STOCKHOLDERS' AGREEMENT

 

TABLE OF CONTENTS

 

		Page
SECTION 1.	DEFINITIONS	1
SECTION 2.	RESTRICTION ON TRANSFERS	9
SECTION 3.	APPROVED SALE; TAG ALONG TRANSACTION	10
SECTION 4.	REPURCHASE RIGHT	13
SECTION 5.	INVOLUNTARY TRANSFERS	15
SECTION 6.	PUT RIGHT	16
SECTION 7.	REPURCHASE DISABILITY	17
SECTION 8.	COOPERATION	19
SECTION 9.	BOARD OF DIRECTORS	19
SECTION 10.	REPRESENTATIONS AND WARRANTIES	22
SECTION 11.	INFORMATION RIGHTS; COVENANTS	22
SECTION 12.	REGISTRATION RIGHTS	25
SECTION 13.	TERMINATION	36
SECTION 14.	MISCELLANEOUS	36
SECTION 15.	EFFECTIVENESS	42

 

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Schedule

 

Schedule I                                         Cypress Holder Equity Securities

 

Exhibit

 

Exhibit A                                                Amended and Restated Certificate of Incorporation

 

Exhibit B                                                  Form of Joinder to Stockholders’ Agreement

 

 

STOCKHOLDERS’ AGREEMENT dated as of July 21, 2006 (this “ Agreement ”), by and among REXNORD HOLDINGS, INC. , a Delaware corporation (the “ Company ”), REXNORD ACQUISITION HOLDINGS I, LLC , a Delaware limited liability company (“ SPV I ”), REXNORD ACQUISITION HOLDINGS II, LLC , a Delaware limited liability company (“ SPV II ”; together with SPV I, “ Apollo ”), CYPRESS INDUSTRIAL HOLDINGS, LLC , a Maryland limited liability company (“ CIH ”), and George M. Sherman, individually (“ Sherman ” and, together with CIH, each a “ Cypress Holder ” and collectively with their permitted transferees, the “ Cypress Holders ”).

 

WHEREAS , Chase Acquisition I, Inc. (“ Acquiror ”), a Delaware corporation and wholly-owned subsidiary of the Company, Chase Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Acquiror, RBS Global, Inc., a Delaware corporation (“ RBS ”), and TC Group, L.L.C., a Delaware limited liability company, entered into that certain agreement and plan of merger dated as of May 24, 2006 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Agreement and Plan of Merger ”);

 

WHEREAS , following the consummation of the merger contemplated by the Agreement and Plan of Merger (the “ Merger ”), the Stockholders shall own all of the issued and outstanding capital stock of the Company; and

 

WHEREAS , as a material inducement to Acquiror to enter into the Agreement and Plan of Merger and to consummate the Merger and the other transactions contemplated thereby, without which Acquiror would not have entered into the Agreement and Plan of Merger or agree to consummate the Merger and the other transactions contemplated thereby, the Company and the Cypress Holders agree to provide the rights and be subject to the obligations and restrictions set forth herein.

 

NOW, THEREFORE , in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

Section 1.                                           Definitions .

 

As used in this Agreement, the following terms shall have the following meanings:

 

“ Accountants ” has the meaning set forth in Section 11(a)(iii)(C) .

 

“ Acquiror ” has the meaning set forth in the recitals.

 

“ Affiliate ” means (i) with respect to any individual, (A) a spouse or descendant of such individual and (B) any trust or family partnership or other entity whose beneficiaries shall solely be such individual and/or such individual’s spouse and/or any Person related by blood or adoption to such individual or such individual’s spouse and (ii) with respect to any Person that is not an individual, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person.  As used in this definition, “control” (including, with its correlative meanings, “controlled by” and “under common control with”) shall mean possession, directly or indirectly, of power to direct or cause the direction of management or

 

 

policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).

 

“ Agreement ” has the meaning set forth in the caption hereto.

 

“ Agreement and Plan of Merger ” has the meaning set forth in the recitals.

 

“ Apollo ” has the meaning set forth in the caption hereto.

 

“ Apollo Directors ” has the meaning set forth in Section 9(a)(ii) .

 

“ Apollo Nominee ” has the meaning set forth in Section 3(a)(ix) .

 

“ Approved Sale ” has the meaning set forth in Section 3(a)(i) .

 

“ Approved Sale Notice ” has the meaning set forth in Section 3(a)(i) .

 

“ Authorized Representatives ” has the meaning set forth in Section 11(b) .

 

“ Board ” means the Board of Directors of the Company.

 

“ Business Combination ” has the meaning set forth in the definition of “Sale of the Company”.

 

“ 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.

 

“ Bylaws ” means the Bylaws of the Company, as amended from time to time.

 

 “ Cause ” has the meaning set forth in the Consulting Agreement.

 

“ CIH ” has the meaning set forth in the caption hereto.

 

“ Closing ” has the meaning set forth in the Agreement and Plan of Merger.

 

“ Closing Date ” has the meaning set forth in the Agreement and Plan of Merger.

 

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

 

“ Commission ” means the Securities and Exchange Commission or any other Governmental Authority at the time administering the Securities Act.

 

“ Common Stock ” means the Common Stock of the Company, par value $0.01 per share.

 

“ Company ” has the meaning set forth in the caption hereto.

 

“ Company Confidential Information ” has the meaning set forth in Section 11(b) .

 

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“ Consulting Agreement ” means that certain management consulting agreement, dated as of the date hereof, by and among Rexnord Corporation, a Delaware corporation (“ Rexnord ”), Sherman, Cypress Group, LLC, a Maryland limited liability company (“ Cypress Group ”), and CIH.

