Document:

Exhibit 10.10

 

[Executive Form]

 

NON-QUALIFIED STOCK OPTION AGREEMENT 

OF

REXNORD HOLDINGS, INC.

 

THIS AGREEMENT (this “Agreement”), dated as of [                  ]
is made by and between Rexnord Holdings, Inc., a Delaware corporation (the
“Company”), and [                   ],
an Employee of the Company or one of its Subsidiaries (as defined herein) (the “Optionee”)

 

WHEREAS, the Company wishes to afford the Optionee the opportunity to purchase
shares of its common stock, par value $0.01 per share (“Common Stock”);

 

WHEREAS, the Company wishes to carry out the 2006 Stock Option Plan of Rexnord
Holdings, Inc. (as may be amended from time to time, the “Plan”),
the terms of which are hereby incorporated by reference and made a part of this
Agreement; and

 

WHEREAS, the Board (i) has determined that it would be to the advantage
and in the best interests of the Company and its stockholders to grant the
Non-Qualified Stock Option provided for herein (the “Option”) to the
Optionee as an inducement for the Optionee to enter into or remain in the
employ of the Company or one of its Subsidiaries and as an incentive for
increased efforts by the Optionee during such employment, and (ii) has
instructed the officers of the Company to issue said Option.

 

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

 

ARTICLE I

DEFINITIONS

 

Whenever
the following terms are used in this Agreement, they shall have the meaning
specified below unless the context clearly indicates otherwise.  Capitalized terms used in this Agreement and
not defined herein shall have the meaning given to such terms in the Plan.  The singular pronoun shall include the
plural, where the context so indicates.

 

“Cause”
shall have the meaning ascribed to it in any employment agreement in effect
between the Company or any of its Subsidiaries and the Optionee as of the date
of the Optionee’s Termination of Employment and, in the absence of any such
employment agreement, “Cause” shall mean,

 

(a)                                  the Board’s determination that the Optionee
failed to carry out, or comply with, in each case in any material respect, any
lawful and reasonable directive of the Board or the Board of Directors of
Rexnord Corporation or any of their respective designees consistent with the
terms of the Optionee’s employment, which is not remedied within 30 days after
the receipt of written notice from the Company specifying such failure;

 

(b)                                 the Optionee’s conviction, plea of no
contest, plea of nolo contendere,
or imposition of unadjudicated probation for any felony;

 

 

(c)                                  the Optionee’s unlawful use (including being
under the influence) or possession of illegal drugs;

 

(d)                                 the Optionee’s commission of an act of fraud,
embezzlement, misappropriation, willful misconduct, or breach of fiduciary duty
against the Company or any of its Subsidiaries;

 

(e)                                  the breach by the Optionee of any of the
provisions contained in Article IV below or similar provisions contained
in any other agreement with the Company or any of its Subsidiaries or other
Affiliates; or

 

(f)                                    the Optionee’s material breach of the
Stockholders’ Agreement.

 

“Cumulative
Debt Repayment” for a given fiscal year shall mean the positive excess, if
any, of (a) the weighted average of the debt outstanding during the 60
calendar days preceding April 30, 2006, as such debt outstanding may be
increased or decreased as appropriate for the effect of any post closing
adjustment as determined by the Committee, over (b) the weighted average
of the debt outstanding during the 60 calendar days preceding April 30 of
the fiscal year immediately following the given fiscal year.

 

“Cumulative
Debt Repayment Target” for a period commencing on or after April 1,
2006 shall be as set forth in Appendix A to this Agreement, subject to the
provisions of Section 6.6 hereof.

 

“Cumulative
EBITDA” as of a given date shall mean the total of EBITDA from and after April 1,
2006 through such date.

 

“Cumulative
EBITDA Target” for a given period commencing on or after April 1,
2006, shall be as set forth in Appendix A of this Agreement, subject to the
provisions of Section 6.6 hereof.

 

“Debt
Repayment” for a given fiscal year of the Company shall mean, excluding any
debt repayment in conjunction with an equity offering of securities of the
Company, the positive excess, if any, of (a) the weighted average of the
debt outstanding during the 60 calendar days preceding April 30 of the
given fiscal year, over (b) the weighted average of the debt outstanding
during the 60 calendar days preceding April 30 of the fiscal year
immediately following the given fiscal year.

 

“Debt
Repayment Target” for a period commencing on or after April 1, 2006
shall be as set forth in Appendix A to this Agreement, subject to the
provisions of Section 6.6 hereof.

 

“EBITDA”
for a given period shall mean consolidated net income before interest, taxes,
depreciation, amortization, extraordinary items (including Other Income and
Expense items as well as LIFO Income and Expense items) and management or
similar fees payable to Apollo Management, L.P. or any of its Affiliates, as
reflected on the Company’s audited consolidated financial statements for such
period.  Consolidated net income shall be
determined in accordance with generally accepted accounting principles except
that gains or losses from extraordinary, unusual or non-recurring items may be
excluded in the discretion of the Committee.

 

 

“EBITDA
Target” for a given period commencing on or after April 1, 2006, shall
be as set forth in Appendix A of this Agreement, subject to the provisions of Section 6.6
hereof.

 

“Good
Reason” shall have the meaning ascribed to it in any employment agreement
in effect between the Company or any of its Subsidiaries and the Optionee as of
the date of the Optionee’s Termination of Employment and, in the absence of any
such employment agreement, “Good Reason” shall mean,

 

(a)                                  the failure of the Company to continue the
Optionee’s employment as Chief Executive Officer and as a member of the Board
with the Optionee’s primary contact being the chairman of the Board;

 

(b)                                 a material diminution in the nature or scope
of the Optionee’s responsibilities, duties or authorities;

 

(c)                                  the failure of the Company to make any material
payment or provide any material benefit to which the Optionee is entitled;

 

(d)                                 the material breach by the Company or any of
its Subsidiaries of the Stockholders’ Agreement; or

 

(e)                                  the material breach by the Company or any of
its Subsidiaries of the Optionee’s employment agreement with Rexnord
Corporation, dated as of July 21, 2006, as the same may be amended from
time to time;

 

provided, however,
that the Optionee may not terminate the Optionee’s employment for Good Reason
unless the Optionee provides the Company or the Subsidiary of the Company that
employs the Optionee with at least 30 days’ prior written notice of the
Optionee’s intent to resign for Good Reason, with such notice to set forth the
event or events constituting Good Reason, and the Company or the Subsidiary of
the Company that employs the Optionee has not remedied the alleged violation(s)
within the 30-day period.

 

“Principal
Stockholder(s) Investment” means direct or indirect investments in shares
of Common Stock, preferred stock or other debt or equity securities of the
Company or any of its Subsidiaries made by the Principal Stockholder(s) on or
after the Closing Date.

 

“Principal
Stockholder(s) CAGR” means the pretax compound annual growth rate
calculated on a quarterly basis based on the cash proceeds realized to the
Principal Stockholder(s) in a Liquidity Event on the Principal Stockholder(s)
Investment (which proceeds, for purposes hereof, shall be determined after
deducting all transaction costs and all investment banking, accounting,
attorney, consultant and similar fees paid or payable by the Principal
Stockholder(s) to the extent not paid or reimbursed by the Company or any other
third party) and the aggregate amount invested by the Principal Stockholder(s)
for all Principal Stockholder(s) Investments, assuming all Principal
Stockholder(s) Investments were purchased by one Person and were held
continuously by such Person, after dilution for outstanding options, warrants
or other rights to acquire shares of Common Stock or other equity securities of
the Company.  The Principal
Stockholder(s) CAGR shall be determined based on the actual time of each
Principal Stockholder(s) Investment and including, as a return on such
investment, any cash dividends,

 

 

cash distributions or cash
interest paid by the Company or any Subsidiary of the Company in respect of
such investment during such period, but shall exclude any management or
monitoring fees paid to Apollo Management, L.P. or any of its Affiliates.

 

ARTICLE II

GRANT OF OPTION

 

Section 2.1                                      Grant of Option

 

In
consideration of the Optionee’s agreement to enter into or remain in the employ
of the Company or one of its Subsidiaries and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, on
the date hereof the Company irrevocably grants to the Optionee the Option to
purchase any part or all of an aggregate of 230,706 shares of Common Stock upon
the terms and conditions set forth in the Plan and this Agreement.  The Optionee hereby agrees that (i) except
as required by law, the Optionee will not disclose to any Person other than the
Optionee’s spouse and legal, financial and other advisors (if any) the grant of
the Option or any of the terms or provisions hereof without the prior approval
of the Committee, and (ii) in the discretion of the Committee, the Option
shall terminate and any unexercised portion of such Option (whether or not
vested) shall be forfeited if the Optionee violates the non-disclosure
provisions of this Section 2.1.

 

Section 2.2                                      Option Subject to Plan

 

The
Option granted hereunder is subject to the terms and provisions of the Plan,
including without limitation, Article V and Sections 7.1, 7.2, 7.3 and
7.10 thereof.

 

Section 2.3                                      Option Price

 

The
purchase price of the shares of Common Stock covered by the Option shall be
$47.50 per share (without commission or other charge).

 

ARTICLE III

EXERCISABILITY

 

Section 3.1                                      Commencement of Exercisability 

 

(a)                                  Subject to Section 3.1(e) and Section 3.3
of this Agreement, 50% of the Option shall become vested in five cumulative
installments, provided that the Optionee remains continuously employed in
active service by the Company or one of its Subsidiaries from the date of grant
through such date, as follows:

 

(i)                                     The first installment shall consist of 10% of
the shares of Common Stock covered by such Option and shall become vested on July 21,
2007;

 

(ii)                                  The second installment shall consist of 10%
of the shares of Common Stock covered by such Option and shall become vested on
July 21, 2008;

 

 

(iii)                               The third installment shall consist of 10% of
the shares of Common Stock covered by such Option and shall become vested on July 21,
2009;

 

(iv)                              The fourth installment shall consist of 10%
of the shares of Common Stock covered by such Option and shall become vested on
July 21, 2010; and

 

(v)                                 The fifth installment shall consist of 10% of
the shares of Common Stock covered by such Option and shall become vested on July 21,
2011.

