Form of ALH Holding Inc. Nonqualified Stock Option Agreement

NON-QUALIFIED STOCK OPTION AGREEMENT, dated as of January , 2005 between ALH Holding Inc., a Delaware corporation (the “Company”), and «Name» (the “Employee”), pursuant to the ALH Holding Inc. Stock Incentive Plan, as in effect and as amended from time to time (the “Plan”). Capitalized terms that are not defined herein shall have the meanings given to such terms in the Plan.

WHEREAS, the Company desires to grant options to purchase shares of its common stock, par value $.01 per share (the “Common Stock”) to certain key employees of the Company;

WHEREAS, the Employee is a key employee as contemplated by the Plan, and the Committee has determined that it is in the interest of the Company to grant these options to the Employee.

NOW, THEREFORE, in consideration of the premises and subject to the terms and conditions set forth herein and in the Plan, the parties hereto agree as follows:

(a) Confirmation of Grant. The Company hereby evidences and confirms the grant to the Employee, effective as of the date hereof (the “Grant Date”), of:

(i) options to purchase from the Company «Service_Options» shares of Common Stock, which shall become exercisable, if at all, as provided in Section 2(a) (the “Service Options”);

(ii) options to purchase from the Company «Performance_Options» shares of Common Stock, which shall become exercisable, if at all, as provided in Section 2(b) (the “Performance Options”); and

(b) Option Price. The Options shall have an option price of $100 per share (the “Option Price”), which is not less than the Fair Market Value per share of the Common Stock on the Grant Date.

(c) Options Subject to Plan. The Options granted pursuant to this Agreement are subject in all respects to the Plan, all of the terms of which are made a part

of and incorporated into this Agreement. By signing this Agreement, the Employee acknowledges that he has been provided a copy of the Plan and has had the opportunity to review such Plan.

(d) Character of Options. The Options granted hereunder are not intended to be “incentive stock options” within the meaning of section 422 of the Internal Revenue Code of 1986, as amended.

(a) Service Options. The Service Options shall become exercisable in five equal installments on each of the first five anniversaries of the Grant Date, subject to the Employee’s continuous employment with the Company or a Subsidiary from the Grant Date to such anniversary. Notwithstanding the foregoing (but subject to Section 4), 100% of such Options shall become exercisable at the time and under the circumstances described in Section 5.

(b) Performance Options. For each of the five fiscal years of the Company beginning with fiscal year ending December 31, 2005 (collectively, the “Performance Period”), one-fifth of the Performance Options shall become exercisable if (i) the EBITDA objectives for such fiscal year set forth on Exhibit A hereto (but which may be adjusted from time to time by the Committee to reflect significant changes and developments in the Company’s operations, including, without limitation, acquisitions or dispositions of other companies, businesses or significant product lines) are met or exceeded and (ii) the Employee is employed by the Company or any Subsidiary on the last day of such fiscal year.

If any Performance Options have not become exercisable in accordance with the immediately preceding paragraph, such Performance Options shall, subject to Section 4, become exercisable (to the extent provided in Exhibit A, in the case of clause (i) below) at the earliest to occur of the following dates or events:

(i) the end of any subsequent fiscal year in the Performance Period if the cumulative EBITDA objective for the period ending with the end of such fiscal year (as set forth on Exhibit A hereto, as the same may be adjusted from time to time) is met or exceeded, provided that the Employee is employed by the Company or a Subsidiary on the last day of such fiscal year; or

(ii) upon the occurrence of a Change in Control, if the Aggregate Share Value is at least equal to the Aggregate Floor Value.

Performance Options that do not vest on or prior to a Change in Control will lapse and be cancelled upon the Change in Control.

“Aggregate Floor Value” means the product of (i) 2.5 times (ii) the cumulative amount of cash and other property invested by OTPP in the Company.

“Aggregate Share Value” means the aggregate amount of cash and Marketable Securities received by OTPP in connection with any Change in Control, which shall be determined assuming that all Options issued under the Plan and outstanding at the date of the Change in Control (but excluding Options (including, without limitation, Performance Options granted hereunder) which by their terms are canceled in conjunction with the occurrence of such Change in Control) are exercised for cash immediately prior to the Change in Control and that any “in the money” securities convertible or exchangeable into, and all such other warrants, options and other rights exercisable for, shares of Common Stock are so exchanged or converted immediately prior to the Change in Control. Aggregate Share Value shall include any cash or Marketable Securities received prior to such Change in Control by OTPP arising from and directly related to OTPP’s ownership of Common Stock, including, but not limited to, OTPP’s receipt of cash or Marketable Securities in consideration for the sale of Common Stock or receipt of any cash dividend with respect to Common Stock by OTPP.