 

“ Cypress Group ” has the meaning set forth in the definition of “Consulting Agreement”.

 

“ Cypress Holder ” has the meaning set forth in the caption hereto.

 

 “ Demand Party ” has the meaning set forth in Section 12(a) .

 

“ Demand Notice ” has the meaning set forth in Section 12(a) .

 

“ Disability ” means “Disability” as defined in Section 22(e)(3) of the Code.

 

“ Disability Notice ” has the meaning set forth in Section 7(b) .

 

“ Equity Incentive Plan ” means any plan or agreement approved by the Board for the purposes of issuing equity-linked Securities to any employee, officer, consultant or director of the Company or any of its Subsidiaries as incentive or bonus compensation.

 

“ Equity Securities ” means (a) any equity Securities of the Company (including Common Stock but excluding any option, warrant, or similar equity-linked Security of the Company) purchased or otherwise acquired by any Stockholder or (b) any Securities issued or issuable directly or indirectly with respect to the Securities referred to in clause (a) above by way of conversion, exercise or exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, reclassification, merger, consolidation, reorganization or other similar event.

 

“ Exchange Act ” means the Securities Exchange Act of 1934, and the Rules and Regulations, all as the same shall be in effect from time to time.

 

“ Family Group ” means, with respect to any natural Person, such natural Person’s spouse and/or lineal descendants (whether by blood relationship or adoption), and any other Person as to which such natural Person is a lineal descendant (whether by blood relationship or adoption), and any trust or other entity solely for the benefit of such Person and/or any of the foregoing.

 

“ Financing Documents ” has the meaning set forth in Section 7(a)(iii) .

 

“ Fund VI ” means Apollo Investment Fund VI, L.P., a Delaware limited partnership.

 

“ Good Reason ” has the meaning set forth in the Consulting Agreement.

 

“ Governmental Authority ” means any Federal, state, municipal, local or foreign government, governmental authority, regulatory or administrative agency, governmental

 

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commission, department, board, bureau, agency or instrumentality, court, tribunal, arbitrator or arbitral body.

 

“ Information ” has the meaning set forth in Section 12(i)(xi) .

 

“ Inspectors ” has the meaning set forth in Section 12(i)(xi) .

 

“ Involuntary Transfer ” has the meaning set forth in Section 5(a) .

 

“ Involuntary Transferee ” has the meaning set forth in Section 5(a) .

 

“ Involuntary Transfer Notice ” has the meaning set forth in Section 5(a) .

 

“ Involuntary Transfer Repurchase Notice ” has the meaning set forth in Section 5(b) .

 

“ Involuntary Transfer Repurchase Price ” has the meaning set forth in Section 5(b) .

 

“ Involuntary Transfer Repurchase Right ” has the meaning set forth in Section 5(b) .

 

“ Issuer Free Writing Prospectus ” means each “free writing prospectus” (as defined in Rule 405) prepared by or on behalf of the Company or used or referred to by the Company in any offering of Restricted Shares pursuant to Section 12 .

 

“ Joinder ” has the meaning set forth in Section 2(c) .

 

“ Material Transfer ” means a Transfer for consideration by Apollo of more than 10% of the Restricted Shares held by Apollo as of the Closing Date to a Person who is not an Affiliate of Apollo.

 

“ Merger ” has the meaning set forth in the recitals.

 

“ NASD ” means the National Association of Securities Dealers, Inc.

 

“ Non-Apollo Director ” has the meaning set forth in Section 9(a)(iv) .

 

“ Option ” has the meaning set forth in the Option Agreement.

 

“ Option Agreement ” means that certain non-qualified stock option agreement, dated as of July 21, 2006, by and between the Company and Sherman.

 

“ Option Assumption Agreement ” means that certain stock option assumption agreement, dated as of July 21, 2006, by and among the Company, RBS and CIH.

 

“ Order ” means all judgments, injunctions, orders and decrees of all Governmental Authorities in any legal, administrative or arbitration action, suit, complaint, charge, hearing,

 

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mediation, inquiry, investigation or proceeding in which the person in question is a party or by which any of its properties or assets are bound.

 

“ Outstanding Company Voting Securities ” has the meaning set forth in the definition of “Sale of the Company”.

 

“ Permitted Issuer Information ” means any “issuer information” (as defined in Rule 433 of the Rules and Regulations) used with the prior written consent of the Company in any offering of Restricted Shares pursuant to Section 12 .

 

 “ Person ” shall be construed broadly and shall include, without limitation, an individual, a partnership, a limited liability partnership, an investment fund, a limited liability company, a corporation, an association, a joint stock corporation, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

 

“ Preliminary Prospectus ” means any preliminary prospectus relating to an offering of Restricted Shares pursuant to Section 12 .

 

“ Proportionate Percentage ” means with respect to Apollo and each other Stockholder in respect of Restricted Shares, a fraction (expressed as a percentage) the numerator of which is the number of Restricted Shares held by Apollo or such other Stockholder, as the case may be, and the denominator of which is (i) in a situation where the Proportionate Percentage is being calculated with respect to all Stockholders, the total number of Restricted Shares outstanding at the time in question and (ii) in a situation where the Proportionate Percentage is being calculated with respect to a group of Stockholders, the total number of Restricted Shares held by the members of such group of Stockholders.

 

“ Prospectus ” means the final prospectus relating to any offering of Restricted Shares pursuant to Section 12 , including any prospectus supplement thereto, as filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations.