 

(b)                                 Subject to Section 3.1(e) and Section 3.3,
50% of the Option shall become vested as follows:

 

(i)                                     An installment of up to 2.5% of the shares of
Common Stock covered by the Option shall become vested on, or within 120 days
following, March 31 of each fiscal year 2007 through 2011, in each case as
determined by the Committee in its sole discretion as follows:

 

(A)                              with respect to the fiscal year ending March 31,
2007, if the Debt Repayment for such fiscal year equals or exceeds the Debt
Repayment Target for such fiscal year, then 2.5% of the shares of Common Stock
covered by the Option shall become vested;

 

(B)                                with respect to the fiscal year ending March 31,
2008:

 

(1)                                  if the Debt Repayment for such fiscal year
equals or exceeds 95%, but is less than 100%, of the Debt Repayment Target for
such fiscal year, then 1.875% of the shares of Common Stock covered by the
Option shall become vested; or

 

(2)                                  if the Debt Repayment for such fiscal year
equals or exceeds the Debt Repayment Target for such fiscal year, then 2.5% of
the shares of Common Stock covered by the Option shall become vested;

 

(C)                                with respect to each fiscal year ending March 31,
2009, 2010 and 2011:

 

(1)                                  if the Debt Repayment for any such fiscal
year equals or exceeds 90%, but is less than 95%, of the Debt Repayment Target
for such fiscal year, then 1.25% of the shares of Common Stock covered by the
Option shall become vested; or

 

(2)                                  if the Debt Repayment for any such fiscal
year equals or exceeds 95%, but is less than 100%, of the Debt Repayment Target
for such fiscal year, then 1.875% of the shares of Common Stock covered by the
Option shall become vested; or

 

 

(3)                                  if the Debt Repayment for any such fiscal
year equals or exceeds the Debt Repayment Target for such fiscal year, then
2.5% of the shares of Common Stock covered by the Option shall become vested.

 

(ii)                                  An installment of up to 2.5% of the shares of
Common Stock covered by the Option shall become vested on, or within 120 days
following, March 31 of each fiscal year 2007 through 2011 as determined by
the Committee in its sole discretion as follows:

 

(A)                              with respect to the fiscal year ending March 31,
2007, if the Cumulative Debt Repayment for such fiscal year equals or exceeds
the Cumulative Debt Repayment Target for such fiscal year, then 2.5% of the
shares of Common Stock covered by the Option shall become vested;

 

(B)                                with respect to the fiscal year ending March 31,
2008:

 

(1)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds 95%, but is less than 100%, of the Cumulative
Debt Repayment Target for such fiscal year, then 1.875% of the shares of Common
Stock covered by the Option shall become vested; or

 

(2)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds the Cumulative Debt Repayment Target for such
fiscal year, then 2.5% of the shares of Common Stock covered by the Option
shall become vested;

 

(C)                                with respect to each fiscal year ending March 31,
2009, 2010 and 2011:

 

(1)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds 90%, but is less than 95%, of the Cumulative Debt
Repayment Target for such fiscal year, then 1.25% of the shares of Common Stock
covered by the Option shall become vested; or

 

(2)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds 95%, but is less than 100%, of the Cumulative
Debt Repayment Target for such fiscal year, then 1.875% of the shares of Common
Stock covered by the Option shall become vested; or

 

(3)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds the Cumulative Debt Repayment Target for such
fiscal year, then 2.5% of the shares of Common Stock covered by the Option
shall become vested.

 

 

(iii)                               If the Cumulative Debt Repayment as of the
end of any fiscal year 2007 through 2011 is less than the Cumulative Debt
Repayment Target through the end of such fiscal year, that portion of the
Option that was subject to accelerated vesting pursuant to Section 3.1(b)(i) and
3.1(b)(ii), but which did not become vested pursuant to Sections 3.1(b)(i)(A), (B) or
(C) or 3.1(b)(ii)(A), (B) or (C), with respect to such fiscal year, subject
to Sections 3.2 and 3.4, shall become vested, as determined by the Committee,
on, or within 120 days following, the last day of the first fiscal year in
which the Cumulative Debt Repayment equals or exceeds the Cumulative Debt
Repayment Target for such fiscal year.

 

(iv)                              An installment of up to 2.5% of the shares of
Common Stock covered by the Option shall become vested on, or within 120 days
following, March 31 of each fiscal year 2007 through 2011 as determined by
the Committee in its sole discretion as follows:

 

(A)                              with respect to the fiscal year ending March 31,
2007, if EBITDA for such fiscal year equals or exceeds the EBITDA Target for
such fiscal year, then 2.5% of the shares of Common Stock covered by the Option
shall become vested;

 

(B)                                with respect to the fiscal year ending March 31,
2008:

 

(1)                                  if EBITDA for such fiscal year equals or
exceeds 95%, but is less than 100%, of the EBITDA Target for such fiscal year,
then 1.875% of the shares of Common Stock covered by the Option shall become vested;
or

 

(2)                                  if EBITDA for such fiscal year equals or
exceeds the EBITDA Target for such fiscal year, then 2.5% of the shares of
Common Stock covered by the Option shall become vested;

 

(C)                                with respect to each fiscal year ending March 31,
2009, 2010 and 2011:

 

(1)                                  if EBITDA for any such fiscal year equals or
exceeds 90%, but is less than 95%, of the EBITDA Target for such fiscal year,
then 1.25% of the shares of Common Stock covered by the Option shall become
vested; or

 

(2)                                  if EBITDA for any such fiscal year equals or
exceeds 95%, but is less than 100%, of the EBITDA Target for such fiscal year,
then 1.875% of the shares of Common Stock covered by the Option shall become
vested; or

 

(3)                                  if EBITDA for any such fiscal year equals or
exceeds the EBITDA Target for such fiscal year, then 2.5% of the

 

 

shares
of Common Stock covered by the Option shall become vested.

 

(v)                                 An installment of up to 2.5% of the shares of
Common Stock covered by the Option shall become vested on, or within 120 days
following, March 31 of each fiscal year 2007 through 2011 as determined by
the Committee in its sole discretion as follows:

 

(A)                              with respect to the fiscal year ending March 31,
2007, if Cumulative EBITDA for such fiscal year equals or exceeds the
Cumulative EBITDA Target for such fiscal year, then 2.5% of the shares of
Common Stock covered by the Option shall become vested;

 

(B)                                with respect to the fiscal year ending March 31,
2008:

 

(1)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds 95%, but is less than 100%, of the Cumulative EBITDA Target
for such fiscal year, then 1.875% of the shares of Common Stock covered by the
Option shall become vested; or

 

(2)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds the Cumulative EBITDA Target for such fiscal year, then 2.5%
of the shares of Common Stock covered by the Option shall become vested;

 

(C)                                with respect to each fiscal year ending March 31,
2009, 2010 and 2011:

 

(1)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds 90%, but is less than 95%, of the Cumulative EBITDA Target
for such fiscal year, then 1.25% of the shares of Common Stock covered by the
Option shall become vested; or

 

(2)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds 95%, but is less than 100%, of the Cumulative EBITDA Target
for such fiscal year, then 1.875% of the shares of Common Stock covered by the
Option shall become vested; or

 

(3)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds the Cumulative EBITDA Target for such fiscal year, then 2.5%
of the shares of Common Stock covered by the Option shall become vested.

 

(vi)                              if Cumulative EBITDA as of the end of any
fiscal year 2007 through 2011 is less than the Cumulative EBITDA Target through
the end of such fiscal year, that portion of the Option that was subject to
accelerated vesting pursuant to Sections 3.1(b)(iv) and 3.1(b)(v), but
which did not become vested pursuant to Sections 3.1(b)(iv)(A), (B) or (C) or
3.1(b)(v)(A), (B) or (C), with

 

 

respect
to such fiscal year, subject to Sections 3.2 and 3.4, shall become vested, as
determined by the Committee, on, or within 120 days following, the last day of
the first fiscal year in which Cumulative EBITDA equals or exceeds the
Cumulative EBITDA Target for such fiscal year.

 

(c)                                  Notwithstanding the foregoing provisions of
this Section 3.1, but subject to Section 3.1(e), upon the occurrence
of the first Liquidity Event, the following shall immediately prior to the
effective date of such Liquidity Event become vested in full:

 

(i)                                     that portion of the Option that remains
eligible to become vested pursuant to Section 3.1(a);

 

(ii)                                  at the election and sole discretion of the
Committee, that portion of the Option that has not, as of such Liquidity Event,
become eligible to become vested pursuant to Sections 3.1(b)(i), 3.1(b)(ii),
3.1(b)(iv) or 3.1(b)(v);

 

(iii)                               that portion of the Option that remains
eligible to become vested pursuant to Section 3.1(b), but only if the
Principal Stockholder(s) CAGR as of the Liquidity Event equals or exceeds 25%.

 

(d)                                 The Committee shall make the determination as
to whether the respective Debt Repayment, Cumulative Debt Repayment, EBITDA,
and Cumulative EBITDA Targets have been met, and shall determine the extent, if
any, to which the Option as become vested, on any such date as the Committee in
its sole discretion shall determine; provided,
however, that with respect to
each fiscal year such date shall not be later than the 120th day
following March 31 of such fiscal year.

 

(e)                                  Except with respect to any portion of the
Option that as of the Optionee’s Termination of Employment is eligible to vest
pursuant to Section 3.1(b) for the fiscal year preceding the fiscal
year in which the Optionee’s Termination of Employment occurs, no portion of
the Option which is unvested at the Optionee’s Termination of Employment shall
thereafter become vested.

