Document:

Exhibit 10.1

 

EXECUTION COPY

 

INVESTMENT
AGREEMENT

 

by and
between

 

GRIFFON
CORPORATION

 

and

 

GS
DIRECT, L.L.C.

 

Dated as
of August 7, 2008

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  THE RIGHTS OFFERING AND BACKSTOP
  COMMITMENT

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1.

  	
  The Rights Offering

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.2.

  	
  Backstop Commitment

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  ADDITIONAL PURCHASE COMMITMENT

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.1.

  	
  Additional Purchase Commitment

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 2.2.

  	
  Preferred Stock

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  REPRESENTATIONS AND WARRANTIES
  OF THE COMPANY

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 3.1.

  	
  Organization

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 3.2.

  	
  Authorization

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 3.3.

  	
  Capitalization

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 3.4.

  	
  Valid Issuance of Shares

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 3.5.

  	
  Non-Contravention; Governmental Authorizations

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 3.6.

  	
  Litigation

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 3.7.

  	
  Compliance with Laws; Permits

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 3.8.

  	
  Periodic Filings; Financial Statements; Undisclosed
  Liabilities

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 3.9.

  	
  Absence of Certain Changes

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 3.10.

  	
  Brokers and Finders

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 3.11.

  	
  Contracts

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 3.12.

  	
  Employee Benefits

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 3.13.

  	
  No Further Reliance

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  REPRESENTATIONS AND WARRANTIES
  OF INVESTOR

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 4.1.

  	
  Organization and Authority

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 4.2.

  	
  Authorization

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 4.3.

  	
  Non-Contravention; Governmental Authorization

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 4.4.

  	
  Securities Act Compliance

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 4.5.

  	
  Ownership

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 4.6.

  	
  Financial Capability

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 4.7.

  	
  Brokers and Finders

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 4.8.

  	
  No Further Reliance

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  CONDITIONS TO CLOSING

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 5.1.

  	
  Conditions to the Obligations of the Company and the
  Investor

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 5.2.

  	
  Conditions to the Obligations of the Company

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 5.3.

  	
  Conditions to the Obligations of the Investor

  	
  14

  
				

 

i

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  COVENANTS

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 6.1.

  	
  Conduct of the Business

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 6.2.

  	
  Securities to be Issued

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 6.3.

  	
  Efforts

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 6.4.

  	
  Non-Solicitation

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 6.5.

  	
  Publicity

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 6.6.

  	
  Preferred Stock

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 6.7.

  	
  Exercise of Rights

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 6.8.

  	
  Control of the Investor

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 6.9.

  	
  Share Listing

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 6.10.

  	
  Access

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 6.11.

  	
  Executive Agreements and Plans

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 6.12.

  	
  Termination of Confidentiality Agreement;
  Confidentiality

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 6.13.

  	
  Right to Use Names and Logos

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 6.14.

  	
  Non-Compete Contracts

  	
  22

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  GOVERNANCE AND OTHER RIGHTS

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 7.1.

  	
  Initial Investor Nominees

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 7.2.

  	
  Governance Matters

  	
  23

  
	
   

  	
   

  	
   

  
	
  Section 7.3.

  	
  Procedural Matters

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 7.4.

  	
  Standstill; Transferability

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 7.5.

  	
  Notice Rights

  	
  28

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  	
  TERMINATION

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 8.1.

  	
  Termination

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 8.2.

  	
  Effects of Termination

  	
  30

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  MISCELLANEOUS

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 9.1.

  	
  Interpretation; Certain
  Definitions

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 9.2.

  	
  Survival

  	
  37

  
				

 

ii

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 9.3.

  	
  Indemnification

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 9.4.

  	
  Legends

  	
  39

  
	
   

  	
   

  	
   

  
	
  Section 9.5.

  	
  Notices

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 9.6.

  	
  Further Assurances

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 9.7.

  	
  Amendments and Waivers

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 9.8.

  	
  Fees and Expenses

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 9.9.

  	
  Successors and Assigns

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 9.10.

  	
  Governing Law

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 9.11.

  	
  Jurisdiction

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 9.12.

  	
  Waiver Of Jury Trial

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 9.13.

  	
  Entire Agreement

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 9.14.

  	
  Effect of Headings and Table of Contents

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 9.15.

  	
  Severability

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 9.16.

  	
  Counterparts; No Third Party Beneficiaries

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 9.17

  	
  Specific Performance

  	
  43

  
				

 

Annexes

 

Annex I – Certificate of Designation

Annex II – Registration Rights Agreement

Annex III – Press Release

Annex IV – Finance Committee Charter

 

iii

 

INVESTMENT AGREEMENT dated as of
August 7, 2008 (this “Agreement”)
between Griffon Corporation, a Delaware corporation (the “Company”), and GS Direct, L.L.C., a
Delaware limited liability company (the “Investor”).

 

BACKGROUND

 

WHEREAS, the Company has
proposed to offer and sell certain shares of Common Stock (as defined below)
pursuant to a Rights Offering (as defined below), on the terms and subject to
the conditions set forth herein;

 

WHEREAS, the Company desires
that the Investor provide, and the Investor has agreed to provide a Backstop
Commitment (as defined below) to the Rights Offering, on the terms and subject
to the conditions set forth herein;

 

WHEREAS, the Company desires to offer and the
Investor has agreed to accept, the Additional Purchase Commitment (as defined
below) providing for the Investor to, in certain circumstances, subscribe for
additional shares of Common Stock, on the terms and subject to the conditions
set forth herein;

 

WHEREAS,  in connection
with its purchase of Common Stock pursuant to the Backstop Commitment and/or
the Additional Purchase Commitment, the Investor wishes to receive certain
additional rights related to its Common Stock, and the Company desires to grant
such rights on the terms and subject to the conditions set forth herein;  and

 

WHEREAS, in connection with its obligations under this Agreement, the
Company will in certain circumstances sell to the Investor in the Backstop
Commitment and/or Additional Purchase Commitment, in lieu of Common Stock,
certain shares of Preferred Stock (as defined below) on the terms set forth
herein and in the Certificate of Designation (as defined below);

 

NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained in this Agreement, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
hereby agree as follows:

 

ARTICLE I

 

THE
RIGHTS OFFERING AND BACKSTOP COMMITMENT

 

Section 1.1.           The Rights Offering.

 

(a)           As promptly as practicable after the
date of this Agreement, the Company shall use its reasonable best efforts to
prepare and file with the SEC a registration statement (including each
amendment and supplement thereto, the “Registration Statement”)
on Form S-3, covering the issuance of the Rights, the Common Stock in the
Rights Offering (including the Backstop Acquired Shares), the Additional
Acquired Shares, the Preferred Stock that may be issued in accordance with Section 2.2
of this Agreement and the Kramer Shares. 
The Company 

 

 

shall not permit any
securities to be included in the Registration Statement other than the Rights,
the Common Stock to be issued in the Rights Offering (including the Backstop
Acquired Shares), the Additional Acquired Shares, the Preferred Stock that may
be issued in accordance with Section 2.2 of this Agreement and the Kramer
Shares. The Registration Statement (and any post-effective amendments) shall be
provided to the Investor and its counsel prior to its filing with the SEC, and
the Investor and its counsel shall be given a reasonable opportunity to review
and comment upon the Registration Statement (and any post-effective
amendments).  The Company shall use its
reasonable best efforts to, as promptly as practicable, (i) respond to
comments to the Registration Statement raised by the staff of the SEC and (ii) cause
the Registration Statement and any post-effective amendment to be declared
effective by the SEC.

 

(b)           The Investor shall provide to the
Company such information as it may reasonably require in connection with the
preparation and filing of the Registration Statement.  At the time such information is provided and
at the respective times the Registration Statement and any post-effective
amendments thereto become effective, no such information provided by the
Investor shall include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.

 

(c)           At the respective times the
Registration Statement and any post-effective amendments thereto become effective,
the Registration Statement (as amended or supplemented) shall comply in all
material respects with the requirements as to form of Form S-3 and the
Registration Statement and any Company SEC Documents incorporated by reference
therein shall not include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided,
that the Company shall make no such representation with respect to information
provided to it by the Investor under Section 1.1(b).  The final prospectus relating to the Rights
Offering filed pursuant to Rule 424 of the Securities Act (as amended or
supplemented, the “Prospectus”),
as of its date, shall not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, that the Company shall make no
such representation with respect to information provided to it by the Investor
under Section 1.1(b).  The previous
two sentences are referred to as the “10b-5 Representation.”

 

(d)           Promptly following the date on which
the Registration Statement is declared effective by the SEC (the “Registration Effective Date”), the Company shall print and
file with the SEC the Prospectus, distribute the Prospectus to stockholders of
record as of the Record Date and thereafter promptly commence a rights offering
on the following terms: (i) the Company shall distribute, at no charge,
one Right to each holder of record of Common Stock for each share of Common
Stock held by such holder as of the Record Date, (ii) each Right shall
entitle the holder thereof to purchase, at the election of such holder, such
number of shares of Common Stock at the Rights Subscription Price thereby
entitling such holders of rights, in the aggregate, to subscribe for an
aggregate of approximately twenty million (20,000,000) shares of Common Stock
(the actual aggregate number, the “Aggregate Offered Shares”),
provided that no fractional shares of 

 

2

 

Common Stock shall be
issued and the Rights Subscription Price multiplied by the aggregate number of
shares of Common Stock offered shall not exceed the aggregate offering amount
described in the Registration Statement, (iii) each such Right shall be
transferable, (iv) the rights offering shall remain open for at least
sixteen (16) days, but no more than twenty (20) days or such longer period as
required by Law (the “Subscription Period”),
(v) each holder who fully exercises all Rights held by him shall be
entitled to subscribe for additional shares of Common Stock that were not
subscribed for in the Rights Offering in an amount equal to up to 20% of the
shares of Common Stock for which he was otherwise entitled to subscribe
(calculated prior to the exercise of any Rights); provided
if insufficient remaining shares of unsubscribed shares of Common Stock are
available, all over-subscription requests shall be honored on a pro rata basis,
(vi) no Person may exercise the Rights to the extent the exercise thereof
would cause such Person to acquire Beneficial Ownership in excess of 14.99% of
the outstanding Voting Stock after giving effect to the consummation of the
Rights Offering and the Backstop Commitment, and (vii) any Person who is,
prior to the consummation of the Rights Offering, the Beneficial Owner of in
excess of 14.99% of the outstanding Voting Stock shall be entitled to exercise
the Rights (including any over-subscription right) only to the extent necessary
to maintain its proportionate interest in the Voting Stock of the Company prior
to the consummation of the Rights Offering and the other transactions contemplated
hereby (such rights offering, the “Rights Offering”).

 

(e)           The Company shall not amend any of
the terms of the Rights Offering described in Section 1.1(d)(i) through
(vi), terminate the Rights Offering or waive any material conditions to the
closing of the Rights Offering, without the prior written consent of the
Investor.  Subject to the terms and
conditions of the Rights Offering, the Company shall effect the closing of the
Rights Offering as promptly as practicable following the end of the Subscription
Period.  The closing of the Rights
Offering shall occur at the time, for the Rights Subscription Price and in the
manner and on the terms of the Rights Offering in Section 1.1(d), as shall
be set forth in the Prospectus.

 

(f)            The Company shall pay all of its
expenses associated with the Registration Statement, Prospectus, the Rights
Offering and the other transactions contemplated hereby, including filing and
printing fees, fees and expenses of any subscription and information agents,
its counsel and accounting fees and expenses and costs associated with clearing
the Common Stock offered thereby for sale under applicable state securities
Laws.

 

Section 1.2.           Backstop Commitment.

 

(a)           Subject to
the consummation of the Rights Offering and the terms and conditions of this
Agreement, the Investor shall purchase from the Company, and the Company shall
issue to the Investor, at a price per share equal to the Rights Subscription
Price, a number of shares of Common Stock (the “Backstop
Commitment”) equal to (x) the Aggregate Offered Shares minus (y) the
number of shares of Common Stock subscribed for and purchased pursuant to the
Rights Offering.  Within two (2) Business Days after the
closing of the Rights Offering, the Company shall issue to the Investor a
notice (the “Subscription Notice”) setting
forth the 

 

3

 

number
of shares of Common Stock subscribed for in the Rights Offering and,
accordingly, the number of shares of Common Stock (and Preferred Stock, if any)
to be acquired by the Investor pursuant to the Backstop Commitment.   Shares of Common Stock (and Preferred
Stock, if any) acquired by the Investor pursuant to the Backstop Commitment are
collectively referred to as the “Backstop Acquired Shares.”

 

(b)           On the terms
and subject to the conditions set forth in this Agreement, the closing of the
Backstop Commitment (the “Closing”) shall
occur on the later of (i) the third Business Day following the issuance by
the Company of the Subscription Notice and (ii) the date that all of the
conditions to the Closing set forth in Article V of this Agreement have
been satisfied or waived (other than those conditions that by their nature are
to be satisfied at the Closing), at 9:30 a.m. (New York City time) at the offices of Dechert
LLP, 1095 Avenue of the Americas, New York, New York 10036 or such other place,
time and date as shall be agreed between the Company and the Investor (the date
on which the Closing occurs, the “Closing Date”).

 

(c)           At the
Closing (i) the Company shall deliver to the Investor the certificates
representing the Backstop Acquired Shares against payment by or on behalf of
the Investor of the purchase price therefor by wire transfer in immediately
available funds to the account designated by the Company in writing, (ii) the
Company shall deliver all other documents and certificates required to be
delivered to the Investor pursuant to Section 5.3, and (iii) the
Investor shall deliver all documents and certificates required to be delivered
to the Company pursuant to Section 5.2.

 

ARTICLE II

 

ADDITIONAL
PURCHASE COMMITMENT

 

Section 2.1.           Additional Purchase Commitment.

 

(a)           Subject to the consummation of the Rights Offering and the terms
and conditions of this Agreement, in the event that the Investor acquires less
than ten million (10,000,000) shares of Common Stock pursuant to the Backstop
Commitment (calculated including the Common Stock into which any Preferred
Stock received in the Backstop Commitment pursuant to Section 2.2 is convertible)
(such number of shares less than ten million (10,000,000), the “Shortfall Amount”) the Investor shall purchase (the “Additional Purchase Commitment”) from the Company an
additional number of shares of Common Stock, equal to the Shortfall Amount at the
Rights Subscription Price.   In the event
a Shortfall Amount exists, the Subscription Notice shall also set forth the number of shares of Common Stock (and
Preferred Stock, if any) to be acquired by the Investor pursuant to the
Additional Purchase Commitment.  Shares
of Common Stock (and Preferred Stock, if any) acquired by the Investor pursuant
to the Additional Purchase Commitment are collectively referred to as the “Additional Acquired Shares,” and together with the Backstop
Acquired Shares, the “Acquired Shares”).

 

4

 

(b)           The closing of the Additional
Purchase Commitment shall occur concurrently with the Closing on the Closing
Date at which time the Company shall deliver to the Investor certificates representing
the Additional Acquired Shares against payment by or on behalf of the Investor
of the purchase price therefor (as set forth in this Section 2.1) by wire
transfer in immediately available funds to the account designated by the
Company.

 

(c)           In
consideration for the Investor agreeing to the Additional Purchase Commitment,
the Company shall pay to the Investor at Closing a transaction fee in the
amount of eight hundred and fifty thousand dollars ($850,000) in cash (the “Transaction Fee”); it being understood and agreed that the
Company shall pay the Investor the Transaction Fee whether or not there is a
Shortfall Amount.

 

Section 2.2.           Preferred Stock.

 

(a)           Notwithstanding anything in Sections
1.2 or 2.1(a) to the contrary, in the event that in the absence of this Section 2.2,
after giving effect to the transactions contemplated by this Agreement,
immediately following the Closing the total number of shares of Voting Stock of
the Company Beneficially Owned by the Investor would entitle the Investor to
exercise in excess of the Equity Cap Percentage of the aggregate voting power
of all shares of Voting Stock, the Company agrees to issue and sell to the
Investor and the Investor agrees to purchase from the Company the applicable
Requisite Amount of Preferred Stock (at a price per share of $850.00 subject to
any Adjustments) in lieu of that number of shares of Common Stock (such number
of shares of Common Stock, the “Excess Common Stock”)
to the extent necessary to provide that following any such purchase the
Investor would not be the Beneficial Owner (calculated without giving effect to
any shares of Voting Stock issuable upon the conversion of the Preferred Stock)
of shares of Voting Stock of the Company that would entitle it to exercise in
excess of the Equity Cap Percentage of the aggregate voting power of all shares
of Voting Stock.

 

(b)           If, in order to comply with any
governmental or non-governmental regulatory requirement to which the Company is
subject, at the Closing the Investor is limited to buying fewer shares of
Common Stock than it otherwise is entitled to purchase under the Backstop
Commitment and/or the Additional Purchase Commitment as modified in each case
by Section 2.2(a), then the number of shares of Common Stock purchased
hereunder shall be reduced to the extent necessary and the number of shares of
Preferred Stock purchased by the Investor shall be increased accordingly to
permit compliance with such requirement and to permit the Investor to acquire
the level of Beneficial Ownership in the Company that it would have acquired
but for such reduction in Common Stock purchased.  If, as a result of such reduction pursuant to
this Section 2.2(b), the Investor is the Beneficial Owner (calculated
without giving effect to any shares of Voting Stock issuable upon the
conversion of the Preferred Stock) of shares of Voting Stock of the Company
that would entitle it to exercise less than the Equity Cap Percentage of the
aggregate voting power of all shares of Voting Stock, then the Company shall
use its reasonable best efforts, including seeking stockholder approval, to
permit the Investor to acquire Beneficial Ownership (calculated without giving
effect to any shares of Voting Stock issuable upon the conversion of the
Preferred Stock), through the conversion of all 

 

5

 

or a portion of the
Preferred Shares, of shares of Voting Stock of the Company that would entitle
it to exercise the Equity Cap Percentage of the aggregate voting power of all
shares of Voting Stock.

 

ARTICLE III

 

REPRESENTATIONS
AND WARRANTIES OF THE COMPANY

 

Except as Previously Disclosed, the Company represents
and warrants to the Investor that:

 

Section 3.1.            Organization.  The Company and each of
its Significant Subsidiaries is duly incorporated and validly existing as a
corporation or other entity in good standing under the Laws of its jurisdiction
of organization and has all corporate power and authority to own its property
and assets and conduct its business in all material respects as currently
conducted, and, except as would not, individually or in the aggregate, have or
reasonably be expected to have a Material Adverse Effect, is duly qualified as
a foreign corporation for the transaction of business and is in good standing under
the Laws of each other jurisdiction in which it owns or leases properties, or
conducts any business so as to require such qualification.

 

Section 3.2.           Authorization.

 

(a)           The Company has all corporate power
and authority to execute and deliver this Agreement and each Ancillary
Agreement to which it is a party and to perform its obligations hereunder and
thereunder.  The execution, delivery and
performance by the Company of this Agreement and each Ancillary Agreement to
which it is a party and the consummation of the transaction contemplated hereby
and thereby have been (or will be when delivered) duly authorized by all
necessary corporate action on the part of the Company, and no further approval
or authorization is required on the part of the Company.  This Agreement and each Ancillary Agreement
to which it is a party constitutes (or will constitute when delivered) the
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization or other similar Laws
affecting creditors’ rights generally and by general equitable principles and
except as may be limited by applicable Law and public policy.  Except as contemplated by Section 2.2(b),
no vote or consent of stockholders of the Company is required in connection
with any of the transactions contemplated by this Agreement under the Company’s
certificate of incorporation, the DGCL or, to the Company’s knowledge, otherwise.

 

(b)           The Board has taken all necessary
action to approve the Investor becoming an “interested stockholder,” such that
the Investor shall not be prohibited or restricted from entering into or
consummating a “business combination” with the Company (in each case as the
term is used in Section 203 of the DGCL) without obtaining any stockholder
vote otherwise required by such Section 203 of the DGCL as a result of the
Backstop Commitment and Additional Purchase Commitment.  The execution, delivery and performance of
this Agreement will not cause to be applicable to the Company any “fair price,”
“moratorium,” 

 

6

 

“control share
acquisition” or other similar anti-takeover statute or regulation enacted under
the DGCL, or, to the Company’s knowledge, any other Law.

 

Section 3.3.           Capitalization.

 

(a)           As of the date hereof, (i) the
Company is authorized to issue up to 85,000,000 shares of Common Stock and has
30,239,433 shares of Common Stock (which excludes 481,627 shares of unvested
restricted stock) outstanding and (ii) the Company is authorized to issue
up to 3,000,000 shares of preferred stock that may be issued in one or more
series, thirty-seven thousand (37,000) shares of which have been designated as “Series A
Preferred Stock,” sixty thousand (60,000) shares of which have been designated
as “Series A Junior Participating Preferred Stock”, one million nine
hundred fifty thousand (1,950,000) shares of which have been designated as “Second
Preferred Stock” of which one million nine hundred fifty thousand (1,950,000)
shares have been designated as “Second Preferred Stock- Series 1”, and
five hundred and seventy-five thousand (575,000) shares of which have been
designated as $12.50 Cumulative Redeemable Exchangeable Preferred Stock and no
shares of preferred stock are outstanding. 
As of the date hereof there are outstanding options to purchase an
aggregate of not more than 2,187,099 shares of Common Stock, all of which
options are outstanding under the Stock Plans as well as the Instrument Systems
Corporation 1992 Non-Qualified Stock Option Plan and the Griffon Corporation
2006 Equity Incentive Plan, as amended. 
The authorized and outstanding Common Stock shall be set forth in the
Registration Statement, which shall be true and correct as of the dates noted
therein and as of the Closing, except with respect to any Common Stock issued
pursuant to employee or director stock option or incentive compensation or
similar plans outstanding as of the date hereof.   All of the outstanding shares of Capital
Stock have been duly and validly authorized and issued and are fully paid and
non-assessable and were not issued in violation of any pre-emptive rights,
resale rights, rights of first refusal or similar rights.

 

(b)           Schedule 3.3(b) sets forth a
complete and correct list of all of the Company’s Significant
Subsidiaries.  Except as set forth on
Schedule 3.3(b), all of the outstanding shares of capital stock of each of the
Company’s Significant Subsidiaries has been duly and validly authorized and
issued, are fully paid and non-assessable, were not issued in violation of any
pre-emptive rights, resale rights, rights of first refusal or similar rights,
and are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims. 
Except as set forth on Schedule 3.3(b), the Company does not
Beneficially Own, directly or indirectly, any material equity interests of any
Person that is not a Subsidiary, and is not, directly or indirectly, a partner
in any partnership or party to any joint venture.

 

Section 3.4.            Valid
Issuance of Shares.  The Acquired Shares will be, as of the
date or dates of their issuance, duly authorized by all necessary corporate
action on the part of the Company and, when issued and delivered by the Company
against payment therefor as provided in this Agreement, (a) will be
validly issued, fully paid and nonassessable, (b) will not be subject to
any statutory or contractual preemptive rights or other similar rights of
stockholders and 

 

7

 

(c) with respect to
any shares of Preferred Stock included in the Acquired Shares shall have the
rights set forth in the Certificate of Designation.

 

Section 3.5.           Non-Contravention; Governmental Authorizations.

 

(a)           The execution, delivery and
performance by the Company of this Agreement and the Ancillary Agreements and
the consummation of the transactions contemplated hereunder and thereunder will
not: (1) conflict with or violate any provision of the Company’s
certificate of incorporation (including Article Twelfth thereof) or
amended by-laws of the Company; or (2) assuming compliance with the
statutes and regulations referred to in Section 3.5(b) and assuming
the truth and accuracy of the Investor’s representations in Section 4.5
and the Certified Ownership Percentage, (i) conflict with or result in any
breach of, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give rise to any right to
termination, acceleration or cancellation under any Contract to which the
Company or any of its Subsidiaries is a party or by which their respective
properties may be bound or affected; or (ii) conflict with or violate any
Law applicable to the Company, except, in the case of clauses (2)(i) and
2(ii), as would not, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect.

 

(b)           Each approval, consent, order, authorization, designation, declaration
or filing by or with any Governmental Entity necessary in connection with the
execution and delivery by the Company of this Agreement and the consummation of
the transactions contemplated herein (except for (1) such additional steps
as may be required by the New York Stock Exchange (the “NYSE”) or such additional steps as may be
necessary to qualify the Acquired Shares under federal securities, state
securities or blue sky Laws and (2) receipt of all approvals and
authorizations of, filings with, and notifications to, or expiration or
termination of any applicable waiting period under, the HSR Act or competition
or merger control laws of Germany, Austria, and Brazil, or competition or merger control laws of other jurisdictions) has been obtained or made
and is in full force and effect except as would not, individually or in the
aggregate, have or reasonably
be expected to have a Material Adverse Effect.

 

Section 3.6.            Litigation.  There are no actions, suits or proceedings
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries, except actions, suits or proceedings which would not,
individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.  Neither the Company nor any of its
Subsidiaries is in violation of any order, statute, rule or regulation of
any Governmental Entity, except as would not, individually or in the aggregate,
have or reasonably be expected
to have a Material Adverse Effect.

 

Section 3.7.           Compliance with Laws; Permits.

 

(a)           The Company and each of its
Subsidiaries conduct their businesses in compliance with all applicable Laws
and applicable stock exchange requirements, except for any noncompliance that would not, individually or in the aggregate,
have or reasonably be expected
to have a Material Adverse Effect.

 

8

 

(b)           The Company and its Subsidiaries have
all permits, licenses, authorizations, orders and approvals of, and have made
all filings, applications and registrations with, any Governmental Entities
that are required in order to carry on their business as presently conducted,
except where the failure to have such permits, licenses, authorizations, orders
and approvals or the failure to make such filings, applications and
registrations would not, individually or in the aggregate, have or reasonably
be expected to have a Material Adverse Effect; and all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect
and, to the knowledge of the Company, no suspension or cancellation of any of
them is threatened, and all such filings, applications and registrations are
current, except where such absence, suspension or cancellation would not,
individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect.

 

(c)           Neither the Company nor any of its
Subsidiaries, or, to the knowledge of the Company, any other Persons acting on
their behalf has, in connection with the operation of their respective
businesses, (i) used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials, candidates
or members of political parties or organizations, or established or maintained
any unlawful or unrecorded funds in violation of Section 104 of the
Foreign Corrupt Practices Act of 1977, as amended, or any other similar
applicable Law, (ii) paid, accepted or received any unlawful contributions,
payments, expenditures or gifts or (iii) violated or operated in
noncompliance with any export restrictions, anti-boycott regulations or embargo
regulations.

 

Section 3.8.           Periodic Filings; Financial Statements; Undisclosed Liabilities.

 

(a)    
Since June 30, 2006, the Company has timely filed all material reports,
registrations, documents, filings, statements and submissions, together with
any required amendments thereto (collectively the “Company SEC
Documents”), that were required to be filed with the SEC under the
Securities Act of 1933, as amended, and the rules and regulations of the
SEC promulgated thereunder (the “Securities Act”)
and the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC promulgated thereunder (the “Exchange Act”).
As of their respective filing dates, the Company SEC Documents complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the Company SEC Documents contained, when filed
with the SEC, and if amended, as of the date of such amendment, any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances in which they were made, not misleading, except to
the extent corrected by a subsequently filed document with the SEC.

 

(b)      
The Company’s consolidated financial statements, including the
notes thereto, included or incorporated by reference in the Company SEC
Documents (the “Company Financial Statements”)
have been prepared in accordance with GAAP consistently applied (except as may
be indicated in the notes and schedules thereto) during the periods involved
and present fairly in all material respects the Company’s consolidated
financial position at the dates 

 

9

 

thereof and of its
operations and cash flows for the periods specified therein (subject to the
absence of notes and year-end adjustments in the case of unaudited statements).

 

(c)           Neither the Company nor any of its
Subsidiaries has any liabilities or obligations (accrued, absolute, contingent
or otherwise) of a nature that would be required to be accrued or reflected in
a consolidated balance sheet prepared in accordance with GAAP, other than
liabilities or obligations (A) reflected on, reserved against, or
disclosed in the notes to, the consolidated balance sheets of the Company
Financial Statements, (B) incurred in the ordinary course of business
consistent with past practice since the date of the last consolidated balance
sheet in the Company Financial Statements or (C) that would not,
individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect.

 

(d)           The Company (A) has implemented
and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Exchange Act) to ensure that material information relating to the Company,
including its consolidated Subsidiaries, is made known to the chief executive
officer and the chief financial officer of the Company by others within those
entities, and (B) has disclosed, based on its most recent evaluation prior
to the date hereof, to the Company’s outside auditors and the audit committee
of the Board (1) any significant deficiencies and material weaknesses in
the design or operation of internal controls over financial reporting (as
defined in Rule 13a-15(f) of the Exchange Act) that are
reasonably likely to adversely affect the Company’s ability to record, process,
summarize and report financial information and (2) any fraud, whether or
not material, that involves management or other employees who have a
significant role in the Company’s internal controls over financial
reporting.  As of the date hereof, the
Company has no knowledge of any reason that its outside auditors and its chief
executive officer and chief financial officer will not be able to give the
certifications and attestations required pursuant to the rules and
regulations adopted pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002, without qualification, when next due.