 

“ Public Sale ” means any sale of Equity Securities to the public pursuant to an offering registered under the Securities Act or to the public effected through a broker, dealer or market maker pursuant to the provisions of Rule 144 (if such rule is available) under the Securities Act (or any similar rule or rules then in effect).

 

“ Put Notice ” has the meaning set forth in Section 6(a) .

 

“ Put Price ” has the meaning set forth in Section 6(a) .

 

“ Put Right ” has the meaning set forth in Section 6(a) .

 

“ Qualified Public Offering ” means an underwritten public offering of Equity Securities of the Company pursuant to an effective Registration Statement filed by the Company with the Securities and Exchange Commission (other than on Forms S-4 or S-8 or successors to such forms) under the Securities Act, pursuant to which the aggregate offering price of the

 

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Equity Securities sold in such offering (whether sold by the Company or selling stockholders) is at least $75,000,000.

 

“ RBS ” has the meaning set forth in the recitals.

 

“ RBS/Cypress Stockholders’ Agreement ” means the Stockholders Agreement dated November 25, 2002 by and among RBS Global, Inc., Carlyle Partners III, L.P., CP III Coinvestment, L.P., Carlyle High Yield Partners, L.P., and CIH (as amended, modified, restated or supplemented from time to time).

 

“ Records ” has the meaning set forth in Section 12(i)(xi) .

 

“ Registration Expenses ” has the meaning set forth in Section 12(j) .

 

“ Reinstatement Notice ” has the meaning set forth in Section 7(b) .

 

“ Repurchase Date ” has the meaning set forth in Section 4(a) .

 

“ Repurchase Disability ” has the meaning set forth in Section 7(a) .

 

“ Repurchase Event ” means, with respect to any Cypress Holder, the termination of such Cypress Holder’s employment, consulting or other professional relationship with the Company and all of its Subsidiaries for any reason (including upon death or Disability of Sherman).

 

“ Repurchase Notice ” has the meaning set forth in Section 4(a) .

 

“ Repurchase Price ” has the meaning set forth in Section 4(a) .

 

“ Repurchase Right ” has the meaning set forth in Section 4(a) .

 

“ Resignation Event ” has the meaning set forth in Section 9(a)(iii) .

 

“ Restated Certificate ” means the Amended and Restated Certificate of Incorporation to be filed with the Secretary of State of Delaware, in the form attached hereto as Exhibit A .

 

“ Restricted Shares ” means at any time, with respect to Apollo or any Cypress Holder, the shares of Common Stock held by Apollo or such Cypress Holder; provided , however , that any (a) Common Stock that is sold in a public offering pursuant to an effective Registration Statement under the Securities Act or a sale pursuant to Rule 144 thereunder or that may be sold without restriction as to volume or otherwise pursuant to Rule 144(k) under the Securities Act shall not be Restricted Shares for purposes of Section 12 , and (b) any Person who holds any Common Stock, all of which can be sold pursuant to Rule 144 under the Securities Act, shall not be deemed to hold any Restricted Shares for purposes of Section 12 and shall have no rights to effect the registration of such securities under Section 12 .

 

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“ Rexnord Stockholders’ Agreement ” means that certain Stockholders’ Agreement dated as of the date hereof by and among the Company, SPV I, SPV II and certain other stockholders of the Company named therein.

 

“ Road Show Material ” has the meaning set forth in Section 12(k) .

 

“ Rollover Options ” means the options to purchase shares of common stock (to the extent vested) of RBS Global, Inc. in existence immediately prior to the date hereof held by each Rollover Optionholder (as defined in the Agreement and Plan of Merger) that are subject to a Stock Option Assumption Agreement entered into by and among such Rollover Optionholder, the Company and RBS Global, Inc. in connection with the transactions contemplated by the Agreement and Plan of Merger providing that such options shall be exercisable for shares of Common Stock or other Equity Interests of the Company pursuant to the terms of the Agreement and Plan of Merger.

 

“ Rule 144 ” means Rule 144 of the Rules and Regulations or any successor rule thereto or any complementary rule thereto.

 

“ Rule 405 ” means Rule 405 of the Rules and Regulations or any successor rule thereto or any complementary rule thereto.

 

“ Rule 433 ” means Rule 433 of the Rules and Regulations or any successor rule thereto or any complementary rule thereto.

 

“ Rules and Regulations ” means the rules and regulations of the Commission, as the same shall be in effect from time to time.

 

“ Sale Notice ” has the meaning set forth in Section 3(b)(i) .

 

“ Sale of the Company ” means:

 

(a)                                   Approval by the Stockholders (or, if no stockholder approval is required, by the Board alone) of the complete dissolution or liquidation of the Company, other than in the context of a Business Combination (as defined below) that does not constitute a Sale of the Company under paragraph (c) below;

 

(b)                                  The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Company Voting Securities ”); provided , however , that, for purposes of this paragraph (b), the following acquisitions shall not constitute a Sale of the Company; (A) any acquisition directly from the Company or any of its Subsidiaries, (B) any acquisition by the Company or any of its Subsidiaries, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Affiliates or a successor, (D) any acquisition by any Person pursuant to a Business Combination, (E) any acquisition by a Person who is the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the Outstanding Company Voting

 

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Securities on the Closing Date (or an Affiliate, heir or descendant of such Person) or (F) any acquisition by Apollo or one of its Affiliated investment funds; or

 

(c)                                   Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its Subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, or the acquisition of assets or stock of another entity by the Company or any of its Subsidiaries (each, a “ Business Combination ”), in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own more than 50% of the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the Person resulting from such Business Combination (including, without limitation, a Person that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets directly or through one or more Subsidiaries of the Company, and (2) no Person (excluding any Person described in clauses (C), (E) or (F) of paragraph (b) above) beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) more than 50% of the combined voting power of the then-outstanding voting securities of such Person, except to the extent that the ownership in excess of 50% existed prior to the Business Combination;

 

provided , however , that an underwritten public offering of the securities of the Company or any of its Subsidiaries shall in no event constitute a Sale of the Company for purposes of this Agreement.

