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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________________________

FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
 
Commission File Number 1-1687
  PPG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
  
25-0730780
(State or other jurisdiction of
  
(I.R.S. Employer
incorporation or organization)
  
Identification No.)
 
 
One PPG Place, Pittsburgh, Pennsylvania
  
15272
(Address of principal executive offices)
  
(Zip code)
 
 
Registrant’s telephone number, including area code:
  
412-434-3131
  Securities Registered Pursuant to Section 12(b) of the Act:
 
 
Name of each exchange on
Title of each class
  
which registered
Common Stock – Par Value $1.66     2 / 3
  
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.  YES   x     NO   ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES   ¨     NO   x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  YES   x     NO   ¨
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES   x     NO   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer   x
 
Accelerated filer                    o
Non-accelerated filer   o
 
Smaller reporting company   o
(Do not check if a smaller
reporting company)
 
 
 Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act).  YES   o     NO   ý
 The aggregate market value of common stock held by non-affiliates as of June 30, 2012, was $16,150 million .
As of January 31, 2013, 142,846,149 shares of the Registrant’s common stock, with a par value of $1.66   2 / 3 per share, were outstanding. As of that date, the aggregate market value of common stock held by non-affiliates was $19,627 million .
  DOCUMENTS INCORPORATED BY REFERENCE
 
 
Incorporated By
Document
  
Reference In Part No.
Portions of PPG Industries, Inc. Proxy Statement for its 2013 Annual Meeting of Shareholders
  
III

2012 PPG ANNUAL REPORT AND FORM 10-K 5
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PPG INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
  __________________________________________________________
 
As used in this report, the terms “PPG,” “Company,” “Registrant,” “we,” “us” and “our” refer to PPG Industries, Inc., and its subsidiaries, taken as a whole, unless the context indicates otherwise.
__________________________________________________________

TABLE OF CONTENTS
 
 
 
Page
Part I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Part II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
Part III
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Part IV
 
 
Item 15.
 
 
 
Note on Incorporation by Reference
Throughout this report, various information and data are incorporated by reference from the Company’s 2012 Annual Report (hereinafter referred to as “the Annual Report”). Any reference in this report to disclosures in the Annual Report shall constitute incorporation by reference only of that specific information and data into this Form 10-K.
 

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Part I
 
 

Item 1. Business
  PPG Industries, Inc., incorporated in Pennsylvania in 1883, is comprised of six reportable business segments: Performance Coatings, Industrial Coatings, Architectural Coatings – EMEA (Europe, Middle East and Africa), Optical and Specialty Materials, Commodity Chemicals and Glass. Each of the business segments in which PPG is engaged is highly competitive. The diversification of product lines and worldwide markets served tend to minimize the impact on PPG’s total sales and earnings from changes in demand for a particular product line or in a particular geographic area. Refer to Note 24, “Reportable Business Segment Information” under Item 8 of this Form 10-K for financial information relating to our reportable business segments.
On January 28, 2013, PPG completed the separation of its commodity chemicals business and the merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of the Georgia Gulf Corporation ("Georgia Gulf"). The combined company formed by uniting Georgia Gulf with PPG's former commodity chemicals business is named Axiall Corporation. PPG holds no ownership interest in Axiall Corporation. Refer to Note 25, "Separation and Merger Transaction" under Item 8 of this Form 10-K for financial information relating to this transaction.
Performance Coatings, Industrial Coatings and Architectural Coatings – EMEA
  PPG is a major global supplier of coatings. The Performance Coatings, Industrial Coatings and Architectural Coatings – EMEA reportable segments supply coatings for customers in a wide array of end use markets, including industrial equipment, appliances and packaging; factory-finished aluminum extrusions and steel and aluminum coils; marine and aircraft equipment; automotive original equipment; and other industrial and consumer products. In addition to supplying coatings to the automotive original equipment market (“OEM”), PPG supplies refinishes to the automotive aftermarket. PPG also serves commercial and residential new build and maintenance markets by supplying coatings to painting and maintenance contractors and directly to consumers for decoration and maintenance. The coatings industry is highly competitive and consists of a few large firms with global presence and many smaller firms serving local or regional markets. PPG competes in its primary markets with the world’s largest coatings companies, most of which have global operations, and many smaller regional coatings companies. Product development, innovation, distribution, quality and technical and customer service have been stressed by PPG and have been significant factors in developing an important supplier position by PPG’s coatings businesses comprising the Performance Coatings, Industrial Coatings and Architectural Coatings – EMEA reportable segments.
The Performance Coatings reportable segment is comprised of the refinish, aerospace, protective and marine and architectural – Americas and Asia Pacific coatings businesses.
 