 

Section 3.9.            Absence of Certain Changes. 
Since December 31, 2007, the Company and its Subsidiaries, taken as
a whole, have conducted their business in all material respects in the ordinary
course of business, consistent with past practice.  From December 31, 2007 to the date
hereof, there shall not have been any Material Adverse Effect or any
Effect that would, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect.

 

Section 3.10.          Brokers and Finders.  Except for Lazard Frères & Co. LLC
and Lazard Capital Markets LLC, the fees of which will be paid by the Company,
neither the Company nor any of its Subsidiaries has employed any broker or
finder or incurred any liability for any financial advisory fee, brokerage
fees, commissions or finder’s fee, and no broker or finder has acted directly
or indirectly for the Company or any of its Subsidiaries in connection with
this Agreement or the transactions contemplated hereby.

 

10

 

Section 3.11.          Contracts.

 

(a)           As of the date hereof, neither the
Company nor any of its Subsidiaries is a party to or bound by any Contract
which is a “material contract” (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed in full or in part after the date of
this Agreement that has not been filed or incorporated by reference in the
Company SEC Documents. To the Company’s knowledge, neither the Company nor any
of its Subsidiaries is a party to or bound by any Contract which contains any
provision that would prevent the Investor or any of its Affiliates in their
capacity as such (after consummation of the transactions contemplated hereby)
from operating in a particular line or lines of business.

 

(b)           As of the date hereof, neither the
Company nor any of its Subsidiaries, nor any of their directors or officers, or
to the knowledge of the Company, any of the Company’s or any of its
Subsidiaries’ employees is (or for the last five (5) years has been) under
administrative, civil or criminal investigation, indictment or audit (except
routine audits, such as DCAA audits) with respect to any alleged irregularity,
misstatement or omission arising under or relating to any Government Contract
or bid or proposal.

 

(c)           As of the date hereof, neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Company, any
of their employees, is (or for the last five (5) years has been) suspended
or debarred from doing business with any Governmental Entity.

 

Section 3.12.          Employee Benefits.

 

(a)           Except as would not, individually or in the aggregate, have
or reasonably be expected to have a
Material Adverse Effect, no material payment
(whether of severance pay, bonus or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee will occur solely as a result of either
the execution of or the performance of the transactions contemplated in this
Agreement.  Except as would not, individually or in the aggregate, have
or reasonably be expected to have a
Material Adverse Effect, no payment or benefit
that will be made by the Company or any of its subsidiaries with respect to any
Employee, solely as a result of either the execution of or the performance of
the transactions contemplated in this Agreement, will be characterized as an “excess
parachute payment,” within the meaning of Section 280G(b)(1) of the
Code.

 

(b)           The Company represents and warrants
that neither the execution of, nor the performance of the transactions
contemplated in, this Agreement will result in a violation, in any material
respect, of any Law (including ERISA and the regulations promulgated
thereunder) with respect to the Griffon Corporation Employee Stock Ownership Plan
(as amended).

 

Section 3.13.          No Further Reliance.  The Company acknowledges that it is not
relying upon any representation or warranty made by the Investor not set forth
in this Agreement or in an Ancillary Agreement.

 

11

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF INVESTOR

 

The Investor represents and warrants to the Company
that:

 

Section 4.1.            Organization and Authority.  The
Investor is duly formed and validly existing in good standing as a limited
liability company under the laws of the state of Delaware and has all corporate
power and authority to own its property and assets and conduct its business in
all material respects as currently conducted and has been duly qualified as a
foreign limited liability company for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business so as to require such
qualification.

 

Section 4.2.            Authorization.  The Investor has all
limited liability company power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.  The execution, delivery and performance by
the Investor of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by the Investor’s
board of directors or managing members or partners, as the case may be, and no
further approval or authorization by any of its stockholders, members, partners
or other equity owners is required.  This
Agreement constitutes the valid and binding obligation of the Investor,
enforceable against the Investor in accordance with its terms, except as such
may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization
or other similar Laws affecting creditors’ rights generally and by general
equitable principles and except as may be limited by applicable Law and public
policy.

 

Section 4.3.            Non-Contravention; Governmental Authorization.

 

(a)             The execution, delivery and
performance by the Investor of this Agreement and the consummation of the
transactions contemplated hereunder will not: (1) conflict with or violate
any provision of its certificate of formation, limited liability company
agreement or similar governing documents; or (2) assuming compliance with
the statutes and regulations referred to in Section 4.3(b), (i) conflict
with or result in any breach of, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give
rise to any right to termination, acceleration or cancellation under any
agreement, lease, mortgage, license, indenture or any other contract to which
the Investor is a party or by which its properties may be bound or affected; or
(ii) conflict with or violate any order, Law, statute, rule or
regulation of any Governmental Entity, applicable to the Investor, except in
the case of clause (2)(i) and (2)(ii), as would not, individually or in
the aggregate, reasonably be expected to materially and adversely affect the
Investor’s ability to perform its obligations under this Agreement or
consummate the transactions contemplated hereby on a timely basis.

 

(b)             Each approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other Governmental
Entity necessary in connection with the execution and delivery by the Investor
of this Agreement and the consummation of the transactions contemplated herein
(except for (1) such additional steps as may be required by the NYSE or
such additional steps as may be necessary to qualify the Acquired Shares under
federal securities, state securities or blue sky Laws and (2) receipt of
all approvals and authorizations of, filings with, and notifications to, or expiration
or termination of 

 

12

 

any
applicable waiting period, under the HSR Act, competition or merger control
laws of Germany, Austria, and Brazil, or competition or merger control laws of other jurisdictions) has been obtained or made and is in full force and
effect, except as would not, individually or in the aggregate,
reasonably be expected to materially and adversely affect the Investor’s
ability to perform its obligations under this Agreement or consummate the
transactions contemplated hereby on a timely basis.

 

(c)           Neither the Investor, nor, to the
knowledge of the Investor, any other Persons acting on its behalf has, in
connection with the operation of its business, (i) used any corporate or
other funds for unlawful contributions, payments, gifts or entertainment, or
made any unlawful expenditures relating to political activity to government
officials, candidates or members of political parties or organizations, or
established or maintained any unlawful or unrecorded funds in violation of Section 104
of the Foreign Corrupt Practices Act of 1977, as amended, or any other similar
applicable Law, (ii) paid, accepted or received any unlawful
contributions, payments, expenditures or gifts or (iii) violated or
operated in noncompliance with any export restrictions, anti-boycott
regulations or embargo regulations.

 

Section 4.4.            Securities Act Compliance.  The Acquired Shares being acquired
by the Investor hereunder are being acquired for its own account, for the
purpose of investment and not with a view to or for sale in connection with any
public resale or distribution thereof in violation of applicable securities
Laws.  The Investor is an ‘‘accredited
investor’’ within the meaning of Rule 501(a) promulgated under the
Securities Act and is knowledgeable, sophisticated and experienced in business
and financial matters, and it fully understands the limitations on ownership,
sale, transfer or other disposition of the Acquired Shares.  The Investor understands that the Acquired
Shares may be resold only if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by Law.

 

Section 4.5.            Ownership.  As of the
date of this Agreement, The Goldman Sachs Group, Inc. is not the
Beneficial Owner of in excess of 2% of the Total Voting Power of the Company.

 

Section 4.6.            Financial Capability. 
At the Closing the Investor will have available funds necessary to
consummate the Closing on the terms and conditions contemplated by this
Agreement.

 

Section 4.7.            Brokers and Finders. 
Neither the Investor nor any of its Affiliates or any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any financial advisory fee, brokerage fees, commissions or
finder’s fee, and no broker or finder has acted directly or indirectly for the
Investor or any of its Affiliates or any of their respective officers or
directors in connection with this Agreement or the transactions contemplated
hereby.

 

Section 4.8.            No Further Reliance. 
The Investor acknowledges that it is not relying upon any representation
or warranty made by the Company not set forth in this Agreement or in an
Ancillary Agreement.  The Investor
acknowledges that it has conducted such review and 

 

13

 

analysis of the business,
assets, condition, operations and prospects of the Company and its Subsidiaries
that the Investor considers sufficient for purposes of the purchase of the
Acquired Shares.

 

ARTICLE V

CONDITIONS TO CLOSING

 

Section 5.1.            Conditions to the Obligations of the Company and the
Investor.  The obligations of the Company and the
Investor to effect the Closing shall be subject to the following conditions:

 

(a)           receipt of all
approvals and authorizations of, filings with, and notifications to, or
expiration or termination of any applicable waiting period, under the HSR Act
and competition or merger
control laws of Germany, Austria and competition or merger control laws of
other jurisdictions required
to consummate the transactions contemplated hereunder;

 

(b)           no provision of any
applicable Law and no judgment, injunction, order or decree shall prohibit the
consummation of any of the transactions contemplated at the Closing; and

 

(c)           the
consummation of the Rights Offering in accordance in all material respects with
the terms and subject to the conditions set forth in Section 1.1(d) hereof.

 

Section 5.2.            Conditions to the Obligations of the Company.  The
obligations of the Company to effect the Closing shall be subject to the
following conditions:

 

(a)           all
representations and warranties of the Investor in this Agreement shall be true
and correct as of the date hereof and as of the Registration Effective Date
(except to the extent that any such representation and warranty expressly
speaks as of an earlier date, in which case such representation and warranty
shall be true and correct as of such earlier date);

 

(b)           the Investor shall have performed in
all material respects all of its obligations hereunder required to be performed
by it at or prior to the Closing;

 

(c)           the Company shall have received a
certificate, signed by an officer of the Investor, certifying as to the matters
set forth in Sections 5.2(a) and 5.2(b); and

 

(d)           the Company shall have received a
certificate, signed by an officer of the Investor, certifying the amount, if
any, of The Goldman Sachs Group Inc.’s Beneficial Ownership percentage of
Voting Stock as of the close of business on the Business Day immediately prior
to the Closing Date (such amount the “Certified
Ownership Percentage”).

 

Section 5.3.            Conditions to the Obligations of the Investor.  The
obligations of the Investor to effect the Closing shall be subject to the
following conditions:

 

14

 

(a)           The 10b-5 Representation shall be
true and correct in all respects (A) in the case of the Registration
Statement and any post-effective amendments thereto, at the respective times
referred to in Section 1.1(c), and in the case of the Prospectus, as of
its date, and (B) as of the Closing Date, except that in the case of this
clause (B) all references to any time period or date referred to in Section 1.1(c) shall
be deemed to be references to the Closing Date. 
All other representations and warranties of the Company contained in
this Agreement (i) that
are qualified by materiality, Material Adverse Effect or words of similar
import, shall be true and correct as of the date hereof and as of the
Registration Effective Date (except to the extent that any such representation
and warranty expressly speaks as of an earlier date, in which case such
representation and warranty shall be true and correct as of such earlier date)
and (ii) that are not qualified by materiality, Material Adverse Effect or
words of similar import, shall be true and correct in all material respects as
of the date hereof and as of the Registration Effective Date (except to the
extent that any such representation and warranty expressly speaks as of an
earlier date, in which case such representation and warranty shall be true and
correct in all material respects as of such earlier date).  Notwithstanding the foregoing, the Investor
shall not be permitted to invoke the condition set forth in this Section 5.3(a) with
respect to any fact or event if prior to such time the Company has given
written notice (the “Event Notice”)
to the Investor that such event or fact would reasonably be expected to cause
the condition set forth in this Section 5.3(a) to not be satisfied,
and the Investor has failed to reserve its rights with respect to such fact or
event by giving written notice to the Company (the “Reservation
Notice”) within ten (10) Business Days after receipt thereof
(such waived fact or event, the “Waived Fact”);  provided, however,
that the Investor shall be permitted to invoke any of the conditions set forth
in this Section 5.3(a) with respect to facts or events not contained
in any Event Notice or with respect to the aggregate effect of such Waived Fact(s) and
any unrelated subsequent non-Waived Facts;

 

(b)           the Company shall have performed in
all material respects all of its obligations hereunder required to be performed
by it at or prior to the Closing;

 

(c)           the Investor shall have received a
certificate, signed by an officer of the Company, certifying as to the matters
set forth in Sections 5.3(a) and 5.3(b);

 

(d)           since the date of this Agreement,
there shall not have been any Material Adverse Effect or any Effect that would,
individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect;

 

(e)           the shares of Common Stock to be issued in the Rights Offering
(including pursuant to the Backstop Commitment) and, if applicable, pursuant to
the Additional Purchase Commitment, shall be approved for listing on the NYSE,
subject to official notice of issuance;

 

(f)            if the Company is obligated to issue
shares of Preferred Stock pursuant to Section 2.2, the Company shall have
caused to be filed with the Delaware Secretary of State the Certificate of
Designation and the Certificate of Designation shall be effective;

 

15

 

(g)           the Investor shall have received a
registration rights agreement substantially in the form of Annex II hereto,
duly executed by the Company (the “Registration Rights
Agreement”);

 

(h)           simultaneously with the Closing, the Initial
Investor Designees shall have been appointed to the Board;

 

(i)            Ronald J. Kramer shall have, after
the date hereof and prior to or concurrently with the Closing acquired from the
Company not less than five hundred thousand (500,000) shares of Common Stock on
terms no less favorable to the Company than the terms pursuant to which the
stockholders of the Company may acquire shares of Common Stock pursuant to the
Rights Offering (the “Kramer Shares”);

 

(j)            The Company’s auditors shall have
delivered a comfort
letter (addressed to the Board) in the form customarily delivered to dealer
managers of registered rights offerings, with respect to the
Registration Statement and the Prospectus to the Board; and

 

(k)           the Investor shall have received
signed opinions, dated as of the Closing Date, of Dechert LLP, counsel for the
Company, substantially in the forms set forth on Schedule 5.3(k).

 

ARTICLE VI

COVENANTS

 

Section 6.1.            Conduct of the Business. 
Prior to the earlier of the Closing and the termination of this
Agreement pursuant to Section 8.1 (the “Pre-Closing
Period”), the Company shall not, and shall cause each of its
Subsidiaries not to, take any actions outside of the ordinary course of
business consistent with past practice that are material to the Company and its
Subsidiaries, taken as a whole, without the prior written consent of the
Investor (such consent not to be unreasonably withheld, conditioned or
delayed).  During the Pre-Closing Period,
(i) except as contemplated by this Agreement or the Ancillary Agreements,
as required by Law or as set forth on Schedule 6.1, the Company shall not, and
shall cause each of its Subsidiaries not to (A) declare or pay any
dividend or distribution on its shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) stock (except for dividends paid by any direct or indirect
wholly owned Subsidiary of the Company to the Company or to any other direct or
indirect wholly owned Subsidiary of the Company), (B) adjust, split,
combine or reclassify or otherwise amend the terms of its capital stock, (C) repurchase,
redeem, purchase, acquire, encumber, pledge, dispose of or otherwise transfer,
directly or indirectly, any of its shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) stock, (D) other than Excluded Issuances, issue,
grant, deliver or sell any shares, interests, rights to purchase, warrants,
options, participations or other equivalents of or interests in (however
designated) stock (other than with respect to the issuance of the Rights and
the Common Stock (and, if applicable, Preferred Stock) issuable upon the
exercise thereof), (E) make any amendments to their 

 

16

 

organizational documents,
(F) sell, lease or otherwise dispose of a material amount of assets or
securities, including by merger, consolidation, asset sale or other business
combination, other than sales of assets in the ordinary course of business
consistent with past practice; (G) make any material acquisitions, by
purchase or other acquisition of shares or other equity interests, or by
merger, consolidation or other business combination, or material purchase of
any property or assets, to or from any Person (except for acquisitions made by
the Company or any direct or indirect wholly owned Subsidiary of the Company
from the Company or any other direct or indirect wholly owned Subsidiary of the
Company), (H) adopt a plan of complete or partial liquidation or
resolutions providing for a complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization, or (I) agree or
commit to do any of the foregoing and (ii) if the Company takes any action
(other than with respect to the issuance of the Rights and the Common Stock
issuable upon the exercise thereof) that would require any anti-dilution
adjustments to be made under the Certificate of Designation as if issued on the
date of this Agreement, the Company shall make such appropriate adjustment (the
“Adjustments”).

 

Section 6.2.            Securities to be Issued. 
The Common Stock and Preferred Stock, if any, to be issued to the
Investor pursuant to this Agreement shall be subject to the terms and
provisions of the Company’s certificate of incorporation.  In addition, the terms of any shares of Preferred Stock issued pursuant to this
Agreement hereof shall be subject to the terms and provisions of the
Certificate of Designation.

 

Section 6.3.            Efforts.  From the
date hereof until the earlier of the Closing and the date that this Agreement
is terminated pursuant to Section 8.1, the Investor and the Company shall (i) promptly
file any and all Notification and Report Forms required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) with respect to the transactions contemplated
hereby, and use commercially reasonable efforts to cause the expiration or
termination of any applicable waiting periods under the HSR Act; (ii) promptly
make an appropriate filing under the competition
or merger control laws of Germany, Austria, and Brazil and, if required, competition or merger control laws of other jurisdictions, and use commercially reasonable efforts to
obtain a decision from the appropriate regulatory authorities allowing the
consummation of the transactions contemplated hereby; (iii) use
commercially reasonable efforts to cooperate with each other in (A) determining
whether any filings are required to be made with, or consents, permits,
authorizations, waivers, clearances, approvals, and expirations or terminations
of waiting periods are required to be obtained from, any other Governmental
Entities in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby and (B) timely
making all such filings and timely obtaining all such consents, permits,
authorizations or approvals; (iv) use commercially reasonable efforts to
supply to any Governmental Entity as promptly as practicable any additional
information or documents that may be requested pursuant to any Law or by such
Governmental Entity; (v) promptly inform the other party of any
substantive meeting, discussion, or communication with any Governmental Entity
(and shall supply to the other party any written communication or other written
correspondence or memoranda prepared for such purpose, subject to applicable
Laws relating to the exchange of information) in respect of any filings,
investigation or inquiry concerning the transactions contemplated herein, and
shall consult with 

 

17

 

the other party in
advance and, to the extent permitted by such Governmental Entity, give the
other party the opportunity to attend and participate thereat and (vi) use
commercially reasonable efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate the Closing and the other transactions contemplated
hereby, including taking all such further action as may be necessary to resolve
such objections, if any, as the United States Federal Trade Commission, the
Antitrust Division of the United States Department of Justice, state antitrust
enforcement authorities or competition authorities of any other nation or other
jurisdiction or any other person may assert under Law with respect to the
transactions contemplated hereby. Notwithstanding the foregoing, nothing in
this Agreement shall be deemed to require the Investor or any of its Affiliates
to enter into any agreement with any Governmental Entity or to consent to any
authorizations, consents, approvals of governments and governmental agencies
requiring the Investor or any of its Affiliates to hold separate or divest, or
to restrict the dominion or control of, any of its assets or businesses or any
of the stock, assets or business of the Investor, the Company or any of their
Affiliates.  The Company shall reimburse
the Investor for fifty percent (50%) of all filing fees incurred by the
Investor with respect to all filings contemplated by clauses (i) and (ii) of
this Section 6.3, within five (5) Business Days of the date each such
fee is paid by the Investor.

 

Section 6.4.            Non-Solicitation.  (a) From
the date hereof until the earlier of the Closing and the date this Agreement is
terminated pursuant to Section 8.1, the Company shall not, and shall cause
its Subsidiaries and shall use its reasonable best efforts to cause its and its
Subsidiaries’ Representatives not to, directly or indirectly: (i)(A) initiate,
solicit or knowingly encourage (including by way of providing information), (B) engage
in any discussions or negotiations regarding, (C) otherwise knowingly
cooperate with or knowingly assist any Person in connection with, or (D) knowingly
facilitate any inquiries or the making of, any inquiry, proposal or offer that
constitutes or that would reasonably be expected to lead to an Equity
Investment or Acquisition Transaction, except, in the case of an Acquisition
Transaction, in response to an unsolicited proposal that the Board determines
in good faith could reasonably be expected to lead to a Superior Transaction
(and following execution of a customary confidentiality agreement), or (ii) approve
or recommend, or publicly propose to approve or recommend, an Equity Investment
or enter into any Contract, letter of intent, agreement in principle or other
similar agreement providing for or relating to an Equity Investment.  As of the date hereof, the Company and its
Subsidiaries shall immediately cease and cause to be terminated any activities
that would otherwise be a violation of this Section 6.4 conducted
theretofore by the Company, its Subsidiaries or its or their Representatives
with respect to any Equity Investment or Acquisition Transaction.

 

(b)   The
Company shall notify the Investor promptly (and in any event within 48 hours)
of any determination of the Board in good faith that a proposal received by the
Company for an Acquisition Transaction could reasonably be expected to lead to
a Superior Transaction.

 

(c)           Notwithstanding the foregoing, if the
Board determines in good faith after receiving the advice of its financial
advisors and outside legal counsel, in response to a bona fide written proposal
for an Acquisition Transaction that was unsolicited and that did not otherwise 

 

18

 

result from a breach of this Section 6.4, that
such proposal for an Acquisition Transaction constitutes a proposal for a
Superior Transaction, the Company may enter into a definitive agreement to effect
such Superior Transaction and terminate this Agreement pursuant to Section 8.1(e);
provided, however,
that the Company shall not terminate this Agreement pursuant to this Section 6.4(c) and
Section 8.1(e), and any purported termination shall be void and of no
force or effect, unless the Company prior to or concurrently with such action
pays to the Investor the Termination Fee.

 

Section 6.5.            Publicity.  On the date hereof, the Company shall issue a
press release in the form attached as Annex III hereto.  No other public release or announcement
concerning the transactions contemplated hereby shall be issued by any party
without the prior consent of the other party (which consent shall not be
unreasonably withheld, conditioned or delayed), except as such release or
announcement may be required by Law or the rules or regulations of any
United States or foreign securities exchange, in which case the party required
to make the release or announcement shall, to the extent reasonably
practicable, allow the other party reasonable time to comment on such release
or announcement in advance of such issuance. 
The provisions of this Section 6.5 shall not restrict the ability
of a party hereto to summarize or describe the transactions contemplated by
this Agreement in any prospectus or similar offering document or other report
required by Law, regulation or stock exchange rule so long as the other
party is provided a reasonable opportunity to comment on such disclosure in
advance.

 

Section 6.6.            Preferred Stock.  If the Company is obligated to issue shares
of Preferred Stock pursuant to Section 2.2, (a) prior to the first
such issuance the Company shall cause to be filed with the Delaware Secretary
of State the Certificate of Designation; and (b) from the date of the issuance
of such Preferred Stock until the date on which all the Preferred Stock is
converted into Common Stock, the Company shall at all times have reserved for
issuance, free of pre-emptive or similar rights, a sufficient number of shares
of authorized and unissued Common Stock to effectuate the conversion of the
Preferred Stock.

 

Section 6.7.            Exercise of Rights.  The Investor shall refrain from exercising
any Rights it receives (if any) with respect to shares of Common Stock it owns
as of the Record Date.

 

Section 6.8.            Control of the Investor.
The Investor represents and warrants to the Company, for so long as it holds
Voting Stock pursuant to this Agreement, that it is Controlled, directly or
indirectly, by The Goldman Sachs Group, Inc., and covenants that during
the term of this Agreement, it shall not, without the prior written consent of
the Company, take or permit any action which would result in the direct or
indirect transfer of Control of it from The Goldman Sachs Group, Inc. to
any other Person.

 

Section 6.9.            Share Listing.  The Company shall as promptly as practicable
after the date of this Agreement use its reasonable best efforts to cause the
Common Stock to be issued in the Rights Offering (including pursuant to the
Backstop Commitment) and, if applicable, pursuant to the Additional Purchase
Commitment, to be approved for listing on the NYSE, subject to official notice of issuance.  The Company shall as promptly as practicable
after a notice of conversion is delivered to the Company pursuant to the Certificate
of Designations use 

 

19

 

its reasonable best
efforts to cause the Common Stock issuable upon conversion of the Preferred
Stock to be approved for listing on the NYSE, subject to official notice of issuance.

 

Section 6.10.          Access. 
From the date hereof until the earlier of the Closing and the date that
this Agreement is terminated pursuant to Section 8.1, subject to
applicable Law, the Company shall grant the Investor, upon reasonable advance
notice, such access to its books, records, properties and such other
information as the Investor may reasonably request; provided
that any investigation of such information shall be conducted during normal
business hours and in such manner as not to interfere with the conduct of the
business of the Company; provided, further, the Company shall not be required to disclose any
information to the extent (i) prohibited by applicable Law or regulation
or rule of the NYSE, or (ii) such disclosure could reasonably be expected
to cause a violation of any agreement to which the Company or any of its
Subsidiaries is a party or could reasonably be expected to cause a risk of a
loss of privilege to the Company or any of its Subsidiaries.

 

Section 6.11.          Executive Agreements and Plans.

 

(a)           With respect to the Griffon
Corporation Senior Management Incentive Compensation Plan (the “Incentive Plan”), the Company (i) represents
and warrants that the only individual with any rights under the Incentive Plan
is Harvey R. Blau, and (ii) shall obtain a signed statement during the
Pre-Closing Period from Harvey R. Blau in a form reasonably acceptable to the
Investor in which Mr. Blau, in his individual capacity, acknowledges, that
(A) as of the date hereof, Mr. Blau is entitled to the bonus, if any,
payable under the Incentive Plan with respect to the current fiscal year
pro-rated based on the number of days Mr. Blau was employed as the Company’s
Chief Executive Officer in the current fiscal year over 365, and (B) except
for the payment described in clause (A) of this sentence, Mr. Blau
will not be entitled to any other payments (including by reason of a “Change of
Control” as such term is defined in the Incentive Plan) under the Incentive
Plan, either as of the Closing Date or in the future.

 

(b)           With respect to the Employment
Agreement between the Company and Harvey R. Blau, entered into as of October 1,
1998 and as last amended on August 3, 2007 (the “Blau Agreement”), the Company (i) represents and warrants, and (ii) shall
obtain a signed statement during the Pre-Closing Period from Harvey R. Blau in
a form reasonably acceptable to the Investor in which Mr. Blau, in his
individual capacity, acknowledges, that no amounts are or will be owed to Mr. Blau
under the Blau Agreement solely in respect of the Change in Control (as such
term is defined in the Blau Agreement) that may occur as a result of the
transactions contemplated by this Agreement, provided however, that nothing in
the foregoing shall diminish or forfeit Mr. Blau’s rights to payments or
benefits, if any, that may be due under Sections 9(b), 12 or 13 of the Blau
Agreement.

 

(c)           With respect to any stock options outstanding as of the date hereof
(the “Options”) granted pursuant to the Griffon Corporation 1995 Stock Option
Plan, the Griffon Corporation 1997 Stock Option Plan, the Griffon Corporation
1998 Stock Option Plan, the Griffon Corporation 2001 Stock Option Plan, and the
Griffon Corporation 1998 Employee and Director Stock Option Plan (as amended)
(each, a “Stock Plan” and together, the “Stock Plans”), 

 

20

 

neither
the Board nor the Committee (as such term is defined in each of the respective
Stock Plans) shall take any action to: (a) accelerate the vesting or
exercisability of the Options notwithstanding it may be permitted under the
terms of such Stock Plans and/or agreements (the “Award Agreements”) evidencing
Options awarded under the Stock Plans in the event of a Change in Control (as
such term is defined in each of the respective Stock Plans) that may occur as a
result of the transactions contemplated by this Agreement, or (b) substitute,
adjust, or otherwise modify the Options notwithstanding it may be permitted
under the Stock Plans and/or Award Agreements as a result of the transactions
contemplated by this Agreement, other than substitutions, adjustments or
modifications as may be necessary (or as the Board/Committee reasonably deems
advisable upon the advice of counsel) to eliminate adverse tax consequence to a
holder of capital stock of the Company under Section 305 of the Code and
the Treasury Regulations promulgated thereunder (provided that any such
adjustment or modification shall be made in accordance with Section 409A
of the Code and the Treasury Regulations promulgated thereunder).

 

(d)           The Company shall, promptly following
the date of this Agreement, use its commercially reasonable efforts to obtain
an exemption from the U.S. Department of Labor pursuant to Section 408(a) of
ERISA which provides that the restrictions of Section 406 of ERISA and the
sanctions resulting from application of Section 4975 of the Code shall not
apply to the execution or performance of the transactions contemplated in this
Agreement with respect to the Griffon Corporation Employee Stock Ownership Plan
(as amended).

 

Section 6.12.          Termination of Confidentiality Agreement; Confidentiality.

 

(a)           The Company and the Investor
acknowledge and agree that as of the date hereof the Confidentiality Agreement,
and all provisions thereof, shall be terminated and be of no further force or
effect.

