, 2002.

“ Owned Real Property ” means all real property owned in fee by the Company or any of its Subsidiaries together with all appurtenant easements thereunder or relating thereto.

“ Payoff Letter ” has the meaning specified in Section 5.6.

“ PBGC ” has the meaning specified in Section 3.13(c)(viii)

“ Pension Plan ” has the meaning specified in Section 3.13(a)(v).

“ Permitted Liens ” means (i) mechanics, materialmen’s and similar Liens with respect to any amounts not yet due and payable or which are being contested in good faith through appropriate proceedings, (ii) Liens for current Taxes not yet due and payable or which are being contested in good faith through appropriate proceedings, (iii) Liens securing rental payments under capital lease agreements, (iv) encumbrances and restrictions on real property (including easements, covenants, rights of way and similar restrictions of record) that do not materially interfere with the present uses of such real property or with the operation of the Company as conducted consistent with past practice, (v) Liens securing payment, or any other obligations, of the Company or its Subsidiaries with respect to Funded Debt and (vi) Liens described on Schedule 1.1.

“ Person ” means any individual, firm, corporation, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, trust, Governmental Authority or other entity of any kind.

“ Premium Cap ” has the meaning specified in Section 6.2(b).

“ Prime Rate ” has the meaning specified in Section 2.5(d).

“ Quarterly Financial Statements ” has the meaning specified in Section 5.2(c).

“ Real Property Leases ” has the meaning specified in Section 3.20.

“ Release ” means any release, spill, emission, discharge, leaking, pumping, pouring, dumping, injection, deposit, disposal, dispersal, leaching or migration of Hazardous Materials into the environment (including ambient air, surface water, groundwater and surface or subsurface strata).

“ Requested Consents ” has the meaning specified in Section 7.5(e).

“ Requisite Rights ” means all Intellectual Property Rights that are necessary for the continued operation of the business of the Company and its Subsidiaries as now conducted.

“ Rollover Agreement ” shall have the meaning specified in the Section entitled “Plan of Merger.”

“ Rollover Amount ” means (i) the product of (A) the sum of the Rollover Shares, if any, and the number of shares of Common Stock issuable upon exercise in full of the Rollover Options, if any, multiplied by (B) the Cash Per Fully Diluted Common Share (determined after giving effect to the adjustments to the Merger Consideration contemplated by Section 2.4, but before giving effect to the adjustments to the Merger Consideration contemplated by Section 2.5), minus (ii) the aggregate exercise price of all Rollover Options, if any.

“ Rollover Holder ” means a holder of Rollover Options, if any, or Rollover Shares, if any.

“ Rollover Optionholders ” means the Persons listed on Schedule 2.1(d).

“ Rollover Options ” means a number of Vested Options held by the Rollover Optionholders that the Rollover Optionholders agree, pursuant to individual agreements entered into by one or more of the Rollover Optionholders and Acquiror Parent, no later than five (5) Business Days prior to the Closing Date, shall be cancelled in exchange for options to purchase shares of common stock or other equity interests of Acquiror Parent.

“ Rollover Shares ” means a number of shares of Common Stock held by the Rollover Stockholders that are contributed to Acquiror Parent immediately prior to the Effective Time of the Merger and, thereafter, contributed to Acquiror by Acquiror Parent immediately prior to the Effective Time of the Merger pursuant to the Rollover Agreement (it being understood that, if, for any reason, no shares of Common Stock are held by Acquiror or Merger Sub prior to the Effective Time of the Merger, no shares of Common Stock shall constitute Rollover Shares, and the number of Rollover Shares for all purposes under this Agreement shall be zero).

“ Rollover Stockholders ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Securities Act ” has the meaning specified in Section 3.23(b).

“ Senior Subordinated Notes ” means the 10.1875% Senior Subordinated Notes due 2012 of Rexnord Corporation.

“ Subsidiary ” means, with respect to any Person, any other Person of which 50% or more of the voting power of the equity securities or equity interests sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there is no such voting power, 50% or more of the equity securities or equity interests) is owned, directly or indirectly, by such Person.

“ Stockholders’ Agreement ” means the Stockholders’ Agreement of RBS Global, Inc. (as amended and restated on May 13, 2005) dated as of November 25, 2002 by and among the Company, Carlyle and the other stockholders named therein.

“ Surviving Corporation ” has the meaning specified in the Section entitled “Plan of Merger.”

“ Taxes ” has the meaning specified in Section 3.15(a).

“ Tax Returns ” has the meaning specified in Section 3.15(a).

“ TC Group ” has the meaning specified in the Preamble hereto.

“ Tendered Notes ” has the meaning specified in Section 7.5(c).

“ Terminating Acquiror Breach ” has the meaning specified in Section 10.1(c).

“ Terminating Company Breach ” has the meaning specified in Section 10.1(b).

“ Termination Date ” has the meaning specified in Section 10.1(b).

“ Transaction Documents ” means, collectively, this Agreement, the Escrow Agreement and any and all other agreements and certificates delivered by any party hereto pursuant to the terms of this Agreement.

“ Vested Options ” has the meaning specified in Section 2.1(a).

“ Voting Company Debt ” has the meaning specified in Section 3.6(a).

“ Wholly Owned Subsidiary ” means a Subsidiary of which 95% or more of the equity securities or equity interests is owned, directly or indirectly, by the Company.