 
The refinish coatings business supplies coatings products for automotive and commercial transport/fleet repair and refurbishing, light industrial coatings for a wide array of markets and specialty coatings for signs. These products are sold primarily through independent distributors.
The aerospace coatings business supplies sealants, coatings, technical cleaners and transparencies for commercial, military, regional jet and general aviation aircraft and transparent armor for military land vehicles. PPG supplies products to aircraft manufacturers and maintenance and aftermarket customers around the world both on a direct basis and through a company-owned distribution network.
The protective and marine coatings business supplies coatings and finishes for the protection of metals and structures to metal fabricators, heavy duty maintenance contractors and manufacturers of ships, bridges, rail cars and shipping containers. These products are sold through the company-owned architectural coatings stores, independent distributors and directly to customers.
Product performance, technology, quality, distribution and technical and customer service are major competitive factors in these three coatings businesses.
The architectural coatings-Americas and Asia Pacific business primarily produces coatings used by painting and maintenance contractors and by consumers for decoration and maintenance of residential and commercial building structures. These coatings are sold under a number of brands. Architectural coatings – Americas and Asia Pacific products are sold through a combination of company-owned stores, home centers, paint dealers, and independent distributors and directly to customers. Price, product performance, quality, distribution and brand recognition are key competitive factors for these architectural coatings businesses. In 2012, the architectural coatings-Americas and Asia Pacific business operated about 400 company-owned stores in North America and about 40 company-owned stores in Australia.
On December 13, 2012, PPG entered into an agreement to acquire the North American architectural coatings business of Akzo Nobel N.V. in a deal valued at $1.05 billion. The acquisition, which is currently expected to close in the first half of 2013, includes the acquisition of a number of leading brands and approximately 600 paint stores in the United States, Canada and the Caribbean. With regard to this pending acquisition, the statutory waiting period prescribed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on February 1, 2013.  Canadian competition clearance and Investment Canada Act approval remain pending.  
The major global competitors of the Performance Coatings reportable segment are Akzo Nobel N.V., Axalta Coating Systems (former DuPont performance coatings business), BASF Corporation, Hempel A/S, the Jotun Group, Masco Corporation, the Sherwin-Williams Company, Valspar Corporation and GKN plc. The average number of persons employed by the Performance Coatings reportable segment during 2012 was about 12,100 .


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The Industrial Coatings reportable segment is comprised of the automotive OEM, industrial and packaging coatings businesses. Industrial, automotive OEM and packaging coatings are formulated specifically for the customers’ needs and application methods.
The industrial and automotive OEM coatings businesses sell directly to a variety of manufacturing companies. PPG also supplies adhesives and sealants for the automotive industry and metal pretreatments and related chemicals for industrial and automotive applications. PPG has established alliances with Kansai Paints and Helios Group to serve certain automotive original equipment manufacturers in various regions of the world. PPG owns a 60% interest in PPG Kansai Finishes to serve Japanese-based automotive OEM customers in North America and Europe and PPG owns a 60% interest in PPG Helios Ltd. to serve Russian-based automotive OEM customers in Russia and the Ukraine.
The packaging coatings business supplies coatings and inks to the manufacturers of aerosol, food and beverage containers.
Product performance, technology, cost effectiveness, quality and technical and customer service are major competitive factors in the industrial coatings businesses. The major global competitors of the Industrial Coatings reportable segment are Akzo Nobel N.V., Axalta Coating Systems, BASF Corporation, Valspar Corporation and Nippon Paint. The average number of persons employed by the Industrial Coatings reportable segment during 2012 was about 8,600 .
PPG has established an alliance with Asian Paints Ltd. to serve customers in India. PPG and Asian Paints Ltd. each own a 50% interest in Asian PPG Paints to serve global and domestic-based automotive OEM and aftermarket customers in India. In July 2012, PPG expanded the current Asian Paints joint venture and also created a second 50-50 joint venture with Asian Paints. As part of these changes, PPG gained effective management control of the existing joint venture, while Asian Paints has effective management control of the newly formed joint venture. The existing joint venture expanded its scope to serve India’s industrial liquid, marine, consumer packaging and transportation coatings markets. The newly formed venture serves the protective, industrial powder, industrial containers and light industrial coatings markets.
The Architectural Coatings – EMEA business supplies a variety of coatings under a number of brands and purchased sundries to painting contractors and consumers in Europe, the Middle East and Africa. Architectural Coatings – EMEA products are sold through a combination of nearly 700 company-owned stores, home centers, paint dealers, and independent distributors and directly to customers. Price, product performance, quality, distribution and brand recognition are key competitive factors for this business. The major competitors of the Architectural Coatings – EMEA reportable segment are Akzo Nobel N.V. and Materis Paints. The average number of persons employed by the Architectural Coatings – EMEA reportable segment during 2012 was about 8,000 .
 