 

 “ Securities ” means “securities” as defined in Section 2(1) of the Securities Act and includes capital stock or other equity interests or any options, warrants or other securities that are directly or indirectly convertible into, or exercisable or exchangeable for, capital stock or other equity interests. Whenever a reference herein to Securities is referring to any derivative Securities, the rights of a holder shall apply to such derivative Securities and all underlying Securities directly or indirectly issuable upon conversion, exchange or exercise of such derivative Securities.

 

“ Securities Act ” means the Securities Act of 1933, and the Rules and Regulations, all as the same shall be in effect from time to time.

 

“ Sellers’ Counsel ” has the meaning set forth in Section 12(i)(ii) .

 

“ Sherman ” has the meaning set forth in the caption hereto.

 

“ SPV I ” has the meaning set forth in the caption hereto.

 

“ SPV II ” has the meaning set forth in the caption hereto.

 

“ Stockholder ” means Apollo, CIH, Sherman and any other Person from time to time that holds Equity Securities acquired in accordance with the terms of this Agreement or the Rexnord Stockholders’ Agreement.

 

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“ 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.

 

“ Tag-Along Transaction ” means a transaction involving a Transfer by Apollo of more than 10% of the Restricted Shares held by Apollo as of the Closing Date to a Person who is not an Affiliate of Apollo in which each Cypress Holder may elect in his or its discretion to participate in accordance with Section 3(b) ; provided , however , that a “Tag-Along Transaction” shall not include, and none of the rights of the Cypress Holders set forth in Section 3(b)  shall be triggered by, a Transfer by Apollo to any limited partnership or other Person which has directly or indirectly invested in, or otherwise has ownership, equity or profits interests in, Fund VI or one of its Affiliated investment funds, as part of a distribution to such Person; provided , however , that such distribution is made on a pro rata basis to all such Persons.

 

“ Transaction Documents ” has the meaning set forth in the Agreement and Plan of Merger.

 

“ Transfer ” means any direct or indirect transfer, assignment, sale, gift, pledge, hypothecation, encumbrance or other disposition, or any interest therein whatsoever, or any other transfer of beneficial ownership, whether voluntary or involuntary, including (a) as a part of any liquidation of assets or (b) as a part of any reorganization pursuant to the United States or other bankruptcy law or other similar debtor relief laws, but excluding any transfer of Equity Securities of the Company by employees of the Company or its Subsidiaries upon a termination of employment.

 

“ Transferee ” means any Person acquiring or intending to acquire Equity Securities through a Transfer.

 

“ Underwritten Offering ” means a sale of Equity Securities to an underwriter for reoffering to the public.

 

“ Vested Options ” has the meaning set forth in Section 6(a) .

 

Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Agreement and Plan of Merger.

 

Section 2.                                           Restriction on Transfers .

 

(a)                                   Except as otherwise set forth below, the Cypress Holders shall not at any time Transfer any Equity Securities.  Any purported Transfer in violation of the provisions of this Section 2 shall be null and void and shall have no force or effect.

 

(b)                                  The restrictions contained in this Section 2 shall not apply with respect to any Transfer of Equity Securities (i) to the Company, Apollo or any of their respective Affiliates (which term, for purposes of this Section 2(b) , shall not include any other Stockholder or such other Affiliates of such Stockholder other than the Company and Apollo), (ii) pursuant to

 

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applicable laws of descent or to such Stockholder’s executors, administrators, testamentary legatees and beneficiaries upon such Stockholder’s death or to any member of a Cypress Holder’s Family Group, (iii) to any member of CIH upon dissolution of CIH or (iv) to any limited liability company, limited partnership, corporation or other entity formed by Sherman or a member of Sherman’s Family Group and that is controlled by Sherman or Sherman and members of Sherman’s Family Group (for purposes of this definition, “control” being defined as the ownership of more than 50% of both the voting and economic interests of such entity) for the primary purpose of holding Sherman’s Restricted Shares, other equity interests in the Company and other equity interests of Sherman and Sherman’s Family Group.

 

(c)                                   Each Cypress Holder agrees that, as a condition precedent to any Transfer permitted under Section 2(b) , each Transferee of such Equity Securities shall have executed a joinder agreement (“ Joinder ”) substantially in the form of Exhibit B attached hereto, pursuant to which such Transferee agrees to become party hereto, a Cypress Holder and have his, her or its Equity Securities subject to, the terms of this Agreement.  Any failure by a Cypress Holder to obtain a Joinder from the Transferee as required under this Section 2(c)  shall render such Transfer null and void; provided that, in the case of a Transfer upon a Stockholder’s death or Disability, (i) the Transferee shall be deemed to have executed, and shall be deemed to be bound by, a Joinder as of the date of such Stockholder’s death or Disability and (ii) the Transferee shall be given a reasonable period of time (not to exceed 90 days from the date of such Stockholder’s death or Disability) to execute such Joinder.

 

(d)                                  This Section 2 shall not apply to an Approved Sale under Section 3(a) , a Transfer permitted under Section 3(b)  or a Transfer under Section 4 .

 

Section 3.                                           Approved Sale; Tag Along Transaction .