As used herein, the phrase “to the knowledge” of any Person shall mean the actual knowledge, after due inquiry, of, in the case of the Company, the Chief Executive Officer, the Executive Vice President, Finance, the Vice President, General Counsel and Corporate Secretary of the Company and the other Persons set forth in Schedule 1.1(b)(1) , and (solely with respect to

Section 3.22 hereof) Schedule 1.1(b)(2) , and in the case of all other Persons, such Person’s executive officers.

ARTICLE II.
THE MERGER

2.1 Conversion of Company Shares and Vested Options .

(a) At the Effective Time of the Merger, by virtue of the Merger and without any action on the part of any holder of Common Stock, (i) each share (a “ Common Share ”) of Common Stock that is then issued and outstanding (other than shares of Common Stock, if any, held in the treasury of the Company or shares of Common Stock held by Acquiror or Merger Sub (including Rollover Shares, if any, contributed to Acquiror Parent pursuant to the Rollover Agreement, which Rollover Shares, if any, shall have been, immediately prior to the Effective Time of the Merger, contributed to Acquiror), which shares shall be canceled as part of the Merger, and other than shares (each, a “ Dissenting Common Share ”) of Common Stock held by Persons who object to the Merger and comply with the provisions of the DGCL concerning the rights of holders of Common Stock to dissent from the Merger and require appraisal of their shares of Common Stock (the “ Dissenting Stockholders ”) which Dissenting Common Shares shall not constitute “Common Shares” hereunder) and (ii) each unexercised and outstanding option to purchase Common Shares (to the extent vested) that is then outstanding as of immediately prior to the Effective Time of the Merger (such vested options collectively being referred to as the “ Vested Options ”), other than Rollover Options, if any, in each case, shall thereupon be converted into and become the right to receive the applicable portion of the Merger Consideration, as determined pursuant to Section 2.1(d). At the Effective Time of the Merger, the Rollover Options, if any, shall be terminated and cancelled, and, in exchange for the termination and cancellation of the Rollover Options, if any, Acquiror will cause to be issued to each holder of the Rollover Options, if any, fully vested options (the “ Acquiror Parent Options ”) to purchase shares of common stock or other equity interests of Acquiror Parent issued under an employee stock option plan to be adopted by Acquiror Parent. The terms upon which Rollover Options, if any, held by the Rollover Optionholders may be exchanged for Acquiror Parent Options shall be set forth in definitive documentation as may be entered into by each Rollover Optionholder and the Acquiror Parent at any time on or after the date hereof and not less than five (5) Business Days prior to the Closing Date; provided , however , that, in the event any Rollover Optionholder and Acquiror Parent do not for any reason enter into such definitive documentation with respect to all or any portion of the Vested Options held by such Rollover Optionholder within five (5) Business Days prior to the Closing Date, any Vested Options held by such Rollover Optionholder for, or with respect to which, such definitive agreement has not been entered into shall not constitute, or be treated as, Rollover Options and shall be treated as Vested Options that are not Rollover Options for all purposes under this Agreement.

(b) At the Effective Time of the Merger, by virtue of the Merger and without any action on the part of Acquiror or Merger Sub, each share of common stock, par value $0.01 per share, of Merger Sub shall be converted into one share of common stock, par value $0.01 per share, of the Surviving Corporation.

(c) Subject to the adjustments set forth in Sections 2.4 and 2.5, the “ Merger Consideration ” shall consist of One Billion Eight Hundred Twenty-Five Million Dollars ($1,825,000,000.00) in cash, less (i) the Estimated Closing Date Funded Debt (as defined in Section 2.4), plus (ii) the Estimated Closing Date Cash (as defined in Section 2.4), less (iii) the amount of Holder Allocable Expenses paid by Acquiror to the Holder Representative or at the direction of the Holder Representative at Closing in accordance with Section 2.6.

(d) Subject to Section 2.5(d), the Merger Consideration shall be allocated among the holders of the Common Shares and the Vested Options as set forth below in this Section 2.1(d). Each holder of Common Shares, other than Acquiror or Merger Sub, shall be entitled to receive a portion of the Merger Consideration in cash, without interest, equal to (x) the Cash Per Fully-Diluted Common Share (as defined below), multiplied by (y) the number of Common Shares held by such holder as of the Effective Time of the Merger (but not including Rollover Shares, if any, or Common Shares issuable upon the exercise of any Vested Options held by such holder at the Effective Time of the Merger). Each holder of Vested Options shall be entitled to receive a portion of the Merger Consideration equal to (i) the Cash Per Fully-Diluted Common Share, multiplied by the aggregate number of Common Shares issuable upon exercise in full of all Vested Options held by such holder immediately prior to the Effective Time of the Merger, other than Rollover Options, if any, minus (ii) the aggregate cash exercise price payable upon exercise of all Vested Options, other than Rollover Options, if any, held by such holder immediately prior to the Effective Time of the Merger. For purposes of the foregoing, the “ Cash Per Fully-Diluted Common Share ” shall mean (1) the sum of (A) the Merger Consideration, plus (B) the Aggregate Option Exercise Price (defined below), divided by (2) the Aggregate Fully-Diluted Common Shares. The “ Aggregate Fully-Diluted Common Shares ” shall be the sum of (i) the aggregate number of Common Shares held by all holders immediately prior to the Effective Time of the Merger (including Rollover Shares, if any), plus (ii) the aggregate number of Common Shares issuable upon the exercise in full of all Vested Options (including Rollover Options, if any) held by all holders immediately prior to the Effective Time of the Merger, plus (iii) the aggregate number of Dissenting Common Shares. The “ Aggregate Option Exercise Price ” shall mean the sum of the cash exercise prices that would be payable upon exercise in full of all Vested Options (including Rollover Options, if any) held by all holders of Vested Options immediately prior to the Effective Time of the Merger.