 
Optical and Specialty Materials
PPG’s Optical and Specialty Materials reportable segment is comprised of the optical products and silicas businesses. The primary Optical and Specialty Materials products are Transitions ® lenses, optical lens materials and high performance sunlenses; amorphous precipitated silicas for tire, battery separator and other end-use markets; and Teslin ® substrate used in such applications as radio frequency identification (RFID) tags and labels, e-passports, drivers’ licenses and identification cards. Transitions ® lenses are processed and distributed by PPG’s 51%-owned joint venture with Essilor International ("Essilor"). In the Optical and Specialty Materials businesses, product quality and performance, branding, distribution and technical service are the most critical competitive factors. The major global competitors of the Optical and Specialty Materials reportable segment are Vision-Ease Lens, Carl Zeiss AG, Corning, Inc., Hoya Corporation, Mitsui Chemicals, Inc., Solvay Group, J.M. Huber and Evonik Industries, A.G. The average number of persons employed by the Optical and Specialty Materials reportable business segment during 2012 was about 2,900 .
Commodity Chemicals
 Until January 28, 2013, PPG was a producer and supplier of basic chemicals. The Commodity Chemicals reportable segment produced chlor-alkali and derivative products, including chlorine, caustic soda, vinyl chloride monomer, chlorinated solvents, calcium hypochlorite, ethylene dichloride, hydrochloric acid and phosgene derivatives. Most of these products were sold directly to manufacturing companies in the chemical processing, plastics, including polyvinyl chloride (“PVC”), paper, minerals, metals, agricultural products and water treatment industries. The segment competed with the following other major domestic producers of chlor-alkali products, including The Dow Chemical Company, Formosa Plastics Corporation, U.S.A., Occidental Chemical Corporation, Olin Corporation, Shintech, Inc. and Westlake Chemical Corporation. Price, product availability, product quality and customer service are the key competitive factors. The average number of persons employed by the Commodity Chemicals reportable business segment during 2012 was about 2,000 . On January 28, 2013, PPG completed the separation of its commodity chemicals business and merged the subsidiary holding this business with a subsidiary of Georgia Gulf.
Glass
The Glass reportable business segment is comprised of the flat glass and fiber glass businesses. PPG is a producer of flat glass in North America and a global producer of continuous-strand fiber glass. PPG’s major markets are commercial and residential construction and the wind energy, energy infrastructure, transportation and electronics industries. Most glass products are sold directly to manufacturing companies. PPG manufactures flat glass by the float process and fiber glass by the continuous-strand process.
The bases for competition in the Glass businesses are price, quality, technology and customer service. The Company competes with four major producers of flat glass, including Asahi Glass Company, Cardinal Glass Industries, Guardian