 

(a)                                   Approved Sale; Sale of the Company .

 

(i)                                      At any time prior to the consummation of a Qualified Public Offering that Apollo proposes a Material Transfer of its Restricted Shares, Apollo shall be entitled to deliver notice (an “ Approved Sale Notice ”) to the Company and the Cypress Holders that Apollo requires the Cypress Holders to Transfer an amount of their Restricted Shares that is equal to the portion of Apollo’s Restricted Shares that Apollo proposes to Transfer in the Material Transfer (an “ Approved Sale ”); provided , however , that if the proposed Transferee desires to purchase an amount of Restricted Shares that is less than the aggregate amount of Restricted Shares of Apollo and the Cypress Holders that would otherwise be Transferred in the Approved Sale, then Apollo may elect to cancel such Approved Sale, or Apollo and the Cypress Holders shall sell in the Approved Sale only that number of Restricted Shares equal to the product of (x) the total number of Restricted Shares such proposed Transferee desires to purchase and (y) such Cypress Holder’s Proportionate Percentage; and provided , further , that any such Approved Sale Notice shall include the name of the parties to the proposed Approved Sale, a summary of the material terms and conditions of the proposed Approved Sale, and the proposed amount and form of consideration and the terms and conditions of payment contemplated by the proposed Approved Sale.

 

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(ii)                                   Upon receipt of an Approved Sale Notice, each Cypress Holder and the Company shall consent to and raise no objections against the Approved Sale, and if the Approved Sale is lawful and is structured as (A) a merger or consolidation of the Company or any of its Subsidiaries, or a sale of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole, each Cypress Holder shall, and hereby does, waive any dissenter’s rights, appraisal rights or similar rights in connection with such merger or consolidation or sale of all or substantially all of the assets and hereby instructs the Board to vote in favor of such Approved Sale and to submit, if required by law, to a vote of the Stockholders of the Company or request a written consent as promptly as possible, and hereby agrees to vote in favor of such Approved Sale at any annual or special meeting of the Stockholders of the Company or to execute a written consent approving such Approved Sale, or (B) a sale of Restricted Shares, each Cypress Holder shall, and hereby does agree to, sell his or its Proportionate Percentage of his or its Restricted Shares on the terms and conditions approved by Apollo; provided , in the case of each of the foregoing clause (A) and (B), that the terms and conditions upon which each Cypress Holder’s Restricted Shares are sold are the same terms and conditions that apply to Apollo.

 

(iii)                                All Cypress Holders and the Company shall take all necessary and desirable actions in connection with the consummation of the Approved Sale, including the execution of such agreements and such instruments and other actions reasonably necessary to (1) provide the representations, warranties, indemnities, covenants, conditions, escrow agreements and other provisions and agreements relating to such Approved Sale; provided , however , that the Cypress Holders shall not be required to provide any representations, warranties, indemnities, covenants, conditions, escrow agreements or other provisions or agreements which are different from those made by Apollo in connection with such Approved Sale and (2) effectuate the allocation and distribution of the aggregate consideration upon the consummation of the Approved Sale.  At the closing of the sale of any Restricted Shares pursuant to this Section 3(a) , each Cypress Holder shall deliver at such closing, against payment of the purchase price therefor, certificates representing their Restricted Shares to be sold, duly endorsed for Transfer or accompanied by duly endorsed stock powers, evidence of good title to the Restricted Shares to be sold, the absence of liens, encumbrances and adverse claims with respect thereto and such other documents as are deemed reasonably necessary by the Company for the proper Transfer of such Restricted Shares on the books of the Company.

 

(iv)                               Apollo shall deliver any Approved Sale Notice to the Company and the Cypress Holders at least ten (10) days prior to the consummation of the Approved Sale.

 

(v)                                  If any Stockholders are given an option as to the form and amount of consideration to be received in an Approved Sale, all Stockholders shall be given the same option.

 

(vi)                               No Cypress Holder shall be obligated to pay more than his or its Proportionate Percentage of reasonable expenses incurred in connection with a consummated Approved Sale to the extent such expenses are incurred for the benefit of

 

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all Stockholders and are not otherwise paid by the Company or the acquiring party (it being agreed that expenses incurred by or on behalf of Apollo or a Cypress Holder for his or its sole benefit shall not be considered expenses incurred for the benefit of all Stockholders).

 

(vii)                            No Stockholder shall be required to make any representations or warranties that are joint and several or that pertain to matters other than title to Securities held by such Stockholder, such Stockholder’s capacity, authority or power to consummate the transaction in question, conflicts with laws, conflicts with contracts, organizational documents and Orders applicable to such Stockholder, broker and similar fees payable by such Stockholder, other representations and warranties customary for the type of transaction being consummated and representations and warranties with respect to any other matters particular to such Stockholder.

 

(viii)                         Any indemnification obligations for breaches of representations, warranties and covenants made by the Company and its Subsidiaries (but not by or on behalf of any Stockholder individually) shall be shared pro rata among the Stockholders (based on such Stockholder’s Proportionate Percentage) based on the aggregate consideration payable with respect to the Restricted Shares, and in no event shall a Stockholder be required to incur indemnification or contribution obligations with respect to such breaches that are joint and several or exceed the aggregate consideration payable with respect to such Stockholder’s Restricted Shares Transferred in the Approved Sale.