2.2 Payment and Exchange of Certificates .

(a) Subject to the second sentence of Section 2.2(b) and Section 2.5(d), immediately prior to the Effective Time of the Merger, Acquiror shall pay to an exchange agent (the “ Exchange Agent ”) selected by the Company and reasonably acceptable to Acquiror (the rights and obligations of the Exchange Agent to be set forth in a customary agreement in form and substance reasonably acceptable to the Company and Acquiror), by wire transfer of immediately available funds, an amount (the “ Funding Amount ”) equal to (i) the Merger Consideration, as adjusted by the Estimated Adjustment Amount in accordance with Section 2.4, minus (ii) the product of (x) the number of Dissenting Common Shares and (y) the Cash Per Fully-Diluted Common Share (determined after giving effect to the adjustments to the Merger Consideration provided for in Section 2.4 but before giving effect to the adjustments provided for in Section 2.5), minus (iii) the Rollover Amount, if any. The Exchange Agent shall invest the Funding Amount in the manner specified by Acquiror, and interest payable thereon shall be

solely for the account of Acquiror or the Surviving Corporation. Upon (1) payment by Acquiror to the Exchange Agent of the Funding Amount and (2) payment by Acquiror to the Holder Representative of the estimated Holder Allocable Expenses pursuant to Section 2.6, Acquiror shall be deemed to have satisfied its obligations to make payments in respect of the Merger Consideration other than (A) Acquiror’s obligation to make payments required by Section 2.5 and (B) the obligation of Acquiror or the Surviving Corporation to make payments to Dissenting Stockholders, if any, following the Effective Time of the Merger.

(b) After the Effective Time of the Merger, each holder of an outstanding certificate or certificates for Common Shares (collectively, the “ Certificates ”) or Vested Options, upon surrender of such Certificates to the Exchange Agent (or, in the case of a holder of Vested Options, upon delivery of a Holder Acknowledgment to the Company), shall be entitled to receive from the Exchange Agent in exchange therefor (subject to the provisions of Section 2.5) such portion of the Merger Consideration into which such holder’s Common Shares (other than Rollover Shares, if any) and/or Vested Options (other than Rollover Options, if any) shall have been converted as a result of the Merger; provided , however , that any payment with respect to Vested Options held by employees of the Company or its Affiliates (“ Employee Options ”) shall be made by the Exchange Agent to the Company, and the Company shall make payment to such employees after reduction for the amount of any Taxes required to be withheld under applicable law with respect to such payments and amounts so withheld shall be (i) paid by the Company to the applicable taxing authority and (ii) treated for all purposes of this Agreement as having been paid to the holders of Employee Options in respect of which the withholding was made by the Company; and provided , further , that a portion of the Merger Consideration otherwise payable to each holder of Common Shares and/or Vested Options equal to the Escrow Amount multiplied by such holder’s Escrow Percentage shall be held in escrow in accordance with Section 2.5(d) and the Escrow Agreement. Notwithstanding the foregoing, in the event that any holder of Common Shares or Vested Options delivers the Certificate(s) representing the Common Shares (other than Rollover Shares, if any) and/or a Holder Acknowledgement with respect to such Vested Options (other than Rollover Options, if any) to Acquiror at the Closing, Acquiror shall pay (i) the amount which such holder is entitled in consideration for Common Shares (other than Rollover Shares, if any) directly to such holder at the Closing by wire transfer of immediately available funds and (ii) the amount which such holder is entitled in consideration for Vested Options (other than Rollover Options, if any) to the Company for payment to such holder after deduction for the amount of any Taxes required to be withheld under applicable law with respect to such payment, and the Funding Amount payable to the Exchange Agent shall be reduced by such amounts. Pending such surrender and exchange (or, in the case of a holder of Vested Options, upon such delivery of a Holder Acknowledgement) a holder’s certificate or certificates for Common Shares (other than Rollover Shares, if any) and/or Vested Options (other than Rollover Options, if any) shall be deemed for all purposes to evidence such holder’s portion of the Merger Consideration into which such Common Shares and/or Vested Options shall have been converted by the Merger. All Merger Consideration paid upon surrender of and in exchange for Common Shares and/or Vested Options in accordance with the terms hereof shall be deemed to have been paid in full satisfaction of all rights pertaining to such Common Shares and/or Vested Options, other than (i) the right to receive payment referred to in Section 2.5, (ii) the right of holders of Rollover Options, if any, to receive Acquiror Parent Options as provided in Section 2.1(a), and (iii) the rights of the Rollover Stockholders, if any, to receive shares of

common stock or other equity interests of Acquiror Parent as provided in the Rollover Agreement.

2.3 Effective Time of Merger; Closing Date . Assuming all of the conditions set forth in Article IX of this Agreement have been fulfilled or waived, and provided that this Agreement has not been terminated pursuant to the provisions hereof, on the Closing Date, Merger Sub and the Company shall cause the Certificate of Merger to be executed and filed with the Secretary of State of Delaware as provided in Section 251 of the DGCL. For purposes of this Agreement, the “ Effective Time of the Merger ” shall mean the time at which the Certificate of Merger has been duly filed in the Office of the Secretary of State of Delaware and has become effective in accordance with the DGCL.