 

Section 3.2                                      Duration of Exercisability

 

The
installments provided for in Section 3.1 are cumulative.  Each such installment which becomes vested
pursuant to Section 3.1 shall remain vested and may be exercised until the
Option expires pursuant to Section 3.3.

 

Section 3.3                                      Expiration of Option

 

The
Option may not be exercised to any extent by any Person after the first to
occur of any of the following events:

 

(a)                                  The expiration of ten years from the date the
Option was granted;

 

(b)                                 If the Optionee’s Termination of Employment
is for any reason other than (i) by the Company or any Subsidiary of the
Company for Cause, or (ii) on account of the

 

 

Optionee’s
death or disability (as defined in Section 22(e)(3) of the Code), the
later of (x) the ninetieth day following the date of the Optionee’s Termination
of Employment or (y) to the extent that, as of the Optionee’s Termination of
Employment, any portion of the Option remains eligible to vest pursuant to Section 3.1(b) for
the fiscal year preceding the fiscal year in which the Optionee’s Termination
of Employment occurs, the thirtieth day following the date of the Committee’s
determination under Section 3.1(d) for such fiscal year;

 

(c)                                  The date of the Optionee’s Termination of
Employment by the Company or any Subsidiary of the Company for Cause;

 

(d)                                 If the Optionee’s Termination of Employment
is on account of the Optionee’s death or disability (within the meaning of Section 22(e)(3) of
the Code), the expiration of 12 months from the date of the Optionee’s
Termination of Employment; or

 

(e)                                  The occurrence of a Liquidity Event, provided
that any portion of the Option that is vested as of the occurrence of the
Liquidity Event may be exercised concurrently therewith.

 

Section 3.4                                      Partial Exercise

 

Any
vested portion of the Option or the entire Option, if then wholly vested, may
be exercised in whole or in part at any time prior to the time when the Option
or portion thereof expires; provided,
however, that each partial
exercise shall be for not less than 100 shares of Common Stock and shall be for
whole shares of Common Stock only.

 

Section 3.5                                      Exercise of Option

 

The
exercise of the Option shall be governed by the terms of this Agreement and the
terms of the Plan, including without limitation, the provisions of Article V
of the Plan, which, among other things, require that the Optionee (or, in the
event of the Optionee’s death or disability, the Optionee’s Eligible
Representative) deliver an executed copy of a Joinder to the Stockholders’
Agreement designated by the Company (in the form attached to such Stockholders’
Agreement) to the Secretary as a condition to the exercise of the Option.

 

ARTICLE IV

RESTRICTIVE COVENANTS

 

Section 4.1                                      Non-Competition

 

During
the term of the Optionee’s employment with the Company or any of its
Subsidiaries and for a period of two years thereafter, the Optionee shall not,
directly or indirectly, engage in, have any equity interest in, or manage or
operate any person, firm, corporation, partnership or business (whether as
director, officer, employee, agent, representative, partner, security holder,
consultant or otherwise) that engages in any business which competes with any
business of the Company or any entity owned by the Company anywhere in the
world; provided, however, that
the Optionee shall be permitted to acquire a

 

 

passive stock or equity
interest in such a business provided the stock or other equity interest
acquired is not more than five percent (5%) of the outstanding interest in such
business.

 

Section 4.2                                      Customer Non-Solicitation

 

During
the term of the Optionee’s employment with the Company or any of its
Subsidiaries and for a period of two years thereafter, the Optionee agrees not
to, and will not permit any of the Optionee’s Affiliates to, directly or
indirectly, induce or attempt to induce any customer, supplier, licensee or
other business relation of the Company or any of its Subsidiaries to cease
doing business with the Company or any of its Subsidiaries, or in any way
interfere with the relationship between any such customer, supplier, licensee
or business relation, on the one hand, and the Company or any of its
Subsidiaries, on the other hand.

 

Section 4.3                                      Non-Solicitation/Non-Hiring of Employees

 

During
the term of the Optionee’s employment with the Company or any of its
Subsidiaries and for a period of two years thereafter, the Optionee agrees not
to, and will not permit any of the Optionee’s Affiliates to, directly or
indirectly, (i) recruit or otherwise solicit or induce (or attempt to
recruit or otherwise solicit or induce) any employee of the Company or any of
its Subsidiaries to leave the employ of the Company or any of its Subsidiaries,
or in any way interfere with the relationship between the Company or any of its
Subsidiaries, on the one hand, and any employee thereof, on the other hand, or (ii) hire
any Person who is or at any time was an employee of the Company or any of its
Subsidiaries until six (6) months after such Person’s employment
relationship with the Company or any of its Subsidiaries has ended.

 

Section 4.4                                      Non-Disparagement

 

During
the term of the Optionee’s employment with the Company or any of its
Subsidiaries and thereafter in perpetuity, the Optionee shall not knowingly
disparage, criticize, or otherwise make derogatory statements regarding the
Company or any of its Affiliates, Subsidiaries, successors, directors,
officers, customers or suppliers.  During
the term of the Optionee’s employment with the Company or any of its
Subsidiaries and thereafter in perpetuity, none of the Company, Rexnord
Corporation, nor any of their respective officers shall knowing disparage,
criticize, or otherwise make derogatory statements regarding the Optionee.  The restrictions of this Section 4.4
shall not apply to any statements that are made truthfully in response to a
subpoena or other compulsory legal process.

 

Section 4.5                                      Non-Disclosure of Confidential Information

 

During
the term of the Optionee’s employment with the Company or any of its
Subsidiaries and thereafter in perpetuity, the Optionee shall maintain in
confidence and shall not directly, indirectly or otherwise, use, disseminate,
disclose or publish, or use for the Optionee’s benefit or the benefit of any
Person, any confidential or proprietary information or trade secrets of or
relating to the Company or any of its Subsidiaries or Affiliates, including,
without limitation, information with respect to the Company’s or any of its
Subsidiaries’ operations, processes, products, inventions, business practices,
finances, principals, vendors, suppliers, customers, potential customers,
marketing methods, costs, prices, contractual relationships, regulatory status,
compensation paid to employees or other terms of employment, or deliver to

 

 

any Person any document,
record, notebook, computer program or similar repository of or containing any
such confidential or proprietary information or trade secrets.  Upon the Optionee’s Termination of Employment
for any reason, the Optionee shall promptly deliver to the Company all
correspondence, drawings, manuals, letters, notes, notebooks, reports,
programs, plans, proposals, financial documents, or any other documents
concerning the Company’s or any of its Subsidiaries’ customers, business plans,
marketing strategies, products or processes. 
The Optionee may respond to a lawful and valid subpoena or other legal
process but shall give the Company the earliest possible notice thereof, shall,
as much in advance of the return date as possible, make available to the Company
and its counsel the documents and other information sought and shall assist
such counsel in resisting or otherwise responding to such process.

 

Section 4.6                                      Injunctive Relief

 

The
Optionee hereby acknowledges that a breach of the covenants contained in this Article IV
will cause irreparable damage to the Company and its goodwill, the exact amount
of which will be difficult or impossible to ascertain, and that the remedies at
law for any such breach will be inadequate. 
Accordingly, the Optionee hereby agrees that, in the event of a breach
of any of the covenants contained in this Article IV, in addition to any
other remedy which may be available at law or in equity, the Company shall be
entitled to specific performance and injunctive relief.  The Company hereby acknowledges that a breach
of the Company’s covenant contained in Section 4.4 will cause irreparable
damage to the Optionee, the exact amount of which will be difficult or
impossible to ascertain, and that the remedies at law for any such breach will
be inadequate.  Accordingly, the Company
hereby agrees that, in the event of a breach of the Company’s covenant
contained in Section 4.4, in addition to any other remedy which may be
available at law or in equity, the Optionee shall be entitled to specific
performance and injunctive relief.

 

ARTICLE V

LIMITED CALL RIGHT

 

Section 5.1                                      Defined Terms

 

Capitalized
terms used in this Article V and not otherwise defined in the Plan or this
Agreement shall have the meanings ascribed to them in the Stockholders’ Agreement
to which the Optionee has or, as a condition to exercise of the Option, will
become a party.

 

Section 5.2                                      Company’s Call Right Generally

 

From
and after a Repurchase Event, the Company shall have the right, but not the
obligation, to repurchase all or any portion of the Equity Securities held by
the Optionee (including any Equity Securities received upon a distribution from
any deferred compensation plan or other Equity Incentive Plan or any Equity
Securities issuable upon exercise of any option, warrant or similar
equity-linked Security of the Company held by the Optionee) in accordance with Section 4
of the Stockholders’ Agreement, as modified by this Article V (the “Repurchase
Right”).  Any repurchase described in
the immediately preceding sentence shall be for fair market value (as
determined under the Stockholders’ Agreement), but subject to Section 5.3,
and

 

 

subject further to any
provisions to the contrary contained in the Optionee’s Employment Agreement (if
any).  The Company may exercise the
Repurchase Right by written notice (a “Repurchase Notice”) to the
Optionee within six months after the Repurchase Event; provided, however,
that with respect to Equity Securities acquired by the Optionee after such
Repurchase Event (whether by exercise of any option, warrant or similar
equity-linked Security of the Company, distribution of shares from any deferred
compensation plan or otherwise), the Company may exercise the Repurchase Right
by delivering a Repurchase Notice to the Optionee within six months after the
acquisition of such Equity Securities by the Optionee (each date on which any
such repurchase is executed with respect to the subject Equity Securities, the “Repurchase
Date”).  The determination date for
purposes of determining the fair market value shall be the Repurchase Date
applicable to the subject Equity Securities. 
Subject to Section 6 of the Stockholders’ Agreement, the Repurchase
Date with respect to any repurchase of Equity Securities pursuant to the
exercise of the Repurchase Right shall take place on the later of (i) the
date specified by the Company, which shall in no event be later than thirty
(30) days following the date of the Repurchase Notice and (ii) within ten (10) days
following the receipt by the Company of all necessary government approvals.