(d) Normal Expiration Date. Unless the Options earlier terminate in accordance with Sections 2, 4 or 5, the Options shall terminate on the tenth anniversary of the Grant Date (the “Normal Expiration Date”). Once Options have become exercisable pursuant to this Section 2, such Options may be exercised, subject to the provisions hereof, at any time and from time to time until the Normal Expiration Date.

(e) Calculations. All calculations required or contemplated by this Section 2 shall be made in the sole determination of the Committee in good faith and shall be final and binding on the Company and the Employee.

All or part of the exercisable Options may be exercised by the Employee upon (a) the Employee’s written notice to the Company of exercise, (b) the Employee’s payment of the Option Price in full at the time of exercise (i) in cash or cash equivalents, (ii) in unencumbered Shares owned by the Employee for at least six (6) months (or such longer period as is required by applicable accounting standards to avoid a charge to earnings) having a Fair Market Value on the date of exercise equal to such Option Price, (iii) in a combination of cash and Common Stock or (iv) in accordance with such procedures or in such other form as the Committee shall from time to time determine and (c) if such Options are exercised prior to a Public Offering, the Employee’s execution of

the Stockholders Agreement and the Registration Rights Agreement in order to become a party to such agreements with respect to the shares of Common Stock issuable upon the exercise of such Options. As soon as practicable after receipt of a written exercise notice and payment in full of the exercise price of any exercisable Options and, if applicable, receipt of evidence of the Employee’s execution of the Stockholders Agreement and Registration Rights Agreement in accordance with this Section 3, but subject to Section 6 below, the Company shall deliver to the Employee a certificate or certificates representing the shares of Common Stock acquired upon the exercise thereof, registered in the name of the Employee, provided that, if the Company, in its sole discretion, shall determine that, under applicable securities laws, any certificates issued under this Section 3 must bear a legend restricting the transfer of such Common Stock, such certificates shall bear the appropriate legend.

(a) Termination of Employment Due to Death, Disability or Retirement. Unless otherwise determined by the Committee, in the event that the Employee’s employment with the Company or any Subsidiary terminates by reason of the Employee’s death, Disability or Retirement (each a “Special Termination”), then all Options held by the Employee that are exercisable as of the date of such Special Termination may be exercised by the Employee or the Employee’s beneficiary as designated in accordance with Section 9, or if no such beneficiary is named, by the Employee’s estate, at any time prior to one (1) year following the Employee’s termination of employment or the Normal Expiration Date of the Options, whichever period is shorter. Upon a Special Termination, any Options that are not then exercisable shall terminate and be canceled immediately upon such termination of employment.

(b) Termination for Cause. Unless otherwise determined by the Committee, in the event that the Employee’s employment with the Company or any Subsidiary is terminated for Cause, all Options held by the Employee, whether or not then exercisable, shall terminate and be canceled immediately upon such termination of employment.

(c) Other Termination of Employment. Unless otherwise determined by the Committee, in the event that the Employee’s employment with the Company or any Subsidiary terminates due to Voluntary Resignation or for any reason other than (i) a Special Termination or (ii) for Cause, then any Options held by the Employee which are exercisable at the date of the Employee’s termination of employment shall be exercisable at any time up until the 60th day following the Employee’s termination of employment (or, in the event that the Employee dies after terminating his employment, but within the period during which the Options would otherwise be exercisable hereunder, the 120th day after the date of the Employee’s death) or the Normal Expiration Date of the Options, whichever period is shorter, but any Options held by the Employee that are not then

exercisable shall terminate and be canceled immediately upon such termination of employment.

(d) Committee Discretion. Notwithstanding anything else contained herein to the contrary, the Committee may at any time extend the post-termination exercise period of all or any portion of the Options up to and including, but not beyond, the Normal Expiration Date of such Options.

(a) Accelerated Vesting and Payment. Unless the Committee shall otherwise determine in the manner set forth in Section 5(b), in the event of a Change in Control, (i) each outstanding Service Option (regardless of whether such Service Options are at such time otherwise exercisable), and (ii) each outstanding Performance Option exercisable pursuant to Section 2(b) shall be canceled in exchange for a payment in cash of an amount equal to the excess, if any, of the Change in Control Price over the Option Price.

(b) Alternative Options. Notwithstanding Section 5(a), no cancellation, cash settlement or other payment shall occur with respect to any Option in connection with a Change in Control if the Committee reasonably determines in good faith, prior to the occurrence of such Change in Control, that such Option shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted Option being hereinafter referred to as an “Alternative Option”) by the new employer, provided that any such Alternative Option must:

(i) provide for the accelerated vesting of such Options that would otherwise have been canceled pursuant to Section 5(a) (to the extent not previously vested at the time of the Change in Control);

(ii) provide the Employee that held such Option with other rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Option; and

(iii) have substantially equivalent economic value to such Option (determined at the time of the Change in Control).