2.4 Estimated Adjustment Amount .

(a) Not less than five (5) Business Days prior to the Closing Date and in no event more than ten (10) Business Days prior to the Closing Date, the Company shall deliver to Acquiror its good faith estimate of (i) the Closing Date Net Working Capital (as defined below) (the “ Estimated Closing Date Net Working Capital ”), (ii) the aggregate principal amount of all Funded Debt of the Company and its Subsidiaries as of the close of business on the Closing Date, determined without giving effect to the consummation of the Merger or the financing transactions in connection therewith (the “ Estimated Closing Date Funded Debt ”), which shall not be less than the aggregate Funded Debt outstanding under the Credit Agreement, as set forth in the Payoff Letter, the Funded Debt of the Company under the Senior Subordinated Notes (including the Debt Tender Premium), and the Company’s good faith estimate of any other Funded Debt outstanding on the Closing Date, in each case as of the Closing Date, (iii) a calculation of the Cash and Cash Equivalents of the Company as of the Closing Date and (iv) the Closing Date Cash (the “ Estimated Closing Date Cash ”), it being understood that such estimates shall be made without giving effect to the consummation of the Merger or the financing transactions in connection therewith and the payments made pursuant to Section 2.5.

(b) The “ Estimated Adjustment Amount ,” which may be positive or negative, shall mean (i) the Estimated Closing Date Net Working Capital, minus (ii) $192,000,000. If the Estimated Adjustment Amount is a positive number, then the Merger Consideration shall be increased on the Closing Date by the Estimated Adjustment Amount, and if the Estimated Adjustment Amount is a negative number, the Merger Consideration shall be decreased on the Closing Date by the absolute value of the Estimated Adjustment Amount.

2.5 Adjustment Amount .

(a) As soon as reasonably practicable following the Closing Date, and in any event within forty-five (45) calendar days thereof, Acquiror shall prepare and deliver to the Holder Representative (i) an unaudited consolidated balance sheet of the Company and its Subsidiaries as of the close of business on the Closing Date (the “ Closing Balance Sheet ”), (ii) a calculation of Closing Date Net Working Capital, (iii) a calculation of the aggregate amount of all Funded Debt of the Company as set forth on the Closing Balance Sheet (the “ Closing Date Funded Debt ”), (iv) a calculation of the Cash and Cash Equivalents of the Company as of the Closing Date, as set forth on the Closing Balance Sheet and (v) a calculation of Closing Date Cash, in each case determined without giving effect to the consummation of the Merger and the financing transactions in connection therewith and the payments made pursuant to Section 7.5 (other than payment of expenses incurred in connection with the Debt Tender Offer). The Closing Balance Sheet shall be prepared in accordance with United States generally accepted accounting principles (“ GAAP ”), applying the principles, policies, methods and practices as were used to prepare the Audited Financial Statements. Following the Closing, Acquiror shall provide the Holder Representative and its representatives reasonable access following prior notice to the records and employees of the Company and its Subsidiaries to the extent relevant for the preparation of the Closing Balance Sheet and shall cause the employees of the Company and its Subsidiaries to reasonably cooperate with the Holder Representative in connection with its review of the Closing Balance Sheet. “ Closing Date Net Working Capital ” means (i) the sum of the following current asset accounts reflected on the Closing Balance Sheet: (A) accounts receivable, net, (B) inventory and (C) other current assets (it being understood that such accounts shall not include any Cash and Cash Equivalents, deferred taxes or any assets of Dalong or any of its Subsidiaries or any assets acquired by any Subsidiary of the Company pursuant to the Dalong Acquisition) minus (ii) the sum of the following current liability accounts reflected on the Closing Balance Sheet: (A) trade payables, (B) income tax payables, (C) compensation and benefits and (D) other current liabilities (it being understood that such accounts shall not include any liabilities in respect of the current portion of long-term debt, current deferred taxes, short-term pension obligations, short-term post-retirement benefit obligations and accrued interest or any liabilities of Dalong or any of its Subsidiaries or any liabilities assumed by any Subsidiary of the Company pursuant to the Dalong Acquisition) in each case determined on the Closing Date, and based on the Closing Balance Sheet, provided that the amount of any Tax liability on the Closing Balance Sheet shall be calculated assuming that the tax year of the Company ended on the Closing Date; provided , however , that the Closing Balance Sheet shall not reflect any Tax liability or Tax asset resulting from any action taken or transaction completed by, or at the direction of, Acquiror or resulting from the transactions contemplated by this Agreement, including the financing thereof (including, without limitation, any withholding obligation or liability with respect to, arising out of, or relating to, the termination, cancellation or treatment of the Rollover Options, if any, or the issuance of Acquiror Parent Options in exchange for Rollover Options, if any).