 

(b)           Notwithstanding the foregoing, from
the date hereof until the first anniversary of the date hereof, the Investor
will, and will cause its Representatives, to keep all information regarding the
Company (whether prepared by the Company, its Representatives or otherwise,
whether in oral, written, electronic or other form) received under the terms of
the Confidentiality Agreement or pursuant to this Agreement (collectively, the “Information”) confidential except (i) the Investor may
disclose Information to its Representatives, (ii) Information that becomes
generally available to the public other than as a result of a disclosure in
violation of this Agreement by the Investor or its Representatives, (iii) Information
that was available to the Investor on a nonconfidential basis prior to its
disclosure, directly or indirectly, by the Company or its Representatives, (iv) Information
that becomes available to the Investor on a nonconfidential basis from a person
other than the Company who, to the knowledge of the Investor, is not bound by a
confidentiality agreement with the Company or otherwise prohibited from
transferring such information to the Investor, (v) Information that the
Company agrees may be disclosed, (vi) Information that was or is developed
by the Investor its Representatives without the use of or reference to the
Information or any derivative thereof, or (vii) to the extent 

 

21

 

the Investor is required
by Law, legal process or regulatory authority to disclose such Information.

 

Section 6.13.          Right to Use Names and Logos.   From and after the Closing Date and until
the date on which the Investor ceases to Beneficially Own 10% or more of the
Total Voting Power of the Company, the
Company hereby grants to the Investor the right to use the Company’s GRIFFON
word mark, stylized word mark and logo (collectively, the “Griffon
Marks”) in the Investor’s and its Affiliates’ marketing materials
solely for the purpose of indicating in a factual manner the Investor’s
ownership interest in the Company; provided,
however, that (a) the
Investor shall not use the Griffon Marks in a manner that is likely to confuse
the public to believe that the Company is providing or sponsoring any offering,
securities, product or service provided by Investor; (b) the Investor
shall include a prominent trademark attribution notice giving notice of the
Company’s or its Subsidiary’s ownership of its trademarks in any such marketing
materials in which the names and/or logos appear;  (c) in order to preserve the inherent
value of such names and logos, the Investor agrees to use reasonable efforts to
ensure that it maintains the quality of the Investor’s business and the
operation thereof; (d) the Investor shall at all times use such names and
logos in accordance with any style guidelines established by the Company and
communicated to the Investor from time to time in writing; (e) the
Investor shall, upon the request of Company, provide copies of such marketing
materials to Company and (f) notwithstanding anything to the contrary
herein, the Company shall at all times have the right to direct the Investor to
cease any use of the Griffon Marks which violates any requirement under this Section or
which is otherwise likely to disparage, dilute or impair the value of the
Griffon Marks or the Company’s goodwill associated therewith.

 

Section 6.14.          Non-Compete Contracts. 
The Company shall use its commercially reasonable efforts to (a) identify
each Company Contract that contains any provision that would prevent the
Investor or its Affiliates in their capacity as such (after consummation of the
transactions contemplated hereby) from operating in a particular line or lines
of business and (b) effect an amendment to each such Contract identified
so that such restriction will not apply to the Investor or any of its
Affiliates.  From and after the Closing
and until the Investor ceases to Beneficially Own 10% or more of the Total
Voting Power of the Company, the Company shall not enter into any Contract that
contains provisions that would prevent the Investor or its Affiliates (in their
capacity as such) from operating in a particular line or lines of business.

 

ARTICLE VII

 

GOVERNANCE AND OTHER RIGHTS

 

Section 7.1.            Initial Investor Nominees. 
The Company and the Investor agree as follows:

 

(a)           Prior to the Closing Date, the
Investor shall provide to the Company a list of initial Investor Nominees
(including details as to which shall be nominated in each 

 

22

 

circumstance set forth in
Section 7.2(a)), each of whom shall be reviewed promptly by the Nominating
and Corporate Governance Committee of the Board (the “Nominating
Committee”).

 

(b)           On the Closing Date the Company will
cause to be elected or appointed to the Board the Initial Investor Designees,
as applicable, subject to satisfaction of all legal and governance requirements
regarding services as a director of the Company and, if not already received,
the reasonable approval of the Nominating Committee.

 

(c)           The Company shall take all actions
necessary to ensure that on the Closing Date the Board will have a number of
vacancies at least equal to the number of Initial Investor Designees.

 

Section 7.2.            Governance Matters. 
The Company and the Investor agree that effective as of the Closing Date
and terminating automatically upon the earlier of (i) the date on which
the Investor ceases to Beneficially Own 10% or more of the Total Voting Power
of the Company and (ii) the date on which the Common Stock ceases to be
registered under Section 12 of the Exchange Act:

 

(a)           Investor’s Board
Representation.

 

(i)            For
so long as the Investor Beneficially Owns 29.9% or more of the Total Voting
Power of the Company, the parties hereto shall exercise all authority under
applicable Law to cause any slate of directors presented to stockholders for
election to the Board to consist of such nominees that, if elected, would
result in the Board containing four (4) Investor Directors.

 

(ii)           For
so long as the Investor Beneficially Owns less than 29.9% but at least 20% of
the Total Voting Power of the Company, the parties hereto shall exercise all
authority under applicable Law to cause any slate of directors presented to
stockholders for election to the Board to consist of such nominees that, if
elected, would result in the Board containing three (3) Investor
Directors.

 

(iii)          For
so long as the Investor Beneficially Owns less than 20% but at least 15% of the
Total Voting Power of the Company, the parties hereto shall exercise all
authority under applicable Law to cause any slate of directors presented to
stockholders for election to the Board to consist of such nominees that, if
elected, would result in the Board containing two (2) Investor Directors.

 

(iv)          For
so long as the Investor Beneficially Owns less than 15% but at least 10% of the
Total Voting Power of the Company, the parties hereto shall exercise all
authority under applicable Law to cause any slate of directors presented to
stockholders for election to the Board to consist of such nominees that, if
elected, would result in the Board containing one (1) Investor Director.

 

23

 

(b)           Finance Committee.  The Company shall cause the Board to create
and maintain a finance committee, with a charter substantially in the form of
Annex IV hereto. The finance committee shall consist of five (5) members,
of which two (2) shall be Investor Directors for so long as the Investor
is entitled to designate two (2) or more Investor Nominees for election to
the Board pursuant to this Section 7.2; provided,
if the Investor is entitled to designate only one (1) Investor Nominee for
election to the Board pursuant to Section 7.2(a), then only one (1) of
the members of the finance committee shall be an Investor Director.  The remaining members of the finance
committee shall be selected by the Non-Investor Directors from among the
Non-Investor Directors.

 

(c)           Information.  Subject to the execution of a customary confidentiality
agreement in form reasonably satisfactory to the Company and the Investor, the
Company shall grant the Investor, upon reasonable advance notice, such access
to its books, records, properties and such other information as the Investor
may reasonably request; provided that
any investigation of such information shall be conducted during normal business
hours and in such manner as not to interfere with the conduct of the business
of the Company; provided, further,
the Company shall not be required to disclose any information to the extent (i) prohibited
by applicable Law or regulation or rule of the NYSE, or (ii) such
disclosure could reasonably be expected to cause a violation of any agreement
to which the Company or any of its Subsidiaries is a party or could reasonably
be expected to cause a risk of a loss of privilege to the Company or any of its
Subsidiaries.

 

Section 7.3.            Procedural Matters. 
The Company and the Investor agree that effective as of the Closing Date
and terminating automatically upon the earlier of (i) the date on which
the Investor ceases to Beneficially Own 10% or more of the Total Voting Power
of the Company and (ii) the date on which the Common Stock ceases to be
registered under Section 12 of the Exchange Act:

 

(a)           Independence.  At all times, a majority of the Board and the
Nominating Committee shall be comprised of individuals who satisfy the
independence criteria of the NYSE and are independent of the Investor and its
Affiliates.

 

(b)           Designation of Slate.

 

(i)            Any
Investor Nominees that are to be included in a slate of directors pursuant to Section 7.2
shall be designated by the Investor by prior written notice to the Company,
subject to the reasonable approval by the Nominating Committee and further
subject to applicable Law and the Nominating Committee’s fiduciary duties.  Any Non-Investor Director nominees who are to
be included in any slate of directors shall be designated by the Nominating
Committee. The Nominating Committee shall nominate each person so designated,
subject to applicable Law and its fiduciary duties.

 

(ii)           If,
for any reason, a nominated Investor Director is not elected to the Board by
the stockholders, then the Company shall exercise all authority under
applicable Law to cause such person to be elected to the Board.

 

24

 

(c)                                  Resignations and Replacements.

 

(i)                                     Subject
to paragraph (ii) below, if at any time an Investor Director resigns or is
removed in accordance with applicable Law or the Company’s by-laws, a new
Investor Director shall be nominated by the Nominating Committee pursuant to
the procedures set forth in this Section 7.3.

 

(ii)                                  Subject
to paragraph (iii) below, if at any time the number of Investor Nominees
entitled to be nominated to the Board in accordance with Section 7.2(a) in
an election of directors presented to stockholders would decrease, within 10
days thereafter the Investor shall use its reasonable best efforts to cause a
sufficient number of Investor Directors to resign from the Board so that the
number of Investor Directors on the Board after such resignation(s) equals
the number of Investor Nominees that the Investor would have been entitled to
designate had an election of directors taken place at such time. Any vacancies
created by the resignations required by this Section 7.3(c)(ii) shall
be filled with Non-Investor Directors as designated by the Nominating
Committee.

 

(iii)                               If at any time the
percentage of the Total Voting Power of the Company Beneficially Owned by the
Investor decreases as a result of an issuance of Voting Stock by the Company (other
than any Excluded Issuance), the Investor may in good faith notify the Company
that the Investor intends to acquire a sufficient amount of additional Voting
Stock in accordance with and to the extent permitted by Section 7.4(b) of
this Agreement necessary to maintain its then current level of Board
representation within 90 days.  In such
event, until the end of such period (and thereafter if the Investor in fact
restores its percentage to the extent necessary to maintain its then current
level of Board representation and provided that the Investor continues to
maintain the requisite level of Beneficial Ownership of Voting Stock in
accordance with Section 7.2(a)) the Board shall continue to have the
number of Investor Directors that corresponds to the percentage of the Total
Voting Power of the Company Beneficially Owned by the Investor prior to such
issuance of Voting Stock by the Company.

 

(d)                                 Solicitation and Voting of Shares.

 

(i)                                     The
Company shall recommend that its stockholders vote in favor of the slate of
directors nominated in accordance with Section 7.2 and Section 7.3(b) and
use its commercially reasonable efforts to solicit from the stockholders of the
Company eligible to vote for the election of directors proxies in favor of the
Board nominees selected in accordance with Section 7.2 and Section 7.3(b).

 

(ii)                                  In
any election of directors or at any meeting of the stockholders of the Company
called expressly for the removal of directors, the Investor shall be present
for purposes of establishing a quorum and shall vote all of its Voting Stock
entitled to vote (i) in favor of any nominee or director selected in
accordance with Section 7.2 and/or Section 7.3(b) and (ii) against
the removal of any director designated in accordance with Section 7.2 and/or
Section 7.3(b) hereof.

 

25

 

(iii)                               Except as provided above
or in Section 7.4, the Investor shall be free to vote in its sole
discretion all of its Voting Stock entitled to vote on any other matter submitted
to or acted upon by stockholders; provided,
however, that, to the extent the Investor has the right to vote on any matter
brought before a meeting of the stockholders of the Company (other than with
respect to the election and/or removal of directors) in excess of 29.9% of the
Total Voting Power of the Company (such excess, the “Excess
Voting Stock”) the Investor shall cause the Excess Voting Stock to
be voted with respect to such matters in the same proportion as all other
Voting Stock is voted with respect to such matter.  The Investor hereby appoints the Company, its
designees, and each of them individually, as the sole and exclusive attorneys
and proxies of the Investor, with full power of substitution and re-substitution,
to the full extent of the Investor’s right, with respect to any Excess Voting
Stock, and empowers such attorneys and proxies to exercise all voting rights in
accordance with the provisions of Sections 7.3(d)(ii) and (iii) (including,
the power to execute and deliver written consents with respect to such Voting
Stock) of the Investor at any time prior to termination of this Section 7.3
at every annual, special or adjourned meeting of the stockholders of the
Company and in every written consent in lieu of such meeting.  The Investor confirms that this proxy is
irrevocable, is coupled with an interest, and is granted in consideration of
the Company entering into this Agreement.

 

(e)                                  Expenses; Insurance. 
The Company agrees that the Investor Directors shall be entitled to the
same rights, privileges and compensation as the other members of the Board in
their capacity as such, including with respect to insurance coverage and
reimbursement for Board participation and related expenses.  The Company shall maintain, at its own
expense, directors’ and officers’ liability insurance with coverage no less
favorable to the directors than the policies that are in effect on the date
hereof.

 

Section 7.4.                                   Standstill; Transferability. 
From the date hereof until the earlier of (i) the date on which the
Investor ceases to Beneficially Own 10% or more of the Total Voting Power of
the Company and (ii) the date on which the Common Stock ceases to be
registered under Section 12 of the Exchange Act:

 

(a)                                  Without
the prior written consent of the Company (which consent may be granted or
withheld in its sole discretion), the Investor shall not, and shall not cause
or act in concert with any of its Affiliates to, directly or indirectly, by
purchase or otherwise, acquire, agree to acquire or offer to acquire Voting
Stock or direct or indirect rights or options to acquire Voting Stock, except
the Acquired Shares, any Additional Shares pursuant to Section 7.4(b) and
any shares of Common Stock received upon conversion of Preferred Stock
(including, in each case any distributions in respect thereof to the extent
permitted by the applicable terms of this Agreement and the Certificate of
Designations) and as otherwise permitted pursuant to this Section 7.4.

 

(b)                                 Notwithstanding
Section 7.4(a), if at any time the percentage of the Total Voting Power of
the Company Beneficially Owned by the Investor decreases as a result of an
issuance of Voting Stock by the Company (other than any Excluded Issuance) (a “Dilutive Issuance”), the Investor may acquire in the
secondary market such additional number of shares 

 

26

 

of Common Stock but only
to the extent necessary to maintain the Total Voting Power of the Company that
the Investor Beneficially Owned prior to such Dilutive Issuance, provided that, after giving effect to any such acquisition,
the Investor would not be the Beneficial Owner (calculated without giving
effect to any shares of Voting Stock issuable upon the conversion of the
Preferred Stock) of in excess of the Equity Cap Percentage of the aggregate
voting power of all shares of Voting Stock (such additional shares acquired,
the “Additional Shares”).

 

(c)                                  The
Investor shall not, directly or indirectly, sell, transfer or otherwise dispose
of any of its Voting Stock, other than (i) to any Affiliates of the
Investor, provided any such transferee shall execute an agreement in form and
substance reasonably satisfactory to the Company, pursuant to which such
proposed transferee agrees to be bound by the terms and conditions of this
Agreement, (ii) in an underwritten registered offering or (iii) sales,
transfers, or other dispositions (not including pledges) in a transaction that,
to the knowledge of the Investor, does not result in the acquisition of Voting
Stock by any Person or Group that, after giving effect to such acquisition,
will Beneficially Own 10% or more of the Total Voting Power of the Company
(provided, however, that prior to any such sale, transfer or other disposal of
Voting Stock by the Investor pursuant to this Section 7.4(c)(iii), the
Investor shall deliver to the Company a certificate executed by an officer of
the Investor representing that, to its knowledge, after reasonable inquiry,
after the proposed transfer of such Voting Stock the transferee shall not
Beneficially Own 10% or more of the Total Voting Power of the Company). Any
purported transfer of Voting Stock that is inconsistent with the provisions of
this Section 7.4(c) and Section 9.4 shall be null and void and
of no force or effect.

 

(d)                                 Notwithstanding
the foregoing, nothing in this Section 7.4 shall (i) prohibit or
restrict the Investor from responding to any inquiries from any stockholders of
the Company as to the Investor’s intention with respect to the voting of any
Voting Stock Beneficially Owned by it so long as such response is consistent
with the terms of this Agreement; (ii) restrict the right of each Investor
Director on the Board or any committee thereof to vote on any matter as such
individual believes appropriate in light of his or her duties as a director or
committee member or restrict the manner in which an Investor Director may
participate in his or her capacity as a director in deliberations or
discussions at meetings of the Board or as a member of any committee thereof; (iii) except
as set forth in the Certificate of Designation, prohibit the Investor from
Beneficially Owning Voting Stock issued as dividends or distributions in
respect of, or issued upon conversion, exchange or exercise of, securities
which the Investor is permitted to Beneficially Own under this Agreement, provided that, after giving effect to any such dividend or
distribution, the Investor would not be the Beneficial Owner (calculated
without giving effect to any shares of Voting Stock issuable upon the
conversion of the Preferred Stock) of in excess of the Equity Cap Percentage of
the aggregate voting power of all shares of Voting Stock; (iv) prohibit or
restrict the Investor from making a proposal regarding an Acquisition
Transaction directly to the Board, provided  that (x) unless required by applicable Law, in no event
may the Investor or any of its Representatives make such proposal public, (y) if,
following its receipt of the Investor’s proposal, the Board determines to
commence a process with respect to a potential Acquisition Transaction, the
Company shall permit the Investor to participate in such process and (z) if, pursuant to actions taken by
the Board following its receipt 

 

27

 

of
the Investor’s proposal, the Board determines to accept and recommend to the
Company’s stockholders an Acquisition Transaction from another party (the “Alternate Acquisition Transaction”) that the Board believes
to be superior to the Investor’s proposed Acquisition Transaction, then the Investor
shall vote its Voting Stock in the same proportion as all other Voting Stock is
voted with respect to such Alternate Acquisition Transaction or, in the case of
a tender offer, tender its shares of Company stock in the same proportion as is
tendered by all other holders of Company stock, (v) prohibit the
Investor from disclosing in accordance with its respective obligations (if any)
under the federal securities Laws or other applicable Law its desire (if any)
that the Company become the subject of an Acquisition Transaction or (vi) limit
the activities of Goldman, Sachs & Co. and its Affiliates (including,
the employees of the Principal Investment Area of Goldman, Sachs & Co.
who work for the Investor) who are not the Investor, nor restrict Goldman, Sachs &
Co. and its Affiliates (including, the employees of the Principal Investment
Area of Goldman, Sachs & Co. who work for the Investor) who are not
the Investor from engaging in any brokerage, investment advisory, financial
advisory, anti-raid advisory, merger advisory, financing, asset management,
trading, market making, arbitrage, investment activity or other similar
activities; provided, in the case of clause (vi) that such Person is not
acting in concert with or on behalf of the Investor in engaging in such
activities.  Notwithstanding anything to
the contrary set forth in this Section 7.4, if, at any time following the
consummation of a bankruptcy proceeding involving the Company, any Person
(other than the Company) is permitted by Law or the bankruptcy court in which
the proceeding is pending to propose a plan of reorganization for the Company,
the Investor shall be permitted to propose a plan of reorganization for the
Company; provided that no plan of reorganization
shall be proposed by the Investor prior to the expiration or termination of the
exclusivity period for the Company’s filing of a plan of reorganization, as
such exclusivity period may be extended from time to time (it being understood
and agreed that the Investor shall not object to any extension of the Company’s
exclusivity period and shall not initiate or otherwise support any proceeding
to terminate or shorten the length of the Company’s exclusivity period).  The Investor hereby appoints the Company, its
designees, and each of them individually, as the sole and exclusive attorneys
and proxies of the Investor, with full power of substitution and
re-substitution, to the full extent of the Investor’s right, with respect to
any Voting Stock to be voted in accordance with the foregoing voting requirements
related to Alternate Acquisition Transactions, and empowers such attorneys and
proxies to exercise all voting rights in accordance with the provisions of Section 7.4(d)(iv)(z) (including,
the power to execute and deliver written consents with respect to such Voting
Stock) of the Investor at any time prior to termination of this Section 7.4
at every annual, special or adjourned meeting of the stockholders of the
Company and in every written consent in lieu of such meeting.  The Investor confirms that this proxy is
irrevocable, is coupled with an interest, and is granted in consideration of
the Company entering into this Agreement.

 

Section 7.5.                                   Notice Rights.  From the Closing until the date on which the
Investor ceases to Beneficially Own 10% or more of the Total Voting Power of
the Company, the Company shall keep the Investor informed, on a current basis,
of any events, discussions, notices or changes with respect to any tax (other
than ordinary course communications which could not reasonably be expected to
be material to the Company and its Subsidiaries), criminal or 

 

28

 

regulatory investigation
or action involving the Company or any of its Subsidiaries (in the case of
regulatory investigations or actions, other than ordinary course communications
which could not reasonably be expected to be material to the Company, its
Subsidiaries or the Investor), and shall reasonably cooperate with the
Investor, its members and partners, Affiliates and Representatives in an effort
to avoid or mitigate (with no adverse effect to the Company) any cost or
regulatory consequences to the Investor, its members and partners and
Affiliates that might arise from such investigation or action (including by
reviewing written submissions in advance, attending meetings with authorities
and coordinating and providing assistance in meeting with regulators); provided that, the Investor shall reimburse the Company for
any costs incurred in connection with such efforts.

 

ARTICLE VIII

TERMINATION

 

Section 8.1.                                   Termination.  This
Agreement may be terminated at any time prior to the Closing:

 

(a)                                  by
mutual written agreement of the Company and the Investor;

 

(b)                                 by
either the Company or the Investor, upon written notice to the other, in the
event that the Closing does not occur on or before December 31, 2008; provided, however; the right to terminate this Agreement
pursuant to this Section 8.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement shall have been the
cause of, or shall have resulted in, the failure of the Closing to occur on or
prior to such date;

 

(c)                                  by
either the Company or the Investor, upon written notice to the other party, in
the event that any Governmental Entity shall have issued any order, decree or
injunction or taken any other action restraining, enjoining or prohibiting any
of the transactions contemplated by this Agreement, and such order, decree,
injunction or other action shall have become final and nonappealable;

 

(d)                                 by
the Investor, upon written notice to the Company, if the Company shall have
entered into a definitive agreement to effect a Superior Transaction (it being
understood that the Company shall pay the Termination Fee to the Investor in
accordance with Section 9.8(b)(i));

 

(e)                                  by
the Company, upon written notice to the Investor, if the Company shall have
entered into a definitive agreement to effect a Superior Transaction in
compliance with the provisions of Section 6.4(c) and prior to or
concurrently with such termination the Company pays the Termination Fee to the
Investor; or

 

(f)                                    by
the Company, upon written notice to the Investor, within ten (10) Business
Days after the Company has received a Reservation Notice from the Investor.

 

29

 

Section 8.2.                                   Effects of Termination. 
In the event of the termination of this Agreement as provided in Section 8.1,
this Agreement (other than Article IX which shall remain in full force and
effect) shall forthwith become wholly void and of no further force and effect; provided that nothing herein shall relieve any party from
liability for intentional breach of this Agreement.

 

ARTICLE IX

MISCELLANEOUS

 

Section 9.1.                                   Interpretation; Certain Definitions

 

(a)                                  Interpretation.  When
a reference is made in this Agreement to “Preamble,” “Articles,” “Sections” or “Annexes,”
such reference shall be to a Preamble, Article or Section of, or
Annex to, this Agreement unless otherwise indicated.  The terms defined in the singular have a
comparable meaning when used in the plural, and vice versa.  The table of contents and headings contained
in this Agreement are for reference purposes only and are not part of this
Agreement.  Whenever the words “include,”
“includes” or “including” are used in this Agreement, they shall be deemed
followed by the words “without limitation.” 
No rule of construction against the draftsperson shall be applied
in connection with the interpretation or enforcement of this Agreement, as this
Agreement is the product of negotiation between sophisticated parties advised
by counsel.  All references to “$” or “dollars”
mean the lawful currency of the United States of America.  Except as expressly stated in this Agreement,
all references to any statute, rule or regulation are to the statute, rule or
regulation as amended, modified, supplemented or replaced from time to time
(and, in the case of statutes, include any rules and regulations
promulgated under the statute) and to any section of any statute, rule or
regulation include any successor to the section. References to “words of
similar import” with respect to Material Adverse Effect or materiality, does
not include knowledge qualifiers.

 

(b)                                 Certain Definitions. 
As used in this Agreement, the terms have the following meanings:

 

“10b-5 Representation” shall have the meaning set
forth in Section 1.1(c).

 

“Acquired Shares” shall have the meaning set forth in Section 2.1(a).

 

“Acquisition
Transaction” means a (A) a merger, joint venture, partnership,
consolidation, dissolution, liquidation, tender offer, recapitalization,
reorganization, share exchange, business combination or similar transaction
involving the Company or (B) any other direct or indirect acquisition
involving 50% or more of the total voting power of the Company, or all or
substantially all of the consolidated total assets (including equity securities
of its Subsidiaries) of the Company.

 

“Additional Acquired Shares” shall have the meaning
set forth in Section 2.1(a).

 

“Additional Purchase Commitment” shall have the
meaning set forth in Section 2.1(a).

 

30

 

“Additional Shares” shall have the meaning set forth
in Section 7.4(b).

 

“Adjustments” shall have the meaning set forth in
Section 6.1.

 

“Affiliate” of any Person means any other Person
directly or indirectly Controlling or Controlled by or under direct or indirect
common Control with such Person; provided, for
purposes of this Agreement, the Company and its subsidiaries shall not be
deemed to be Affiliates of the Investor.

 

“Aggregate Offered Shares” shall have the meaning set
forth in Section 1.1(d).

 

“Agreement” shall have the meaning set forth in the
Preamble.

 

“Alternate
Acquisition Transaction” shall have the meaning set forth in Section 7.4(d).

 

“Ancillary Agreement” means the Registration Rights
Agreement, the Certificate of Designation and the officer’s certificates to be
delivered pursuant to Section 5.2(c) or 5.3(c), as applicable.

 

“Award Agreements” shall have the meaning set forth in
Section 6.11(c).

 

“Backstop Acquired Shares” shall have the meaning set
forth in Section 1.2(a).

 

“Backstop Commitment” shall have the meaning set forth
in Section 1.2(a).

 

Any Person shall be deemed to “Beneficially Own”, to
have “Beneficial Ownership” of, or to be “Beneficially Owning” any securities
(which securities shall also be deemed “Beneficially Owned” by such Person)
that such Person is deemed to “beneficially own” within the meaning of Rules 13d-3
and 13d-5 under the Exchange Act as in effect on the date of this Agreement; provided that any Person shall be deemed to Beneficially Own
any securities that such Person has the right to acquire, whether or not such
right is exercisable immediately (including, except where otherwise
specifically provided in this Agreement, assuming conversion of all Preferred
Stock, if any, owned by such Person to Common Stock).

 

“Blau Agreement” shall have the meaning set forth in Section 6.11(b).

 

“Board” means the board of directors of the Company.

 

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

 

“Capital Stock” means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in (however designated) stock or equity securities issued by the
Company.

 

“Certificate of Designation” means the Certificate of
Designation related to the Preferred Stock, substantially in the form attached as Annex I hereto.

 

31

 

“Certified Ownership Percentage” shall have the
meaning set forth in Section 5.2(d).

 

“Closing” shall have the meaning set forth in Section 1.2(b).

 

“Closing Date” shall have the meaning set forth in Section 1.2(b).

 

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

 

 “Common Stock”
means the common stock, par value $0.25 per share, of the Company.

 

“Company” shall have the meaning set forth in the
Preamble.

 

“Company Contract” means any Contract to which the
Company or any of its Subsidiaries is a party or by which any of them is
otherwise bound.

 

“Company Financial Statements” shall have the meaning
set forth in Section 3.8(b).

 

“Company SEC Documents” shall have the meaning set
forth in Section 3.8(a).

 

“Confidentiality Agreement” means the Confidentiality
Agreement between the Company and the Investor dated July 1, 2008.

 

“Contract” means any contracts, agreements, licenses,
notes, bonds, mortgages, indentures, commitments, leases or other instruments
or obligations, whether written or oral.

 

“Control” has the meaning specified in Rule 12b-2
under the Exchange Act.

 

“DGCL” means the General Corporation Law of the State
of Delaware.

 

“Dilutive Issuance” shall have the meaning set forth
in Section 7.4(b).

 

“Effect” shall have the meaning set forth in the
definition of “Material Adverse Effect.”

 

“Employee” means each
current, former, or retired employee, director or officer of the Company or any
of its Subsidiaries.

 

“Employment Agreement”
means each written employment or severance agreement between the Company or any
of its Subsidiaries and any Employee.

 

“Equity Cap Percentage” means, 27.9%; provided, in the event that the Certified
Ownership Percentage exceeds 2%, the Equity Cap Percentage shall be, effective
as of immediately prior to the Closing, reduced by the amount that the
Certified Ownership Percentage exceeds 2%.

 

“Equity Investment” means the direct purchase of
Capital Stock; provided that an Equity
Investment shall not include any purchase in connection with (i) a change
of control transaction 

 

32

 

involving the Company or its stockholders, (ii) the liquidation, dissolution or
reorganization of the Company, (iii) a sale or other disposition of all or
substantially all of the assets of the Company or (iv) an Acquisition
Transaction.

 

“ERISA” means the Employee Retirement Income Security
Act of 1974, as amended.

 

“Event Notice” shall have the meaning set forth in Section 5.3(a).

 

“Excess Common Stock” shall have the meaning set forth
in Section 2.2(a).

 

“Excess Voting Stock” shall have the meaning set forth
in Section 7.3(c)(iii).

 

“Exchange Act” shall have the meaning set forth in Section 3.8(a).