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Industries and NSG Pilkington, and eight major producers of fiber glass throughout the world, including Owens Corning-Vetrotex, Jushi Group, Johns Manville Corporation, CPIC Fiberglass, AGY, NEG, 3B and Taishan Fiberglass. The average number of persons employed by the Glass reportable business segment during 2012 was about 3,200 .
Raw Materials and Energy
The effective management of raw materials and energy is important to PPG’s continued success. The Company’s most significant raw materials are epoxy and other resins, titanium dioxide and other pigments, and solvents in the coatings businesses; lenses, sand and soda ash in the Optical and Specialty Materials segment; brine and ethylene in the Commodity Chemicals segment; and sand, clay and soda ash in the Glass segment. Many raw material prices began to inflate during 2010, continued through 2011 and into 2012, reflecting recovering economic demand and decreased supply stemming from capacity idled or closed during the recession. Also, adverse effects of supplier disruptions due to natural disasters placed additional pressure on some of our supply chains leading to higher prices. Raw material prices began to moderate in the second half of 2012 due to lower global demand, including the effect of lower economic activity in Europe.
Coatings raw materials include both organic, primarily petroleum based, materials and inorganic materials, including titanium dioxide, and generally comprise 70-to-80% of cost of goods sold in most coatings formulations and represent PPG’s single largest production cost component. PPG input prices inflated further in the first half of 2012, and then, in the second half of the year, moderated modestly from the year's peak levels. The largest inflationary impact was from titanium dioxide pigments, with year-over-year reductions in the cost of various petrochemical-based materials partially offsetting those increases. Raw material costs for our coatings businesses increased nearly $725 million due to inflation during the three year period ended December 31, 2012. The inflation rate for 2012 was low single-digit percentages.
Energy is a significant production cost in the Commodity Chemicals and Glass segments, and our primary energy cost is natural gas. PPG has historically purchased 60-to-70 trillion British Thermal Units (BTUs) of natural gas each year. Inclusive of the impact of PPG’s natural gas hedging activities, PPG’s 2012 natural gas unit cost decreased 35% in the U.S. compared to 2011, reflecting continued higher natural gas supply stemming from the success of shale gas drilling. The separation of PPG's commodity chemicals business greatly reduced PPG's natural gas exposure, with annual purchases now expected to range from 10-to-20 trillion BTUs per year. In our Commodity Chemicals segment, we also experienced lower average ethylene unit costs, compared to 2011. Lower ethane feedstock values, partially due to the expansion of shale gas production, was the main driver of an approximate 13% decline in our average unit cost of ethylene. The separation of PPG's commodity chemicals business also eliminated PPG's direct exposure with respect to the volatility of ethylene prices.
 
Most of the raw materials and energy used in production are purchased from outside sources, and the Company has made, and plans to continue to make, supply arrangements to meet the planned operating requirements for the future. Supply of critical raw materials and energy is managed by establishing contracts, multiple sources, and identifying alternative materials or technology whenever possible. The Company is continuing its aggressive sourcing initiatives to support its continuous efforts to find the lowest raw material costs. These initiatives include reformulation of our products using both petroleum-derived and bio-based materials as part of a product renewal strategy, qualifying multiple and local sources of supply, including suppliers from Asia and other lower cost regions of the world. The Company also has undertaken a strategic initiative with multiple global suppliers to secure and enhance PPG’s supply of titanium dioxide, as well as to add to the global supply of this raw material. PPG possesses intellectual property and expertise in the production and finishing of titanium dioxide pigment and we have and intend to continue to leverage this and engage potential partners to develop innovative supply solutions through technical collaborations, joint ventures, licensing or other commercial initiatives. In 2012, PPG signed a memorandum of understanding with Henan Billions Chemicals Co., Ltd. ("Billions"), by which PPG will license certain chloride-based titanium dioxide technologies to Billions for use at Billions’ titanium dioxide refinement facilities in China. In addition, PPG has signed a long-term purchase agreement for titanium dioxide with Billions. PPG intends to use the chloride-based titanium dioxide manufactured by Billions for various end-use applications, including paints and other coatings. Billions is also able to sell the chloride-based titanium dioxide to third parties. Our efforts to reduce titanium dioxide consumption resulted in a 4% reduction in titanium dioxide usage during 2012.
We are subject to existing and evolving standards relating to the registration of chemicals that impact or could potentially impact the availability and viability of some of the raw materials we use in our production processes. Our ongoing global product stewardship efforts are directed at maintaining our compliance with these standards.
In 2006, the European Union (“EU”) member states adopted new comprehensive chemical registration legislation known as “REACH” (Registration, Evaluation, and Authorization of Chemicals). REACH applies to all chemical substances manufactured or imported into the EU in quantities of one metric ton or more annually and will require the registration of approximately 30,000 chemical substances with the European Chemicals Agency. REACH requires the registration of these substances, entailing the filing of extensive data on their potential risks to human health and the environment. Registration activities are occurring in three phases over an 11-year period, based on tonnage and level of concern. The first registration deadline was in 2010 with subsequent phases ending in 2013 and 2018. In the case of chemicals with a high level of concern, the regulation calls for progressive substitution unless no alternative can be found; in these cases, authorization of the chemicals will be required.