(b) If the Holder Representative shall disagree with the calculation of Closing Date Net Working Capital, the Closing Date Funded Debt, and/or the Closing Date Cash it shall notify Acquiror of such disagreement in writing, setting forth in reasonable detail the particulars of such disagreement, within thirty (30) days after its receipt of the Closing Balance Sheet. In the event that the Holder Representative does not provide such a notice of disagreement within

such thirty (30) day period, the Holder Representative shall be deemed to have accepted the Closing Balance Sheet and the calculation of the Closing Date Net Working Capital, the Closing Date Funded Debt and the Closing Date Cash delivered by Acquiror, which shall be final, binding and conclusive for all purposes hereunder. In the event any such notice of disagreement is timely provided, Acquiror and the Holder Representative shall use commercially reasonable efforts for a period of thirty (30) days (or such longer period as they may mutually agree) to resolve any disagreements with respect to the calculations of Closing Date Net Working Capital, the Closing Date Funded Debt and/or the Closing Date Cash; provided , however , that any such calculation not specifically objected to by the Holder Representative in such notice of disagreement shall be deemed acceptable and shall be final and binding on the parties upon delivery of such notice of disagreement. If, at the end of such period, they are unable to resolve such disagreements, then Deloitte & Touche LLP (or such other independent accounting firm of recognized national standing as may be mutually selected by Acquiror and the Holder Representative) (the “ Auditor ”) shall resolve any remaining disagreements. The parties shall use their respective commercially reasonable efforts to cause the Auditor to determine as promptly as practicable, but in any event within thirty (30) days of the date on which such dispute is referred to the Auditor, (i) whether the Closing Balance Sheet was prepared in accordance with the standards set forth in Section 2.5(a), (ii) if any mathematical errors were made in calculating Closing Date Net Working Capital, the Closing Date Funded Debt and/or the Closing Date Cash and (iii) based solely on its determinations in clause (i) and (ii) of this sentence and only with respect to the remaining disagreements submitted to the Auditor, to what extent (if any) Closing Date Net Working Capital, the Closing Date Funded Debt and/or the Closing Date Cash require adjustment, and the Auditor shall make no other determination. The fees and expenses of the Auditor shall be paid one-half by Acquiror and one-half by the Holder Representative as a Holder Allocable Expense pursuant to Section 2.6 hereof. The determination of the Auditor shall be final, conclusive and binding on the parties. The date on which Closing Date Net Working Capital, the Closing Date Funded Debt and the Closing Date Cash are finally determined in accordance with this Section 2.5(b) is hereinafter referred as to the “ Determination Date .”

(c) The “ Adjustment Amount ,” which may be positive or negative, shall mean (i) Closing Date Net Working Capital, minus the Estimated Closing Date Net Working Capital, plus (ii) the Estimated Closing Date Funded Debt, minus the Closing Date Funded Debt, plus (iii) the Closing Date Cash, minus the Estimated Closing Date Cash, plus (iv) in the event that the Dalong Acquisition is consummated on or prior to the Closing Date, the amount of cash consideration actually paid in connection with the Dalong Acquisition (converting such cash consideration to U.S. Dollars at the spot exchange rate on the date the Dalong Acquisition is consummated) up to $6,500,000. If the Adjustment Amount is a positive number, then the Merger Consideration shall be increased by the Adjustment Amount, and if the Adjustment Amount is a negative number, the Merger Consideration shall be decreased by the absolute value of the Adjustment Amount. Such adjustments to the Merger Consideration shall be paid in accordance with Section 2.5(d) below. Notwithstanding anything contained herein to the contrary, no adjustment to the Merger Consideration shall be made pursuant to this Section 2.5 unless the Adjustment Amount exceeds $500,000 in the aggregate, in which case the entire amount of such adjustment shall be made.

(d) Notwithstanding the foregoing provisions of this Article II, on the Closing Date, a portion of the Merger Consideration equal to the Escrow Amount shall be paid by

Acquiror to Deutsche Bank Trust Company Americas, as escrow agent of the parties hereto (the “ Escrow Agent ”), to be held in escrow pending determination of the Adjustment Amount. The Escrow Amount shall be held and invested by the Escrow Agent in accordance with the terms of an Escrow Agreement substantially in the form attached hereto as Annex C hereto (the “ Escrow Agreement ”). Upon final determination of the Adjustment Amount in accordance with Section 2.5(b) hereof, Acquiror and the Holder Representative shall execute joint written instructions to the Escrow Agent instructing the Escrow Agent to disburse the Escrow Amount as set forth in this Section 2.5(d). If the Adjustment Amount is a positive number, then, subject to the last sentence of Section 2.5(c), promptly following the Determination Date, and in any event within five (5) Business Days following the Determination Date, (i) the Escrow Agent shall pay to the holders of the Common Shares and Vested Options entitled to receive the Merger Consideration (pro rata, in accordance with their respective Escrow Percentages) the Escrow Amount, together with all interest earned thereon, and (ii) Acquiror shall pay to the holders of Common Shares and Vested Options entitled to receive the Merger Consideration (pro rata, in accordance with their respective Fully-Diluted Percentages) cash in an amount equal to the Adjustment Amount, as finally determined, together with interest thereon from the Closing Date to the date of payment at the prime rate of interest published in the “Money Rates” column of the Eastern Edition of The Wall Street Journal (or the average of such rates if more than one rate is indicated) on the Closing Date (the “ Prime Rate ”). If the Adjustment Amount is a negative number, then, subject to the last sentence of Section 2.5(c), promptly following the Determination Date, and in any event within five (5) Business Days following the Determination Date, (A) the Escrow Agent shall pay to Acquiror out of the Escrow Amount an amount equal to the absolute value of the Adjustment Amount, together with the interest earned on the portion of the Escrow Amount equal to the absolute value of the Adjustment Amount, and (B) if the absolute value of the Adjustment Amount is less than an amount equal to the Escrow Amount plus interest thereon to the date of payment (as determined above), the Escrow Agent shall pay to the holders of Common Shares and Vested Options entitled to receive the Merger Consideration (pro rata, in accordance with their respective Escrow Percentages) the balance of the Escrow Amount, together with any interest earned thereon. In no event shall the Holder Representative or any holder of Common Shares and/or Vested Options have any liability under this Section 2.5 in excess of such holders’ Escrow Percentage of the Escrow Amount. Notwithstanding the foregoing, any distributions to the holders of Vested Options pursuant to this Section 2.5(d) shall be net of the amount of any taxes required to be withheld from such distributions under applicable law, and the amounts so withheld shall be paid over to the Company for payment by the Company to the applicable Governmental Authority as required by law. In no event shall the holders of the Common Shares and Vested Options be entitled to payment pursuant to this Section 2.5(d) of any amount in excess of (i) $10,000,000, plus (ii) in the event that the Dalong Acquisition is consummated on or prior to the Closing Date, the amount of cash consideration actually paid in connection with the Dalong Acquisition (converting such cash consideration to U.S. Dollars at the spot exchange rate on the date the Dalong Acquisition is consummated) up to $6,500,000. In no event shall Acquiror be entitled to payment pursuant to this Section 2.5(d) of any amount in excess of $10,000,000.