 

“Excluded Issuance” means, any issuances of Voting
Stock (1) upon conversion of any convertible securities which are
outstanding on the date hereof (including issuances of securities upon any
payment of dividends on, redemption of, or otherwise payable with respect to
Common Stock), (2) pursuant to employee or director stock option or
incentive compensation or similar plans outstanding as of the date hereof or,
subsequent to the date hereof, approved by the Board or a duly authorized
committee of the Board, (3) pursuant to a registration statement declared
effective by the SEC, or prospectus approved by the appropriate functional
regulator under the applicable securities Laws of any foreign jurisdiction, for
which the Voting Stock so registered is to be offered and sold to the broad
investing public by means of an underwritten offering or (4) pursuant to
any merger, joint venture, partnership, consolidation, dissolution,
liquidation, tender offer, recapitalization, reorganization, share exchange,
business combination or similar transaction or any other direct or indirect
acquisition by the Company whereby Voting Stock comprises, in whole or in part,
the consideration paid by the Company in such transaction.

 

“Expense Cap” shall have the meaning set forth in Section 9.8(a).

 

“GAAP” means generally accepted accounting principles.

 

“Government Contract” means any Contract with a
Governmental Entity either as a prime contractor or as a subcontractor at any
tier to which the Company or any of its Subsidiaries is or has been a party,
including but not limited to any service contract, indefinite
delivery/indefinite quantity contract, schedule contract, blanket purchase
agreement, or task or delivery order.

 

“Governmental Entity” means any domestic or foreign
governmental or regulatory authority, agency, commission, body, court or other
legislative, executive or judicial governmental entity.

 

“Griffon Marks” has the meaning set forth in Section 6.13.

 

33

 

“Group” has the meaning set forth in Section 13(d) of
the Exchange Act as in effect on the date of this Agreement.

 

“HSR Act” shall have the meaning set forth in Section 6.3.

 

“Information” shall have the meaning set forth in Section 6.12(b).

 

“Initial Investor Designees” means, each Investor
Nominee that the Investor would be entitled to nominate to the Board in
accordance with Section 7.2(a) had an election of directors taken
place on the Closing Date after giving effect to the Closing; provided that,
under no circumstances shall there be more than two (2) Initial Investor
Designees.

 

“Investor” shall have the meaning set forth in the
Preamble.

 

“Investor Directors” means Investor Nominees who are
elected or appointed to serve as members of the Board in accordance with this
Agreement.

 

“Investor Nominees” means such Persons as are so
designated by the Investor, as such designations may change from time to time
in accordance with this Agreement, to serve as members of the Board pursuant to
Section 7.2(a) hereof.

 

 “Kramer Shares”
shall have the meaning set forth in Section 5.3(i).

 

“Law” means any federal, state, local or foreign law
(including the Foreign Corrupt Practices Act of 1977, as amended, and the laws
implemented by the Office of Foreign Assets Control, United States Department
of Treasury), statute or ordinance, common law, or any rule, regulation,
judgment, order, writ, injunction, decree, arbitration award, license or permit
of any Governmental Entity.

 

“Material Adverse Effect” means any event, state of
facts, circumstance, development, change, effect or occurrence (an “Effect”) that (i) is materially adverse to the
financial condition, business, properties, assets, liabilities or results of
operations of the Company and its Subsidiaries taken as a whole, other than any
Effect: (A) arising from changes or developments in the economy or financial
markets generally, except to the extent such changes or developments have a disproportionate
impact on the Company and its Subsidiaries, taken as a whole, relative to other
participants in the industries in which the Company and its Subsidiaries conduct
their businesses; (B) arising from general changes or developments in any
industry in which the Company and its Subsidiaries operate (C) arising from the
announcement or pendency of the transactions contemplated by this Agreement; (D) arising
from compliance with the terms of, or the taking of any action required by,
this Agreement; (E) arising from changes in any Law or GAAP or
interpretation thereof, except to the extent such changes have a disproportionate
impact on the Company and its Subsidiaries, taken as a whole, relative to other
participants in the industries in which the Company and its Subsidiaries
conduct their businesses; (F) arising from the failure by the Company to meet
any  public or other estimates, budgets
or forecasts of revenues, earnings or other financial performance or results of
operations; or (G) arising from a decline in the price or trading 

 

34

 

volume of the Common Stock or (ii) is materially
adverse to the ability of the Company to consummate the transactions
contemplated by this Agreement.

 

“Nominating Committee” has the meaning set forth in Section 7.1(a).

 

“Non-Investor Director” means any member of the Board
that is not an Investor Director.

 

“NYSE” shall have the meaning set forth in Section 3.5(b).

 

“Options” shall have the meaning set forth in Section 6.11(c).

 

“Person” means any individual, corporation (including
not-for-profit), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, Governmental Entity or
other entity of any kind or nature.

 

“Pre-Closing Period” shall have the meaning set forth
in Section 6.1.

 

“Preferred Stock” means the Series C Convertible
Preferred Stock, having the terms set forth in the Certificate of Designation.

 

“Previously
Disclosed” means (i) information set forth in or incorporated in
the Company’s Annual Report on Form 10-K for the fiscal year ended September 30,
2007 or its other reports and forms filed with the SEC under Sections 13(a),
14(a) or 15(d) of the Exchange Act on or after October 1, 2007
(except for risks and forward looking information set forth or incorporated in
the section “Risk Factors” in the Form 10-K or in any forward looking
statement disclaimers or similar statements that are similarly non-specific and
are predictive or forward looking in nature) and (ii) the information set
forth in the Schedules corresponding to the provision of this Agreement to
which such information relates (provided that any disclosure with respect to a
particular paragraph or section of this Agreement or the Schedules shall be
deemed to be disclosed for other paragraphs and sections of the Agreement and
the Schedules to the extent that the relevance of such disclosure would be
reasonably apparent to a reader of such disclosure).

 

“Prospectus” shall have the meaning set forth in Section 1.1(c).

 

“Record Date” means the date as of which each holder
of Common Stock shall be offered one Right for each share of Common Stock held
as of such date, which date shall be selected by the Board in accordance with
the DGCL and the requirements of the NYSE.

 

“Registration Effective Date” shall have the meaning
set forth in Section 1.1(d).

 

“Registration Rights Agreement” shall have the meaning
set forth in Section 5.3(g).

 

“Registration Statement” shall have the meaning set
forth in Section 1.1(a).

 

35

 

“Representatives” means, with respect to a Person,
such Person’s directors, officers, investment bankers, attorneys, accountants
and other advisors or representatives.

 

“Requisite Amount of Preferred Stock” means that
number of shares of Preferred Stock that is convertible into, in accordance
with its terms, a number of shares of Common Stock equal to the applicable
Excess Common Stock in lieu of which such Preferred Stock was issued in the
transactions contemplated by this Agreement.

 

“Reservation Notice” shall have the meaning set forth
in Section 5.3(a).

 

“Right” means one transferable right to subscribe for such
number of shares of Common Stock at the Rights Subscription Price these by
entitling the holders these of, in the aggregate, to subscribe for the
aggregate offered shares.

 

“Rights Offering” shall have the meaning set forth in Section 1.1(d).

 

“Rights Subscription Price” means a price per share
equal to $8.50.

 

“Schedules” means the disclosure schedules delivered
by the Company to the Investor concurrently with the execution of this
Agreement.

 

“SEC” means the Securities and Exchange Commission.

 

“Securities Act” shall have the meaning set forth in Section 3.8(a).

 

“Shortfall Amount” shall have the meaning set forth in
Section 2.1(a).

 

“Significant Subsidiary” means any Subsidiary of the
Company where (1) the Company’s and its Subsidiaries’ investments in and
advances to the Subsidiary exceed 10 percent of the total assets of the Company
and its Subsidiaries consolidated as of the end of the most recently completed
fiscal year, (2) the Company’s and its Subsidiaries’ proportionate share
of the total assets (after intercompany eliminations) of the Subsidiary exceeds
10 percent of the total assets of the Company and its Subsidiaries consolidated
as of the end of the most recently completed fiscal year, or (3) the
equity in the income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in accounting principle
of the Subsidiary exceeds 10% of such income of the Company and its
Subsidiaries consolidated for the most recently completed fiscal year.

 

“Stock Plan(s)” shall have the meaning set forth in Section 6.11(c).

 

“Subscription Notice” shall have the meaning set forth
in Section 1.2(a).

 

“Subscription Period” shall have the meaning set forth
in Section 1.1(d).

 

“Subsidiary” means any Person (whether or not incorporated)
that the Company directly or indirectly owns or in respect of which the Company
has the power to vote or control 50% or more of any class or series of capital
shares or other equity interests of such Person.

 

36

 

“Superior Transaction” means a bona fide written
Acquisition Transaction that the Board has determined in good faith after
receiving the advice of its financial advisors and outside legal counsel and in
the exercise of its fiduciary duties is in the best interests of the Company’s
stockholders.

 

“Termination Fee” means 3% of the product of (x) the
number of shares of Common Stock issuable upon exercise of the Rights and (y) the
Rights Subscription Price.

 

“Total Voting Power of
the Company” means the total number of votes that may be cast in the election
of directors of the Company if all Voting Stock and Preferred Stock (assuming
conversion of such Preferred Stock to Common Stock at the ratio set forth in
the Certificate of Designation immediately prior to such election of directors)
treated as outstanding pursuant to the final two sentences of this definition
were present and voted at a meeting held for such purpose.  The percentage of the Total Voting Power of
the Company Beneficially Owned by any Person is the percentage of the Total
Voting Power of the Company that is represented by the total number of votes
that may be cast in the election of directors of the Company by Voting Stock
Beneficially Owned by such Person. In calculating such percentage, the Voting
Stock Beneficially Owned by any Person that are not outstanding but are subject
to issuance upon exercise or exchange of rights of conversion or any options,
warrants or other rights Beneficially Owned by such Person shall be deemed to
be outstanding for the purpose of computing the percentage of the Total Voting
Power of the Company represented by Voting Stock Beneficially Owned by such
Person, but shall not be deemed to be outstanding for the purpose of computing
the percentage of the Total Voting Power of the Company represented by Voting
Stock Beneficially Owned by any other Person.

 

“Transaction Fee” shall have the meaning set forth in Section 2.1(c).

 

“Voting Stock” means Capital Stock of the Company of
the class or classes pursuant to which the holders thereof have the general
voting power under ordinary circumstances (determined without regard to any
classification of directors) to elect at least a majority of the Board,
managers or trustees of the Company (irrespective of whether or not at the time
Capital Stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).

 

“Waived Fact” shall have the meaning set forth in Section 5.3(a).

 

Section 9.2.                                   Survival.  Each
of the representations and warranties in this Agreement (or any certificate
delivered pursuant hereto) shall survive the execution and delivery of this
Agreement and the Closing but only for a period of twelve (12) months following
the Closing Date;  provided
that the representations and warranties set forth in Sections 3.1, 3.2, 3.3.,
and 3.4 and the 10b-5 Representation,
and corresponding representations and warranties in the officer’s certificate
to be delivered pursuant to Section 5.3(c), shall survive the execution
and delivery of this Agreement and the Closing indefinitely (or, in each case,
until final resolution of any claim or actions arising from the breach of any
such representation and warranty, if written notice of 

 

37

 

such
breach (including, in reasonable detail, the basis for the claimed breach) was
provided prior to the end of such survival period).

 

Section 9.3.                                   Indemnification.

 

(a)                                  Notwithstanding
anything in this Agreement to the contrary (including Section 9.8(a)),
from and after the date hereof the Company agrees to indemnify and hold
harmless the Investor and its Affiliates and each of their respective officers, directors, partners, employees, agents
and Representatives (the “Indemnified
Parties” and each, an “Indemnified
Party”), to the fullest extent lawful, from and against any and all
actions, suits, claims, proceedings, costs, losses, liabilities, damages,
expenses (including reasonable and documented fees of counsel), amounts paid in
settlement and other costs (collectively, “Losses”)
arising out of or relating to (1) the Rights Offering, the Registration
Statement or the Prospectus; provided, however, that the Company shall not be liable in any such
case to the extent that any such Loss arises out of or is based on statements
made in reliance upon and in conformity with written information contained in
any of the foregoing documents that was furnished to the Company by or on
behalf of the Investor specifically for use therein, or (2) claims, suits or proceedings challenging the
authorization, execution, delivery, performance or termination of the Rights
Offering, this Agreement and/or any Ancillary Agreement and/or any of the
transactions contemplated hereby or thereby (other than any such Losses
attributable to the acts, errors or omissions on the part of the Investor in
violation of this Agreement). 
Notwithstanding the above, (i) other than with respect to Losses
arising out of or incurred in connection with class action lawsuits brought against
the Company and/or any of its directors or by any stockholders of the Company
or a derivative action brought on behalf of the Company in each case relating
to matters for which the Indemnified Parties are otherwise entitled to
indemnification pursuant to Section 9.3(a)(1) or (2) above (as
to which there shall be indemnity hereunder), there shall be no
indemnity hereunder in respect of any Losses resulting from any action that the
Investor (or its transferees) takes, fails to take or proposes to take (in each
case, other than as required pursuant to this Agreement) in its capacity as a
stockholder of the Company from and after the Closing Date and (ii) there
shall be no indemnity hereunder in respect of any Losses resulting from any
order, decree or injunction issued by any Governmental Entity restraining,
enjoining or prohibiting any of the transactions contemplated by this Agreement
under the HSR Act or any competition or merger control laws of other jurisdictions.

 

(b)                                 An
Indemnified Party shall give written notice to the Company of any claim with
respect to which it seeks indemnification promptly after the discovery by such
Indemnified Party of any matters giving rise to a claim for indemnification
pursuant to Section 9.3(a); provided that
the failure of any Indemnified Party to give notice as provided herein shall
not relieve the Company of its obligations under this Section 9.3 unless
and to the extent that the Company shall have been actually prejudiced by the
failure of such Indemnified Party to so notify such the Company  Such notice shall describe in reasonable
detail such claim.  In case any such
action, suit, claim or proceeding is brought against an Indemnified Party, the
Indemnified Party shall be entitled to hire, at its own expense, separate
counsel and participate in the defense thereof; provided,
however, that the Company shall be
entitled to assume and conduct the 

 

38

 

defense, unless the
Company determines otherwise and following such determination the Indemnified
Party assumes responsibility for conducting the defense (in which case the
Company shall be liable for any reasonable and documented legal fees and
expenses of one law firm retained by the Indemnified Party and other reasonable
and documented out of pocket expenses reasonably incurred by the Indemnified
Party in connection with assuming and conducting the defense) and provided, further, that if the Company is
conducting the defense the Company shall be liable for any reasonable and documented
legal fees and expenses of one law firm retained by the Indemnified Party and
other reasonable and documented out of pocket expenses reasonably incurred by
the Indemnified Party in connection with such claim if the Indemnified Party
reasonably shall have concluded (upon advice of its counsel) that there are one
or more legal defenses available to the Indemnified Party that are not
available to the Company or the Indemnified Party shall have concluded (upon
advice of its counsel) that, with respect to such claim, the Indemnified Party
and the Company have different, conflicting or adverse legal positions or
interests. If the Company assumes the defense of any claim, all Indemnified
Parties shall thereafter deliver to the Company copies of all notices and
documents (including court papers) received by the Indemnified Party relating
to the claim, and any Indemnified Party shall cooperate in the defense or
prosecution of such claim. Such cooperation shall include the retention and
(upon the Company’s request) the provision to the Company of records and
information that are reasonably relevant to such claim and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Company shall not be liable
for any settlement of any action, suit, claim or proceeding effected without
its written consent.  The Company further
agrees that it will not, without the Indemnified Party’s prior written consent,
settle or compromise any claim or consent to entry of any judgment in respect
thereof in any pending or threatened action, suit, claim or proceeding in
respect of which indemnification has been sought hereunder unless such
settlement or compromise includes an unconditional release of such Indemnified
Party from all liability arising out of such action, suit, claim or proceeding.

 

(c)                                  The
obligations of the Company under this Section 9.3 shall survive the
Closing or termination of this Agreement or any Ancillary Agreement and the transfer,
redemption or conversion of the Acquired Shares. The agreements contained in
this Section 9.3 shall be in addition to any other rights of the
Indemnified Party against the Company or others, under this Agreement any
Ancillary Agreement, at law or in equity.

 

Section 9.4.                                   Legends.  The Investor agrees with the Company that each
share of Common Stock purchased by the Investor pursuant to the Backstop
Commitment or the Additional Purchase Commitment and any Preferred Stock
purchased by the Investor shall contain a legend substantially to the following
effect until the date that is one year after the later of the date of issuance
or the last date on which the Company or any Affiliate of the Company was the
owner thereof, unless the Company determines otherwise in accordance with
applicable Law:

 

THESE SHARES ARE HELD BY AN ‘‘AFFILIATE’’ OF
GRIFFON CORPORATION, AS DEFINED BY RULE 144 UNDER THE SECURITIES 

 

39

 

ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).
ACCORDINGLY, THE COMPANY WILL NOT PERMIT THE SHARES REPRESENTED BY THIS
CERTIFICATE TO BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED TO A PROSPECTIVE TRANSFEREE UNLESS SUCH TRANSFER IS
ACCOMPANIED BY AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSACTION IS IN
COMPLIANCE WITH THE SECURITIES ACT OR SUCH TRANSFER IS CONDUCTED PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT.

 

THESE SHARES ARE SUBJECT TO RESTRICTIONS PURSUANT TO THE INVESTMENT AGREEMENT
DATED AUGUST 7, 2008 AMONG GRIFFON CORPORATION AND GS DIRECT, L.L.C., AS
AMENDED FROM TIME TO TIME.

 

Section 9.5.                                   Notices.  All notices and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given (a) on the date of
delivery, if delivered personally or by facsimile, upon confirmation of
receipt, (b) on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier services, or (c) on the third
Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid, to the parties to
this Agreement at the following address or to such other address either party
to this Agreement shall specify by notice to the other party:

 

	
  If to the Company:

  
	
   

  
	
  Griffon
  Corporation

  100 Jericho
  Quadrangle

  Jericho, New
  York 11753

  Attention:   Chief Executive Officer

  Facsimile:  (516) 938-5644

  
	
   

  
	
  With a copy to
  (which shall not constitute notice):

  
	
   

  
	
  Dechert LLP

  1095 Avenue of
  the Americas

  New York, NY
  10036

  Attention:  Martin Nussbaum

  Derek
  Winokur

  Facsimile:  (212) 698-3599 

  

 

40

 

	
  If
  to the Investor:

  
	
   

  
	
  GS
  Direct, L.L.C.

  c/o Goldman,
  Sachs & Co.

  
	
  85
  Broad Street

  New
  York, NY 10004

  Attention:   Gerald Cardinale and Bradley J. Gross

  Facsimile:  (212) 357-5505

  
	
   

  
	
  With a copy to
  (which shall not constitute notice):

  
	
   

  
	
  Fried,
  Frank, Harris, Shriver & Jacobson LLP

  One
  New York Plaza

  New
  York, NY 10004

  Attention:   Robert C. Schwenkel

  Facsimile:  (212) 859-4000

  

 

Section 9.6.                                   Further Assurances.  Each party hereto shall
do and perform or cause to be done and performed all further acts and shall
execute and deliver all other agreements, certificates, instruments and
documents as any other party hereto reasonably may request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

 

Section 9.7.                                   Amendments and Waivers.  Any
provision of this Agreement may be amended or waived if, but only if, such
amendment or waiver is in writing and is duly executed and delivered by the
Company and the Investor.  No failure or
delay by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by Law.

 

Section 9.8.                                   Fees and Expenses.

 

(a)                                  Expenses.

 

(i)                                     Each
party hereto shall pay all of its own fees and expenses (including attorneys’
fees) incurred in connection with this Agreement and the transactions
contemplated hereby; provided, however, if (x) the Closing is consummated or (y) this
Agreement is terminated pursuant to (1) Section 8.1(b) and the
Investor is not then in breach of this Agreement, or (2) Section 8.1 (c) (other
than with respect to an order, decree or injunction under the HSR Act or any competition or merger control laws of other jurisdictions), (d), (e) or (f), then, in each case,
the Company will reimburse the
Investor for all reasonable and actual out-of-pocket expenses incurred by the
Investor in connection with this Agreement and the transactions
contemplated hereby, up to a maximum amount of one and one-half million dollars
($1,500,000) (the “Expense Cap”).   Notwithstanding the foregoing, the Company
and the Investor agree that amounts payable by the Company pursuant to Sections
6.3 and 9.3 shall be outside of the Expense Cap and shall not be taken into
account in calculating the Expense Cap.

 

41

 

(ii)                                  Payment
of Investor’s expenses by the Company pursuant to this Section 9.8(a) shall
be made at the Closing or, if this Agreement is terminated, no later than five (5) Business
Days after delivery to the Company of written notice of (1) demand for
payment after, the termination of this Agreement, and (2) a documented
itemization setting forth in reasonable detail all such expenses.

 

(b)                                 Termination Fee.

 

(i)                                     In
the event that this Agreement is terminated by the Investor pursuant to Section 8.1(d) or
the Company pursuant to Section 8.1(e), then the Company shall,
simultaneously with such termination (in the case of a termination by the
Company) or immediately following such termination (in the case of a
termination by the Investor), pay the Investor the Termination Fee in
accordance with Section 9.8(c).

 

(ii)                                  Notwithstanding
anything to the contrary in this Agreement, the parties hereby acknowledge that
in the event that the Termination Fee becomes payable and is paid by the
Company pursuant to this Section 9.8, the Termination Fee (and reimbursement
of any expenses pursuant to Section 9.8(a)) shall, absent fraud, be the
Investor’s sole and exclusive remedy under this Agreement.

 

(c)                                  Any
amount that becomes payable pursuant to Section 9.8(a) or 9.8(b) shall
be paid by wire transfer of immediately available funds to an account
designated by the Investor.

 

Section 9.9.                                   Successors and Assigns.  The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.  This Agreement shall not be assignable by
operation of law or otherwise, provided that,
the Investor shall be permitted, to assign this Agreement to any of its
Affiliates under common control with the Investor’s ultimate parent entity
provided that (i) such assignee shall execute an agreement for the benefit
of the Company in form and substance reasonably satisfactory to the Company,
pursuant to which such proposed assignee agrees to be bound by the terms and
conditions of this Agreement and (ii) that no such assignment shall
relieve the Investor of its obligations hereunder.  Without limiting the foregoing, none of the
rights of the Investor hereunder shall be assigned to, or enforceable by, any
Person to whom an Investor may transfer capital stock of the Company (other
than a transfer to the Investor’s Affiliates to the extent permitted in
accordance with the terms of this Agreement).

 

Section 9.10.                             Governing Law.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

Section 9.11.                             Jurisdiction.  The parties hereto agree
that any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby may only be brought in the United States
District Court for the Southern District of New York or any New York State
court sitting in the 

 

42

 

Borough of Manhattan in
New York City, and each of the parties hereby consents to the jurisdiction of
such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by Law, any objection which it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding in any such court or that
any such suit, action or proceeding which is brought in any such court has been
brought in an inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court.

 

Section 9.12.                             Waiver Of Jury Trial.  EACH
OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

Section 9.13.                             Entire Agreement.  This Agreement, together
with the Ancillary Agreements, constitutes the entire agreement between the
parties with respect to the subject matter of this Agreement and supersedes all
prior agreements and understandings, both oral and written, between the parties
and/or their affiliates with respect to the subject matter of this Agreement.

 

Section 9.14.                             Effect of Headings and Table of Contents.  The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

 

Section 9.15.                             Severability.  If one or more
provisions of this Agreement are held to be unenforceable under applicable Law,
such provision shall be deemed to be excluded from this Agreement and the
balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforced in accordance with its terms to the maximum
extent permitted by Law.

 

Section 9.16.                             Counterparts; No Third Party Beneficiaries.  This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures were upon the same instrument. No provision of this
Agreement shall confer upon any Person other than the parties hereto any rights
or remedies hereunder.

 

Section 9.17.                             Specific Performance. The transactions contemplated by this
Agreement are unique.  Accordingly, each
of the Company and the Investor acknowledges and agrees that, in addition to
all other remedies to which it may be entitled, each of the parties hereto is
entitled to seek a decree of specific performance (except in the circumstances
in which the Termination Fee is payable and paid under Section 9.8(b)),
provided that such party is not in material default hereunder. The Company and
the Investor agree that, if for any reason a party shall have failed to perform
its obligations under this Agreement, then the party seeking to enforce this
Agreement against such nonperforming party shall be entitled to specific
performance and injunctive and other equitable relief, and the parties further
agree to waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other equitable 

 

43

 

relief.  Except in the circumstances in which the
Termination Fee is payable and paid under Section 9.8(b), this provision
is without prejudice to any other rights that any party may have against
another party for any failure to perform its obligations under this Agreement,
including the right to seek damages for a breach of any provision of this
Agreement, and all rights, powers and remedies available (at law or in equity)
to a party in respect hereof by the other party shall be cumulative and not
alternative or exclusive, and the exercise or beginning of the exercise of any
thereof by a party shall not preclude the simultaneous or later exercise of any
other rights, powers or remedies by such party. 
For the avoidance of doubt, in circumstances in which the Termination
Fee is payable and paid, such Termination Fee shall be the Investor’s sole and
exclusive remedy and the Investor shall not be entitled to specific performance
or any other form of equitable relief.

 

[Remainder of page intentionally
left blank]

 

44

 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective authorized officers as
of the day and year first above written.

 

	
   

  	
  GRIFFON CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald J.
  Kramer

  
	
   

  	
  Name:

  	
  Ronald J. Kramer

  
	
   

  	
  Title: 

  	
  Chief Executive
  Officer

  
	
   

  	
   

  
	
   

  	
  GS DIRECT, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Bradley J.
  Gross

  
	
   

  	
  Name:

  	
  Bradley J. Gross

  
	
   

  	
  Title:

  	
  Managing
  Director

  

 

 

CERTIFICATE
OF DESIGNATION OF

SERIES
C CONVERTIBLE PREFERRED STOCK

 $0.25 PAR VALUE OF

GRIFFON
CORPORATION

 

Pursuant
to Section 151 of the

General Corporation Law of the State of Delaware

 

Griffon Corporation (the “Company”), a corporation organized and existing
under the laws of the State of Delaware, certifies that pursuant to the
authority contained in its Certificate of Incorporation, as amended from time
to time (the “Certificate of Incorporation”),
and in accordance with the provisions of Section 151 of the DGCL, the
Board of Directors of the Company has duly approved and adopted the following
resolution on September [    ], 2008 (the “Resolution”):

 

RESOLVED, that pursuant to
the authority vested in the Board of Directors by the Certificate of Incorporation,
and Section 151 of the DGCL, the Board of Directors does hereby designate,
create, authorize and provide for the issue of a series of
[                      ]
shares of Series C Convertible Preferred Stock, $0.25 par value per share,
having the designations, preferences, relative, participation, optional and
other special rights and the qualifications, limitations and restrictions
thereof that are set forth in the Certificate of Incorporation and in this
Resolution as follows:

 

(a)   Definitions.

 

As used in this Certificate
of Designation, the following terms shall have the following meanings (with
terms defined in the singular having comparable meanings when used in the
plural and vice versa), unless the context otherwise requires:

 

“Affiliate” of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, “control” when
used with respect to any Person has the meaning specified in Rule 12b-2
under the Exchange Act; and the terms “controlling” and “controlled” have
meanings correlative to the foregoing.

 

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

 

“Business Day” means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the Borough of
Manhattan, The City of New York, New York are authorized or obligated by law or
executive order to close or a day on which securities are not traded on the
NYSE or other market or exchange on which the Company’s securities are traded.

 

“Capital Stock” means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) stock issued by the Company.

 

“Certificate of Designation” shall have the meaning ascribed to
it in the recitals hereof.

 

“Certificate of Incorporation” shall have the meaning ascribed
to it in the recitals hereof.

 

“Company” shall have the meaning ascribed to it in the recitals
hereof.

 

“Common Stock” means the common stock, par value $0.25 per
share, of the Company now or hereafter authorized to be issued.

 

“Common Stock True-up” shall have the meaning ascribed to it in
paragraph (d) hereof.

 

“Consideration” shall have the meaning ascribed to it in
paragraph (h)(1) hereof.

 

 

“Conversion Rate” shall have the meaning ascribed to it in
paragraph (g)(ii) hereof.

 

“DGCL” means the General Corporation Law of the State of
Delaware.

 

“Excess Common Stock” shall have the meaning ascribed to it in
paragraph (h)(1) hereof.

 

“Exchange Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

 

“Holder” means a holder of shares of Series C Preferred
Stock as reflected in the share books of the Company.

 

“Issue Date” means [·].

 

“Liquidation” shall have the meaning ascribed to it in
paragraph (d) hereof.

 

“Market Price” means (x) the average closing price of a
share of Common Stock for the ten (10) consecutive Business Days
immediately preceding, but not including, the date of as of which the Market
Price is to be determined as reported on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
or (y) if not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices during such ten
Business Day period in the over-the-counter market as published by the OTC
Bulletin Board or any comparable system or (z) in all other cases, as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive absent manifest error.

 

“NYSE” means the New York Stock Exchange.