(c) Limitation on Benefits. Notwithstanding anything contained in this Option agreement or the Plan to the contrary (i) to the extent that any of the payments and benefits provided for under the Plan, this Option agreement or any other agreement or arrangement between the Company and the Employee (collectively, the “Payments”) would constitute a “parachute payment” within the meaning of section 280G of the Code, the amount of such Payments shall be reduced to the amount that would result in no portion of the Payments being subject to the excise tax imposed

pursuant to section 4999 of the Code and (ii) if and to the extent any Payments in respect of the Service Options would, absent application of this clause (ii), be an “excess parachute payment” within the meaning of section 280G of the Code (and the regulations promulgated thereunder), such Service Options shall not accelerate in the event of a Change in Control (notwithstanding Section 5(a)), and shall be honored, assumed or new rights substituted therefor by the new employer in such Change in Control in accordance with Section 5(b). If Payments that would otherwise be reduced or eliminated, as the case may be, pursuant to the immediately preceding sentences would not be so reduced or eliminated, as the case may be, if the shareholder approval requirements of section 280G(b)(5) of the Code are capable of being satisfied, the Company shall use its reasonable best efforts to cause such payments to be submitted for such approval prior to the Change in Control giving rise to such payments.

Whenever Common Stock is to be issued pursuant to the exercise of an Option or any cash payment is to be made hereunder, the Company or any Subsidiary shall have the power to withhold, or require the Employee to remit to the Company or such Subsidiary, an amount (in cash or in shares of Common Stock otherwise deliverable to the Employee upon Option exercise) sufficient to satisfy the statutory minimum federal, state, and local withholding tax requirements relating to such transaction, and the Company or such Subsidiary may defer payment of cash or issuance of Common Stock until such requirements are satisfied.

No Options granted hereby may be sold, transferred, pledged, assigned, encumbered or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or, on such terms and conditions as the Committee shall establish, to a Permitted Transferee. All rights with respect to Options granted to the Employee hereunder shall be exercisable during his lifetime only by such Employee or, if permitted by the Committee, a Permitted Transferee. Following the Employee’s death, all rights with respect to Options that were exercisable at the time of the Employee’s death and have not terminated shall be exercised by his designated beneficiary, his estate or, if permitted by the Committee, a Permitted Transferee.

The Employee may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) by whom any right under the Plan and this Agreement is to be exercised in case of his death. Each designation will revoke all prior designations by the Employee, shall be in a form reasonably prescribed by the Committee, and will be effective only when filed by the Employee in writing with

the Committee during his lifetime. If no beneficiary is named, or if a named beneficiary does not survive the Employee, Section 9.2 of the Plan shall determine who may exercise the Employee’s rights under the Plan.

The aggregate number of shares of Common Stock subject to outstanding Option grants, the respective Option exercise prices and/or vesting criteria applicable to outstanding Options, shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee any Adjustment Event. All determinations and calculations required under this Section 9 shall be made in the sole discretion of the Committee.

The issuance of shares of Common Stock pursuant to the Options shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. No shares of Common Stock shall be issued upon exercise of any Options granted hereunder, if such exercise would result in a violation of applicable law, including the U.S. federal securities laws and any applicable state or foreign securities laws.

Nothing in this Agreement shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate the Employee’s employment at any time, or confer upon the Employee any right to continue in the employ of the Company or any Subsidiary.

Except as otherwise required by law, the Employee shall not have any rights as a stockholder with respect to any shares of Common Stock covered by the Options granted hereby until such time as the shares of Common Stock issuable upon exercise of such Options have been so issued. Notwithstanding anything else contained herein to the contrary, the exercise of any portion of the Options conveyed hereby is expressly conditioned upon the Employee becoming a party to the Stockholders Agreement and the Registration Rights Agreement with respect to any shares of Common Stock to be acquired upon such exercise.

Except as otherwise provided in the Registration Rights Agreement, the Employee agrees that, in the event that the Company files a registration statement under

the Act with respect to a public offering of any shares of its capital stock, the Employee will not effect any sale or distribution of any shares of the Common Stock including, but not limited to, pursuant to Rule 144 under the Act, within seven days prior to and 180 days (or such shorter period as the managing underwriter for any underwritten offering may agree) after the effective date of the registration statement relating to such registration (the “Trigger Date”), except as part of such registration or unless, in the case of a sale or distribution not involving a public offering, the transferee agrees in writing to be subject to this Section 13; provided that, with respect to any shelf registration statement on Form S-3, the Trigger Date shall be the pricing of any offering made under such registration statement and the Employee agrees to execute a customary holdback agreement with the underwriters for any such public offering.