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PPG established a dedicated organization to manage REACH implementation. We have continued to review our product portfolio, worked closely with our suppliers to assure their commitment to register substances in our key raw materials and started registration of substances that PPG manufactures or imports as raw materials. We will continue to work with our suppliers to understand the future availability and viability of the raw materials we use in our production processes.
Compliance with the REACH legislation will result in increased costs related to the registration process, product testing and reformulation, risk characterization and participation in Substance Information Exchange Forums (“SIEFs”) required to coordinate registration dossier preparation. PPG identified 10 substances that required registration in 2010 and engaged with other key companies through SIEFs to develop the required registration dossiers. Actual costs for substance registration were not significant in 2010 through 2012, due primarily to fewer substances requiring registration than originally anticipated. The costs for 2013 and 2018 registrations and potential additional future testing in support of 2010 registrations are currently unclear; however, our current estimate of the total spend during 2013-2018 has been lowered to a range of $5 million to $10 million. We anticipate that some current raw materials and products will be subject to the REACH authorization process and believe that we will be able to demonstrate adequate risk management for the use and application of the majority of such substances.
Changes to chemical control regulations have been proposed or implemented in many countries beyond the EU, including China, Canada, the United States, and Korea. Because implementation of many of these programs has not been finalized, the financial impact cannot be estimated at this time. We anticipate chemical control regulations will continue to increase globally, and we have implemented programs to track and comply with the regulations.
Research and Development
Technology innovation has been a hallmark of PPG’s success throughout its history. Research and development costs, including depreciation of research facilities, were $470 million , $445 million and $408 million during 2012, 2011 and 2010, respectively. These costs totaled approximately 3% of sales in each year of the period from 2010 to 2012. PPG owns and operates several facilities to conduct research and development relating to new and improved products and processes. Additional process and product research and development work is also undertaken at many of the Company’s manufacturing plants. As part of our ongoing efforts to manage our formulations and raw material costs effectively, we operate a global competitive sourcing laboratory in China. We have obtained government funding of a small portion of the Company’s research efforts, and we will continue to pursue government funding. Because of the Company’s broad array of products and customers, PPG is not materially dependent upon any single technology platform.
 
The Company seeks to optimize its investment in research and development to create new products to drive profitable growth. We align our product development with the macro trends in the end-use markets we serve and leverage core technology platforms to develop products for unmet market needs. Our history of successful technology introductions is based on a commitment to an efficient and effective innovation process and disciplined portfolio management.
  Patents
PPG considers patent protection to be important. The Company’s reportable business segments are not materially dependent upon any single patent or group of related patents. PPG earned $51 million in 2012, $55 million in 2011 and $58 million in 2010 from royalties and the sale of technical know-how.
Backlog
In general, PPG does not manufacture its products against a backlog of orders. Production and inventory levels are geared primarily to projections of future demand and the level of incoming orders.
Non-U.S. Operations
PPG has a significant investment in non-U.S. operations. This broad geographic footprint serves to lessen the significance of economic impacts occurring in any one region. As a result of our expansion outside the U.S., we are subject to certain inherent risks, including economic and political conditions in international markets and fluctuations in foreign currency exchange rates.
Our sales generated by products sold in the developed and emerging regions of the world over the past three years are summarized below:
(millions)
 
Sales
 
 
2012
 
2011
 
2010
United States, Canada, Western Europe
 
$
11,031

 
$
10,844

 
$
9,837

Latin America, Eastern Europe, Middle East, Africa, Asia Pacific
 
4,169

 
4,041

 
3,586

Total
 
$
15,200

 
$
14,885

 
$
13,423

Seasonality
PPG’s earnings are typically greater in the second and third quarters and cash flow from operations is greatest in the fourth quarter due to end-use market seasonality, primarily in PPG’s architectural coatings businesses. Demand for PPG’s architectural coatings products is typically strongest in the second and third quarters due to higher home improvement, maintenance and construction activity during the spring and summer months in North America and Europe. This higher activity level results in higher outstanding receivables that are collected in the fourth quarter generating higher fourth quarter cash flow.