 

“Person” means any individual, company, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.

 

“Proposal” shall have the meaning ascribed to it in paragraph (i) hereof.

 

“Requisite Amount of Preferred Stock” means that number of
shares of Preferred Stock that is convertible into, in accordance with its
terms, a number of shares of Common Stock equal to the applicable Excess Common
Stock in lieu of which such Preferred Stock was issued.

 

“Resolution” shall have the meaning ascribed to it in the
recitals hereof.

 

“Series C Liquidation Preference” shall have the meaning
ascribed to it in paragraph (d) hereof.

 

“Series C  Preferred
Stock” shall have the meaning ascribed to it in paragraph (b) hereof.

 

“shares of Common Stock” shall have the meaning ascribed to it
in paragraph (h)(3) hereof.

 

“Voting Stock” means Capital Stock of the class or classes
pursuant to which the holders thereof have the general voting power under
ordinary circumstances (determined without regard to any classification of
directors) to elect at least a majority of the board of directors, managers or
trustees of the Company (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).

 

2

 

(b)   Designation.

 

The shares of the Series shall
be designated “Series C Convertible Preferred Stock” (the “Series C Preferred Stock”), and the number
of shares constituting the Series shall be [          ], $0.25 par value per share.

 

(c)   Ranking.

 

With respect to rights to
participate in distributions or payments under paragraph (h) hereof, the Series C
Preferred Stock shall rank on a parity with the Common Stock.  The Series C Preferred Stock shall rank
junior to the Company’s Series A Preferred Stock, Series A
Participating Preferred Stock, $12.50 Cumulative Redeemable Exchangeable
Preferred Stock, Second Preferred Stock and Second Preferred Stock – Series 1
as to the payment of dividends and any distribution of assets in the event of
liquidation, dissolution or winding up of the Company.

 

(d)   Liquidation Preference.

 

(1)   Upon any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary (a “Liquidation”),
the Holders of the shares of Series C Preferred Stock shall be entitled to
be paid (before any distribution or payment is made upon any Common Stock), an
amount equal to $0.25 per share of Series C Preferred Stock, representing
the liquidation preference per share of the Series C Preferred Stock (the “Series C
Liquidation Preference”); provided, if upon Liquidation, the available
funds and assets to be distributed among the Holders of Series C Preferred
Stock shall be insufficient to permit payment in full to the Holders of Series C
Preferred Stock of the Series C Liquidation Preference, then the entire
available funds and assets of the Company upon liquidation shall be distributed
ratably among such Holders in proportion to the full respective Series C
Liquidation Preference to which they are entitled.

 

(2)   If there are any available
funds or assets of the Company upon Liquidation remaining after the payment or
distribution to the Holders of the Series C Preferred Stock of their full
preferential amounts described above, all such remaining available funds and
assets shall be distributed:

 

(A)  First, among the holders of
the then outstanding Common Stock, with each being entitled to be paid (before
any additional distribution or payment is made upon any Series C Preferred
Stock), an amount equal to the quotient of (x) the Series C
Liquidation Preference, divided by (y) the Conversion Rate (such quotient,
the “Common Stock True-up”); provided, if the available funds or assets
to be distributed among the holders of the Common Stock pursuant to this Section shall
be insufficient to permit payment in full of the Common Stock True-up in
respect of each share of Common Stock, then the entire remaining available
funds and assets of the Company upon Liquidation shall be distributed ratably
among such holders in proportion to the full respective Common Stock True-up to
which they are entitled; and

 

(B)   Second, with respect to all
remaining available funds and assets of the Company upon Liquidation after
payment pursuant to the foregoing clauses (d)(1) and (d)(2)(A), among the
holders of then outstanding Common Stock and the Preferred Stock, pro rata,
according to the number of shares of Common Stock held by such holders, where,
for such purpose Holders of shares of Series C Preferred Stock will be
deemed to hold (in lieu of such Series C Preferred Stock) such number of
shares of Common Stock such Holder would have been entitled to had it converted
such Series C Preferred Stock immediately prior to the happening of such
Liquidation event or any record date with respect thereto.

 

(e)   No Voting Rights.

 

The Series C Preferred
Stock shall have no voting rights and no right to vote as a separate class,
except as required by, and cannot be waived under, the DGCL, and except that
the terms and provisions of this Certificate of Designation may not be altered,
amended or repealed in whole or in part, by merger or otherwise, so as to
adversely affect the powers, preferences or special rights of the shares of Series C
Preferred Stock without the affirmative vote of the Holders of a majority of
the outstanding shares of Series C Preferred Stock, voting together as a
separate class.  For purposes of
clarification, the Series C

 

3

 

Preferred Stock will not have a right to vote on any merger or
consolidation in which the holders of Series C Preferred are entitled to
receive the amount and kind of consideration such holders would have been
entitled to receive if the Series C Preferred  had been converted to Common Stock
immediately prior to the merger or consolidation becoming effective, including
the right to make an election of consideration to the same extent as the
holders of Common Stock are afforded such right.  The Series C Preferred Stock does not
constitute Voting Stock.

 

(f)    Business Day.

 

If any payment, conversion,
redemption or exchange shall be required by the terms hereof to be made on a
day that is not a Business Day, such payment, conversion, redemption or
exchange shall be made on the immediately succeeding Business Day.

 

(g)   Conversion at the Option of the Holder.

 

(1)   Mechanics of Conversion.

 

(i)    Each share of Series C
Preferred Stock may be converted on any date, from time to time, at the option
of the Holder thereof, into the number of shares of Common Stock equal to the
Conversion Rate in effect at such time; provided only such number of Series C
Preferred Stock may be converted to Common Stock as would not cause the Holder
(including any syndicate or group deemed to be a “person” under Section 13(d)(3) of
the Exchange Act) to become the beneficial owner, directly or indirectly, of
shares of Capital Stock of the Company that would entitle it to exercise in
excess of [27.9]% of the aggregate ordinary voting power of all shares of
Voting Stock of the Company (computed after giving effect to the proposed
conversion).

 

(ii)   The right of conversion
attaching to any shares of Series C Preferred Stock may be exercised by
the Holder thereof by delivering the shares to be converted to the office of
the Company, accompanied by a duly signed and completed notice of conversion in
form reasonably satisfactory to the Company, which notice shall include the
number of shares of Common Stock beneficially owned by such Holder (including
any syndicate or group deemed to be a “person” under Section 13(d)(3) of
the Exchange Act) as of the date thereof. The conversion date shall be the date
on which the shares of Series C Preferred Stock and the duly signed and
completed notice of conversion are so delivered. The Person or Persons entitled
to receive the Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Common Stock as of such
conversion date and such Person or Persons shall cease to be a record Holder or
record Holders of the Series C Preferred Stock on that date. As promptly
as practicable on or after the conversion date, the Company shall issue a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, with any fractional shares (after aggregating all Series C
Preferred Stock being converted on such date) rounded up to full shares or, at
the Company’s option, payment in cash in lieu of any fraction of a share, based
on the Market Price of the Common Stock on the Business Day preceding the
conversion date. Such certificate or certificates shall be delivered by the
Company to the appropriate Holder on a book-entry basis or by mailing
certificates evidencing the additional shares to the Holders at their
respective addresses as set forth in the conversion notice.  No payment or adjustment for dividends, or
for any dividends in respect of shares of Common Stock, shall be made upon
conversion.

 

(iii)  The Company shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of the Series C Preferred
Stock, such number of shares of Common Stock as shall from time to time be
issuable upon the conversion of all the shares of Series C Preferred Stock
then outstanding. Any shares of Common Stock issued upon conversion of the Series C
Preferred Stock shall be duly authorized, validly issued and fully paid and
nonassessable and shall rank pari passu with the other shares of Common Stock
outstanding from time to time. The Company shall deliver the shares of Common
Stock received upon conversion of the Series C Preferred Stock to the
converting Holder free and clear of all liens, charges, security interests and
encumbrances. The Company shall use its commercially reasonable efforts to
obtain and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, to comply with all applicable
requirements as to registration or qualification of the Common Stock (and all
requirements to list the Common Stock issuable upon conversion of the Series C
Preferred Stock that are at the time applicable), in order to enable the
Company to lawfully issue Common Stock upon 

 

4

 

conversion
of the Series C Preferred Stock and to lawfully deliver the Common Stock
to each Holder upon conversion of the Series C Preferred Stock.

 

(iv)  The Company shall pay any
and all taxes that may be payable in respect of the issue or delivery of shares
of Common Stock on conversion of Series C Preferred Stock. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of shares of Common Stock in
a name other than that in which the Series C Preferred Stock so converted
were registered, and no such issue or delivery shall be made unless and until
the Person requesting such issue has paid to the Company the, amount of any
such tax, or has established to the satisfaction of the Company that such tax
has been paid.

 

(2)   Conversion Rate.  Each share of Series C Preferred Stock
initially is convertible into one hundred (100) shares of the Company’s common
stock, subject to adjustment as provided herein (the “Conversion Rate”).

 

(h)   Distributions; Certain Transactions;
Conversion Adjustments.

 

(1)   If the Company at any time
or from time to time after the date hereof shall:

 

(i)    distribute to all holders
of Common Stock (including any such distribution made to the shareholders of
the Company in connection with a consolidation or merger in which the Company
is the continuing corporation but excluding the distribution of the
transferable rights issued to holders of Common Stock on [   ], 2008) a dividend or distribution,
including a cash dividend, evidences of its indebtedness, shares of a class of
its capital stock or other property of any nature, or any options, warrants or
other rights to subscribe for or purchase any of the foregoing;

 

(ii)   subdivide its outstanding
shares of Common Stock into a larger number of shares of Common Stock
(including by means of a stock split);

 

(iii)  issue, in a
reclassification of the Common Stock, securities of the Company (including any
such reclassification in connection with a consolidation or merger of the
Company in which the Company is the surviving entity); or

 

(iv)  enter into any capital
reorganization, or any reclassification of the Common Stock, or any
consolidation or merger of the Company with or into any other Person, or any
sale, lease or other transfer of all or substantially all of the assets of the
Company to any other Person,

 

each
Holder of the Series C Preferred Stock shall be entitled to receive, and
provision shall be made in any agreement relating thereto for the payment to
Holders of Series C Preferred Stock of, the kind and number of shares of
Common Stock or other securities or property (including cash) to which such
holder would have been entitled if it had held the number of shares of Common
Stock into which such shares of Series C Preferred Stock were convertible
immediately prior to the happening of such event or any record date with
respect thereto (such securities, property of cash, the “Consideration”).  Notwithstanding the foregoing, in the event
the receipt of additional shares of Common Stock or other securities of the
Company in the Consideration would cause the Holder (including any syndicate or
group deemed to be a “person” under Section 13(d)(3) of the Exchange
Act) to become the beneficial owner, directly or indirectly, of shares of
Capital Stock of the Company that would entitle it to exercise in excess of [27.9]%
of the aggregate ordinary voting power of all shares of Voting Stock of the
Company (computed after giving effect to the receipt of such shares or
securities), the Company agrees to issue to the Holder and the Holder agrees to
accept from the Company, the applicable Requisite Amount of Preferred Stock
(computed at the Conversion Rate) in lieu of that number of shares of Common
Stock or other securities  that would
have been included in the Consideration (such number of shares of Common Stock,
the “Excess Common Stock”) to the
extent necessary to provide that following any such transaction, the Holder
would not be the beneficial owner of shares of Capital Stock of the Company
that would entitle it to exercise in excess of [27.9]% of the aggregate
ordinary voting power of all shares of Voting Stock of the Company.

 

(2)   If the Company at any time
or from time to time after the date hereof shall combine its outstanding shares
of Common Stock into a smaller number of shares of Common Stock, the Conversion
Rate shall be adjusted such that each share of Series C Preferred Stock
shall be convertible into the number of shares of Common Stock it would have
owned in respect thereto has such Series C 

 

5

 

Preferred
Stock been converted immediately prior to the record date for such event.  If the Conversion Rate is adjusted as herein
provided, the Company shall provide each holder of the Series C Preferred
Stock a notice signed by the Chief Financial Officer of the Company setting
forth the adjusted Conversion Rate and showing in reasonable detail the facts
upon which such adjustment is based.

 

(3)   For the purpose of this
paragraph (h), the term “shares of Common
Stock” shall mean (i) the shares of stock designated as the
Common Stock of the Company as of the date hereof and (ii) any and all
securities of any kind whatsoever of the Company or any successor thereof which
may be issued on or after the date hereof in respect of, in exchange for, or
upon conversion of shares of Common Stock pursuant to a merger, consolidation,
stock split, reverse split, stock dividend, recapitalization of the Company or
otherwise.

 

(4)   The Company shall not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms herein or the Series C Preferred Stock,
but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of the Holders of Series C Preferred Stock
in accordance with the foregoing.

 

(i)    Conversion at the Option of the Company.

 

The Company may, at its
election, convert each and every share of Series C Preferred Stock into
the number of shares of Common Stock equal to the Conversion Rate in effect on
the date of such election at any time between the announcement of a Proposal to
be submitted to a stockholder vote and the record date for such vote if the
Company has received the written advice of counsel that it is unable to opine
that the holders of the Series C Preferred Stock would not be entitled to
vote together as a separate class on any such matter.  For purposes of this Section (i) “Proposal”
shall mean a proposal for a bona fide business transaction the primary purpose
of which is not to alter, amend or repeal in whole or in part, by merger or
otherwise, this Certificate of Designation so as to adversely affect the
powers, preferences or special rights of the shares of Series C Preferred
Stock.  The Company shall provide notice
of such election to holders of Series C Preferred Stock specifying the
date on which such conversion will occur and include with such notice
instructions for the submission of certificates representing the Series C
Preferred so converted.

 

(j)    Restrictions on Transfer.

 

Each share of Series C
Preferred Stock shall contain a legend substantially to the following effect
until the date that is one year after the later of the Issue Date or the last date
on which the Company or any Affiliate of the Company was the owner thereof,
unless the Company determines otherwise in accordance with applicable law:

 

THESE SHARES ARE HELD BY AN “AFFILIATE”
OF GRIFFON CORPORATION, AS DEFINED BY RULE 144 UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”). ACCORDINGLY, THE COMPANY WILL NOT
PERMIT THE SHARES REPRESENTED BY THIS CERTIFICATE TO BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED TO A
PROSPECTIVE TRANSFEREE UNLESS SUCH TRANSFER IS ACCOMPANIED BY AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH TRANSACTION IS IN COMPLIANCE WITH THE
SECURITIES ACT OR SUCH TRANSFER IS CONDUCTED PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT.

 

THESE SHARES ARE SUBJECT TO
RESTRICTIONS PURSUANT TO THE INVESTMENT AGREEMENT DATED AUGUST 7, 2008 AMONG
GRIFFON CORPORATION AND GS DIRECT, L.L.C., AS AMENDED FROM TIME TO TIME.

 

[remainder of page intentionally left blank]

 

6

 

IN WITNESS WHEREOF, Griffon
Corporation has caused this Certificate to be duly executed by its duly
authorized officer as of this •th day of September, 2008.

 

	
   

  	
  GRIFFON CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Patrick L. Alesia

  
	
   

  	
   

  	
  Title: Secretary

  

 

7

 

REGISTRATION
RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT
(this “Agreement”) is entered into as of the
       day of [ 
], 2008, by and among Griffon Corporation, a Delaware corporation (the “Company”)
and GS Direct, L.L.C., a Delaware limited liability company (the “Investor”).

 

WHEREAS,
pursuant to an investment agreement dated as of August 7, 2008 (the “Investment
Agreement”), the Investor wishes to subscribe for and purchase, and the
Company, desires to issue and sell, certain shares of the Company’s Common
Stock (as defined below) not subscribed for pursuant to a rights offering
whereby each holder of Common Stock as of August [•], 2008 shall be offered one right for each share of
Common Stock held by such holder;

 

WHEREAS,
pursuant to the Investment Agreement, the Investor also wishes to subscribe for
and purchase, and the Company desires to issue and sell, certain additional
shares of Common Stock, on the terms and subject to the conditions set forth
therein;

 

WHEREAS,
in connection with its obligations under the Investment Agreement, the Company
may sell to the Investor certain shares of non-cumulative, non-voting preferred
stock convertible into shares of Common Stock (the “Preferred Stock”) on
the terms and subject to the conditions set forth therein and in any
Certificate of Designation related to the Preferred Stock filed with the
Delaware Secretary of State; and

 

WHEREAS,  in connection with its purchase of shares of Common Stock
and Preferred Stock pursuant to the Investment Agreement, the Investor wishes
to receive certain registration rights related to its Common Stock, and the
Company desires to grant such rights on the terms and subject to the conditions
set forth herein;

 

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

 

1.             DEFINITIONS.

 

1.1           Defined
Terms.  The following capitalized
terms used herein have the following meanings:

 

“Affiliate”
means (i) with respect to any Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person and (ii) with respect to any individual,
shall also mean the spouse or child of such individual; provided, that
neither the Company nor any Person controlled by the Company shall be deemed to
be an Affiliate of the Investor.

 

“Agreement” means this Agreement, as
amended, restated, supplemented or otherwise modified from time to time.

 

“Automatic Shelf Registration Statement”
is defined in Section 3.1.1.

 

 

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

 

“Commission” means the Securities and
Exchange Commission, or any other federal agency then administering the
Securities Act or the Exchange Act.

 

“Common Stock” means the common stock,
par value $0.25 per share, of the Company now or hereafter authorized to be
issued, and any and all securities of any kind whatsoever of the Company or any
successor thereof which may be issued on or after the date hereof in respect
of, in exchange for, or upon conversion of shares of Common Stock pursuant to a
merger, consolidation, stock split, reverse split, stock dividend,
recapitalization of the Company or otherwise.

 

“Company” is defined in the preamble
to this Agreement.

 

“Demand Registration” is defined in Section 2.1.1.

 

“Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.

 

“FINRA” means the Financial Industry
Regulatory Authority.

 

“Holdback Period” means, with respect
to any registered offering covered by this Agreement, (i) (a) ninety
(90) days after the effective date of the related Registration Statement or
(b), in the case of a takedown from a shelf registration statement in which the
Company proposes to issue and issues securities, ninety (90) days after the
date of the prospectus supplement filed with the Commission in connection with
such takedown or (ii) such shorter period as the Investor, the Company and
the underwriter of such offering, if any, shall agree.

 

“Indemnified Party” is defined in Section 4.3.

 

“Indemnifying Party” is defined in Section 4.3.

 

“Investor” is defined in the preamble
to this Agreement.

 

“Investor Indemnified Party” is
defined in Section 4.1.

 

“Material Event” is defined in Section 3.1.4.

 

“Maximum Number of Securities” is
defined in Section 2.1.4.

 

“Notices” is defined in Section 6.4.

 

“Person” means an individual,
partnership, corporation, limited liability company, business trust, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity or enterprise of whatever nature.

 

“Piggy-Back Registration” is defined
in Section 2.2.1.

 

2

 

“Preferred Stock” is defined in the
recitals to this Agreement.

 

“Pro Rata” is defined in Section 2.1.4.

 

“Register,” “Registered” and “Registration”
mean a registration effected by preparing and filing a Registration Statement
or similar document in compliance with the requirements of the Securities Act,
and the applicable rules and regulations promulgated thereunder, and such
Registration Statement becoming effective.

 

“Registrable Securities” means the
shares of Common Stock acquired by the Investor pursuant to the Backstop
Commitment and the Additional Purchase Right, each as defined in the Investment
Agreement, as well as any Additional Shares, as defined in the Investment
Agreement, and the shares of Common Stock received by the Investor upon
conversion of any Preferred Stock acquired by the Investor pursuant to the
Investment Agreement.  As to any
particular Registrable Securities, such securities shall cease to be
Registrable Securities when: (a) a Registration Statement with respect to
the sale of such securities shall have become effective under the Securities
Act and such securities shall have been sold, transferred, disposed of or
exchanged in accordance with such Registration Statement; (b) such
securities shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by the
Company and subsequent public distribution of them shall not require
Registration under the Securities Act; (c) such securities shall have
ceased to be outstanding; or (d)  the Registrable Securities are sold
under Rule 144.

 

“Registration Period” is defined in Section 3.1.3.

 

“Registration Statement” means a
registration statement filed by the Company with the Commission in compliance
with the Securities Act and the rules and regulations promulgated
thereunder for a public offering and sale of securities (other than a
registration statement on Form S-4 or Form S-8, or their successors,
or any registration statement covering only securities proposed to be issued in
exchange for securities or assets of another entity).

 

“Securities Act” means the Securities
Act of 1933, as amended, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.

 

“Investment Agreement” is defined in
the recitals to this Agreement.

 

“Suspension Notice” is defined in Section 3.1.4.

 

“Suspension Period” is defined in Section 3.1.4.

 

“Underwriter” means a securities
dealer who purchases any Registrable Securities as principal in an underwritten
offering and not as part of such dealer’s market-making activities.

 

“WKSI” is defined in Section 3.1.1.

 

1.2           General Interpretive Principles.  Whenever used in this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, any noun
or pronoun shall 

 

3

 

be deemed to include the plural as well as the
singular and to cover all genders.  The
name assigned to this Agreement and the section captions used herein are for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect hereof.  Unless
otherwise specified, the terms “hereof,” “herein,” hereunder” and similar terms
refer to this Agreement as a whole (including exhibits, schedules and disclosure
statements hereto), and references herein to Sections refer to Sections of this
Agreement.

 

2.             REGISTRATION
RIGHTS.

 

2.1           Demand
Registration.

 

2.1.1.       Request
for Registration.  At any time and
from time to time on or after the date that is 365 days from the date
hereof, the Investor may make a written demand requiring the Company to effect
the Registration under the Securities Act of all or part of its Registrable
Securities (a “Demand Registration”), and thereupon the Company shall be
required to effect such Registration pursuant to and subject to the terms
herein.  Any demand for a Demand
Registration shall specify the number of Registrable Securities proposed to be
sold and the intended method(s) of distribution thereof.  The Company shall not be obligated to (i) effect
more than an aggregate of three (3) Demand Registrations in respect of all
Registrable Securities, including no more than one (1) Demand Registration
in any 6 month period, or (ii) effect any Demand Registration where the
aggregate price to the public of the Registrable Securities proposed to be sold
by the Investor is less than $25 million.

 

2.1.2.       Effective
Registration.  A Registration will
not count as a Demand Registration until the Registration Statement filed with
the Commission with respect to such Demand Registration has been declared
effective and the Company has complied with all of its obligations under this
Agreement with respect thereto; provided, however, that if, after such Registration Statement has been
declared effective and during the Registration Period  the offering of Registrable Securities
pursuant to a Demand Registration is interfered with by any stop order or
injunction of the Commission or any other governmental agency or court, the
Registration Statement with respect to such Demand Registration will be deemed
not to have been declared effective, unless and until, such stop order or
injunction is removed, rescinded or otherwise terminated; provided,
further, that the Company shall not be
obligated to file a second Registration Statement until a Registration
Statement that has been filed is counted as a Demand Registration or is
terminated.

 

2.1.3.       Underwritten
Offering.  If the Investor so advises
the Company as part of its written demand for a Demand Registration, the
offering of such Registrable Securities pursuant to such Demand Registration
may be in the form of an underwritten offering. 
In such event, the lead underwriter to administer the offering will be,
if requested by the Investor, Goldman, Sachs & Co. and otherwise will
be chosen by the Company, subject to the prior written consent of the Investor,
not to be unreasonably withheld or delayed. 
The Company subsequently shall enter into an underwriting agreement in
customary form with the Underwriter or Underwriters selected for such underwriting
pursuant to this Section 2.1.3.

 

2.1.4.       Reduction
of Offering.  If the managing
Underwriter or Underwriters for a Demand Registration that is to be an
underwritten offering advises the Company that the dollar 

 

4

 

amount or number of Registrable Securities which the
Investor desires to sell, taken together with all other shares of Common Stock
or other securities that the Company desires to sell and the securities, if
any, as to which Registration has been requested pursuant to written
contractual piggy-back registration rights held by other securityholders of the
Company who desire to sell, exceeds the maximum dollar amount or maximum number
of securities that can be sold in such offering without adversely affecting the
marketability of the offering (including an adverse effect on the per share
offering price), the Company will include in such offering only such number of
securities that in the reasonable opinion of such managing underwriters can be
sold without adversely affecting the marketability of the offering (including
an adverse effect on the per share offering price) (such maximum dollar amount
or maximum number of securities, as applicable, the “Maximum Number of
Securities”), then the Company shall include in such Registration:  (i) first, the Registrable Securities as
to which the Investor has been requested that can be sold without exceeding the
Maximum Number of Securities; (ii) second, to the extent that the Maximum
Number of Securities has not been reached under the foregoing clause (i), the
shares of Common Stock or other securities that the Company desires to sell
that can be sold without exceeding the Maximum Number of Securities; (iii) third,
to the extent that the Maximum Number of Securities has not been reached under
the foregoing clauses (i) and (ii), the shares of Common Stock or other
securities for the account of other Persons that the Company is obligated to
register pursuant to written contractual arrangements with such Persons, pro
rata in accordance with the number of securities that each such Person has
requested be included in such Registration, regardless of the number of
securities held by each such Person (such proportion is referred to herein as “Pro
Rata”), that can be sold without exceeding the Maximum Number of
Securities; and (iv) fourth, to the extent that the Maximum Number of
Securities has not been reached under the foregoing clauses (i), (ii) and
(iii), securities that other security holders of the Company desire to sell
that can be sold without exceeding the Maximum Number of Securities.

 

2.1.5.       Withdrawal.  If the Investor is not entitled to include
all of its Registrable Securities in any offering, it may elect to withdraw
from such offering by giving written notice to the Company and the Underwriter
or Underwriters of their request to withdraw prior to the effectiveness of the
Registration Statement filed with the Commission with respect to such Demand
Registration and such Registration shall not count as a Demand Registration
provided for in Section 2.1.

 

2.2           Piggy-Back
Registration.

 

2.2.1.       Piggy-Back
Rights.  If, at any time and from
time to time on or after the date that is 365 days from the date hereof, the
Company proposes to file a Registration Statement under the Securities Act with
respect to an offering of equity securities, or securities or other obligations
exercisable or exchangeable for, or convertible into, equity securities, by the
Company for its own account or for securityholders of the Company for their
account, other than a Registration Statement on Form S-4 or Form S-8,
or any similar or successor form or any other Registration Statement filed
solely to register securities issuable pursuant to (i) any employee stock
option or other benefit plan, (ii)  an exchange offer or offering to
securityholders of an unaffiliated corporation or other entity being acquired
by, or merged with the Company, or (iii)  a dividend reinvestment plan,
then the Company shall (x) give written notice of such proposed filing to
the Investor as soon as practicable but in no event less than ten (10) days
before the anticipated filing date, which notice shall describe the amount and
type of securities to be 

 

5

 

included in such offering, the intended method(s) of
distribution and the name of the proposed managing Underwriter or Underwriters,
if any, of the offering, and (y) offer to the Investor in such notice the
opportunity to Register the sale of such number of Registrable Securities as
such holders may request in writing within ten (10) days following receipt
of such notice (a “Piggy-Back Registration”).  The Company shall cause such Registrable
Securities to be included in such Registration and shall use its commercially
reasonable efforts to cause the managing Underwriter or Underwriters of a
proposed underwritten offering to permit the Registrable Securities requested
to be included in a Piggy-Back Registration on the same terms and conditions as
any similar securities of the Company and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method(s) of distribution thereof. 
If the Investor proposes to distribute its securities through a
Piggy-Back Registration that involves an Underwriter or Underwriters it shall
enter into an underwriting agreement in customary form with the Underwriter or
Underwriters selected for such Piggy-Back Registration.

 

2.2.2.       Reduction
of Offering.  If the managing
Underwriter or Underwriters for a Piggy-Back Registration that is to be an
underwritten offering advises the Company and the Investor in writing that the
dollar amount or number of securities which the Company desires to sell, taken
together with the securities, if any, as to which Registration has been
demanded pursuant to written contractual arrangements with Persons other than
the Investor, the Registrable Securities as to which Registration has been
requested under this Section 2.2, and the securities, if any, as to which
Registration has been requested pursuant to the written contractual Piggy-Back
Registration rights of other securityholders of the Company, exceeds the
Maximum Number of Securities, then the Company shall include in any such
Registration:

 

a)             If
the Registration is undertaken for the Company’s account: (A) first, the
shares of Common Stock or other securities that the Company desires to sell
that can be sold without exceeding the Maximum Number of Securities; (B) second,
to the extent that the Maximum Number of Securities has not been reached under
the foregoing clause (A), the shares of Common Stock or other securities, if
any, comprised of Registrable Securities, as to which Registration has been
requested pursuant to this Agreement, Pro Rata, that can be sold without exceeding
the Maximum Number of Securities; and (C) third, to the extent that the
Maximum Number of Securities has not been reached under the foregoing clauses (A) and
(B), the shares of Common Stock or other securities for the account of other
Persons that the Company is obligated to register pursuant to written
contractual piggy-back registration rights with such Persons, Pro Rata, that
can be sold without exceeding the Maximum Number of Securities; and

 

b)            If the Registration
is a demand registration undertaken at the demand of Persons other than the
Investor: (A) first, the shares of Common Stock or other securities for
the account of the demanding Persons that can be sold without exceeding the
Maximum Number of Securities; (B) second, to the extent that the Maximum
Number of Securities has not been reached under the foregoing clause (A), the
shares of Common Stock or other securities that the Company desires to sell
that can be sold without exceeding the Maximum Number of Securities; (C) third,
to the extent that the Maximum Number of Securities has not been reached under
the foregoing clauses (A) and (B), collectively the shares of Common Stock
or other securities comprised of Registrable Securities, Pro Rata, as to which
Registration has been requested pursuant to the terms hereof, that can be sold
without exceeding the 

 

6

 

Maximum Number of Securities;
and (D) fourth, to the extent that the Maximum Number of Securities has
not been reached under the foregoing clauses (A), (B) and (C), the shares
of Common Stock or other securities for the account of other Persons that the
Company is obligated to register pursuant to written contractual arrangements
with such Persons, that can be sold without exceeding the Maximum Number of
Securities.