Any determination, interpretation or action made or taken (including any failure to make any determination or interpretation, or take any other action) by the Committee under or pursuant to this Agreement shall be final and conclusive on all persons affected hereby. Except as otherwise expressly provided in the Plan, in the event of a conflict between any term of this Agreement and the terms of the Plan, the terms of the Plan shall control.

(a) In General. The Committee may, at its sole discretion, at any time and from time to time alter or amend this Agreement and the terms and conditions of any unvested Options (but not any previously granted vested Options) in whole or in part, including without limitation, amending the criteria for vesting and exercisability set forth in Section 2 hereof, substituting alternative vesting and exercisability criteria and imposing certain blackout periods on Options, provided, however, that (i) such alteration, amendment, suspension or termination shall preserve the economic value, and vesting and exercisability, as determined by the Committee in its sole good faith discretion, of any previously granted Option and (ii) the Committee shall only be permitted to alter, amend, suspend or terminate previously granted unvested Options with the consent of the holders of a majority of such Options. The Company shall give written notice to the Employee of any such alteration or amendment of this Agreement as promptly as practicable after the adoption thereof. This Agreement may also be amended by a writing signed by both the Company and the Employee.

(b) Public Offering. Unless otherwise determined by the Committee, in the event of a Public Offering, the Committee shall amend this Agreement to provide for (i) subject to Section 15(a) above, the substitution of the exercisability criteria set forth in Section 2(c) with criteria based on stock price and (ii) the imposition of certain blackout periods, in each case, as the Committee shall determine to be appropriate;

provided, however that such amendments shall preserve the economic value, and vesting and exercisability, as determined by the Committee in its sole good faith discretion.

(a) Notices. All notices, requests, demands, letters, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered personally, (ii) mailed, certified or registered mail with postage prepaid, (iii) sent by next-day or overnight mail or delivery, or (iv) sent by fax, as follows:

(ii) If to the Employee, to the Employee’s last known home address, or to such other person or address as any party shall specify by notice in writing to the Company. All such notices, requests, demands, letters, waivers and other

communications shall be deemed to have been received (w) if by personal delivery on the day after such delivery, (x) if by certified or registered mail, on the fifth business day after the mailing thereof, (y) if by next-day or overnight mail or delivery, on the day delivered, or (z) if by fax, on the day delivered, provided that such delivery is confirmed.

(b) Binding Effect; Benefits. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

(c) Waiver. Either party hereto may by written notice to the other (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement, (ii) waive compliance with any of the conditions or covenants of the other contained in this Agreement and (iii) waive or modify performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of either party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by either party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party’s rights or privileges hereunder or shall be deemed a waiver of such party’s rights to exercise the same at any subsequent time or times hereunder.

(d) Applicable Law. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware, regardless of the law that might be applied under principles of conflict of laws.

(e) Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(f) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

(g) FOR FLORIDA PURCHASERS. PURCHASERS OF SECURITIES THAT ARE EXEMPTED FROM REGISTRATION BY SECTION 517.061(11) OF THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT HAVE THE RIGHT TO VOID THEIR PURCHASE WITHIN THREE (3) DAYS

AFTER THE FIRST TENDER OF CONSIDERATION UNLESS SALES ARE MADE TO FEWER THAN FIVE (5) PURCHASERS IN FLORIDA (NOT COUNTING INSTITUTIONAL INVESTORS DESCRIBED IN SECTION 517.061(7)).

(h) Accredited Investor Status. The Employee is an “accredited investor” as such term is defined in Rule 501(a) promulgated under the Act.

IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement as of the date first above written.


ALH HOLDING INC.

By:
		Name:
		Title:



EMPLOYEE


«Name»

“EBITDA” means the “Adjusted EBITDA” as defined in the Credit Agreement, dated as of the Effective Date, among Alliance Laundry Holdings LLC, Alliance Laundry Systems LLC, ALH Finance LLC, the banks and other financial institutions from time to time party thereto as Lenders, Lehman Brothers Inc., as sole advisor, sole lead arranger and sole bookrunner, The Bank of Nova Scotia, as syndication agent, LaSalle Bank National Association and Royal Bank of Canada, as co-documentation agents, and Lehman Commercial Paper Inc., as administrative agent for the Lenders.

“Cumulative EBITDA” means the cumulative net EBITDA from January 1, 2005 through the end of such fiscal year.


Fiscal Year	Annual EBITDA Target		Annual Vesting% if Annual EBITDA Target is Met		Cumulative EBITDA Target		Cumulative “Catch- Up” Vesting% if Cumulative EBITDA Target is Met
2005	$	63.6 million	20	%		N/A	N/A
2006	$	67.2 million	20	%	$	130.8 million	40	%
2007	$	72.2 million	20	%	$	203.0 million	60	%
2008	$	76.2 million	20	%	$	279.2 million	80	%
2009	$	80 million	20	%	$	359.2 million	100	%