 

(ix)                                 Each Cypress Holder and the Company hereby grants an irrevocable proxy and power of attorney which, it is agreed, is coupled with an interest, to any nominee of Apollo (the “ Apollo Nominee ”) to take all necessary actions and execute and deliver all documents deemed necessary and appropriate by such Person to effectuate the consummation of any Approved Sale.  To the extent a Cypress Holder fails to comply with the provisions of this Section 3(a) , such Cypress Holder hereby indemnifies, defends and holds the Apollo Nominee harmless (severally in accordance with his or its pro rata share of the consideration received in any such Approved Sale (and not jointly and severally)) against all liability, loss or damage, together with all reasonable costs and expenses (including reasonable legal fees and expenses), relating to or arising from its exercise of the proxy and power of attorney granted hereby.

 

(x)                                    The Cypress Holders shall not be required to comply with, and shall have no obligations under, Section 2 in connection with any Approved Sale.

 

(b)                                  Tag-Along Transaction .

 

(i)                                      Subject to the provisions of Section 3(a)  above, prior to the consummation of a Qualified Public Offering, if Apollo desires to effect a Tag-Along Transaction, Apollo shall give written notice to the Cypress Holders offering such Cypress Holders the option to participate in such Tag-Along Transaction (a “ Sale Notice ”) on the terms and conditions set forth in the Sale Notice (and, in any event, on the same terms and conditions as Apollo).  The Sale Notice shall include the name of the parties to the proposed Tag-Along Transaction, a summary of the material terms and

 

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conditions of the proposed Tag-Along Transaction, and the proposed amount and form of consideration and the terms and conditions of payment contemplated by the proposed Tag-Along Transaction.  Each Cypress Holder may, by written notice to Apollo delivered within ten (10) days of the date of the Sale Notice, elect to sell in such Tag-Along Transaction, on the terms and conditions approved by Apollo (which terms and conditions shall be the same as those on which Apollo’s Restricted Shares are sold and shall be consistent with the terms and conditions set forth in the Sale Notice); provided , however , that if the proposed Transferee desires to purchase an amount of Restricted Shares that is less than the aggregate amount of Restricted Shares proposed to be Transferred by Apollo and the Cypress Holders in the Tag-Along Transaction, then Apollo may elect to cancel such Tag-Along Transaction, or Apollo and the Cypress Holders shall be permitted to sell only that number of Restricted Shares equal to the product of (x) the total number of Restricted Shares subject to the proposed Tag-Along Transaction and (y) such Stockholder’s Proportionate Percentage.  No Transfer permitted under this Section 3(b)  shall be subject to the requirements of Section 2 .

 

(ii)                                   Upon the closing of the sale of any Restricted Shares pursuant to paragraph (b)(i) above, each Cypress Holder shall deliver at such closing, against payment of the purchase price therefor, certificates representing his or its Restricted Shares to be sold, duly endorsed for Transfer or accompanied by duly endorsed stock powers, evidence of good title to the Restricted Shares to be sold, the absence of liens, encumbrances and adverse claims with respect thereto and such other documents as are deemed reasonably necessary by the Company for the proper Transfer of such Restricted Shares on the books of the Company.

 

Section 4.                                           Repurchase Right .

 

(a)                                   Unless otherwise provided in the Consulting Agreement, in the event of the termination of the Consulting Agreement (i) by the Company or any of its Subsidiaries as a result of the failure of Sherman substantially to satisfy reasonable performance standards (after taking into account macroeconomic factors affecting the Company and its Subsidiaries) but not under circumstances constituting Cause, (ii) by Sherman without Good Reason or (iii) on account of the death or Disability of Sherman (each, a “ Repurchase Event ”), the Company shall have the right, but not the obligation, to repurchase all or any portion of the Equity Securities held by each Cypress Holder (including any Equity Securities received upon a distribution from any deferred compensation plan or other Equity Incentive Plan or any Equity Securities issuable upon exercise of any option, warrant or similar equity-linked Security of the Company held by each Cypress Holder) in accordance with this Section 4 (the “ Repurchase Right ”).  Any repurchase described in the immediately preceding sentence shall be for fair market value (as determined in accordance with Section 4(e) ), but subject to Section 4(b) .  The Company may exercise the Repurchase Right by written notice (a “ Repurchase Notice ”) to the Cypress Holders within six months after the Repurchase Event; provided , however , that with respect to Equity Securities acquired by any Cypress Holder after such Repurchase Event (whether by exercise of any option, warrant or similar equity-linked Security of the Company, distribution of shares from any deferred compensation plan or otherwise), the Company may exercise the Repurchase Right by delivering a Repurchase Notice to such Cypress Holder within six months after the acquisition of such Equity Securities by such Cypress Holder (each date on which any such

 

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repurchase is executed with respect to the subject Equity Securities, the “ Repurchase Date ”).  The determination date for purposes of determining the fair market value shall be the Repurchase Date applicable to the subject Equity Securities.  Subject to Section 7 below, the Repurchase Date with respect to any repurchase of Equity Securities pursuant to the exercise of the Repurchase Right shall take place on the later of (i) the date specified by the Company, which shall in no event be later than thirty (30) days following the date of the Repurchase Notice and (ii) within ten (10) days following the receipt by the Company of all necessary government approvals.

 

(b)                                  Notwithstanding anything contained herein to the contrary, unless otherwise provided in the Consulting Agreement, in the event the Consulting Agreement is terminated by the Company or any of its Subsidiaries for Cause, then the Company may exercise the Repurchase Right by delivering a Repurchase Notice to the Cypress Holders within the time periods set forth in Section 4(a)  above at a price equal to the lesser of (i) in the case of Common Stock, $           per share of Common Stock, subject to adjustment by the Company to reflect any stock split, recapitalization or similar adjustment to the Common Stock (or, for shares of Common Stock acquired after the Closing Date and not upon exercise of a Rollover Option, the original acquisition cost to the applicable Cypress Holder of such shares of Common Stock) and (b) the fair market value of such Equity Securities.  The determination date for purposes of determining the fair market value shall be the closing date of the purchase of the applicable Equity Securities.