2.6 Holder Allocable Expenses . The Company shall use commercially reasonable efforts to pay Holder Allocable Expenses (as defined below) prior to the Closing Date, except for the fees and expenses of investment bankers and counsel. Prior to the Closing Date, the Holder Representative shall provide to Acquiror a written estimate (which estimate shall include such

reserves as the Holder Representative determines in good faith to be appropriate for any Holder Allocable Expenses that are not then known or determinable) of the aggregate amount of the following fees and expenses that may be incurred by the Holder Representative on behalf of the Company and the holders of the Common Shares and/or Vested Options in connection with the preparation, negotiation and execution of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby (but excluding any such fees or expenses incurred in connection with the financing thereof, other than as set forth in Section 12.6(e)): (i) the fees and disbursements of the financial advisor and special outside counsel to the Company and/or the Holder Representative incurred in connection with the transactions contemplated hereby, (ii) the fees and expenses of any other agents, advisors, consultants and experts employed by the Company and/or the Holder Representative in connection with the Merger, (iii) any transaction fee payable to one or more Affiliates of the Holder Representative in connection with the Merger, (iv) any bonuses payable to officers and employees of the Company in connection with the consummation of the Merger, and (v) the expenses of the Holder Representative incurred in such capacity (the “ Holder Allocable Expenses ”) to the extent that such Holder Allocable Expenses have not been paid by the Company prior to the Closing Date. On the Closing Date, Acquiror shall pay to the Holder Representative (or, at the request of the Holder Representative, to the Persons identified in such estimate) cash in the amount of such estimated unpaid Holder Allocable Expenses. Whether or not paid on or prior to the Closing Date, no amount shall be accrued on the Closing Balance Sheet with respect to the Holder Allocable Expenses. In no event shall Acquiror or the Company or its Subsidiaries be responsible for payment of any Holder Allocable Expenses in excess of the amount of Holder Allocable Expenses deducted from the Merger Consideration pursuant to Section 2.1(c). Any and all Holder Allocable Expenses that become due and payable after Closing or that are otherwise in excess of the amount of Holder Allocable Expenses that were deducted from the Merger Consideration pursuant to Section 2.1(c) shall be for the sole account of the Holder Representative.

2.7 Exchange Agent . Promptly following the date which is three months after the Effective Time of the Merger, Acquiror shall instruct the Exchange Agent to deliver to Acquiror by wire transfer of immediately available funds to an account or accounts specified by the Acquiror the undistributed portion of the Funding Amount (including any interest or other income resulting from the investment of the Funding Amount), Certificates and other documents in its possession relating to the transactions contemplated hereby, and the Exchange Agent’s duties shall terminate. Thereafter, each holder of a Certificate (other than Certificates representing Dissenting Common Shares) and each holder of Vested Options who has not delivered a Holder Acknowledgment may surrender such Certificate or deliver such Holder Acknowledgement to Acquiror and (subject to applicable abandoned property, escheat and similar laws) receive in consideration therefor, and Acquiror shall promptly pay, the portion of the Merger Consideration deliverable in respect thereof as determined in accordance with this Article II without any interest thereon.

2.8 Lost Certificate . In the event any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and an indemnification or other undertaking that may be reasonably requested by the Surviving Corporation, the Exchange Agent shall issue in exchange for such

lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof as determined in accordance with this Article II.

2.9 Dissenting Common Shares . Notwithstanding the foregoing provisions of this Article II, the Dissenting Common Shares shall not be converted into a right to receive the Merger Consideration and the holders thereof shall be entitled to such rights as are granted by Section 262 of the DGCL. Each holder of Dissenting Common Shares who becomes entitled to payment for such shares pursuant to Section 262 of the DGCL shall receive payment therefor from the Surviving Corporation in accordance with the DGCL; provided , however , that (i) if any such holder of Dissenting Common Shares shall have failed to establish such holder’s entitlement to appraisal rights as provided in Section 262 of the DGCL, or (ii) if any such holder of Dissenting Common Shares shall have effectively withdrawn such holder’s demand for appraisal of such shares or lost such holder’s right to appraisal and payment for such holder’s shares under Section 262 of the DGCL, such holder shall forfeit the right to appraisal of such shares and each such share shall not constitute a Dissenting Common Share and shall be treated as if it had been converted, as of the Effective Time of the Merger, into a right to receive from the Surviving Corporation the portion of the Merger Consideration deliverable in respect thereof as determined in accordance with this Article II, without any interest thereon. The Company shall deliver prompt notice to Acquiror of any demands for appraisal of any Dissenting Common Shares, attempted withdrawals of such demands and any other instruments served pursuant to the DGCL that are received by the Company for appraisal of any Dissenting Common Shares, and provide Acquiror with the opportunity to participate in and control all negotiations and proceedings with respect to demands for appraisal under the DGCL. Prior to the Effective Time of the Merger, the Company shall not, without the prior written consent of Acquiror, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.