 

Section 5.3                                      Company’s Call Right Upon Certain
Terminations

 

Notwithstanding
anything contained herein to the contrary, unless otherwise provided in an
Employment Agreement of the Optionee, in the event the Optionee’s employment relationship
with the Company or any of its Subsidiaries is terminated by the Optionee
without Good Reason prior to the [        ]
anniversary of the Closing Date or by the Company or any of its Subsidiaries
for Cause, then the Company may exercise the Repurchase Right by delivering a
Repurchase Notice to the Optionee within the time periods set forth in Section 5.2
above at a price equal to the lesser of (i) in the case of Common Stock,
$47.50 per share of Common Stock, subject to adjustment by the Company to
reflect any stock split, recapitalization or similar adjustment to the Common
Stock (or, for shares of Common Stock acquired after the Closing Date and not
upon exercise of a Rollover Option, the original acquisition cost to the
Optionee of such shares of Common Stock) and (ii) the fair market value
(as determined under the Stockholders’ Agreement) of such Equity
Securities.  The determination date for
purposes of determining the fair market value shall be the closing date of the
purchase of the applicable Equity Securities.

 

Section 5.4                                      Apollo’s Call Right

 

The
Company shall give prompt written notice to Apollo stating whether the Company
will exercise the Repurchase Right pursuant to Section 5.2 or Section 5.3
above.  If such notice states that the
Company will not exercise such Repurchase Rights for all or any portion of the
applicable Equity Securities subject thereto, Apollo (or its designee) shall
have the right (exercisable by delivery of written notice to the Optionee on or
before the later of (i) the 30th day following the receipt of
such notice or (ii) 6 months after the Repurchase Event) to purchase any
such Equity Securities not purchased by the Company on the same terms and
conditions as the Company set forth in Section 5.2 or Section 5.3.

 

 

Section 5.5                                      Closing

 

The
Repurchase Date shall take place on a date designated by the Company or Apollo,
as applicable, in accordance with Section 5.2 or Section 5.4,
respectively; provided, however, that the closing may be deferred
to a date designated by the Company or Apollo, as applicable, or, to the extent
required to avoid liability under applicable securities laws, the Optionee,
until such time as the Optionee has held the Equity Securities for a period of
at least six months and one day.  The
purchase price shall be paid at the closing in the form of a check, wire
transfer of immediately available funds, or by cancellation of money purchase
indebtedness of the Optionee, as determined in the sole discretion of the
Company or Apollo, as applicable.  The
Company or Apollo, as applicable, may effect such repurchase of Equity
Securities and the Company shall record such Transfer on its books whether or
not the Optionee attends such closing or delivers certificates representing
such Equity Securities to the Company. 
The Optionee hereby grants an irrevocable proxy and power of attorney
which, it is agreed, is coupled with an interest to any nominee of the Company
or Apollo, as applicable, to take all necessary actions and execute and deliver
all documents deemed necessary and appropriate by such nominee to effect such
purchase of Equity Securities.  If the
Optionee fails to take all necessary actions and execute and deliver all
documents necessary and appropriate to fulfill his or her obligations under
this Article V, the Optionee shall indemnify, defend and hold such nominee
harmless against all liability, loss or damage, together with all reasonable
costs and expenses (including reasonable legal fees and expenses), relating to
or arising from such nominee’s exercise of the proxy and power of attorney
granted hereby.  In addition, the
Optionee shall immediately lose all rights the Optionee may have under Section 8
of the Stockholders’ Agreement in the event of any such purchase.

 

ARTICLE VI

OTHER PROVISIONS

 

Section 6.1                                      Not a Contract of Employment

 

Nothing
in this Agreement or in the Plan shall (i) confer upon the Optionee any
right to continue in the employ of the Company or any of its Subsidiaries, or (ii) interfere
with or restrict in any way the rights of the Company or its Subsidiaries,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without Cause, except pursuant to an employment
agreement, if any, executed by and between the Company or any of its
Subsidiaries, on the one hand, and the Optionee, on the other hand, and
approved by the Board.

 

Section 6.2                                      Shares Subject to Plan and Stockholder
Agreement

 

The
Optionee acknowledges that any shares of Common Stock acquired upon exercise of
the Option are subject to the terms of the Plan and the Stockholders’
Agreement, including without limitation, the restrictions set forth in Section 5.6
of the Plan.

 

Section 6.3                                      Construction

 

This
Agreement shall be administered, interpreted and enforced under the laws of the
state of New York, without regard to conflicts of laws provisions that would
give effect to the laws of another jurisdiction.

 

 

Section 6.4                                      Conformity to Securities Laws

 

The
Optionee acknowledges that the Plan is intended to conform to the extent
necessary with all provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated thereunder by the Securities
and Exchange Commission, including without limitation, Rule 16b-3.  Notwithstanding anything herein to the
contrary, the Plan shall be administered, and the Option is granted and may be
exercised, only in such a manner as to conform to such laws, rules and
regulations.  To the extent permitted by
applicable law, the Plan and this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.

 

Section 6.5                                      280G Compliance

 

In
the event that the Optionee becomes entitled to payments or benefits under this
Agreement and/or any other payments or benefits by reason of a “change of
control” as defined in Section 280G of the Code and regulations thereunder
(collectively, the “Payments”), and any such Payment constitutes a “parachute
payment” as defined in Section 280G of the Code and regulations
thereunder, the Company and the Optionee shall use their respective reasonable
best efforts to obtain stockholder approval of such Payments in the manner
provided in Section 280G(b)(5)(B) of the Code and regulations
thereunder; provided, however, that nothing in this Section 6.5
shall be interpreted to require the Optionee to waive any of the Optionee’s
rights under the Option or otherwise.

 

Section 6.6                                      Adjustments in Debt Repayment and EBITDA
Targets

 

The
Debt Repayment and EBITDA Targets (including the Cumulative Debt Repayment and
Cumulative EBITDA Targets) specified in Appendix A are based upon certain
revenue and expense assumptions about the future business of the Company as of
the date the Option is granted. 
Accordingly, in the event that, after such date, the Committee determines,
in its sole discretion, that any acquisition or disposition of any business by
the Company or any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock or other securities of the Company, issuance of warrants or other
rights to purchase Common Stock or other securities of the Company, any unusual
or nonrecurring transactions or events affecting the Company, or the financial
statements of the Company, or change in applicable laws, regulations, or
accounting principles occurs such that an adjustment is determined by the
Committee to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to the Option, then the Committee shall, in good faith and in such
manner as it may deem equitable, adjust the financial targets set forth on
Appendix A to reflect the projected effect of such transaction(s) or event(s)
on Debt Repayment and/or EBITDA, subject to Section 7.1 of the Plan.

 

Section 6.7                                      Entire Agreement

 

The
parties hereto acknowledge that this Agreement and the Plan set forth the
entire agreement and understanding of the parties and supersede all prior
written or oral agreements or

 

 

understandings with respect
to the subject matter hereof, except that any provisions therein regarding
confidentiality or non-competition remain in full force and effect in favor of
the Company and its Subsidiaries as if the agreements containing such
provisions were not so superseded.  The
obligations imposed by this Agreement are severable and should be construed
independently of each other.  The
invalidity of one provision shall not affect the validity of any other
provision.  If any provision of this
Agreement shall be invalid or unenforceable, in whole or in part, or as applied
to any circumstances, under the laws of any jurisdiction which may govern for
such purpose, then such provision shall be deemed, to the extent allowed by the
laws of such jurisdiction, to be modified or restricted to the extent and in
the manner necessary to render the same valid and enforceable, either generally
or as applied to such circumstance, or shall be deemed exercised from this
Agreement, as the case may require, and this Agreement shall be construed and
enforced to the maximum extent permitted by law, as if such provision had been
originally incorporated herein as so modified or restricted, or as if such
provision had not been originally incorporated herein, as the case may be.

 

Section 6.8                                      Amendment

 

The
Board at any time, and from time to time, may amend the terms of this
Agreement, provided, however,
that the rights of the Optionee shall not be adversely impaired without the
Optionee’s written consent.  The Company
shall provide the Optionee with notice and a copy of any amendment made to this
Agreement

 

Section 6.9                                      Arbitration; Waiver of Jury Trial

 

Any
dispute or controversy arising under, out of, or in connection with or in
relation to this Agreement or the Plan shall be finally determined and settled
by arbitration in New York, New York in accordance with the Commercial Rules of
the American Arbitration Association, and judgment upon the award may be
entered in any court having jurisdiction. 
Within 20 days of the conclusion of the arbitration hearing, the
arbitrator shall prepare written findings of fact and conclusions of law.  It is mutually agreed that the written
decision of the arbitrator shall be valid, binding, final and non-appealable; provided, however, that the parties hereto
agree that the arbitrator shall not be empowered to award punitive damages
against any party to such arbitration. 
To the extent permitted by law, the arbitrator’s fees and expenses will
be borne equally by each party.  In the
event that an action is brought to enforce the provisions of this Agreement or
the Plan pursuant to this Section 6.9, each party shall pay its own
attorney’s fees and expenses regardless of whether in the opinion of the court
or arbitrator deciding such action there is a prevailing party.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL, INCLUDING TRIAL BY JURY, IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE PLAN OR THIS AGREEMENT.

 

Section 6.10                                Notices

 

All
notices, requests, consents and other communications hereunder to any party
hereto shall be deemed to be sufficient if contained in a written instrument
and shall be deemed to have been duly given when delivered in person, by
telecopy, by nationally-recognized overnight courier, or by first class
registered or certified mail, postage prepaid, addressed to such party at

 

 

the address set forth below
or such other address as may hereafter be designated in writing by the
addressee to the addressor:

 

(i)                                     if to the Company, to:

 

Rexnord
Holdings, Inc.