 

(c)                                   The Company shall give prompt written notice to Apollo stating whether the Company will exercise the Repurchase Rights pursuant to Section 4(a)  or Section 4(b)  above.  If such notice states that the Company will not exercise such Repurchase Rights for all or any portion of the applicable Equity Securities subject thereto, Apollo (or its designee) shall have the right (exercisable by delivery of written notice to such Cypress Holder on or before the later of (i) the 30 ^th day following the receipt of such notice or (ii) six months after the Repurchase Event) to purchase any such Equity Securities not purchased by the Company on the same terms and conditions as the Company set forth in Section 4(a)  or Section 4(b) .

 

(d)                                  The Repurchase Date shall take place on a date designated by the Company or Apollo, as applicable, in accordance with Section 4(a)  or Section 4(c) , respectively; provided , however , that the Repurchase Date may be deferred to a date designated by the Company or Apollo, as applicable, or, to the extent required to avoid liability under applicable securities laws, the Cypress Holder, as applicable, until such time as the subject Cypress Holder has held the Equity Securities for a period of at least six months and one day.  The purchase price shall be paid on the Repurchase Date in the form of a check, wire transfer of immediately available funds or by cancellation of money purchase indebtedness of such Cypress Holder, as determined in the sole discretion of the Company or Apollo, as applicable.  The Company or Apollo, as applicable, may effect such repurchase of Equity Securities and the Company shall record such Transfer on its books whether or not such Cypress Holder attends such closing or delivers certificates representing such Equity Securities to the Company.  Each Cypress Holder hereby grants an irrevocable proxy and power of attorney which, it is agreed, is coupled with an interest to any nominee of the Company or Apollo, as applicable, to take all necessary actions and execute and deliver all documents deemed necessary and appropriate by such nominee to effect such purchase of Equity Securities.  Any Cypress Holder (with respect to Sherman, either

 

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on behalf of himself or on behalf of CIH) who fails to take all necessary actions and execute and deliver all documents necessary and appropriate to fulfill his or its obligations under this Section 4 shall indemnify, defend and hold such nominee harmless against all liability, loss or damage, together with all reasonable costs and expenses (including reasonable legal fees and expenses), relating to or arising from such nominee’s exercise of the proxy and power of attorney granted hereby.  In addition, each Cypress Holder shall immediately lose all rights each may have under Section 9 of this Agreement in the event of any such purchase.

 

(e)                                   For purposes of this Section 4 , Section 5 , Section 6 and Section 7 , the “fair market value” of any Equity Securities shall be determined as follows:

 

(i)                                      if the Equity Securities are listed on one or more National Securities Exchanges (within the meaning of the Exchange Act), each share shall be valued at the average closing price per share on the principal exchange on which such shares are then trading for the 10 trading days immediately preceding the date of determination;

 

(ii)                                   if the Equity Securities are not traded on a National Securities Exchange but are quoted on the NASDAQ Stock Market or a successor quotation system and the shares are listed as a National Market issue under the National Market System, each share shall be valued at the average of the last sales price per share for the 10 trading days immediately preceding the date of determination as reported by the NASDAQ Stock Market or any such successor quotation system; or

 

(iii)                                if the Equity Securities are not listed on a National Securities Exchange and are not traded on the NASDAQ Stock Market and listed as a National Market issue under the National Market System, the fair market value shall be determined by the Board in good faith based on its good faith determination of the fair market value of the Company and its subsidiaries as a whole without regard to the percentage of shares represented by the shares subject to such determination or any minority discount or control premium.

 

Notwithstanding the foregoing, if a Person whose Equity Securities are being valued hereunder pursuant to clause (iii) above disagrees with the valuation determined by the Board, such Person may elect to choose within five Business Days of being advised of the determination of the Board to have the fair market value determined by and independent appraiser, the selection of which shall be subject to the mutual agreement of the Company and such Person.  The fees and expenses of any such independent appraiser shall be borne equally by the Company and the Person whose Equity Securities are being valued hereunder and the determination by the independent appraiser selected in accordance with this Section 4(e)  shall be final and binding.

 

Section 5.                                           Involuntary Transfers .

 

(a)                                   In the case of any Transfer of title or beneficial ownership of Equity Securities upon default, foreclosure, forfeit, divorce, court order or otherwise, other than by a voluntary decision on the part of a Cypress Holder (each, an “ Involuntary Transfer ”), the

 

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Cypress Holder shall promptly (but in no event later than two days after the Involuntary Transfer) furnish written notice (the “ Involuntary Transfer Notice ”) to the Company indicating that the Involuntary Transfer has occurred, specifying the name of the Person to whom the Equity Securities were transferred (the “ Involuntary Transferee ”), giving a detailed description of the circumstances giving rise to, and stating the legal basis for, the Involuntary Transfer.

 

(b)                                  Upon the receipt of the Involuntary Transfer Notice, and for 60 days thereafter, the Company shall have the right to repurchase, and the Involuntary Transferee shall have the obligation to sell, all (but not less than all) of the Equity Securities acquired by the Involuntary Transferee for a repurchase price equal to the “fair market value” (as determined in accordance with Section 4(e)) of such Equity Securities as of the date of the Involuntary Transfer (the “ Involuntary Transfer Repurchase Price ” and such right, the “ Involuntary Transfer Repurchase Right ”).  The Involuntary Transfer Repurchase Right shall be exercised by written notice (the “ Involuntary Transfer Repurchase Notice ”) to the Involuntary Transferee given in accordance with Section 14(k) of this Agreement on or prior to the last date on which the Involuntary Transfer Repurchase Right may be exercised by the Company.