2.10 No Liability . None of Acquiror, Merger Sub, the Company, the Surviving Corporation or the Exchange Agent shall be liable to any Person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate has not been surrendered prior to the date that is five years after the Effective Time (or immediately prior to such earlier date on which Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any Governmental Authority), any such shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by applicable law, become the property of Acquiror, free and clear of all claims or interest of any Person previously entitled thereto.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Acquiror and Merger Sub as follows:

3.1 Corporate Organization of the Company . The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware and has the corporate power and authority to own, lease or otherwise hold its properties and assets and to conduct its business as it is now being conducted. The copies of the Certificate of Incorporation and Bylaws of the Company previously made available by the Company to Acquiror are true, correct and complete. The Company is duly licensed or qualified and in good standing as a foreign corporation in each jurisdiction in which the ownership of its property or the character of its activities is such as to require it to be so licensed or qualified, except where the failure to be so licensed or qualified would not have, individually or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.

3.2 Subsidiaries . The Subsidiaries of the Company are set forth in Schedule 3.2 attached hereto. The Subsidiaries have been duly formed or organized and are validly existing under the laws of their state of incorporation or organization and have the power and authority to own or lease their properties and to conduct their business as it is now being conducted. The Company has previously provided to Acquiror copies of the organizational documents of its Subsidiaries. Such copies are true, correct and complete. Each Subsidiary is duly licensed or qualified and in good standing as a foreign corporation (or other entity, if applicable) in each jurisdiction in which its ownership of property or the character of its activities is such as to require it to be so licensed or qualified, except where the failure to be so licensed or qualified would not have, individually or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.

3.3 Due Authorization . The Company has all requisite corporate power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is, or is specified to be, a party, and (subject to the approvals discussed below) to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents to which the Company is, or is specified to be, a party, and the consummation of the transactions contemplated hereby and thereby by the Company have been duly and validly authorized and approved by the Board of Directors and stockholders of the Company, and no other corporate proceeding on the part of the Company is necessary to authorize this Agreement, the other Transaction Documents to which it is, or is specified to be, a party, or the transactions contemplated hereby and thereby. The Company has duly executed and delivered this Agreement and, at or prior to the Closing, will, subject to the terms and conditions hereof, duly execute and deliver each other Transaction Document to which it is specified to be a party, and this Agreement constitutes, and each other Transaction Document to which the Company is specified to be a party upon execution thereof will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity

3.4 No Conflict . Except as set forth in Schedule 3.4 , the execution and delivery by the Company of this Agreement or any other Transaction Document to which it is, or is specified to be, a party, and the consummation of the transactions contemplated hereby and thereby do not and will not conflict with, violate any provision of, result in the breach of, or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any Person under, any applicable law, rule or regulation of any Governmental Authority, the certificate of incorporation, bylaws or other organizational documents of the Company or any of its Subsidiaries, or any Contract or other instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries may be bound, or of any Governmental Order applicable to any of them, or terminate or result in the termination of any such Contract or other instrument, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries, or constitute an event which (with or without notice or lapse of time or both) would result in any such conflict, violation, breach, acceleration, termination or creation of a Lien or result in a violation or revocation of any required consent, license, permit or approval from any Governmental Authority or other Person, except to the extent that the occurrence of any of the foregoing would not have, individually or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.

3.5 Governmental Authorities; Consents . Assuming the truth and completeness of the representations and warranties of Acquiror contained in this Agreement, no material consent, approval or authorization of, or material designation, declaration or filing with, any Governmental Authority or other Person is required on the part of the Company or any of its Subsidiaries with respect to the Company’s execution, delivery and performance of this Agreement and the other Transaction Documents to which it is, or is specified to be, a party, or the consummation of the transactions contemplated hereby and thereby, except for (i) applicable requirements of the HSR Act or any similar foreign law; and (ii) as otherwise disclosed in Schedule 3.18 .

3.6 Capitalization of the Company .

(a) The authorized capital stock of the Company consists of 5,000,000 shares of Common Stock, of which, as of the date of this Agreement, (i) 3,623,809 are issued and outstanding, (ii) no shares of Common Stock are held by the Company in treasury, (iii) 372,017 shares of Common Stock are subject to outstanding Options, and 119,247 additional shares of Common Stock are reserved for issuance pursuant to the Option Plans and (iv) no shares of Common Stock are held by any of the Company’s Subsidiaries. All of the issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the DGCL, the Company’s certificate of incorporation, bylaws or other organizational document, or any Contract to which the Company or any of its Subsidiaries is a party or it or any of its properties or assets is otherwise bound. The shares of Common Stock held by each of the Persons set forth in Schedule 3.6 constitute of all the issued and outstanding shares of capital stock of the Company as of the date of this Agreement. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible

into, or exchangeable for, securities having the right to vote) on any matters on which holders of Common Stock may vote (“ Voting Company Debt ”).