4701 Greenfield Avenue

Milwaukee, WI 53214

Attention:  Patty Whaley

 

with
copies to:

 

Rexnord
Holdings, Inc.

c/o
Apollo Management, L.P.

10250
Constellation Blvd, Suite 2900

Los
Angeles, CA 90067

Fax:  (310) 843-1933

Attention:  Larry Berg

 

and

 

Rexnord
Holdings, Inc.

c/o Apollo Management, L.P.

9 West 57th Street, 43rd Floor

New York, NY  10019

Fax:  (212) 515-3288

Attention:   Steven Martinez

 

and

 

O’Melveny &
Myers LLP

Times Square Tower

7 Times Square

New York, NY  10036

Fax:  (212) 326-2061

Attention:  John M. Scott, Esq.

 

(ii)                                  if to the Optionee, to the Optionee’s home
address on file with the Company.

 

Section 6.11                                Counterparts

 

This
Agreement may be executed in several counterparts, including via facsimile
transmission, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.

 

[Signature Page to Follow]

 

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto
as of the day, month and year first set forth above.

 

	
   

  	
  THE
  COMPANY:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Rexnord Holdings, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE
  OPTIONEE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Optionee’s
  Address:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Optionee’s
  Taxpayer Identification Number:Exhibit 10.11

 

[George M. Sherman Form]

 

NON-QUALIFIED STOCK OPTION AGREEMENT

OF

REXNORD HOLDINGS, INC.

 

THIS AGREEMENT (this “Agreement”), dated as of [                  ]
is made by and among Rexnord Holdings, Inc., a Delaware corporation (the “Company”),
Cypress Industrial Holdings, LLC, a Maryland limited liability company (“Industrial”),
Cypress Group, LLC, a Maryland limited liability company (“Cypress”),
and George M. Sherman, a Consultant to the Company or one of its Subsidiaries
(as defined herein) (the “Optionee”).

 

WHEREAS, the Company wishes to afford the Optionee the opportunity to purchase
shares of its common stock, par value $0.01 per share (“Common Stock”);

 

WHEREAS, the Company wishes to carry out the 2006 Stock Option Plan of Rexnord
Holdings, Inc. (as may be amended from time to time, the “Plan”),
the terms of which are hereby incorporated by reference and made a part of this
Agreement; and

 

WHEREAS, the Board (i) has determined that it would be to the advantage
and in the best interests of the Company and its stockholders to grant the
Non-Qualified Stock Option provided for herein (the “Option”) to the
Optionee as an inducement for the Optionee to enter into or remain in the
service of the Company or one of its Subsidiaries and as an incentive for
increased efforts by the Optionee during such service, and (ii) has
instructed the officers of the Company to issue said Option.

 

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

 

ARTICLE I

DEFINITIONS

 

Whenever
the following terms are used in this Agreement, they shall have the meaning
specified below unless the context clearly indicates otherwise.  Capitalized terms used in this Agreement and
not defined below shall have the meaning given to such terms in the Plan.  The singular pronoun shall include the
plural, where the context so indicates.

 

“Cause”
shall have the meaning ascribed to such term in any consulting agreement
(including, without limitation, the Consulting Agreement) in effect between the
Company or any of its Subsidiaries and the Optionee as of the date of the
Optionee’s termination of service and, in the absence of any such consulting
agreement, “Cause” shall mean,

 

(a)                                  the failure of the Optionee to carry out, or
comply with, in each case in any material respect, any lawful and reasonable
directive of the Board or the Board of Directors of Rexnord Corporation or any
of their respective designees consistent with the terms of the Optionee’s
consultancy, which is not remedied within 30 days after the receipt of written
notice from the Company specifying such failure;

 

 

(b)                                 the Optionee’s conviction, plea of no contest,
plea of nolo contendere, or
imposition of unadjudicated probation for any felony;

 

(c)                                  the Optionee’s unlawful use (including being
under the influence) or possession of illegal drugs;

 

(d)                                 the Optionee’s commission of an act of fraud,
embezzlement, misappropriation, willful misconduct, or breach of fiduciary duty
against the Company or any of its Subsidiaries;

 

(e)                                  the breach by the Optionee of any of the
provisions contained in Article IV below or similar provisions contained
in any other agreement with the Company or any of its Subsidiaries or other
Affiliates; or

 

(f)                                    the Optionee’s material breach of the Cypress
Stockholders’ Agreement.

 

“Consulting
Agreement” means that certain Management Consulting Agreement, dated as of
the Closing Date, by and among Rexnord Corporation, a Delaware corporation, the
Optionee, Industrial and Cypress, as the same may be amended from time to time.

 

“Cumulative
Debt Repayment” for a given fiscal year shall mean the positive excess, if
any, of (a) the weighted average of the debt outstanding during the 60
calendar days preceding April 30, 2006, as such debt outstanding may be
increased or decreased as appropriate for the effect of any post closing
adjustment as determined by the Committee, over (b) the weighted average of
the debt outstanding during the 60 calendar days preceding April 30 of the
fiscal year immediately following the given fiscal year.

 

“Cumulative
Debt Repayment Target” for a period commencing on or after April 1,
2006 shall be as set forth in Appendix A to this Agreement, subject to the
provisions of Section 5.6 hereof.

 

“Cumulative
EBITDA” as of a given date shall mean the total of EBITDA from and after April 1,
2006 through such date.

 

“Cumulative
EBITDA Target” for a given period commencing on or after April 1,
2006, shall be as set forth in Appendix A of this Agreement, subject to the
provisions of Section 5.6 hereof.

 

“Cypress
Stockholders’ Agreement” shall mean that certain agreement by and among the
Optionee, Industrial, the Company and the other stockholders of the Company
party thereto, which contains certain restrictions and limitations applicable
to the shares of Common Stock acquired upon Option exercise (and to other
shares of Common Stock, if any, held by the Optionee during the term of such agreement).  If the Optionee is not a party to the Cypress
Stockholders’ Agreement at the time of exercise of the Option (or any portion
thereof), the exercise of the Option shall be subject to the condition that the
Optionee enter into the Cypress Stockholders’ Agreement.  The Cypress Stockholders’ Agreement shall
constitute a Stockholders’ Agreement for purposes of the Plan.

 

 

“Debt
Repayment” for a given fiscal year of the Company shall mean, excluding any
debt repayment in conjunction with an equity offering of securities of the
Company, the positive excess, if any, of (a) the weighted average of the
debt outstanding during the 60 calendar days preceding April 30 of the
given fiscal year, over (b) the weighted average of the debt outstanding
during the 60 calendar days preceding April 30 of the fiscal year
immediately following the given fiscal year.

 

“Debt
Repayment Target” for a period commencing on or after April 1, 2006
shall be as set forth in Appendix A to this Agreement, subject to the
provisions of Section 5.6 hereof.

 

“EBITDA”
for a given period shall mean consolidated net income before interest, taxes,
depreciation, amortization, extraordinary items (including Other Income and
Expense items as well as LIFO Income and Expense items) and management or
similar fees payable to Apollo Management, L.P. or any of its Affiliates, as
reflected on the Company’s audited consolidated financial statements for such
period.  Consolidated net income shall be
determined in accordance with generally accepted accounting principles except
that gains or losses from extraordinary, unusual or non-recurring items may be
excluded in the discretion of the Committee.

 

“EBITDA
Target” for a given period commencing on or after April 1, 2006, shall
be as set forth in Appendix A of this Agreement, subject to the provisions of Section 5.6
hereof.

 

“Good
Reason” shall have the meaning ascribed to it in any consulting agreement
(including, without limitation, the Consulting Agreement) in effect between the
Company or any of its Subsidiaries and the Optionee as of the date of the
Optionee’s termination of service and, in the absence of any such consulting
agreement, “Good Reason” shall mean,

 

(a)                                  the failure of the Company to continue the
Optionee in the position of Non-Executive Chairman of the Board;

 

(b)                                 a material diminution in the Optionee’s
responsibilities, duties or authorities;

 

(c)                                  the failure of the Company to make any
material payment or provide any material benefit to which the Optionee is
entitled;

 

(d)                                 the material breach by the Company or any of
its Subsidiaries of the Consulting Agreement; or

 

(e)                                  the material breach by the Company or any of
its Subsidiaries of the Cypress Stockholders’ Agreement;

 

provided, however,
that the Optionee may not terminate the Optionee’s services for Good Reason
unless the Optionee provides the Company or the Subsidiary of the Company for
which the Optionee is performing services with at least 30 days’ prior written
notice of the Optionee’s intent to resign for Good Reason, with such notice to
set forth the event or events constituting Good Reason, and the Company or the
Subsidiary for which the Optionee is performing services has not remedied the
alleged violation(s) within the 30-day period.

 

 

“Principal
Stockholder(s) Investment” means direct or indirect investments in shares
of Common Stock, preferred stock or other debt or equity securities of the
Company or any of its Subsidiaries made by the Principal Stockholder(s) on or
after the Closing Date.

 

“Principal
Stockholder(s) CAGR” means the pretax compound annual growth rate
calculated on a quarterly basis based on the cash proceeds realized to the
Principal Stockholder(s) in a Liquidity Event on the Principal Stockholder(s)
Investment (which proceeds, for purposes hereof, shall be determined after
deducting all transaction costs and all investment banking, accounting,
attorney, consultant and similar fees paid or payable by the Principal
Stockholder(s) to the extent not paid or reimbursed by the Company or any other
third party) and the aggregate amount invested by the Principal Stockholder(s)
for all Principal Stockholder(s) Investments, assuming all Principal
Stockholder(s) Investments were purchased by one Person and were held
continuously by such Person, after dilution for outstanding options, warrants
or other rights to acquire shares of Common Stock or other equity securities of
the Company.  The Principal
Stockholder(s) CAGR shall be determined based on the actual time of each
Principal Stockholder(s) Investment and including, as a return on such
investment, any cash dividends, cash distributions or cash interest paid by the
Company or any Subsidiary of the Company in respect of such investment during
such period, but shall exclude any management or monitoring fees paid to Apollo
Management, L.P. or any of its Affiliates.