 

2.2.3.       Withdrawal.  The Investor may elect to withdraw its
request for inclusion of Registrable Securities in any Piggy-Back Registration
by giving written notice to the Company of such request to withdraw prior to
the effectiveness of the Registration Statement.  The Company (whether on its own determination
or as the result of a withdrawal by Persons making a demand pursuant to written
contractual obligations), upon prior written notice to the Investor, may
withdraw or delay a Registration Statement at any time prior to the
effectiveness of the Registration Statement without any liability therefor.

 

3.             REGISTRATION
PROCEDURES.

 

3.1           Filings;
Information.  Whenever the Company is
required to effect the Registration of any Registrable Securities pursuant to Section 2,
the Company shall use its commercially reasonable efforts to effect the
Registration and sale of such Registrable Securities in accordance with the
intended method(s) of distribution thereof as expeditiously as practicable,
and in connection with any such request:

 

3.1.1.       Filing
Registration Statement.  (a) 
The Company shall, as expeditiously as practicable (and in any event within
sixty (60) days after receipt of a request for a Demand Registration pursuant
to Section 2.1) prepare and file with the Commission a Registration
Statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of all Registrable Securities to be registered thereunder in accordance
with the intended method(s) of distribution thereof, provided, that the Company agrees that, at
the request of the Investor, at such time as the Company becomes a “well-known
seasoned issuer,” as such term is defined in Rule 405 under the Securities
Act (a “WKSI”), the Company shall register an offering pursuant to Section 2.1
on an “automatic shelf registration statement,” as such term is defined in Rule 405
under the Securities Act (an “Automatic Shelf Registration Statement”)
on Form S-3; provided  further,
that the Company shall not be required to file an Automatic Shelf Registration
Statement if a Registration Statement on Form S-3 covering the Registrable
Securities is already effective.  The
Company shall use its commercially reasonable efforts to cause such
Registration Statement to become and remain effective for the period required
by Section 3.1.3, subject to the Company’s rights under Section 3.1.3;
provided, however, that the Company shall have the right to
defer any Demand Registration for up to sixty (60) days, and any Piggy-Back
Registration for such period as may be applicable to deferment of any other
demand registration to which such Piggy-Back Registration relates and is
effected, in each case if the Company shall furnish to the Investor a
certificate signed by the Chief Executive Officer or the Chairman of the Board
of the Company stating that, in the good faith judgment of the Board of
Directors of the Company, it would be materially detrimental to the Company and
its securityholders for such Registration Statement to be effected at such time
because the Registration would require the Company to make a public disclosure
of material, non-public information, disclosure of which, in the Board’s good
faith judgment, after consultation with independent outside counsel to the
Company, (i) would be 

 

7

 

required to be made in any
Registration Statement so that such Registration Statement would not be
materially misleading and (ii) would not be required to be made at such
time but for the filing of such Registration Statement, and the Company has a
bona fide business purpose for not disclosing such information publicly; provided further, that the Company shall
not have the right to exercise the right set forth in the immediately preceding
proviso (x) for a total period of more than sixty (60) days in any 365-day
period in respect of a Demand Registration hereunder or (y) more than once
during any 12-month period.

 

(b)           The
Company shall use its commercially reasonable efforts to not become an
ineligible issuer (as defined in Rule 405 under the Securities Act) during
the period during which such Automatic Shelf Registration Statement is required
to remain effective.  If the Company does
not pay the filing fee covering the Registrable Securities at the time an
Automatic Shelf Registration Statement is filed, the Company agrees to pay such
fee at such time or times as the Registrable Securities are to be sold.  If, at any time when the Company is required
to re-evaluate its WKSI status, the Company determines that it is not a WKSI,
the Company shall use its commercially reasonable efforts to refile the shelf
registration statement on Form S-3 and, if such form is not available, Form S-1
and maintain the effectiveness of such Registration Statement as required in
this Agreement.

 

3.1.2.       Copies.  The Company shall, a reasonable period of
time prior to filing a Registration Statement or prospectus, or any amendment
or supplement thereto, furnish without charge to the Investor and its legal
counsel, copies of the Registration Statement as proposed to be filed, each
amendment and supplement to such Registration Statement (in each case including
all exhibits thereto and documents incorporated by reference therein), the
prospectus included in such Registration Statement (including each preliminary
prospectus), and such other documents as the Investor and its legal counsel may
request in order to facilitate the disposition of the Registrable Securities,
and shall make such changes to such documents as the Investor or its counsel
reasonably request in a timely fashion.

 

3.1.3.       Amendments
and Supplements.  The Company shall
prepare and file with the Commission such amendments, including post-effective
amendments, and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective and in compliance with the provisions of the Securities Act
until all Registrable Securities and other securities covered by such
Registration Statement have been disposed of in accordance with the intended
method(s) of distribution set forth in such Registration Statement (which
period shall not exceed the sum of ninety (90) days in the case of a
Registration Statement filed with respect to and used solely for a single
“one-off” underwritten offering and three (3) years in any other case)
plus any period during which any such disposition is interfered with by any
stop order or injunction of the Commission or any governmental agency or court)
or such securities have been withdrawn (such period, the “Registration
Period”).  To the extent the Investor
seeks to consummate a pro rata distribution of any of its Registrable Securities,
the Company agrees to take all actions reasonably requested by the Investor in
order to effectuate such distribution, including filing supplements to the
Prospectus which name the distributees if deemed necessary or appropriate.

 

8

 

3.1.4.                     Suspension.  Upon (i) the issuance by the Commission
of a stop order suspending the effectiveness of a Registration Statement filed
pursuant to Section 2.1 or as a Piggyback Registration, (ii) the
occurrence of any event or the existence of any fact as a result of which a
Registration Statement relating to Registrable Securities would contain any
untrue statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
or (iii) the occurrence or existence of any pending material corporate
development (each of (i), (ii) and (iii) being referred to herein as
a “Material Event”) that, in the reasonable and good faith opinion of
the board of directors of the Company, makes it appropriate to suspend the
availability of any such Registration Statement because it would be materially
detrimental to the Company for the Registration to proceed at such time, then
the Company shall deliver a notice to the Investor that the availability of
such Registration Statement is suspended, as the case may be (a “Suspension
Notice”), and, upon receipt of a Suspension Notice, the Investor agrees not
to sell any Registrable Securities pursuant to such Registration Statement
until the Investor is advised by the Company in writing that the related
prospectus may be used to sell the Registrable Securities, and the Investor has
received copies of the supplemental filings or amendments that are incorporated
or deemed incorporated by reference to such prospectus.  The Company shall use its commercially
reasonable efforts to ensure that the use of such Registration Statement may be
resumed, as applicable, (A) in the case of clause (i) above, as
promptly as practicable, (B) in the case of clause (ii) above, as
soon as, in the reasonable judgment of the Company, the Registration Statement
does not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (C) in the case of clause (iii) above, as soon as, in
the reasonable discretion of the Company, such suspension is no longer
appropriate.  The Company shall not be
permitted to deliver a Suspension Notice, nor exercise its rights of Suspension
under this Section, more than twice during any 12 month period, and the period
during which any Registration Statement may be suspended under this Section (the
“Suspension Period”) shall not exceed forty-five (45) days on any one
occasion.

 

3.1.5.                     Notification.  After the filing of a Registration Statement,
the Company shall promptly notify the Investor of such filing, and shall
further notify the Investor promptly and confirm such advice in writing of the
occurrence of any of the following: (i) when such Registration Statement
becomes effective; (ii) when any post-effective amendment to such
Registration Statement becomes effective; and (iii) any request by the
Commission for any amendment or supplement to such Registration Statement or
any prospectus relating thereto or for additional information or of the
occurrence of an event requiring the preparation of a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of the
securities covered by such Registration Statement, such prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and promptly make available to the Investor included in such
Registration Statement any such supplement or amendment.  The Company shall promptly send the Investor
any SEC comments received by the Company with respect to the Registration
Statement and any Company responses to such comments (including comments on
documents incorporated by reference into the Registration Statement).

 

3.1.6.                     Opportunity to Review.  Prior to the filing with the Commission of a
Registration Statement or prospectus or any amendment or supplement thereto,
including 

 

9

 

documents incorporated by reference, the Company shall
furnish to the Investor and its legal counsel copies of all such documents proposed
to be filed sufficiently in advance of filing to provide the Investor and its
legal counsel with a reasonable opportunity to review such documents and
comment thereon, and, in the case of a Demand Registration, the Company shall
not file any Registration Statement or prospectus or amendment or supplement
thereto, including documents incorporated by reference, to which the Investor
or its legal counsel shall reasonably object.

 

3.1.7.                     State Securities Laws
Compliance; FINRA.  The Company shall
use its commercially reasonable efforts to (i) register or qualify the
Registrable Securities covered by the Registration Statement as necessary under
such securities or “blue sky” laws of such jurisdictions in the United States
as the Investor (in light of its intended plan of distribution) may request in
writing and (ii) take such action necessary to cause such Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental authorities as may be necessary by virtue
of the business and operations of the Company and do any and all other acts and
things that may be necessary or advisable to enable the Investor to consummate
the disposition of such Registrable Securities in such jurisdictions; provided, however, that
the Company shall not be required to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph, subject itself to taxation in any such jurisdiction or consent to
general service of process in any such jurisdiction.  In addition, the Company shall use its
commercially reasonable efforts to file or cause the Registration Statement to
be filed with FINRA and, in the event of an offering involving any FINRA
member, secure a no objections letter with respect to the compensation to be
paid to any FINRA member.

 

3.1.8.                     Agreements for Disposition.  The Company shall enter into customary
agreements (in customary form, scope and substance) and take such other actions
as are reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities, provided, that the Company only shall be
required to enter into an underwriting agreement in accordance with the
provisions of Section 3.5.1.

 

3.1.9.                     Cooperation.  The Company shall make available its
executive officers, as it deems appropriate, to cooperate reasonably in any
offering of Registrable Securities hereunder, which cooperation shall include
the preparation of the Registration Statement with respect to such offering and
all other offering materials and related documents and, in the event of an
underwritten offering, participation in meetings and roadshows with
Underwriters, analysts, attorneys, accountants and potential investors.

 

3.1.10.               Records.  The Company shall make available upon
reasonable notice at reasonable time and for reasonable periods for inspection
by the Investor, by any Underwriter participating in any disposition pursuant
to such Registration Statement and any attorney, accountant or other professional
retained by the Investor or any Underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company’s officers, directors and employees to
supply all information reasonably requested by any of them in connection with
such Registration Statement; provided that any such Person gaining
access to information regarding the Company pursuant to this Section shall
agree to hold 

 

10

 

in strict confidence and shall not make any disclosure
or use any information regarding the Company that the Company determines in
good faith to be confidential, and of which determination such Person is
notified.

 

3.1.11.               Opinions and Comfort Letters.  In the case of an underwritten offering, the
Company shall furnish to the Investor a signed counterpart, addressed to the
Investor, of (i) any opinion of counsel to the Company delivered to any
Underwriter and (ii) any comfort letter from the Company’s independent
public accountants (or accountants for any entity acquired by the Company whose
financial statements are included in the Registration Statement) delivered to
any Underwriter.  In the event no legal
opinion is delivered to any Underwriter, or in non-underwritten transactions,
the Company shall furnish to the Investor, at any time that the Investor elects
to use a prospectus, an opinion of counsel to the Company stating only that the
Registration Statement containing such prospectus has been declared effective
and that no stop order is in effect.

 

3.1.12.               Earnings Statement.  The Company shall comply with all applicable rules and
regulations of the Commission and the Securities Act, and also make available
to its stockholders, as soon as practicable, an earnings statement covering a
period of twelve (12) months, beginning within three (3) months after the
effective date of the Registration Statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.

 

3.1.13.               Listing.  The Company shall use its commercially
reasonable efforts to cause all Registrable Securities included in any
Registration to be listed on such exchanges or otherwise designated for trading
in the same manner as similar securities issued by the Company are then listed
or designated.

 

3.1.14.               QIU.  The Company shall use its commercially
reasonable efforts to cause the retention of a qualified independent
underwriter (QIU) to the extent required by the FINRA rules and
regulations with respect to any underwritten offering.

 

3.2                                 Obligation
to Suspend Distribution.  Upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 3.1.4(iv), or any suspension by the Company
pursuant to a written insider trading compliance program adopted by the Company’s
Board of Directors of the ability of all insiders covered by such program to
transact in the Company’s securities because of the existence of material
non-public information, the Investor shall discontinue disposition of such
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities immediately until it receives the supplemented or
amended prospectus contemplated by Section 3.1.5(iii) or the
restriction on the ability of insiders to transact in the Company’s securities
is removed, as applicable, and, if so directed by the Company, the Investor
will deliver to the Company all copies, other than permanent file copies then
in its possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice.

 

3.3                                 Registration
Expenses.  The Company shall bear all
costs and expenses incurred in connection with any Demand Registration pursuant
to Section 2.1 or any Piggy-Back Registration pursuant to Section 2.2
and all expenses incurred in performing or complying with 

 

11

 

its other obligations under
this Agreement, whether or not the Registration Statement becomes effective,
including, without limitation: (i) all Registration and filing fees; (ii) fees
and expenses of compliance with securities or “blue sky” laws (including fees
and disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities); (iii) printing expenses; (iv) the Company’s
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees) and the Company’s own expenses in connection with
any roadshow (including travel and lodging); (v) the fees and expenses
incurred in connection with the listing of the Registrable Securities as
required by Section 3.1.13; (vi) Financial Industry Regulatory
Authority fees (and fees of counsel in connection with FINRA’s review of the
Registration Statement); (vii) fees and disbursements of counsel for the
Company and fees and expenses for independent certified public accountants
retained by the Company (including the expenses or costs associated with the
delivery of any opinions or comfort letters requested pursuant to Section 3.1.12);
(viii) the fees and expenses of any special experts retained by the
Company in connection with such Registration; (ix) fees of the Company’s transfer
agent; (x) the fees and expenses of one legal counsel selected by the
Investor; and (xi) the fees of a single custodian utilized in connection with
any underwritten offering.  The Company
shall have no obligation to pay any underwriting discounts or selling
commissions attributable to the Registrable Securities being sold by the
Investor, which underwriting discounts or selling commissions shall be borne by
the Investor.  In addition, in an
underwritten offering, the Investor shall bear any expenses of the Underwriter
required to be borne by the Investor or the Company pursuant to the
underwriting agreement pro rata in proportion to the respective amount of
securities each is selling in such offering.

 

3.4                                 Information.  The Investor shall provide such information
as may reasonably be requested by the Company, or the managing Underwriter, if
any, in connection with the preparation of any Registration Statement,
including amendments and supplements thereto, in order to effect the
Registration of any Registrable Securities under the Securities Act pursuant to
Section 2 and in connection with the Company’s obligation to comply with
federal and applicable state securities laws.

 

3.5                                 Underwritten
Offerings.

 

3.5.1.                     Underwriting Agreements.  If requested by the Underwriters for any
underwritten offering requested by the Investor pursuant to Section 2.1,
the Company and the Investor shall enter into an underwriting agreement with
such Underwriters, such agreement to be in customary scope, substance and form
and to contain such terms and conditions as are generally prevailing in
agreements of that type, including indemnities no less favorable to the
recipient thereof than those provided in Section 4. In any underwritten
offering pursuant to Section 2.2, the Investor shall enter into such an
underwriting agreement at the request of the Company. All of the
representations and warranties and the other agreements by and on the part of
the Company to and for the benefit of the Underwriters included in any such
underwriting agreement shall also be made to and for the benefit of the
Investor, and any or all of the conditions precedent to the obligations of the
Underwriters under such underwriting agreement shall be conditions precedent to
the obligations of the Investor. The Investor shall not be required in any such
underwriting agreement to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding the Investor, its  Registrable Securities, its intended method
of distribution and any 

 

12

 

other representations required
by law, and shall not be required to indemnify or contribute amounts in excess
of the net proceeds to the Investor in the related offering and with respect to
any information beyond the information about the Investor in the Selling
Stockholder table in the Registration Statement.

 

3.5.2.                     Price and Underwriting
Discounts. In the case of an underwritten offering requested by the
Investor pursuant to Section 2.1, the price, underwriting discount and
other financial terms of the related underwriting agreement for each class of
Registrable Securities shall be determined by the Investor. In the case of any
underwritten offering pursuant to Section 2.2, such price, discount and
other terms shall be determined by the Company, subject to the right of the
Investor to withdraw its request to participate in the Registration pursuant to
Section 2.2.3 after being advised of such price, discount and other terms.

 

3.5.3.                     Participation in Underwritten
Offerings.  No Person may participate
in an underwritten offering unless such Person (i) agrees to sell such
Person’s securities on the basis provided in the underwriting arrangements approved
by the Persons entitled to approve such arrangements and (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.

 

3.5.4.                     Holdback.  (a)  In consideration for the Company
agreeing to its obligations under this Agreement, the Investor agrees in
connection with any registration of the Company’s securities (whether or not
such person is participating in such registration) upon the request of the
Company and the Underwriters managing any underwritten offering of the Company’s
securities, not to effect (other than pursuant to such registration) any public
sale or distribution of Registrable Securities, including any sale pursuant to Rule 144
or Rule 144A under the Securities Act, or make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities, any other equity securities of the Company or any securities
convertible into or exchangeable or exercisable for any equity securities of
the Company without the prior written consent of the Company or such
underwriters, as the case may be, during the Holdback Period; provided that
nothing herein will prevent any such holder that is a partnership or
corporation from making a distribution of Registrable Securities to the
partners or shareholders thereof or a transfer to an affiliate that is
otherwise in compliance with applicable securities laws, so long as such
distributees or transferees agree to be bound by the restrictions set forth in
this Section 3.5.4.  For the
avoidance of doubt, a Holdback Period shall not apply in connection with the
effectiveness of a shelf registration statement, unless at such time of
effectiveness there is a simultaneous underwritten public offering of the
Company’s securities off of such shelf registration statement.

 

(b)  Notwithstanding anything in this Agreement, none of the
provisions of this Agreement shall in any way limit Goldman, Sachs &
Co. or any of its Affiliates (other than the Investor) from engaging in any
brokerage, investment advisory, financial advisory, anti-raid advisory,
principaling, merger advisory, financing, asset management, trading, market
making, arbitrage, investment activity and other similar activities conducted
in the ordinary course of their business. 
Notwithstanding anything to the contrary set forth in this Agreement,
the restrictions contained in this Section 3.5.4 shall not apply to Common
Stock or any securities 

 

13

 

convertible into or exercisable
or exchangeable for Common Stock owned or acquired by Goldman, Sachs &
Co. or any of its Affiliates (other than the Investor).

 

(c) The Company hereby agrees that, if it shall
previously have received a demand for a Demand Registration pursuant to Section 2.1
and the Registration Statement covers solely Registrable Securities, and if
such previous Registration shall not have been withdrawn or abandoned, upon
request of the Underwriters managing any underwritten offering of the Investor’s
securities, the Company shall not sell, transfer, or otherwise dispose of, any
Common Stock, or any other equity security of the Company or any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than as part of such underwritten public offering, a
registration on Form S-4 or Form S-8 or any successor or similar form
which is then in effect or upon the conversion, exchange or exercise of any
then outstanding Common Stock Equivalent), during the Holdback Period; and the
Company shall so provide in any registration rights agreements hereafter
entered into with respect to any of its securities.

 

3.6                                 No
Inconsistent Agreements; Additional Rights. 
The Company will not enter into, and is not currently a party to, any
agreement that is inconsistent with the rights granted to the Investor by this
Agreement.

 

4.                                       INDEMNIFICATION
AND CONTRIBUTION.

 

4.1                                 Indemnification
by the Company.  The Company agrees
to indemnify and hold harmless the Investor each of its officers, employees,
affiliates, directors, partners, members, attorneys and agents and each Person,
if any, who controls (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) the Investor (each, an “Investor
Indemnified Party”) from and against any expenses, losses, judgments,
claims, damages or liabilities, whether joint or several, arising out of or
based upon any untrue statement (or allegedly untrue statement) of a material
fact contained in any Registration Statement under which the sale of such
Registrable Securities was registered under the Securities Act, any preliminary
prospectus, final prospectus, any “free writing prospectus,” as such term is
defined in Rule 405 under the Securities Act, or summary prospectus
contained in the Registration Statement, or any amendment or supplement
thereto, or arising out of or based upon any omission (or alleged omission) to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any untrue statement or alleged untrue
statement of a material fact in the information conveyed to any purchaser at
the time of the sale to such purchaser, or the omission or alleged omission to
state therein a material fact required to be stated therein, or any violation
by the Company of the Securities Act or any rule or regulation promulgated
thereunder applicable to the Company and relating to action or inaction
required of the Company in connection with any such Registration; and the
Company shall promptly advance and/or reimburse the Investor Indemnified Party,
as incurred, for any legal and any other expenses reasonably incurred by such
Investor Indemnified Party in connection with investigating and defending any
such expense, loss, judgment, claim, damage, liability or action; provided, however, that
the Company will not be liable in any such case to the extent that any such
expense, loss, claim, damage or liability arises out of or is based upon any
untrue statement or allegedly untrue statement or omission or alleged omission
made in such Registration Statement, preliminary prospectus, final prospectus
or summary prospectus, or any such 

 

14

 

amendment or supplement, in
reliance upon and in conformity with information furnished to the Company, in
writing, by the Investor expressly for use therein.  The Company also shall indemnify any
Underwriter of the Registrable Securities, their officers, affiliates,
directors, partners, members and agents and each Person who controls such
Underwriter on substantially the same basis as that of the indemnification
provided above in this Section 4.1.

 

4.2                                 Indemnification
by the Investor.  The Investor will,
in the event that any Registration is being effected under the Securities Act
pursuant to this Agreement of any Registrable Securities held by such selling
holder, indemnify and hold harmless the Company, each of its directors and
officers and each Underwriter (if any), and each other selling holder and each
other Person, if any, who controls another selling holder or such Underwriter
within the meaning of the Securities Act, against any losses, claims,
judgments, damages or liabilities, whether joint or several, insofar as such
losses, claims, judgments, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or allegedly
untrue statement of a material fact contained in any Registration Statement
under which the sale of such Registrable Securities was registered under the
Securities Act, any preliminary prospectus, final prospectus, any “free writing
prospectus,” as such term is defined in Rule 405 under the Securities Act,
or summary prospectus contained in the Registration Statement, or any amendment
or supplement thereto, or arise out of or are based upon any omission or the
alleged omission to state a material fact required to be stated therein or
necessary to make the statement therein not misleading, if the statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Company by such selling holder expressly for use therein, ,
or any untrue statement or alleged untrue statement of a material fact in the
information conveyed to any purchaser at the time of the sale to such
purchaser, or the omission or alleged omission to state therein a material fact
required to be stated therein, and shall reimburse the Company, its directors
and officers, and each other selling holder or controlling Person for any legal
or other expenses reasonably incurred by any of them in connection with
investigation or defending any such loss, claim, damage, liability or action.

 

4.3                                 Conduct
of Indemnification Proceedings. 
Promptly after receipt by any Person of any notice of any loss, claim,
damage or liability or any action in respect of which indemnity may be sought
pursuant to Section 4.1 or 4.2, such Person (the “Indemnified Party”)
shall, if a claim in respect thereof is to be made against any other Person for
indemnification hereunder, notify such other Person (the “Indemnifying Party”)
in writing of the loss, claim, judgment, damage, liability or action; provided, however, that
the failure by the Indemnified Party to notify the Indemnifying Party shall not
relieve the Indemnifying Party from any liability which the Indemnifying Party
may have to such Indemnified Party hereunder, except and solely to the extent
the Indemnifying Party is actually prejudiced by such failure.  If the Indemnified Party is seeking
indemnification with respect to any claim or action brought against the
Indemnified Party, then the Indemnifying Party shall be entitled to participate
in such claim or action, and, to the extent that it wishes, jointly with all other
Indemnifying Parties, to assume control of the defense thereof with counsel
satisfactory to the Indemnified Party. 
After notice from the Indemnifying Party to the Indemnified Party of its
election to assume control of the defense of such claim or action, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal
or other expenses subsequently incurred by the Indemnified Party in connection
with the defense thereof other than reasonable costs of investigation; provided, however, that
in any action in which both the Indemnified Party and the Indemnifying Party
are named as defendants, 

 

15

 

the Indemnified Party shall
have the right to employ separate counsel (but no more than one such separate
counsel) to represent the Indemnified Party and its controlling Persons who may
be subject to liability arising out of any claim in respect of which indemnity
may be sought by the Indemnified Party against the Indemnifying Party, with the
fees and expenses of such counsel to be paid by such Indemnifying Party if,
based upon the advice of counsel of such Indemnified Party, representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. 
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, consent to entry of judgment or effect any settlement of any
claim or pending or threatened proceeding in respect of which the Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such judgment or settlement
includes an unconditional release of such Indemnified Party from all liability
arising out of such claim or proceeding.

 

4.4                                 Contribution.

 

4.4.1.                     If the
indemnification provided for in the foregoing Sections 4.1 and 4.2 is
unavailable to any Indemnified Party in respect of any loss, claim, damage,
liability or action referred to herein, then each such Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, claim,
damage, liability or action in such proportion as is appropriate to reflect the
relative fault of the Indemnified Parties and the Indemnifying Parties in
connection with the actions or omissions which resulted in such loss, claim,
damage, liability or action, as well as any other relevant equitable
considerations.  The relative fault of
any Indemnified Party and any Indemnifying Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such Indemnified Party or such
Indemnifying Party and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

 

4.4.2.                     The parties hereto agree that it
would not be just and equitable if contribution pursuant to this Section 4.4
were determined by pro rata allocation or by any other method of allocation
which does not take account the equitable considerations referred to in the
immediately preceding Section.

 

4.4.3.                     The amount paid or payable by an
Indemnified Party as a result of any loss, claim, damage, liability or action
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
incurred by such Indemnified Party in connection with investigating or
defending any such action or claim. 
Notwithstanding the provisions of this Section 4.4, the Investor
shall not be required to contribute any amount in excess of the dollar amount
of the net proceeds (after payment of any underwriting fees, discounts,
commissions or taxes) actually received by the Investor from the sale of
Registrable Securities which gave rise to such contribution obligation, and the
Investor shall only be required to contribute if the Investor would have
otherwise been required to indemnify under Section 4.2.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

 

16

 

5.                                       UNDERWRITING
AND DISTRIBUTION.

 

5.1                                 Rule 144.  The Company covenants that it shall file any
reports required to be filed by it under the Securities Act and the Exchange
Act and shall take such further action as the Investor may reasonably request,
all to the extent required from time to time to enable the Investor to sell
Registrable Securities without Registration under the Securities Act within the
limitation of the exemption provided by Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or any similar Rule or
regulation hereafter adopted by the Commission.

 

6.                                       MISCELLANEOUS.

 

6.1                                 Term.  This Agreement shall terminate on the date on
which each of the following conditions have been met:  (i) the Investor ceases to hold
Registrable Securities constituting 5% or more of the aggregate issued and
outstanding Common Stock and (ii) no Investor Directors (as defined in the
Investment Agreement) serve on the Board (as defined in the Investment
Agreement).  The provisions of Section 4
and Section 5 shall survive any termination.

 

6.2                                 Assignment;
No Third Party Beneficiaries.  This
Agreement and the rights, duties and obligations of the Company hereunder may
not be assigned or delegated by the Company in whole or in part.  This Agreement and the rights, duties and
obligations of the Investor hereunder may not be assigned or delegated by the
Investor in whole or in part other than to Affiliates of the Investor in connection
with a disposition of Voting Stock (as defined in the Investment Agreement)
under Section 7.3(c) of the Investment Agreement.  This Agreement and the provisions hereof
shall be binding upon and shall inure to the benefit of each of the parties.  This Agreement is not intended to confer any
rights or benefits on any Persons that are not party hereto other than as
expressly set forth in Article 4.