 

(c)                                   Subject to Section 7 below, the repurchase of Equity Securities pursuant to the exercise of the Involuntary Transfer Repurchase Right shall take place on a date specified by the Company, but in no event following the later of the 60 ^th day following the date of the date of the Involuntary Transfer Repurchase Notice or the 10 ^th day following the receipt by the Company of all necessary governmental approvals.  On such date, the Involuntary Transferee shall transfer the Equity Securities subject to the Involuntary Transfer Repurchase Notice to the Company, free and clear of all liens and encumbrances, by delivering to the Company the certificates representing the Equity Securities to be purchased, duly endorsed for transfer to the Company or accompanied by a stock power duly executed in blank, and the Company shall pay to the Involuntary Transferee the Involuntary Transfer Repurchase Price.  The Involuntary Transferee and the Cypress Holder shall use all commercially reasonable efforts to assist the Company in order to expedite all proceedings described in this Section 5 .  If the Involuntary Transferee does not transfer the Equity Securities to the Company as required, the Company will cancel such Equity Securities and deposit the funds in a non-interest bearing account and make payment upon delivery.

 

Section 6.                                           Put Right .

 

(a)                                   Each Cypress Holder shall have the right (but not the obligation), subject to the terms and conditions of this Section 6 and of Section 7 , to sell in one or more transactions in connection with the termination of the Consulting Agreement (i) by the Company or one of its Subsidiaries without Cause or (ii) by the Sherman, CIH or Cypress Group for Good Reason, and the Company shall be obligated to purchase (x) all or any shares of Common Stock held by such Cypress Holder as of the termination of the Consulting Agreement (whether or not acquired upon exercise of the Option) and (y) all or any portion of the options to purchase Common Stock (including, without limitation, the Option) held by such Cypress Holder that is or becomes vested (collectively, the “ Vested Options ”), in each case at the applicable Put Price (as defined below) (the “ Put Right ”).  To exercise the Put Right, such Cypress Holder must give written notice thereof to the Company (the “ Put Notice ”).  The Put Notice is irrevocable and must (1) be in writing and signed by such Cypress Holder, (2) set forth the intent to exercise the Put Right and

 

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contain the total number of shares of Common Stock and Vested Options to be sold to the Company pursuant to the Put Right and (3) be delivered to the Company within 120 days following the termination of the Consulting Agreement.

 

(b)                                  The Company shall have no obligation to repurchase shares of Common Stock or Vested Options pursuant to the exercise of the Put Right unless the repurchase will not violate any loan covenants or other agreements imposed or required by any entity as part of the extension of financing to the Company.  If the repurchase of Common Stock or Vested Options pursuant to the Put Right is prohibited by the Company’s financing arrangements, the Company shall deliver written notice to the applicable Cypress Holder, upon or as soon as administratively practicable after the first date on which such repurchase would not violate the Company’s financing arrangements, and, in order to exercise the Put Right, the such Cypress Holder, must again deliver a Put Notice to the Company in accordance with Section 6(a) , with such Put Right to be exercised within 120 days following the receipt of such notice from the Company.  Notwithstanding anything to the contrary contained herein, no Cypress Holder shall have a Put Right if (i) the shares of Common Stock or Vested Options are subject to any lien, encumbrance, pledge, or other interest of any third party or have been transferred in violation of applicable law, or the restrictions on transfer contemplated by this Agreement or (ii) the repurchase would violate applicable laws, regulations or exchange listing rules restricting corporate distributions to stockholders.

 

(c)                                   The price to be paid by the Company upon settlement of the Put Right shall equal (i) with respect to shares of Common Stock, the fair market value (as determined in accordance with Section 4(e) ) of a share of Common Stock as of the date of the closing of the repurchase, and (ii) with respect to Vested Options, the fair market value (as determined in accordance with Section 4(e) ) of the shares of Common Stock issuable upon exercise of the Vested Options as determined under this Agreement as of the date of the closing of the repurchase, less the aggregate exercise price of such Vested Options (the price under clause (i) or (ii) above, as applicable, is referred to herein as the “ Put Price ”).

 

(d)                                  The closing of any repurchase under this Section 6 shall be at a date to be specified by the Company, such date to be no later than 30 days after the date of the applicable Put Notice.  The Put Price shall be paid at the closing in the form of a check, wire transfer of immediately available funds or by cancellation of money purchase indebtedness of the applicable Cypress Holder against surrender by such Cypress Holder of a stock certificate evidencing the shares of Common Stock with duly endorsed stock powers, or such other instrument of transfer or cancellation of such shares and Vested Options as may be reasonably requested by the Company.

 

(e)                                   The Put Right shall terminate to the extent that it is not exercised prior to a Qualified Public Offering.

 

Section 7.                                           Repurchase Disability .

 

(a)                                   Notwithstanding anything to the contrary herein, except as otherwise provided by Section 7(c) , the Company shall not be permitted to purchase any Equity Securities held by any Cypress Holder or Involuntary Transferee upon exercise of the Repurchase Right,

 

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the Involuntary Transfer Repurchase Right or the Put Right (as applicable) if the Board reasonably determines that:

 

(i)                                      the purchase of Equity Securities would render the Company or its Subsidiaries unable t