 

ARTICLE II

GRANT OF OPTION

 

Section 2.1                                      Grant of Option

 

In
consideration of the Optionee’s agreement to enter into or remain in the
service of the Company or one of its Subsidiaries and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, on the date hereof the Company irrevocably grants to the Optionee
the Option to purchase any part or all of an aggregate of 576,765 shares of
Common Stock upon the terms and conditions set forth in the Plan and this
Agreement.  The Optionee hereby agrees
that (i) except as required by law, the Optionee will not disclose to any
Person other than the Optionee’s spouse and legal, financial and other advisors
(if any) the grant of the Option or any of the terms or provisions hereof
without the prior approval of the Committee, and (ii) in the discretion of
the Committee, the Option shall terminate and any unexercised portion of such
Option (whether or not vested) shall be forfeited if the Optionee violates the
non-disclosure provisions of this Section 2.1.

 

Section 2.2                                      Option Subject to Plan

 

The
Option granted hereunder is subject to the terms and provisions of the Plan,
including without limitation, Article V and Sections 7.1, 7.2, 7.3 and
7.10 thereof.

 

Section 2.3                                      Option Price

 

The
purchase price of the shares of Common Stock covered by the Option shall be
$47.50 per share (without commission or other charge).

 

 

ARTICLE III

EXERCISABILITY

 

Section 3.1                                      Commencement of Exercisability 

 

(a)                                  Subject to Section 3.1(f) and Section 3.3
of this Agreement, 50% of the Option shall become vested in five cumulative
installments provided that the Consulting Agreement remains continuously in
effect from the date of grant through such date as follows:

 

(i)                                     The first installment shall consist of 10% of
the shares of Common Stock covered by such Option and shall become vested on July 21,
2007;

 

(ii)                                  The second installment shall consist of 10%
of the shares of Common Stock covered by such Option and shall become vested on
July 21, 2008;

 

(iii)                               The third installment shall consist of 10% of
the shares of Common Stock covered by such Option and shall become vested on July 21,
2009;

 

(iv)                              The fourth installment shall consist of 10%
of the shares of Common Stock covered by such Option and shall become vested on
July 21, 2010; and

 

(v)                                 The fifth installment shall consist of 10% of
the shares of Common Stock covered by such Option and shall become vested on July 21,
2011.

 

(b)                                 Subject to Section 3.1(f) and Section 3.3,
50% of the Option shall become fully vested as follows:

 

(i)                                     An installment of up to 2.5% of the shares of
Common Stock covered by the Option shall become vested on, or within 120 days
following, March 31 of each fiscal year 2007 through 2011, in each case as
determined by the Committee in its sole discretion as follows:

 

(A)                              with respect to the fiscal year ending March 31,
2007, if the Debt Repayment for such fiscal year equals or exceeds the Debt
Repayment Target for such fiscal year, then 2.5% of the shares of Common Stock
covered by the Option shall become vested;

 

(B)                                with respect to the fiscal year ending March 31,
2008:

 

(1)                                  if the Debt Repayment for such fiscal year
equals or exceeds 95%, but is less than 100%, of the Debt Repayment Target for
such fiscal year, then 1.875% of the shares of Common Stock covered by the
Option shall become vested; or

 

 

(2)                                  if the Debt Repayment for such fiscal year
equals or exceeds the Debt Repayment Target for such fiscal year, then 2.5% of
the shares of Common Stock covered by the Option shall become vested;

 

(C)                                with respect to each fiscal year ending March 31,
2009, 2010 and 2011:

 

(1)                                  if the Debt Repayment for any such fiscal
year equals or exceeds 90%, but is less than 95%, of the Debt Repayment Target
for such fiscal year, then 1.25% of the shares of Common Stock covered by the
Option shall become vested; or

 

(2)                                  if the Debt Repayment for any such fiscal
year equals or exceeds 95%, but is less than 100%, of the Debt Repayment Target
for such fiscal year, then 1.875% of the shares of Common Stock covered by the
Option shall become vested; or

 

(3)                                  if the Debt Repayment for any such fiscal
year equals or exceeds the Debt Repayment Target for such fiscal year, then
2.5% of the shares of Common Stock covered by the Option shall become vested.

 

(ii)                                  An installment of up to 2.5% of the shares of
Common Stock covered by the Option shall become vested on, or within 120 days
following, March 31 of each fiscal year 2007 through 2011 as determined by
the Committee in its sole discretion as follows:

 

(A)                              with respect to the fiscal year ending March 31,
2007, if the Cumulative Debt Repayment for such fiscal year equals or exceeds
the Cumulative Debt Repayment Target for such fiscal year, then 2.5% of the
shares of Common Stock covered by the Option shall become vested;

 

(B)                                with respect to the fiscal year ending March 31,
2008:

 

(1)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds 95%, but is less than 100%, of the Cumulative
Debt Repayment Target for such fiscal year, then 1.875% of the shares of Common
Stock covered by the Option shall become vested; or

 

(2)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds the Cumulative Debt Repayment Target for such
fiscal year, then 2.5% of the shares of Common Stock covered by the Option
shall become vested;

 

 

(C)                                with respect to each fiscal year ending March 31,
2009, 2010 and 2011:

 

(1)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds 90%, but is less than 95%, of the Cumulative Debt
Repayment Target for such fiscal year, then 1.25% of the shares of Common Stock
covered by the Option shall become vested; or

 

(2)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds 95%, but is less than 100%, of the Cumulative
Debt Repayment Target for such fiscal year, then 1.875% of the shares of Common
Stock covered by the Option shall become vested; or

 

(3)                                  if the Cumulative Debt Repayment for such
fiscal year equals or exceeds the Cumulative Debt Repayment Target for such
fiscal year, then 2.5% of the shares of Common Stock covered by the Option
shall become vested.

 

(iii)                               If the Cumulative Debt Repayment as of the
end of any fiscal year 2007 through 2011 is less than the Cumulative Debt
Repayment Target through the end of such fiscal year, that portion of the
Option that was subject to accelerated vesting pursuant to Section 3.1(b)(i) and
3.1(b)(ii), but which did not become vested pursuant to Sections 3.1(b)(i)(A), (B) or
(C) or 3.1(b)(ii)(A), (B) or (C), with respect to such fiscal year,
subject to Section 3.2 and 3.4, shall become vested, as determined by the
Committee, on, or within 120 days following, the last day of the first fiscal
year in which the Cumulative Debt Repayment equals or exceeds the Cumulative
Debt Repayment Target for such fiscal year.

 

(iv)                              An installment of up to 2.5% of the shares of
Common Stock covered by the Option shall become vested on, or within 120 days
following, March 31 of each fiscal year 2007 through 2011 as determined by
the Committee in its sole discretion as follows:

 

(A)                              with respect to the fiscal year ending March 31,
2007, if EBITDA for such fiscal year equals or exceeds the EBITDA Target for
such fiscal year, then 2.5% of the shares of Common Stock covered by the Option
shall become vested;

 

(B)                                with respect to the fiscal year ending March 31,
2008:

 

(1)                                  if EBITDA for such fiscal year equals or
exceeds 95%, but is less than 100%, of the EBITDA Target for such fiscal year,
then 1.875% of the shares of Common Stock covered by the Option shall become
vested; or

 

(2)                                  if EBITDA for such fiscal year equals or
exceeds the EBITDA Target for such fiscal year, then 2.5% of the shares of
Common Stock covered by the Option shall become vested;

 

 

(C)                                with respect to each fiscal year ending March 31,
2009, 2010 and 2011:

 

(1)                                  if EBITDA for any such fiscal year equals or
exceeds 90%, but is less than 95%, of the EBITDA Target for such fiscal year,
then 1.25% of the shares of Common Stock covered by the Option shall become
vested; or

 

(2)                                  if EBITDA for any such fiscal year equals or
exceeds 95%, but is less than 100%, of the EBITDA Target for such fiscal year,
then 1.875% of the shares of Common Stock covered by the Option shall become
vested; or

 

(3)                                  if EBITDA for any such fiscal year equals or
exceeds the EBITDA Target for such fiscal year, then 2.5% of the shares of
Common Stock covered by the Option shall become vested.

 

(v)                                 An installment of up to 2.5% of the shares of
Common Stock covered by the Option shall become vested on, or within 120 days
following, March 31 of each fiscal year 2007 through 2011 as determined by
the Committee in its sole discretion as follows:

 

(A)                              with respect to the fiscal year ending March 31,
2007, if Cumulative EBITDA for such fiscal year equals or exceeds the
Cumulative EBITDA Target for such fiscal year, then 2.5% of the shares of
Common Stock covered by the Option shall become vested;

 

(B)                                with respect to the fiscal year ending March 31,
2008:

 

(1)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds 95%, but is less than 100%, of the Cumulative EBITDA Target
for such fiscal year, then 1.875% of the shares of Common Stock covered by the
Option shall become vested; or

 

(2)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds the Cumulative EBITDA Target for such fiscal year, then 2.5%
of the shares of Common Stock covered by the Option shall become vested;

 

(C)                                with respect to each fiscal year ending March 31,
2009, 2010 and 2011:

 

(1)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds 90%, but is less than 95%, of the Cumulative EBITDA Target
for such fiscal year, then 1.25% of the shares of Common Stock covered by the
Option shall become vested; or

 

 

(2)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds 95%, but is less than 100%, of the Cumulative EBITDA Target
for such fiscal year, then 1.875% of the shares of Common Stock covered by the
Option shall become vested; or

 

(3)                                  if Cumulative EBITDA for such fiscal year
equals or exceeds the Cumulative EBITDA Target for such fiscal year, then 2.5%
of the shares of Common Stock covered by the Option shall become vested.