 

6.3                                 Notices.  All notices and other communications required
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) on the date of delivery, if delivered
personally or by facsimile, upon confirmation of receipt, (b) on the first
Business Day following the date of dispatch if delivered by a recognized
next-day courier services, or (c) on the third Business Day following the
date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid, to the parties to this Agreement at the following
address or to such other address either party to this Agreement shall specify
by notice to the other party:

 

	
  If
  to the Company:

  
	
   

  
	
  Griffon Corporation

  100 Jericho Quadrangle

  Jericho, New York 11753

  Attention:  
  Chief Executive Officer

  Facsimile: 
  (516) [·]

  

 

17

 

	
  With a copy to (which shall not constitute
  notice):

  
	
   

  
	
  Dechert LLP

  1095 Avenue of the Americas

  New York, NY 10036

  Attention: 
  Martin Nussbaum

  Derek Winokur

  Facsimile: 
  (212) 698-3599 

  
	
   

  
	
  If
  to the Investor:

  
	
   

  
	
  GS Direct, L.L.C.

  c/o Goldman, Sachs & Co.

  85 Broad Street

  New York, NY 10004

  Attention: 
  Gerald Cardinale and Bradley J. Gross

  Facsimile: 
  (212) 357-5505

  
	
   

  
	
  With a copy to (which shall not constitute
  notice):

  
	
   

  
	
  Fried, Frank, Harris, Shriver &
  Jacobson LLP

  One New York Plaza

  New York, NY 10004

  Attention:  
  Robert Schwenkel

  Facsimile: 
  (212) 859-4000

  

 

6.4                                 Severability.  If one or more provisions of this Agreement
are held to be unenforceable under applicable Law (as defined in the Investment
Agreement), such provision shall be deemed to be excluded from this Agreement
and the balance of this Agreement shall be interpreted as if such provision
were so excluded and shall be enforced in accordance with its terms to the
maximum extent permitted by Law (as defined in the Investment Agreement).

 

6.5                                 Counterparts.  This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.

 

6.6                                 Entire
Agreement.  This Agreement, together
with the Investment Agreement and the Ancillary Agreements (each as defined in
the Investment Agreement), constitutes the entire agreement between the parties
with respect to the subject matter of this Agreement and supersedes all prior
agreements and understandings, both oral and written, between the parties
and/or their affiliates with respect to the subject matter of this Agreement.

 

6.7                                 Modifications
and Amendments.  Any provision of
this Agreement may be amended or modified if, but only if, such amendment or
modification is in writing and is duly executed and delivered by the Company
and the Investor.

 

6.8                                 Titles
and Headings.  Titles and headings of
sections of this Agreement are for convenience only and shall not affect the
construction of any provision of this Agreement.

 

18

 

6.9                                 Waivers
and Extensions.  Any party to this
Agreement may waive any right, breach or default which such party has the right
to waive, provided that such waiver will not be effective against the waiving
party unless it is in writing, is signed by such party and specifically refers
to this Agreement.  No failure or delay
by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.  The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by Law (as defined in the Investment
Agreement).  Waivers may be made in
advance or after the right waived has arisen or the breach or default waived
has occurred.  Any waiver may be
conditional.  No waiver of any breach of
any agreement or provision herein contained shall be deemed a waiver of any
preceding or succeeding breach thereof nor of any other agreement or provision
herein contained.  No waiver or extension
of time for performance of any obligations or acts shall be deemed a waiver or
extension of the time for performance of any other obligations or acts.

 

6.10                           Remedies
Cumulative.  In the event that the
Company fails to observe or perform any covenant or agreement to be observed or
performed under this Agreement, the Investor may proceed to protect and enforce
its rights by suit in equity or action at law, whether for specific performance
of any term contained in this Agreement or for an injunction against the breach
of any such term or in aid of the exercise of any power granted in this Agreement
or to enforce any other legal or equitable right, or to take any one or more of
such actions, without being required to post a bond.  None of the rights, powers or remedies
conferred under this Agreement shall be mutually exclusive, and each such right,
power or remedy shall be cumulative and in addition to any other right, power
or remedy, whether conferred by this Agreement or now or hereafter available at
law, in equity, by statute or otherwise.

 

6.11                           Governing
Law.  THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  The parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby may only be brought in the United States District Court for
the Southern District of New York or any New York State court sitting in the
Borough of Manhattan in New York City, and each of the parties hereby consents
to the jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and irrevocably waives, to
the fullest extent permitted by Law (as defined in the Investment Agreement),
any objection which it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding in any such court or that any such suit,
action or proceeding which is brought in any such court has been brought in an
inconvenient forum.  Process in any such
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court.

 

6.12                           Waiver
of Trial by Jury.  EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

19

 

IN WITNESS WHEREOF, the parties
have caused this Registration Rights Agreement to be executed and delivered by
their duly authorized representatives as of the date first written above.

 

 

	
   

  	
  GRIFFON CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  GS DIRECT, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

20

 

 

Contact: Patrick L. Alesia

Chief Financial Officer

(516) 938-5544

 

GRIFFON CORPORATION ANNOUNCES RIGHTS OFFERING TO FUND
FUTURE GROWTH

 

Griffon Rights Offering to be Backed by Unit of
Goldman Sachs

 

Gross Proceeds of Financing will range between $170 and
$255 million

 

JERICHO, NEW YORK, August 7, 2008 – Griffon
Corporation (NYSE: GFF) announced today a 20 million share common stock rights
offering to its shareholders in order to raise equity capital for general
corporate purposes and to fund future growth. 
The rights will have an exercise price of $8.50 per share.  GS Direct, L.L.C., an affiliate of Goldman,
Sachs & Co., has agreed to back stop the rights offering by purchasing
on the same terms any and all shares not subscribed through the exercise of rights.  GS Direct will purchase additional shares of
common stock at the rights offering price if it does not acquire a minimum of
10 million shares of common stock as a result of its back stop commitment.  The transactions are expected to raise gross
proceeds of between approximately $170 and $255 million.

 

The Company intends to file with the Securities and
Exchange Commission a registration statement covering these transactions, and
the distribution of rights and commencement of the rights offering will occur
promptly following the effectiveness of that registration statement.

 

Under the terms of the rights offering, the Company
will distribute at no charge to the holders of its common stock transferable
rights to purchase up to an aggregate of approximately 20 million new shares of
common stock.  The Company will
distribute to each such holder one transferable right for every share of common
stock owned on the record date, which will be set forth in a prospectus to be
filed with the Securities and Exchange Commission.  Each right will entitle the holder to
purchase .66 shares of common stock at the subscription price of $8.50 per
share of common stock.  Record date
stockholders who fully exercise their rights will be entitled to subscribe,
subject to certain limitations and subject to allotment, for additional shares
that remain unsubscribed as a result of any unexercised rights in an amount
equal to up to 20% of their shareholdings as of the record date.  Consummation of the rights offering is subject to customary closing
conditions.

 

In connection with the
rights offering, GS Direct has agreed, subject to certain terms and conditions,
to purchase from the Company promptly after the closing of the rights offering,
at the subscription price, all of the shares for which subscriptions were not
received as part of the rights offering. 
In addition, in the event GS Direct acquires less than 10 million shares
of common stock in the backstop commitment, GS Direct has committed, subject to
certain conditions, to purchase from the Company an additional number of shares
at the subscription price such that it will have acquired in the aggregate with
the backstop commitment 10 million shares of common stock.

 

 

This press release shall not
constitute an offer to sell or the solicitation of an offer to buy any
securities, nor shall there be any sale of securities in any state in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state. The rights offering,
which is expected to be launched immediately following the effectiveness of a
registration statement relating to the offering, will be made only by means of
a prospectus.

 

Forward-looking
Statements

 

“Safe
Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
All statements other than statements of historical fact included in this
release, including without limitation statements regarding the company’s
financial position, business strategy and the plans and objectives of the
company’s management for future operations, are forward-looking statements.
When used in this release, words such as “anticipate”, “believe”, “estimate”, “expect”,
“intend”, and similar expressions, as they relate to the company or its
management, identify forward-looking statements. Such forward-looking
statements are based on the beliefs of the company’s management, as well as
assumptions made by and information currently available to the company’s
management. Actual results could differ materially from those contemplated by
the forward-looking statements as a result of certain factors, including but
not limited to, business, financial market and economic conditions, including,
but not limited to, the credit market, the housing market, results of
integrating acquired businesses into existing operations, the results of the
company’s restructuring and disposal efforts, competitive factors and pricing
pressures for resin and steel, capacity and supply constraints and the ability
to consummate the rights offering. Such statements reflect the views of the
company with respect to future events and are subject to these and other risks,
uncertainties and assumptions relating to the operations, results of
operations, growth strategy and liquidity of the company as previously
disclosed in the company’s SEC filings. Readers are cautioned not to place
undue reliance on these forward-looking statements. The company does not
undertake to release publicly any revisions to these forward-looking statements
to reflect future events or circumstances or to reflect the occurrence of
unanticipated events.

 

About Griffon Corporation

 

Griffon Corporation,
headquartered in Jericho, New York, is a diversified holding company consisting
of three distinct business segments: Electronic Information and Communication
Systems, through Telephonics Corporation; Garage Doors, through Clopay Building
Products Company; and Specialty Plastic Films, through Clopay Plastic Products
Company. Telephonics Corporation’s high-technology engineering and manufacturing capabilities provide
integrated information, communication and sensor system solutions to military
and commercial markets worldwide. Telephonics specializes in aircraft
intercommunication systems, wireless communication systems, radars,
identification friend or foe products, integrated security systems, air traffic
management systems, aerospace electronics, and the performance of threat and
radar system analyses. Clopay Building Products Company is a leading
manufacturer and marketer of residential garage doors to professional installing dealers and major
home center retail chains. Clopay Plastic Products is an international leader in
the development and production of embossed, laminated and printed specialty
plastic films used in a variety of hygienic, health-care 

 

 

and
industrial markets. For more information on the company and its operating
subsidiaries, please see the company’s website at www.griffoncorp.com.

 

 

FINANCE
COMMITTEE CHARTER

Griffon
Corporation

 

Purpose

 

The Finance Committee is a standing committee of the
Board of Directors.  The Committee shall
have principal oversight responsibility with respect to certain of the Company’s
material financial matters as set forth below. The Committee shall not have
oversight or other responsibility with respect to the Company’s financial
reporting, which shall remain the responsibility of the Audit Committee of the
Board of Directors.

 

Membership and Meetings

 

The Committee shall consist of five members, two of
whom shall be designees of GS Direct, L.L.C. (the “Investor”) so long as
the Investor is entitled pursuant to Section 7.2(a) of the Investment
Agreement between Griffon Corporation (the “Company”) and the Investor
dated August 7, 2008 (the “Investment Agreement”) to designate two (2) or
more members to the Board of Directors, provided, if the Investor is
entitled pursuant to the Investment Agreement to designate only one (1) member
to the Board of Directors, the Committee shall include only one Investor
designee.  The remaining members of the
Committee shall be selected by a majority vote of the members of the Board of
Directors not designated by the Investor. 
The Chairperson of the Committee who shall preside over meetings will be
designated by the Committee from among the non-Investor designated members.

 

The Committee shall meet from time to time as
appropriate in discharge of its duties, provided it must meet at least once
each fiscal year.

 

The Chairperson shall be responsible for establishing
the agendas for meetings of the Committee. An agenda, together with materials
relating to the subject matter of each meeting, shall be sent to members of the
Committee prior to each meeting. Minutes for all meetings of the Committee
shall be prepared to document the Committee’s discharge of its
responsibilities. The minutes shall be circulated in draft form to all
Committee members to ensure an accurate final record, shall be approved at a
subsequent meeting of the Committee and shall be distributed periodically to
the full Board of Directors. The Committee shall make regular reports to the
Board of Directors.

 

Responsibilities and Duties

 

The following shall be the principal responsibilities
of the Committee:

 

1.             At least
annually, this charter shall be reviewed and reassessed by the Committee and
any proposed changes shall be submitted to the Board of Directors for approval,
provided such changes are in accordance with the Restated Certificate of
Incorporation and Amended Bylaws of the Company.

 

 

2.             The
Committee shall review and consider: (a) all acquisitions by the Company
of assets or equity securities in excess of $50 million, (b) all mergers
or change of control transactions involving the Company or any of its material
subsidiaries, (c) the liquidation, dissolution or reorganization of the
Company, (d) the sale or other disposition of all or substantially all of
the assets of the Company, (e) any offerings or sales of Voting Stock (as
defined in the Investment Agreement) for cash in an aggregate amount in excess
of $50 million, other than Excluded Issuances (as defined in the Investment
Agreement) and any offerings of equity of any material subsidiary of the
Company, and (f) all material capital expenditures made by the Company in
excess of the Company’s capital expenditure budget, including in each case, the
financial terms thereof, following which it shall make a recommendation, which
recommendation may be positive or negative, to the full Board of Directors
regarding such proposal; provided that
any such recommendation shall not be binding on the full Board of Directors.

 

3.                                       The
Committee shall also carry out such other duties as may be delegated to it by
the Board of Directors from time to time.Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “Agreement”)
is entered into by and between HERITAGE COMMERCE CORP, a California bank
holding company (the “Company”),
HERITAGE BANK OF COMMERCE, a California banking corporation (the “Bank”), and Michael R. Ong, an individual (the “Executive”)
as of August 12, 2008 (the “Effective Date”).

 

RECITALS

 

WHEREAS, the Company is a California corporation and a
bank holding Company registered under the Bank Holding Company Act of 1956, as
amended, subject to the supervision and regulation of the Board of Governors of
the Federal Reserve System,

 

WHEREAS, the Company is the parent holding company for
the Bank, which is a California banking association, subject to the supervision
and regulation of the California Department of Financial Institution and the
Federal Reserve Board,

 

WHEREAS, the Board of Directors of the Company and the
Bank has approved and authorized the entry into this Agreement with the
Executive; and

 

WHEREAS, the parties desire to enter into this
Agreement to set forth the terms and conditions for the employment relationship
of the Executive with the Company and the Bank.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the promises and
mutual covenants and agreements herein contained and intending to be legally
bound hereby, the Company, the Bank and the Executive hereby agree as follows:

 

1.             Employment.

 

1.1           Title.  The Executive is employed as Executive Vice
President/Chief Risk Officer of the Bank. 
In this capacity, the Executive shall have such duties and
responsibilities as may be designated to him by the President of the Bank and
in accordance with the objectives or policies of the Board of Directors, from
time to time, in connection with the business activities of the Bank.

 

1.2           Devotion to Bank Business.  The Executive shall devote his full business
time, ability, and attention to the business of the Bank during the term of
this Agreement and shall not during the term of this Agreement engage in any
other business activities, duties, or pursuits whatsoever, or directly or
indirectly render any services of a business, commercial, or professional
nature to any other person or organization, whether for compensation or
otherwise, without the prior written consent of the Board of Directors of the
Bank.  It shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive’s responsibilities as an employee of the Bank in 

 

1

 

accordance with this Agreement.  Nothing in this Agreement shall be
interpreted to prohibit the Executive from making passive personal
investments.  However, the Executive
shall not directly or indirectly acquire, hold, or retain any interest in any
business competing with or similar in nature to the business of the Bank and
the Company, except as permitted by Company policies or authorized by the Chief
Executive Officer of the Company.

 

1.3           Standard.  The Executive will set a high standard of
professional conduct given his role with the Bank and his responsibility
relative to the Bank’s presence and stature in the community.  The Executive will, at all times, emulate
this high professional standard of conduct in order to develop and enhance the
Bank’s reputation and image.  The
Executive’s and his family’s eligibility and all other terms and conditions of
the Executive’s participation in the Bank’s or Company’s benefit, insurance and
disability plans and programs will be governed by the official plan documents
which may change from year-to-year. 
Notwithstanding the foregoing, at a minimum the Executive shall be
entitled to the same benefits as all other executives in comparable positions
with the Bank.  The Executive will comply
with all applicable rules, policies and procedures of the Bank and any of its
subsidiaries and all pertinent regulatory standards as may affect the Bank and
the Company.

 

1.4           Location.  The Executive shall provide services for the
Bank at its principal executive offices located in San Jose California.  The Executive agrees that the Executive will
be regularly present at the Bank’s principal executive offices and that the
Executive may be required to travel from time to time in the course of
performing the Executive’s duties for the Bank.

 

1.5           No Breach of Contract.   The Executive hereby represents to the
Company and the Bank that:  (i) the
execution and delivery of this Agreement by the Executive and the performance
by the Executive of the Executive’s duties hereunder shall not constitute a
breach of, or otherwise contravene, the terms of any other agreement or policy
to which the Executive is a party or by which he is otherwise bound; (ii) that
the Executive has no information (including, without limitation, confidential
information or trade secrets) of any other person or entity which the Executive
is not legally and contractually free to disclose the Bank; and (iii) that
the Executive is not bound by any confidentiality, trade secret or similar
agreement (other than this Agreement) with any other person or entity.  Notwithstanding this provision, Executive has
disclosed the fact that he is subject to a nonsolicitation agreement with a
former employer Comerica Bank, which will expire on January 02, 2009.

 

2.             Term.  The term of this Agreement shall be a period
of one (1) year from the Effective Date, subject to the termination
provisions of Section 6.  Upon the
occurrence of the first annual anniversary of the Effective Date, and on each
anniversary date thereafter, the term of this Agreement shall be deemed
automatically extended for an additional one (1) year term, subject to the
termination provisions of Section 6.

 

3.             Compensation.

 

3.1           Salary.  The Executive shall receive a salary at an
annual rate of $240,000 which will be paid in accordance with the Bank’s normal
payroll procedures including applicable adjustments for withholding taxes.  The Executive shall receive such annual
increases in salary, 

 

2

 

if any, as may be determined by the Company’s Board of
Directors annual review of the Executive’s compensation each year during the
term of this Agreement.  Participation in
deferred compensation, discretionary or performance bonus, retirement, stock
option and other employee benefit plans and in fringe benefits shall not reduce
the annual rate.

 

3.2           Incentive Compensation.  The Executive shall be entitled to receive an
annual incentive compensation payment pursuant to the terms of the Heritage
Commerce Corp Management Incentive Compensation Plan in effect at the date of
this Agreement and as amended at any future date or pursuant to any successor
incentive plan or arrangement adopted by the Bank or the Company for its
officers (the “Incentive Plan”).  Notwithstanding any terms of the Incentive
Plan to the contrary, an annual payment under the Incentive Plan for a fiscal
year shall be paid to the Executive no later than the 15th day of the third
month following the end of the calendar year in which the annual incentive
compensation payment is no longer subject to a substantial risk of
forfeiture.  Except as set forth in the
Incentive Plan or this Agreement, or in any successor incentive plan or
arrangement, no incentive compensation payments shall be prorated for a partial
year during the year Executive terminates his employment and the Executive
shall not be entitled to receive incentive compensation payments for any year
during the term of this Agreement in which Executive was not employed by the
Bank or the Company for the full fiscal year (not including his initial year of
employment).

 

3.3           2004 Stock Option Plan.  The Executive will receive a nonqualified
Stock Option grant of 25,000 shares of Common Stock pursuant to the terms of
the Company’s 2004 Stock Option Plan (the “2004 Plan”).  The exercise price will be the Fair Market
Value for the Company’s Common Stock on the date of grant as defined in the
2004 Plan.  The Executive’s options will
vest in daily increments of 1/1460th from the date of grant until
fully vested and shall expire ten years from the date of grant.  All such options shall be subject to the
terms and conditions of the 2004 Plan and shall be conditioned upon the
Executive’s execution of an option agreement with the Company in a form
specified by the Company.

 

3.4           Other Benefits.  The Executive shall be entitled to those
benefits adopted by the Bank and the Company for all officers of the Bank,
subject to applicable qualification requirements and regulatory approval
requirements, if any.  To the extent that
the level of such benefits is based on seniority or compensation levels, the
Company and the Bank shall make appropriate and proportionate adjustments to
the Executive’s benefits.  The Executive
shall be further entitled to the following additional benefits which shall
supplement or replace, to the extent duplicative of any part or all of the
general officer benefits, the benefits otherwise provided to the Executive:

 

(a)           Vacation.  The Executive shall be entitled to paid
vacation in accordance with the most favorable plans, policies, programs and
practices of the Bank as in effect for the Executive or for other executives in
comparable positions with the Bank; provided, however, that the Executive shall
be entitled to earn paid vacation at the rate of not less than 25 days vacation
days for each calendar year (reduced pro rata for any partial year), of which
at least 10 days (reduced pro rata for any partial year) must be taken
consecutively.  Vacation may be accrued
in accordance with the Company’s policy. 
The date or dates of vacation shall be determined by the Executive and
the Bank’s President, and will be subject to the Bank’s business requirements.

 

3

 

(b)           Automobile Allowance and Insurance.  The Bank or the Company will pay to the
Executive an automobile allowance in the amount of $700 per month during the
term of this Agreement.  The Bank or the
Company shall reimburse the Executive for gasoline expenditures related to use
of the automobile acquired or used by the Executive upon presentation and
approval of receipts, invoices or other appropriate evidence of such expense in
accordance with the policies of the Bank or the Company.  The Executive shall acquire or otherwise make
available for his business and personal use an automobile suitable to his
position and maintain it in good condition and repair.  The Executive shall obtain and maintain
public liability insurance and property damage insurance policies with insurer(s) acceptable
to the Bank and the Company and with such coverages in such amounts as may be
acceptable to the Bank and the Company from time to time.  The Bank or the Company may elect to provide
and pay for such insurance policies in lieu of the Executive maintaining such
policies.

 

(c)           Insurance.  The Bank or the Company shall provide during
the term of this Agreement at no cost to the Executive group life, health
(including medical, dental, vision and hospitalization), accident and
disability insurance coverage for the Executive and his dependents through a
policy or policies provided by the insurer(s) selected by the Bank or the
Company in their sole discretion on the same basis as all other executives in
comparable positions with the Bank.

 

(d)           401(k).  The Company maintains a 401(k) plan for
its eligible employees.  Subject to the
terms and conditions set forth in the official plan documents, the Executive
will be eligible to participate in the 401(k) plan, and shall receive a
matching contribution in accordance with the terms of the 401(k) plan from
the Company.

 

(e)           Employee Stock Ownership Plan.  The Executive will be eligible to participate
in the Company’s Employee Stock Ownership Plan (“ESOP”),
subject to the terms and conditions of the ESOP.

 

3.5           Business Expenses; Memberships.  The Executive shall be entitled to incur and
be reimbursed for all reasonable business expenses.  The Bank agrees that it will reimburse the
Executive for all such expenses upon the presentation by the Executive, from
time to time, of an itemized account of such expenditures setting forth the
date, the purposes for which incurred, and the amounts thereof, together with
such receipts showing payments in conformity with the Bank’s established
policies.  Reimbursement shall be made
within a reasonable period after the Executive’s submission of an itemized
account in accordance with the Bank’s policies. 
The Bank or the Company will reimburse the Executive for the monthly
dues at one country club of the Executive’s choice.

 

4.             Indemnity.  The Bank and the Company shall indemnify and
hold the Executive harmless from any cost, expense or liability arising out of
or relating to any acts or decisions made by the Executive on behalf of or in
the course of performing services for the Bank to the same extent the Bank and
the Company indemnifies and holds harmless other executive officers and
directors of the Bank and in accordance with the articles of incorporation,
bylaws and established policies of the Bank and the Company.

 

4

 

5.             Certain
Terms Defined.  For purposes of this Agreement:

 

5.1           “Accrued Obligations”
means the sum of the Executive’s Base Salary and accrued vacation through the
Date of Termination to the extent not theretofore paid, outstanding expense
reimbursements and any compensation previously deferred by the Executive to the
extent not theretofore paid.

 

5.2           “Base Salary”
means, as of any Date of Termination of employment, the highest average salary
of the Executive for any consecutive 12 months of the last 36 months preceding
such Date of Termination.

 

5.3           “Cause” shall
mean (i) the Executive willfully breaches or habitually neglects the
duties which the Executive is required to perform under this Agreement; (ii) the
Executive commits an intentional act of moral turpitude that has a material
detrimental effect on the reputation or business of the Bank or the Company; (iii) the
Executive is convicted of a felony or commits any material and actionable act
of dishonesty, fraud, or intentional material misrepresentation in the
performance of the Executive’s duties under this Agreement; (iv) the
Executive engages in an unauthorized disclosure or use of inside information,
trade secrets or other confidential information; or (v) the Executive
willfully breaches a fiduciary duty, or violates any law, rule or
regulation, which breach or violation results in a material adverse effect on
the Company and the Bank (taken as a whole). 
If the Bank decides to terminate the Executive’s employment for Cause,
the Bank will provide the Executive with notice specifying the grounds for
termination, accompanied by a brief written statement stating the relevant
facts supporting such grounds.

 

5.4           “Change of Control”
shall mean, subject to the limitations of Section 409A of the Code, set
forth in Section 7 of this Agreement, the earliest occurrence of one of
the following events:

 

(a)           the acquisition (or acquisition
during the 12 month period ending on the date of the most recent acquisition)
by any individual, entity, or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a “Person”) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 40% or more of either (i) the then outstanding shares
of common stock of the Company (the “Outstanding the Company
Common Stock”) or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (“Outstanding Company Voting
Securities”); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control; (i) any acquisition directly from the Company, (ii) any
acquisition by the Company that reduces the number of shares issued and
outstanding through a stock repurchase program or otherwise, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or the Bank or any corporation controlled by the
Company or the Bank or (iv) any acquisition by any corporation pursuant to
a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Section 5.4; or

 

(b)           individuals who, as of the Effective
Date, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason other than
resignation, death or 

 

5

 

disability to constitute at least a majority of the
Company’s Board of Directors during any 12 month period; provided, however,
that any individual becoming a director subsequent to the Effective Date whose
election, or nomination for election by the Company’s shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Company’s Board of Directors; or

 

(c)           consummation of a reorganization,
merger or consolidation of the Company or the Bank, or sale or other
disposition (in one transaction or a series of transactions) of any assets of
the Bank or the Company having a total fair market value equal to, or more
than, 40% of the total gross fair market value of all of the assets of the Bank
or the Company immediately prior to such acquisition or acquisitions (a “Business Combination”), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Common Stock and Outstanding Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and 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 corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns all or substantially all
of the Company’s or Bank’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or the Bank or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Company’s Board of Directors at the
time of the execution of the initial agreement, or of the action of the Company’s
Board of Directors, providing for such Business Combination; or

 

(d)           approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company.

 

5.5           “Code” means the
Internal Revenue Code of 1986, as amended and any successor provisions to such
sections.

 

5.6           “Change of Control Period”
shall mean the period of time (a) commencing on the earlier of (i) 120
days before the date the Change of Control occurs, or if earlier, 120 days
before a definitive agreement is executed by the Company or the Bank for a
transaction described in Section 5.4(c) (provided, however, that in
the event of this subsection (a)(i) the 

 

6

 

Executive reasonably demonstrates that his termination
of employment should it occur was either (x) at the request of a third
party who has taken steps reasonably calculated to effect a change in control,
or (y) otherwise arose in connection with a Change in Control), or (ii) the
date the Change of Control occurs, and (b) ending on the last day of the
24th calendar month immediately following the month the Change of
Control occurred.

 

5.7           “Date of Termination”
means (i) if the Executive’s employment is terminated due to the Executive’s
death, the Date of Termination shall be the date of death; (ii) if the
Executive’s employment is terminated due to Disability, the Date of Termination
is the Disability Effective Date; (iii) if the Executive’s employment is
terminated by the Bank or the Company for Cause, the Date of Termination is the
date on which the Bank or the Company gives notice to the Executive of such
termination; (iv) if the Executive’s employment is terminated by the Bank
or the Company without Cause or voluntarily by the Executive, the Date of
Termination shall be the date specified in the notice of termination; and (v) if
the Executive’s employment terminates for any other reason, the Date of
Termination shall be the Executive’s final date of employment.

 

5.8           “Disability”
shall mean a physical or mental condition of the Executive which occurs and
persists and which, in the written opinion of a physician selected by the Bank
or its insurers and acceptable to the Executive or the Executive’s legal
representative, and, in the written opinion of such physician, the condition
will render the Executive unable to return to his duties for an indefinite
period of not less than 180 days.

 

5.9           “Highest Annual Bonus”
shall mean the highest bonus or incentive compensation amount paid to (or
earned by) the Executive in any of the three (3) fiscal years (or in any
shorter number of years if the length of employment of the Executive is less
than three (3) years) immediately preceding the termination.

 

6.             Termination.

 

6.1           This Agreement may be terminated for
the following reasons:

 

(a)           Death.  This Agreement shall terminate automatically
upon the Executive’s death.

 

(b)           Disability.  In the event of the Executive’s Disability,
the Bank may give the Executive a notice of termination.  In such event, the Executive’s
employment  with the Bank and this
Agreement shall terminate without further act of the parties effective on the
30th day after receipt of such notice by the Executive (the “Disability Effective Date”) provided, however, that within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive’ duties. 
Unless otherwise agreed in writing between the Executive, the Bank and
the Company, the Executive shall immediately cease performing and discharging
the duties and responsibilities of his positions and remove himself and his
personal belongings from the Bank’s and the Company’s premises.  All rights and obligations accruing to the Executive
under this Agreement shall cease at such termination, except that such
termination shall not prejudice the Executive’s rights regarding employment
benefits which shall have 

 

7

 

accrued prior to such termination, and any other
remedy which the Executive may have at law, in equity or under this Agreement,
which remedy accrued prior to such termination.