(b) Except for the Options held by each of the Persons set forth in Schedule 3.6 , the Company has not granted any outstanding options, warrants, rights or other securities convertible into or exchangeable or exercisable for shares of the Common Stock, or entered into any other commitments or Contracts to which the Company is a party or by which it is bound (i) for the issuance of additional shares, the sale of additional shares, the sale of treasury shares or for the repurchase or redemption of shares of Common Stock or other equity interests in the Company; (ii) obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Company or any Voting Company Debt, (iii) obligating the Company to issue, grant, extend or enter into any such option, warrant, right, security, commitment, Contract or agreement or (iv) that give any person the right to receive any economic benefit derived from the economic benefits and rights occurring to holders of Common Stock. There are no agreements of any kind which may obligate the Company to issue, purchase, redeem or otherwise acquire any of its capital stock, options or other equity-linked securities.

3.7 Capitalization of Subsidiaries . The outstanding shares of capital stock, or other ownership interests, as applicable, of each of the Company’s Subsidiaries have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in Schedule 3.7 , the Company or one or more of its wholly-owned Subsidiaries own of record and beneficially all the issued and outstanding shares of capital stock, or other ownership interests, as applicable, of such Subsidiaries free and clear of any Liens other than Permitted Liens and all such outstanding shares of capital stock, or other ownership interests, as applicable, of such Subsidiaries are not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the local or state law applicable to such shares, such Subsidiary’s certificate of incorporation, bylaws or other organizational document, or any Contract to which the Company or any of its Subsidiaries is a party or it or any of its properties or assets is otherwise bound. There are no outstanding options, warrants, rights or other securities exercisable or exchangeable for any capital stock, or other ownership interests, as applicable, of such Subsidiaries, any other commitments or agreements providing for the issuance of additional shares, the sale of treasury shares, or for the repurchase or redemption of shares of such Subsidiaries’ capital stock, or other ownership interests, as applicable, or any agreements of any kind which may obligate any Subsidiary of the Company to issue, purchase, register for sale, redeem or otherwise acquire any of its capital stock, or other ownership interests, as applicable. Except for its interests in its Subsidiaries and except for the ownership interests set forth in Schedule 3.7 , the Company does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity or equity-linked interest, or hold any Voting Company Debt, or other ownership interests in any Person (other than such shares or interests having a value that is not material).

3.8 Financial Statements . Attached as Schedule 3.8 hereto are the audited consolidated balance sheets and statements of income, cash flow and stockholders’ equity as of March 31, 2005 and March 31, 2006, together with the auditor’s reports thereon (the “ Audited Financial Statements ”). Each of the Audited Financial Statements has been prepared from the

books and records of the Company and its Subsidiaries in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except as otherwise stated in the footnotes or the audit opinion related thereto), presents fairly in all material respects the consolidated financial position, results of operations, cash flows and stockholders’ equity of the Company and its consolidated Subsidiaries at and as of the dates stated in such financial statements.

3.9 Undisclosed Liabilities . Except as set forth in Schedule 3.9 , there is no material liability, debt, obligation or claim of any nature, whether known or unknown, absolute, accrued, contingent or otherwise and whether due or to become due against the Company or its Subsidiaries of a type required to be reflected or reserved for on a balance sheet prepared in accordance with GAAP, except for liabilities and obligations (i) reflected or reserved for on the latest Audited Financial Statements as of March 31, 2006 or disclosed in the notes thereto, (ii) that have arisen since the date of the Audited Financial Statements as of March 31, 2006 in the ordinary course of the operation of business of the Company and its Subsidiaries, or (iii) disclosed in the Schedules hereto.

3.10 Litigation and Proceedings . Except (i) as set forth in Schedule 3.10 and (ii) Actions under Environmental Law (as to which certain representations and warranties are made pursuant to Section 3.22), there are no pending or, to the knowledge of the Company, threatened, Actions at law or in equity before or by any Governmental Authority against the Company or any of its Subsidiaries that (v) involve any accounting practices of the Company or any of its Subsidiaries or any malfeasance by any current or former executive officer of the Company, (w) involve, in any individual Action, a claim for monetary damages in excess of $1,000,000, (x) prohibit or materially restrict the Company or any of its Subsidiaries from operating their business as they have historically, (y) seek any injunctive relief that would have a material impact on the business of the Company and its Subsidiaries, or (z) would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. There are no unsatisfied material Governmental Orders pending against the Company or any of its Subsidiaries. To the knowledge of the Company, no executive officer or director of the Company is a defendant in any Action or subject to any material Governmental Order in connection with his or her status as an executive officer or director of the Company or any of its Subsidiaries.

3.11 Legal Compliance . Except with respect to (i) matters set forth in Schedule 3.11 , and (ii) compliance with Environmental Laws (as to which certain representations and warranties are made pursuant to Section 3.22) (x) the Company and its Subsidiaries are currently (and at all times since March 31, 2004 have been) in compliance in all material respects with all applicable laws, and (y) since March 31, 2004, neither the Company nor any of its Subsidiaries has received any written communication from a Governmental Authority that alleges that the Company or any of its Subsidiaries is not in compliance in any material respect with any such applicable law. The Company has made all certifications and statements required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated thereunder with respect to the Company SEC Documents

3.12 Contracts; No Defaults .

(a) Schedule 3.12 contains a listing of all Contracts described in clauses (i) through (xv) below to which, as of the date of this Agreement, the Company or any of its Subsidiaries is a party. True, correct and complete copies of Contracts referred to in clauses (i) through (xv) below have bee

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