 

(vi)                              if Cumulative EBITDA as of the end of any
fiscal year 2007 through 2011 is less than the Cumulative EBITDA Target through
the end of such fiscal year, that portion of the Option that was subject to
accelerated vesting pursuant to Sections 3.1(b)(iv) and 3.1(b)(v), but
which did not become vested pursuant to Sections 3.1(b)(iv)(A), (B) or (C) or
3.1(b)(v)(A), (B) or (C), with respect to such fiscal year, subject to
Sections 3.2 and 3.4, shall become vested, as determined by the Committee, on,
or within 120 days following, the last day of the first fiscal year in which
Cumulative EBITDA equals or exceeds the Cumulative EBITDA Target for such
fiscal year.

 

(c)                                  Notwithstanding the foregoing provisions of
this Section 3.1, but subject to Section 3.1(f), upon the occurrence
of the first Liquidity Event, the following shall immediately prior to the
effective date of such Liquidity Event become vested in full:

 

(i)                                     that portion of the Option that remains
eligible to become vested pursuant to Section 3.1(a);

 

(ii)                                  at the election and sole discretion of the
Committee, that portion of the Option that has not, as of such Liquidity Event,
become eligible to become vested pursuant to Sections 3.1(b)(i), 3.1(b)(ii),
3.1(b)(iv) or 3.1(b)(v);

 

(iii)                               that portion of the Option that remains
eligible to become vested pursuant to Section 3.1(b), but only if the
Principal Stockholder(s) CAGR as of the Liquidity Event equals or exceeds 25%.

 

(d)                                 The Committee shall make the determination as
to whether the respective Debt Repayment, Cumulative Debt Repayment, EBITDA,
and Cumulative EBITDA Targets have been met, and shall determine the extent, if
any, to which the Option as become vested, on any such date as the Committee in
its sole discretion shall determine; provided,
however, that with respect to
each fiscal year such date shall not be later than the 120th day
following March 31 of such fiscal year.

 

(e)                                  Notwithstanding anything to the contrary in Section 3.3,
if the Consulting Agreement is terminated (i) by the Optionee for Good
Reason or (ii) by the Company or any of its Subsidiaries without Cause and
not as a result of the failure of the Optionee substantially to satisfy
reasonable performance standards (taking into account macroeconomic factors
affecting the Company), the Option shall become fully exercisable as of the
termination of the Consulting Agreement.

 

 

(f)                                    After giving effect to Section 3.1(e) and
except with respect to any portion of the Option that as of the termination of
the Consulting Agreement is eligible to vest pursuant to Section 3.1(b) for
the fiscal year preceding the fiscal year in which such termination occurs, no
portion of the Option which is unvested upon the termination of the Consulting
Agreement for any reason shall thereafter become vested.

 

Section 3.2                                      Duration of Exercisability

 

The
installments provided for in Section 3.1 are cumulative.  Each such installment which becomes vested
pursuant to Section 3.1 shall remain vested and may be exercised until the
Option expires pursuant to Section 3.3.

 

Section 3.3                                      Expiration of Option

 

The
Option may not be exercised to any extent by any Person after the first to
occur of any of the following events:

 

(a)                                  The expiration of ten years from the date the
Option was granted;

 

(b)                                 If the Consulting Agreement is terminated for
any reason other than (i) by the Company or any Subsidiary of the Company
for Cause, (ii) on account of the death or disability (as defined in Section 22(e)(3) of
the Code) of the Optionee, (iii) by the Optionee for Good Reason or (iv) by
the Company or any Subsidiary of the Company without Cause and not as a result
of the failure of the Optionee substantially to satisfy reasonable performance
standards (taking into account macroeconomic factors affecting the Company and
its Subsidiaries), the later of (x) the ninetieth day following the date of the
termination of the Consulting Agreement or (y) to the extent that, as of the
termination of the Consulting Agreement, any portion of the Option remains
eligible to vest pursuant to Section 3.1(b) for the fiscal year
preceding the fiscal year in which the termination of the Consulting Agreement
occurs, the thirtieth day following the date of the Committee’s determination
under Section 3.1(d) for such fiscal year;

 

(c)                                  The expiration of ten years from the date the
Option was granted in the event of the termination of the Consulting Agreement (i) by
the Optionee for Good Reason or (ii) by the Company or any Subsidiary of
the Company without Cause and not as a result of the failure of the Optionee
substantially to satisfy reasonable performance standards (taking into account
macroeconomic factors affecting the Company);

 

(d)                                 Except as the Committee may otherwise decide,
the date of the termination of the Consulting Agreement by the Company or any
Subsidiary of the Company for Cause;

 

(e)                                  The expiration of 12 months from the date of
the termination of the Consulting Agreement on account of the Optionee’s death
or disability (within the meaning of Section 22(e)(3) of the Code);
or

 

 

(f)                                    The occurrence of a Liquidity Event, provided
that any portion of the Option that is vested as of the occurrence of the
Liquidity Event may be exercised concurrently therewith.

 

Section 3.4                                      Partial Exercise

 

Any
vested portion of the Option or the entire Option, if then wholly vested, may
be exercised in whole or in part at any time prior to the time when the Option
or portion thereof expires; provided,
however, that each partial exercise
shall be for not less than 100 shares of Common Stock and shall be for whole
shares of Common Stock only.

 

Section 3.5                                      Exercise of Option

 

The
exercise of the Option shall be governed by the terms of this Agreement and the
terms of the Plan, including without limitation, the provisions of Article V
of the Plan, which, among other things, require that the Optionee deliver an
executed copy of a Joinder to the Stockholders’ Agreement designated by the
Company (in the form attached to such Stockholders’ Agreement), which for this
purpose shall be the Cypress Stockholders’ Agreement, to the Secretary as a
condition to the exercise of the Option.

 

ARTICLE IV

RESTRICTIVE COVENANTS

 

Section 4.1                                      Non-Competition

 

During
the term of the Consulting Agreement and for a period of two years thereafter,
each of the Optionee, Industrial and Cypress shall not, without the prior
written consent of the Company, which consent may be granted or withheld by the
Company in its sole discretion, directly or indirectly engage in, consult, have
any equity interest in, or manage or operate any person, firm, corporation,
partnership or business (whether as director, officer, employee, agent,
representative, partner, security holder, consultant or otherwise) that engages
in any business which competes with any material business of the Company or any
of its Subsidiaries anywhere in the world (as conducted during the term of the
Consulting Agreement); provided, however,
that (A) the Optionee, Industrial and Cypress, and any of their Affiliates,
shall be permitted to acquire stock or membership interests in such an entity
provided the entity is publicly traded and the acquired interest is not more
than five percent (5%) of the outstanding shares or membership interests of the
entity; and (B) the Optionee, Industrial and Cypress shall be permitted to
hold stock or membership interests in companies and businesses in which the
Optionee, Industrial, Cypress or other entities affiliated with the Optionee
hold stock or membership interests immediately prior to the Closing Date
(including, without limitation, stock in Colfax, Inc. and related
entities), or invested prior to the date of this Agreement.

 

Section 4.2                                      Customer Non-Solicitation

 

During
the term of the Consulting Agreement and for a period of two years thereafter,
each of the Optionee, Industrial and Cypress agrees not to, and will not permit
any of their respective Affiliates to, directly or indirectly, induce or
attempt to induce any customer, supplier, licensee or other business relation
of the Company or any of its Subsidiaries to cease doing

 

 

business with the Company or
any of its Subsidiaries, or in any way interfere with the relationship between
any such customer, supplier, licensee or business relation, on the one hand,
and the Company or any of its Subsidiaries, on the other hand.

 

Section 4.3                                      Non-Solicitation/Non-Hiring of Employees

 

During
the term of the Consulting Agreement and for a period of two years thereafter,
each of the Optionee, Industrial and Cypress agrees not to, and will not permit
any of their respective Affiliates to, directly or indirectly, hire, solicit or
accept, if offered, with or without solicitation, on the Optionee’s, Industrial’s
or Cypress’ behalf or on behalf of any other person, the services of any person
who is (or was at any time in the preceding six months) an employee of the
Company or any of its Subsidiaries, nor solicit any of the Company’s or any of
its Subsidiaries’ employees to terminate employment with the Company or any of
its Subsidiaries (it being understood that the foregoing shall not apply to
employees solicited or hired without the Optionee’s knowledge and shall not
preclude Cypress, Industrial or other companies or businesses associated with
the Optionee from soliciting employees generally though newspaper or other mass
media advertising).

 

Section 4.4                                      Non-Disparagement

 

During
the term of the Consulting Agreement and thereafter in perpetuity, each of the
Optionee, Industrial and Cypress shall not knowingly disparage, criticize, or otherwise
make derogatory statements regarding the Company or its Affiliates,
Subsidiaries, successors, directors, officers, customers or suppliers.  During the term of the Consulting Agreement
and thereafter in perpetuity, none of the Company, Rexnord Corporation, nor any
of their respective officers shall knowingly disparage, criticize, or otherwise
make derogatory statements regarding any of the Optionee, Industrial or
Cypress.  The restrictions of this Section 4.4
shall not apply to any statements that are made truthfully in response to a
subpoena or other compulsory legal process.