 

(c)           Cause.  The Bank or the Company may terminate the
Executive’s employment and this Agreement for Cause.  Unless otherwise agreed in writing between
the Executive, the Bank and the Company, the Executive shall immediately cease
performing and discharging the duties and responsibilities of his positions and
remove himself and his personal belongings from the Bank’s and the Company’s
premises.  All rights and obligations
accruing to the Executive under this Agreement shall cease at such termination,
except that such termination shall not prejudice the Executive’s rights
regarding employment benefits which shall have accrued prior to such
termination, and any other remedy which the Executive may have at law, in
equity or under this Agreement, which remedy accrued prior to such termination.

 

(d)           Termination by Bank or the Company
without Cause.  The Bank or the
Company may, at its election and in its sole discretion, terminate the
Executive’s employment and this Agreement at any time and for any reason or for
no reason, upon 30 days prior written notice to the Executive, without
prejudice to any other remedy to which the Bank or the Company may be entitled
either at law, in equity or under this Agreement.  Unless otherwise agreed in writing between
the Executive, the Bank and the Company, the Executive shall immediately cease
performing and discharging the duties and responsibilities of his positions and
remove himself and his personal belongings from the Bank’s and the Company’s
premises.  All rights and obligations
accruing to the Executive under this Agreement shall cease at such termination,
except that such termination shall not prejudice the Executive’s rights
regarding employment benefits which shall have accrued prior to such
termination, including the right to receive the severance benefits specified in
Section 6.2(a) or 6.2(b) below, and any other remedy which the
Executive may have at law, in equity or under this Agreement, which remedy
accrued prior to such termination.

 

(e)           Voluntary Termination by Executive.  The Executive may terminate his employment
and this Agreement at any time and for any reason or no reason, upon 30 days
prior written notice to the Bank and the Company.  Unless otherwise agreed in writing between
the Executive, the Bank and the Company, the Executive shall immediately cease
performing and discharging the duties and responsibilities of his positions and
remove himself and his personal belongings from the Bank’s and the Company’s
premises All rights and obligations accruing to the Executive under this
Agreement shall cease at such termination, except that such termination shall
not prejudice the Executive’s rights regarding employment benefits which shall
have accrued prior to such termination and any other remedy which the Executive
may have at law, in equity or under this Agreement, which remedy accrued prior
to such termination.

 

6.2           Certain Benefits upon Termination.

 

(a)           Termination without Cause.  In the event this Agreement is terminated
based on Section 6.1(d) (termination without cause), then in such
case, the Executive shall receive the Accrued Obligations on the Date of Termination,
and severance benefits constituting of:

 

8

 

(i)            cash payment in the amount equal to
one (1) times the Executive’s (A) Base Salary and (B) the
Highest Annual Bonus, payable in a lump sum within 30 days of the Date of
Termination, and

 

(ii)           continuation of group insurance
coverages specified in Section 3.4(c) of this Agreement on terms at
least equal to those if the Executive’s employment had not been terminated, but
not less favorable than that provided to other executives in comparable
positions with the Bank, for a period of 12 months from the Date of
Termination, including, continuation of medical coverage for the Executive and
his dependents pursuant to The Consolidated Omnibus Budget Reconciliation Act
of 1985 (“COBRA”), or under applicable California
law pursuant to Assembly Bill No 1401 (“Cal COBRA”),
with one hundred percent (100%) of premiums for the insurance coverages payable
by the Bank or the Company monthly to the Executive for a period of 12 months
from the Date of Termination.  After
expiration of the 12 month period, the Executive and his dependents shall have
such rights to continue to participate under the Bank’s or the Company’s group
insurance coverages specified in Section 3.4(c) of this Agreement at
the Executive’s expense to the extent available under the terms of the plan or
benefit.  The Executive agrees to notify
the Bank or the Company as soon as practicable, but not less than 10 business
days in advance of the commencement of comparable insurance coverages with
another employer.  The Bank’s obligation
for the 12 month period specified herein with respect to the foregoing benefits
shall be limited to the extent that the Executive obtains any such benefits
pursuant to a subsequent employer’s benefit plans, in which case the Bank may
reduce the coverage of any benefits it is required to provide the Executive
hereunder so long as the aggregate coverages and benefits of the combined
benefit plans of the new employer are not substantially less favorable to the
Executive than the coverages and benefits required to be provided hereunder.

 

Notwithstanding the foregoing or any other provision
of this Agreement, if any part or all of the severance benefits is subject to
taxation under Section 409A of the Code, as determined by the Bank or the
Company, with the advice of its independent accounting firm or other tax
advisors, then the severance benefits shall be subject to modification as set
forth in Section 7 of this Agreement.

 

Notwithstanding the foregoing, when the Executive is
entitled to the serverence benefits provided in Section 6.2(b), then
Executive shall not be entitled to the severance benefits pursuant to this Section 6.2(a).

 

The Executive acknowledges and agrees that severance
benefits pursuant to this Section 6.2(a) are in lieu of all damages,
payments and liabilities on account of the early termination of this Agreement
and are the sole and exclusive remedy for the Executive for a termination
specified in Section 6.1(d).

 

(b)           Termination and Change in Control.  In the event of a Change in Control and at
any time during the Change of Control Period (x) the Executive’s
employment is terminated, or (y) without Executive’s written consent there
occurs any material adverse change in the nature and scope of the Executive’s
position, responsibilities, duties, or a change of 10 miles or more in the
Executive’s location of employment, or any material reduction in Executive’s
compensation or benefits and Executive voluntarily terminates his employment,
then 

 

9

 

the Executive shall receive the Accrued Obligations on
the Date of Termination, and the severence benefits consisting of:

 

(i)            a cash payment in an amount equal to
two (2) times the Executive’s (A) Base Salary and (B) Highest
Annual Bonus, payable in lump sum within 30 days following such termination;
and

 

(ii)           continuation of group insurance
coverages specified in Section 3.4 (c) of this Agreement on
terms at least equal to those if the Executive’s employment had not been
terminated, but not less favorable than that provided to other executives in
comparable positions with the Bank, for a period of 24 months from the Date of
Termination, including continuation of medical coverage for the Executive and
his dependents pursuant to Consolidated Omnibus Budget Reconciliation Act of
1985 (“COBRA”), or under applicable California
law pursuant to Assembly Bill No. 1401 (“Cal COBRA”),
with one hundred percent (100%) of premiums for the insurance coverages payable
by the Bank or the Company monthly to the Executive for a period of 18 months
from the Date of Termination and monthly reimbursement to the Executive for the
next 6 months.  After such expiration of
the 24 month period, the Executive and his dependents shall have such rights to
continue to participate under the Bank’s or the Company’s group insurance
coverages specified in Section 3.4(c) of this Agreement at the
Executive’s expense to the extent available under the terms of the plan or benefit.  The Executive agrees to notify the Bank or
the Company as soon as practicable, but not less than 10 business days in
advance of the commencement of comparable insurance coverages with another
insurance carrier.  The Bank’s obligation
for the 24 month period specified herein with respect to the foregoing benefits
shall be limited to the extent that the Executive obtains any such benefits
pursuant to a subsequent employer’s benefit plans, in which case the Bank may
reduce the coverage of any benefits it is required to provide the Executive
hereunder so long as the aggregate coverages and benefits of the combined
benefit plans of the new employer are not substantially less favorable to the
Executive than the coverages and benefits required to be provided hereunder.

 

Notwithstanding the foregoing or any other provision
of this Agreement, if any part or all of the severance benefits is subject to
taxation under Section 409A of the Code, as determined by the Bank or the
Company, with the advice of its independent accounting firm or other tax
advisors, then the severance payment shall be subject to modification as set
forth hereafter in Section 7 of this Agreement.

 

The Executive acknowledges and agrees that severance
benefits pursuant to this Section 6.2(b) are in lieu of all damages,
payments and liabilities on account of the events described above for which
such severance benefits may be due the Executive under Section 6.2(b) 
of this Agreement.  This Section 6.2(b) shall
be binding upon and inure to the benefit of the Bank and the Company and their
respective successors and assigns.

 

Notwithstanding the foregoing, the Executive shall not
be entitled to receive severance benefits pursuant to this Section 6.2(b) in
the event his termination of employment results from an occurrence described in
Sections 6.1(a), 6.1(b) or 6.1(c).

 

10

 

(c)           Death.  If the Executive’s employment terminates by
reason of the Executive’s death, this Agreement shall terminate without further
obligations to the Executive’s legal representatives under this Agreement,
other than for payment of Accrued Obligations and any incentive compensation
for the year in which the death occurred prorated through the Date of
Termination.  Accrued Obligations shall
be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the Date of Termination; provided, however,
that payment may be deferred until the Executive’s executor or personal
representative has been appointed and qualified pursuant to the laws in effect
in the Executive’s jurisdiction of residence at the time of the Executive’s
death.  The Executive’s estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Bank to the estate and beneficiaries of
other executives in comparable positions with the Bank under such plans,
programs, practices and policies relating to death benefits, if any as in
effect on the date of the Executive’s death.

 

(d)           Disability.  If the Executive’s employment terminates
during the Term by reason of the Executive’s Disability, this Agreement shall
terminate without further obligations to the Executive under this Agreement,
other than for payment of Accrued Obligations, and any incentive compensation
for the year in which the termination occurs prorated through the Date of
Termination and any benefits under such plans, programs, practices and policies
relating to disability benefits, if any, as in effect on the Date of
Termination.

 

(e)           Cause/Voluntary
Termination.  If the Executive’s
employment terminates for Cause, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
the Accrued Obligations.  If the
Executive’s employment terminates due to the Executive’s voluntarily
termination this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive the Accrued
Obligations.

 

(f)            Single Trigger
Event.  The provisions for payments
contained in this Section 6.2 may be triggered only once during the term
of this Agreement, so that, for example, should the Executive be terminated
because of a Disability and should there thereafter be a Change of Control,
then the Executive would be entitled to be paid only under Section 6.2(d) and
not under Section 6.2(b), as well. In addition, the Executive shall not be
entitled to receive severance benefits of any kind from any parent, wholly
owned subsidiary or other affiliated entity of the Bank or the Company if in
connection with the same event of series of events the payments provided for in
this Section 6.2 have been triggered.

 

7.             Section 409A
Limitation.  It is the intention of
the Bank, the Company and the Executive that the severance benefits payable to
the Executive under Section 6.2 either be exempt from, or otherwise comply
with, Section 409A (“Section 409A”)
of the Code.

 

Notwithstanding any other term or provision of this
Agreement, to the extent that any provision of this Agreement is determined by
the Bank or the Company, with the advice of its independent accounting firm or
other tax advisors, to be subject to and not in compliance with Section 409A,
including, without limitation, the definition of Change in Control or the
timing of commencement and completion of severance benefits and/or other
benefit payments to the Executive hereunder, or the amount of any such
payments, such provisions shall be interpreted in 

 

11

 

the manner required to
exempt the benefit from or to comply with Section 409A.  The Company, the Bank and the Executive
acknowledge and agree that such interpretation could, among other matters, (i) limit
the circumstances or events that constitute a “change in control;” (ii) delay
for a period of 6 months or more, or otherwise modify the commencement of
severance and/or other benefit payments; (iii) modify the completion date
of severance and/or (iv) other benefit payments and/or reduce the amount
of the benefit otherwise provided.

 

The Company, Bank and the Executive further
acknowledge and agree that if, in the judgment of the Bank or the Company, with
the advice of its independent accounting firm or other tax advisors, amendment
of this Agreement is necessary to exempt the benefits from or to comply with Section 409A,
the Bank, the Company and the Executive will negotiate reasonably and in good
faith to amend the terms of this Agreement to the extent necessary so that it
exempts the benefits from or to comply with Section 409A (with the most
limited possible economic effect on the Bank, the Company and the
Executive).  For example, if this
Agreement is subject to Section 409A and Section 409A requires that
severance and/or other benefit payments must be delayed until at least 6 months
after the Executive terminates employment, then the Bank, the Company and the
Executive shall delay payments and/or promptly seek a written amendment to this
Agreement that would, if permissible under Section 409A, eliminate any
such payments otherwise payable during the first 6 months following the
Executive’s termination of employment and substitute therefore a lump sum
payment or an initial installment payment, as applicable, at the beginning of
the 7th month following the Executive’s termination of employment which, in the
case of an initial installment payment, would be equal in the aggregate to the
amount of all such payments thus eliminated. 
Notwithstanding the foregoing, (a) the Executive and his dependents
shall not be denied access to and participation in any health or medical
insurance coverage and benefits, for any period of time the Executive and his
dependants are otherwise eligible, and (b) the Executive acknowledges and
agrees that the Company or the Bank shall have the exclusive authority to
determine whether the Executive is a “specified employee” within the meaning of
Section 409A(a)(2)(B)(i).

 

8.             Gross
Up Of Section 280G and 409A Tax. 
If all or any portion of the amounts payable to the Executive under this
Agreement, either alone or together with other payments or benefits which the
Executive has the right to receive from the Bank or the Company, constitute “excess
parachute payments” within the meaning of Section 280G of the Code, that
are subject to the excise tax imposed by Section 4999 of the Code (or
similar tax and/or assessment) , or any tax is imposed on the Executive under Section 409A,
the Bank or the Company (and its successor) shall increase the amounts payable
under this Agreement to the extent necessary to afford the Executive
substantially the same economic benefit under this Agreement as the Executive
would have received had no such excise tax under Section 280G or tax under
Section 409A been imposed on the payments due the Executive under this
Agreement.  The determination of the
amount of any such taxes shall be made by the independent accounting firm
employed by the Bank or the Company, immediately prior to the Change in
Control, or such other independent accounting firm or advisor as may be
mutually agreeable to the Bank or the Company (and their respective successor),
and the Executive in the exercise of their reasonable good faith judgment.  If, at a later date, it is determined
(pursuant to final regulations or published rulings of the Internal Revenue
Service, final judgment of a court of competent jurisdiction, or otherwise)
that the amount of any such taxes payable to the Executive is greater than the
amount initially so determined, then the Bank or the Company (or its successor)
shall pay to the Executive an 

 

12

 

amount equal to the sum of such additional taxes and
any interest, fines and penalties resulting from such underpayment, plus an
amount necessary to reimburse the Executive substantially for any income,
excise or other taxes payable by the Executive with respect to such amounts.  All gross-up payments made hereunder, shall be
paid within the period specified by Treasury Regulation Section 1.409A-3(i)(1)(v) so
that the gross-up payment shall qualify as providing for payment at a specified
time or on a fixed schedule.

 

9.             Assignment.  This Agreement will inure to the benefit of
and be binding upon the Bank and the Company and any of their respective
successors and assigns.  In view of the
personal nature of the services to be performed under this Agreement by the
Executive, the Executive will not have the right to assign or transfer any of
his rights, obligations or benefits under this Agreement.  The Bank and the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Bank or the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Bank and the Company would be
required to perform it if no such succession had taken place.  As used in this Agreement, “Bank” or “the
Company” shall mean the Bank or the Company, as applicable, as hereinbefore
defined and any successor to the Company’s or Bank’s  business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.

 

10.           Specific
Performance.  The Executive hereby
represents and agrees that the services to 
be performed under the terms of this Agreement are of a special, unique,
unusual, extraordinary, and intellectual character that gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in
damages in an action at law.  The
Executive therefore expressly agrees that the Bank and the Company, in addition
to any other rights or remedies that the Bank and the Company may possess,
shall be entitled to injunctive and other equitable relief to prevent or remedy
a breach of this Agreement by the Executive.

 

11.           Noncompetition, No
solicitation And Nondisclosure By The Executive

 

(a)           Definitions.  The term “Trade Secrets” shall be given its
broadest possible interpretation and shall mean any information, including
formulas, patterns, compilations, reports, records, programs, devices, methods,
know-how, negative know-how, techniques, raw material properties and
specifications, formulations, discoveries, ideas, concepts, designs, technical
information, drawings, data, customer and supplier lists, information regarding
customers, buyers and suppliers, distribution techniques, production processes,
research and development projects, marketing plans, general financial
information and financial information concerning customers, the Company’s or
the Bank’s legal, business and financial structure and operations, and other
confidential and proprietary information or processes which (i) derive
independent economic value, actual or potential, from not being generally known
to the public or to other persons who can obtain economic value from its
disclosure or use and (ii) are the subject of efforts that are reasonable
under the circumstances to maintain its secrecy.

 

The term “Proprietary Information” shall also be given
its broadest possible interpretation and shall mean any and all information
disclosed or made available by the Bank to the Executive including, without
limitation, any information which is not publicly known or available and upon
which the Bank’s business or success depends.

 

13

 

(b)           The Executive shall
not, during the term of this Agreement, directly or indirectly, either as an
employee, employer, consultant, agent, principal, stockholder (except as
permitted in Section 1.2  of this
Agreement), officer, director, or in any other individual or representative
capacity, engage or participate in any competitive banking or financial
services business without the prior written consent of the Board of Directors
of the Bank or the Company.

 

(c)           Following termination
of this Agreement and the Executive’s employment hereunder, the Executive shall
not use any Trade Secret or Proprietary Information of the Bank or the Company
or their affiliates and subsidiaries to solicit, encourage or assist, directly,
indirectly or in any manner whatsoever, (i) any employees of the Bank, the
Company or their affiliates and subsidiaries (including any former employees
who voluntarily terminated employment with the Bank or the Company within a 12
month period prior to the Executive’s termination of employment) to resign or
to apply for or accept employment with any other competitive banking or
financial services business within the counties in California in which the Bank
has located its headquarters or branch offices; or (ii) any customer,
person or entity that has a business relationship with the Bank or during the
12 month period prior to the Executive’s termination of employment with the
Bank was engaged in a business relationship with the Bank, to terminate such
business relationship and engage in a business relationship with any other
competitive banking or financial services business within the counties in
California in which the Bank has located its headquarters or branch offices.

 

(d)           In addition and not as
any limitation on the provisions of this Section 11, following termination
of this Agreement and the Executive’s employment hereunder and for 12 months
thereafter, the Executive shall not directly or indirectly, individually or as
a consultant to, or as an employee, officer, stockholder, director or other
owner of or participant in any business entity that engages in or seeks to
engage in any banking or financial services business, solicit (or assist in
soliciting) any person who is, or at any time within 1 month prior to the
Executive’s termination of employment was, an employee of the Company or the
Bank who earned $25,000 on an annual rate or more as an employee of the Company
or the Bank to work for (as an employee, consultant or otherwise) any business,
individual, partnership, firm, corporation, or other entity whether or not
engaged in competitive business with the Bank or the Company.

 

12.           Disclosure
of Information.  The Executive shall
not, at any time or in any manner, directly or indirectly, either before or
after termination of this Agreement, without the prior written consent of the
Board of Directors of the Company or except as required by law to comply with
legal process including, without limitation, by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or similar process, use for his own benefit or the benefit
of any other person or entity, or otherwise disclose or communicate to any
person or entity including, without limitation, the media or by way of the
World Wide Web, any information concerning any Trade Secret or Proprietary
Information of the Company or the Bank. 
The Executive further recognizes and acknowledges that any Trade Secrets
concerning any customers of the Bank or the Company and their respective
affiliates and subsidiaries, as it may exist from time to time, is strictly
confidential and is a valuable, special and unique asset of the Bank’s and the
Company’s business.  In the event the
Executive is required by law to disclose Trade Secrets or Proprietary
Information, the Executive will provide the Bank and the Company, and their
counsel with immediate notice of such request so that they may consider seeking
a protective order.  If, in the absence
of a protective order or the receipt of a waiver 

 

14

 

hereunder, the Executive is nonetheless, in the
written opinion of knowledgeable counsel, compelled to disclose Trade Secrets
or Proprietary Information to any tribunal or any other party or else stand
liable for contempt or suffer other material censure or material penalty, then
the Executive may disclose (on an “as needed” basis only) such information to
such tribunal or other party without liability hereunder.  Notwithstanding the foregoing, the Executive
may disclose Trade Secrets or Proprietary Information as may be required by any
regulatory agency having jurisdiction over the operations of the Bank or the
Company in connection with an examination of the Bank or the Company or other
proceeding conducted by such regulatory agency.

 

13.           Written,
Printed or Electronic Material.  All
written, printed or electronic material, notebooks and records including,
without limitation, computer disks, blackberry (or similar devices), or lap top
used by the Executive in performing duties for the Bank or the Company, other
than the Executive’s personal address lists, telephone lists, notes and
diaries, are and shall remain the sole property of the Bank and the
Company.  Upon termination of employment,
the Executive shall promptly return all such material (including all copies,
extracts and summaries thereof) to the Bank.

 

14.           Miscellaneous.

 

14.1         Notice.  For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when personally delivered or 3 days
after the date of mailing by United States mail, certified or registered,
return receipt requested, postage prepaid, addressed to the respective
addresses set forth below, or to such other addresses as either party may have
furnished to the other in writing in accordance herewith, except that notice of
a change of address shall be effective only upon actual receipt:

 

	
   

  	
   

  	
  Company:

  	
   

  	
  HERITAGE COMMERCE CORP

  150 Almaden Blvd. 

  San Jose, CA 95113 

  Attn: Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Bank:

  	
   

  	
  HERITAGE BANK OF COMMERCE 

  150 Almaden Blvd. 
 San Jose, CA
  95113 

  Attn: President

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  	
   

  	
  Buchalter Nemer

  1000 Wilshire Boulevard, Suite 1500 
 Los Angeles,
  CA 90017-2457  

  Attn: Mark A. Bonenfant, Esq.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Executive:

  	
   

  	
  Michael R. Ong 

  150 Almaden Boulevard 

  San Jose, CA 95113

  

 

15

 

14.2         Amendments or
Additions.  No amendment,
modification or additions to this Agreement shall be binding unless in writing
and signed by the parties hereto.

 

14.3         Section Headings.  The section headings used in this Agreement
are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.

 

14.4         Severability.  The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.

 

14.5         Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but both of
which together will constitute one and the same instrument.

 

14.6         Mediation.  Prior to engaging in any legal or equitable
litigation or other dispute resolution process, regarding any of the terms and
conditions of this Agreement between the parties, or concerning the subject
matter of the Agreement between the parties, each party specifically agrees to
engage in good faith, in a mediation process at the expense of the Bank,
complying with the procedures provided for under California Evidence Code
Sections 1115 through and including 1125, as then currently in effect.  The parties further and specifically agree to
use their best efforts to reach a mutually agreeable resolution of the matter.  The parties understand and specifically agree
that should any party to this Agreement refuse to participate in mediation for
any reason, the other party will be entitled to seek a court order to enforce
this provision in any court of appropriate jurisdiction requiring the
dissenting party to attend, participate, and to make a good faith effort in the
mediation process to reach a mutually agreeable resolution of the matter.

 

14.7         Arbitration.  To the extent not resolved through mediation
as provided in Section 14.6, all claims, disputes and other matters in
question arising out of or relating to this Agreement, any termination of the
Executive’s employment, the enforcement or interpretation of this Agreement, or
because of an alleged breach, default, or misrepresentation in connection with
any of the provisions of this Agreement, including (without limitation) any
state or federal statutory claims, shall be resolved by binding arbitration in
Santa Clara County, California, before a sole arbitrator (the “Arbitrator”) mutually selected by the parties from Judicial
Arbitration and Mediation Services (“JAMS”) in
accordance with the rules and procedures of JAMS then in effect.  If JAMS is no longer able to supply the
arbitrator, such arbitrator shall be mutually selected from the American
Arbitration Association (“AAA”).  The obligation of the parties to arbitrate
pursuant to this clause shall be specifically enforced in accordance with, and
shall be conducted consistently with the provisions of Title 9 of Part 3
of the California Code of Civil Procedure as the exclusive remedy of such
dispute; provided, however, that provisional injunctive relief may, but need
not, be sought in a court of law while arbitration proceedings are pending, and
any provisional injunctive relief granted by such court shall remain effective
until the matter is finally determined by the Arbitrator.  Final resolution of any dispute through
arbitration may include any remedy or relief that the Arbitrator deems just and
equitable, including any and all remedies provided by applicable state or
federal statutes.  At the conclusion of
the arbitration, the Arbitrator shall issue a written decision that sets forth
the essential findings 

 

16

 

and conclusions upon which the Arbitrator’s award or
decision is based.  Any award or relief
granted by the Arbitrator hereunder shall be final and binding on the parties
hereto and may be enforced by any court of competent jurisdiction.

 

14.8         Attorneys Fees.  In the event of litigation, arbitration or
any other action or proceeding between the parties to interpret or enforce this
Agreement, or any part thereof or relating to this Agreement, the prevailing
party shall be entitled to recover its costs related to such action or
proceeding and its reasonable fees of attorneys, accountants and expert
witnesses incurred by such party in connection with any such action or
proceedings.  The prevailing party shall
be deemed to be the party which obtains substantially the relief sought by
final resolution, compromise or settlement, or as may otherwise be determined
by order of a court of competent jurisdiction in the event of litigation, an
award or decision of an arbitrator in the event of arbitration.

 

14.9         Entire Agreement.  This Agreement supersedes any and all
agreements, either oral or in writing, between the parties with respect to the
employment of the Executive by the Bank and the Company and contains all of the
covenants and agreements between the parties with respect to the employment of
the Executive by the Bank and the Company; provided, however, that, this
Agreement does not supersede or replace the rights and benefits under any stock
option agreement between the Company and the Executive as specified in Section 3.3
of this Agreement.  Each party to this
Agreement acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.

 

14.10       Waiver.  The failure of a party to insist on strict
compliance with any of the terms, provisions, covenants, or conditions of this
Agreement by another party shall not be deemed a waiver of any term, provision,
covenant, or condition, individually or in the aggregate, unless such waiver is
in writing, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.

 

14.11       Severability.  If any provision in this Agreement is held by
a court of competent jurisdiction or arbitrator to be invalid, void, or
unenforceable, the remaining provisions shall nevertheless continue in full
force and effect without being impaired or invalidated in any way.  Any provision of this Agreement held invalid
or unenforceable only in part or degree will remain in full force and effect to
the extent not held invalid or unenforceable.

 

14.12       Interpretation.  This Agreement shall be construed without
regard to the party responsible for the preparation of the Agreement and shall
be deemed to have been prepared jointly by the parties.  Any ambiguity or uncertainty existing in this
Agreement shall not be interpreted against any party, but according to the
application of other rules of contract interpretation, if an ambiguity or
uncertainty exists.

 

14.13       Governing Law and Venue.  The laws of the State of California, other
than those laws denominated choice of law rules, shall govern the validity,
construction and effect of this Agreement. 
Any action which in any way involves the rights, duties and obligations
of the 

 

17

 

parties hereunder and is not resolved by binding
arbitration shall be brought in the courts of the State of California and venue
for any action or proceeding shall be in Santa Clara County or in the United
States District Court for the Northern District of California, and the parties
hereby submit to the personal jurisdiction of said courts.

 

14.14       Payments Due Deceased
Executive.  If the Executive dies
prior to the expiration of the term of his employment (except termination
resulting from such death), any payments that may be due the Executive from the
Bank or the Company under this Agreement as of the date of death shall be paid
to the Executives heirs, beneficiaries, successors, permitted assigns or
transferees, executors, administrators, trustees, or any other legal or
personal representatives.

 

14.15       Effect of Termination on
Certain Provisions.  Upon the
termination of this Agreement, the obligations of the Bank, the Company and the
Executive hereunder shall cease except to the extent of the Bank’s or the
Company’s obligation to make payments, if any, to or for the benefit of the
Executive following termination, and provided that Sections 3.3 and 3.4(d) (and
as provided in existing agreements relating to these sections) and
Sections 4, 6.2, 7, 8, 9, 10, 11, 12, 13, 14.3, 14.4, 14.6, 14.7, 14.8, 14.9,
14.10, 14.11, 14.12, 14.13, 4.14 and 14.15 shall remain in full force and
effect.

 

[Remainder of page intentionally
left blank]

 

18

 

14.16       Advice of Counsel and
Advisors.  The Executive acknowledges
and agrees that he has read and understands the terms and provisions of this
Agreement and prior to signing this Agreement, he has had the advice of counsel
and/or such other advisors as he deemed appropriate in connection with his
review and analysis of such terms and provisions of this Agreement.

 

IN WITNESS WHEREOF, each of the parties hereto has
executed this Agreement on the date first indicated above.

 

	
   

  	
  “COMPANY”

  
	
   

  	
   

  	
   

  
	
   

  	
  HERITAGE
  COMMERCE CORP,

  
	
   

  	
  a California
  bank holding company

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Walter Kaczmarek

  
	
   

  	
   

  	
          Walter Kaczmarek,

  
	
   

  	
   

  	
          Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  “BANK”

  
	
   

  	
   

  	
   

  
	
   

  	
  HERITAGE
  BANK OF COMMERCE,

  
	
   

  	
  a California
  banking corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Walter
  Kaczmarek

  
	
   

  	
   

  	
          Walter Kaczmarek,

  
	
   

  	
   

  	
          President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “EXECUTIVE”

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael R.
  Ong

  
	
   

  	
   

  	
          Michael R. Ong

  
				

 

19

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