 

Section 4.5                                      Non-Disclosure of Confidential Information

 

During
the term of the Consulting Agreement and thereafter in perpetuity, each of the
Optionee, Industrial and Cypress shall maintain in confidence and shall not
directly, indirectly or otherwise, use, disseminate, disclose or publish, or
use for their respective benefit or the benefit of any Person, any confidential
or proprietary information or trade secrets of or relating to the Company or
any of its Subsidiaries or Affiliates, including, without limitation,
information with respect to the Company’s or any of its Subsidiaries’
operations, processes, products, inventions, business practices, finances,
principals, vendors, suppliers, customers, potential customers, marketing
methods, costs, prices, contractual relationships, regulatory status,
compensation paid to employees or other terms of employment, or deliver to any
Person any document, record, notebook, computer program or similar repository
of or containing any such confidential or proprietary information or trade
secrets.  Upon the termination of the
Consulting Agreement for any reason, each of the Optionee, Industrial and Cypress
shall promptly deliver to the Company all correspondence, drawings, manuals,
letters, notes, notebooks, reports, programs, plans, proposals, financial
documents, or any other documents concerning the Company’s or any of its
Subsidiaries’ customers, business plans, marketing strategies, products or
processes.  Each of the

 

 

Optionee, Industrial and
Cypress may respond to a lawful and valid subpoena or other legal process but
shall give the Company the earliest possible notice thereof, shall, as much in
advance of the return date as possible, make available to the Company and its
counsel the documents and other information sought and shall assist such
counsel in resisting or otherwise responding to such process.

 

Section 4.6                                      Injunctive Relief

 

Each
of the Optionee, Industrial and Cypress hereby acknowledges that a breach of
the covenants contained in this Article IV will cause irreparable damage
to the Company and its goodwill, the exact amount of which will be difficult or
impossible to ascertain, and that the remedies at law for any such breach will
be inadequate.  Accordingly, each of the
Optionee, Industrial and Cypress hereby agrees that, in the event of a breach
of any of the covenants contained in this Article IV, in addition to any
other remedy which may be available at law or in equity, the Company shall be
entitled to specific performance and injunctive relief.  The Company hereby acknowledges that a breach
of the Company’s covenant contained in Section 4.4 will cause irreparable
damage to the Optionee, Cypress, Industrial and their respective goodwill, the
exact amount of which will be difficult or impossible to ascertain, and that
the remedies at law for any such breach will be inadequate.  Accordingly, the Company hereby agrees that,
in the event of a breach of the Company’s covenant contained in Section 4.4,
in addition to any other remedy which may be available at law or in equity, the
Optionee, Cypress and Industrial shall be entitled to specific performance and
injunctive relief.

 

ARTICLE V

OTHER PROVISIONS

 

Section 5.1                                      Not a Contract of Consultancy

 

Nothing
in this Agreement or in the Plan shall (i) confer upon the Optionee any
right to continue in the service of the Company or any of its Subsidiaries, or (ii) interfere
with or restrict in any way the rights of the Company or its Subsidiaries,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without Cause, except as otherwise provided in
the Consulting Agreement or any other agreement in effect from time to time.

 

Section 5.2                                      Shares Subject to Plan and Stockholder
Agreement

 

The
Optionee acknowledges that any shares of Common Stock acquired upon exercise of
the Option are subject to the terms of the Plan and the Cypress Stockholders’
Agreement, including without limitation, the restrictions set forth in Section 5.6
of the Plan.

 

Section 5.3                                      Construction

 

This
Agreement shall be administered, interpreted and enforced under the laws of the
state of New York, without regard to conflicts of law provisions that would
give effect to the laws of another jurisdiction.

 

 

Section 5.4                                      Conformity to Securities Laws

 

The
Optionee acknowledges that the Plan is intended to conform to the extent
necessary with all provisions of the Securities Act and the Exchange Act and
any and all regulations and rules promulgated thereunder by the Securities
and Exchange Commission, including without limitation, Rule 16b-3 of the
Exchange Act.  Notwithstanding anything
herein to the contrary, the Plan shall be administered, and the Option is
granted and may be exercised, only in such a manner as to conform to such laws,
rules and regulations.  To the
extent permitted by applicable law, the Plan and this Agreement shall be deemed
amended to the extent necessary to conform to such laws, rules and
regulations.

 

Section 5.5                                      280G Compliance

 

In
the event that the Optionee or Industrial becomes entitled to payments or
benefits under this Agreement and/or any other payments or benefits by reason
of a “change of control” as defined in Section 280G of the Code and
regulations thereunder (collectively, the “Payments”), and any such
Payment constitutes a “parachute payment” as defined in Section 280G of
the Code and regulations thereunder, the Company and the Optionee or
Industrial, as applicable, shall use their respective reasonable best efforts
to obtain stockholder approval of such Payments in the manner provided in Section 280G(b)(5)(B) of
the Code and regulations thereunder; provided,
however, that nothing in this Section 5.5
shall be interpreted to require the Optionee or Industrial to waive any of the
Optionee’s or Industrial’s rights under the Option or otherwise.

 

Section 5.6                                      Adjustments in Debt Repayment and EBITDA
Targets

 

The
Debt Repayment and EBITDA Targets (including the Cumulative Debt Repayment and
Cumulative EBITDA Targets) specified in Appendix A are based upon certain
revenue and expense assumptions about the future business of the Company as of
the date the Option is granted. 
Accordingly, in the event that, after such date, the Committee determines,
in its sole discretion, that any acquisition or disposition of any business by
the Company or any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock or other securities of the Company, issuance of warrants or other
rights to purchase Common Stock or other securities of the Company, any unusual
or nonrecurring transactions or events affecting the Company, or the financial
statements of the Company, or change in applicable laws, regulations, or
accounting principles occurs such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Plan or with
respect to the Option, then the Committee shall, in good faith and in such
manner as it may deem equitable, adjust the financial targets set forth on
Appendix A to reflect the projected effect of such transaction(s) or event(s)
on Debt Repayment and/or EBITDA, subject to Section 7.1 of the Plan.

 

 

Section 5.7                                      Entire Agreement

 

The
parties hereto acknowledge that this Agreement and the Plan set forth the
entire agreement and understanding of the parties and superseded all prior
written or oral agreements or understandings with respect to the subject matter
hereof, except that any provision therein regarding confidentiality or
non-competition remain in full force and effect in favor of the Company and its
Subsidiaries as if the agreements containing such provisions were not
superseded.  The obligations imposed by
this Agreement are severable and should be construed independently of each
other.  The invalidity of one provision
shall not affect the validity of any other provision.  If any provision of this Agreement shall be invalid
or unenforceable, in whole or in part, or as applied to any circumstances,
under the laws of any jurisdiction which may govern for such purpose, then such
provision shall be deemed, to the extent allowed by the laws of such
jurisdiction, to be modified or restricted to the extent and in the manner
necessary to render the same valid and enforceable, either generally or as
applied to such circumstance, or shall be deemed exercised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law, as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.

 

 

Section 5.8                                      Amendment

 

The
Board at any time, and from time to time, may amend the terms of this
Agreement, provided, however,
that the rights of the Optionee shall not be adversely impaired without the
Optionee’s written consent.  The Company
shall provide the Optionee with notice and a copy of any amendment made to this
Agreement.

 

Section 5.9                                      Arbitration; Waiver of Jury Trial

 

Any
dispute or controversy arising under, out of, or in connection with or in
relation to this Agreement or the Plan shall be finally determined and settled
by arbitration in New York, New York in accordance with the Commercial Rules of
the American Arbitration Association, and judgment upon the award may be
entered in any court having jurisdiction. 
Within 20 days of the conclusion of the arbitration hearing, the
arbitrator shall prepare written findings of fact and conclusions of law.  It is mutually agreed that the written
decision of the arbitrator shall be valid, binding, final and non-appealable; provided, however, that the parties hereto
agree that the arbitrator shall not be empowered to award punitive damages
against any party to such arbitration. 
To the extent permitted by law, the arbitrator’s fees and expenses will
be borne equally by each party.  In the
event that an action is brought to enforce the provisions of this Agreement or
the Plan pursuant to this Section 5.9, each party shall pay its own
attorney’s fees and expenses regardless of whether in the opinion of the court
or arbitrator deciding such action there is a prevailing party.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL, INCLUDING TRIAL BY JURY, IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE PLAN OR THIS AGREEMENT.

 

Section 5.10                                Notices

 

All
notices, requests, consents and other communications hereunder to any party
hereto shall be deemed to be sufficient if contained in a written instrument
and shall be deemed to have been duly given when delivered in person, by
telecopy, by nationally-recognized overnight courier, or by first class
registered or certified mail, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by the addressee to the addressor:

 

(i)                                     if to the Company, to:

 

Rexnord
Holdings, Inc.

4701 Greenfield Avenue

Milwaukee, WI 53214

Attention:  Patty Whaley

 

with
copies to:

 

Rexnord
Holdings, Inc.

c/o
Apollo Management, L.P.

10250
Constellation Blvd, Suite 2900

Los
Angeles, CA 90067

 

 

Fax:  (310) 843-1933

Attention:  Larry Berg

 

and

 

Rexnord
Holdings, Inc.

c/o Apollo Management, L.P.

9 West 57th Street, 43rd Floor

New York, NY  10019

Fax:  (212) 515-3288

Attention:   Steven Martinez

 

and

 

O’Melveny &
Myers LLP

Times Square Tower

7 Times Square

New York, NY  10036

Fax:  (212) 326-2061

Attention:  John M. Scott, Esq.

 

(ii)                                  if to the Optionee, Industrial or Cypress,
to:

 

Cypress
Group, LLC

 

 

Attention:  George M. Sherman

 

with
a copy to:

 

King &
Spalding LLP

1700 Pennsylvania Avenue, NW

Washington, D.C.  2006

Fax:  (202) 626-3737

Attention:  Glenn C. Campbell

 

Section 5.11                                Counterparts

 

This
Agreement may be executed in several counterparts, including via facsimile
transmission, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.

 

[Signature Page to Follow]

 

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto
as of the day, month and year first set forth above.

 

 

	
   

  	
  THE
  COMPANY:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Rexnord Holdings, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE
  OPTIONEE:

  
	
   

  	
   

  
	
   

  	
  George M. Sherman

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Taxpayer
  Identification Number:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
							

 

 

	
   

  	
  INDUSTRIAL:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Cypress Industrial
  Holdings, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Taxpayer
  Identification Number:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CYPRESS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Cypress Group, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Taxpayer
  Identification Number:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}]]