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Employee Relations
The average number of persons employed worldwide by PPG at December 31, 2012 was 39,200 . The Company has numerous collective bargaining agreements throughout the world. While we have experienced occasional work stoppages as a result of the collective bargaining process and may experience some work stoppages in the future, we believe we will be able to negotiate all labor agreements on satisfactory terms. To date, these work stoppages have not had a significant impact on PPG’s operating results. Overall, the Company believes it has good relationships with its employees.
Environmental Matters
PPG is subject to existing and evolving standards relating to protection of the environment. Capital expenditures for environmental control projects were $12 million, $15 million and $16 million in 2012, 2011 and 2010, respectively. It is expected that expenditures for such projects in 2013 will be in the range of $10-$15 million, excluding the recently separated commodity chemicals business. Although future capital expenditures are difficult to estimate accurately because of constantly changing regulatory standards and policies, it can be anticipated that environmental control standards will become increasingly stringent and the cost of compliance will increase.
In March of 2011, the United States Environmental Protection Agency (“USEPA”) proposed amendments to the national emission standards for hazardous air pollutants for mercury emissions from mercury cell chlor-alkali plants known as Mercury Maximum Achievable Control Technology (“Mercury MACT”). USEPA’s proposed amendments would require improvements in work practices to reduce fugitive emissions and would result in reduced levels of mercury emissions while still allowing the mercury cell facilities to continue to operate. Prior to the separation of its commodity chemicals business, PPG operated a 200 ton-per-day mercury cell production unit at the Natrium, W.Va. facility. This unit constituted approximately 4% of PPG’s total chlor-alkali production capacity. The Mercury MACT has no impact on any other PPG facility.
Separately, the Natrium, W.Va facility discharges its wastewater into the Ohio River pursuant to a National Pollution Discharge Elimination System (“NPDES”) permit issued by the West Virginia Department of Environmental Protection (“WVDEP”). Because it discharges into the Ohio River, the NPDES permit terms must conform to pollution control standards for the Ohio River set by the Ohio River Valley Water Sanitation Commission (“ORSANCO”). On October 12, 2012, ORSANCO granted PPG's request for a variance which will allow the Natrium, W.Va. facility to continue to have a mixing zone for its discharge of mercury for a five-year period after ORSANCO's prohibition on mixing zones takes effect on October 16, 2013.
PPG is negotiating with various government agencies concerning 108 current and former manufacturing sites and offsite waste disposal locations, including 20 sites on the National Priority List. While PPG is not generally a major contributor of wastes to these offsite waste disposal locations,
 
each potentially responsible party may face governmental agency assertions of joint and several liability. Generally, however, a final allocation of costs is made based on relative contributions of wastes to the site. There is a wide range of cost estimates for cleanup of these sites, due largely to uncertainties as to the nature and extent of their condition and the methods that may have to be employed for their remediation. The Company has established reserves for onsite and offsite remediation of those sites where it is probable that a liability has been incurred and the amount can be reasonably estimated.
As of December 31, 2012 and 2011, PPG had reserves for estimated environmental remediation costs totaling $332 million and $226 million, respectively, of which $101 million and $59 million, respectively, were classified as current liabilities. Pretax charges against income for environmental remediation costs in 2012, 2011 and 2010 totaled $167 million , $16 million and $21 million, respectively. Cash outlays related to such environmental remediation aggregated $66 million , $59 million and $34 million in 2012, 2011 and 2010, respectively. The impact of foreign currency translation increased the liability by $2 million in 2012 and decreased the liability by $3 million in 2011. As a result of the allocation of the purchase price of acquisitions to assets acquired and liabilities assumed, the liability for environmental contingencies was increased by $3 million in 2012. Environmental remediation of a former chromium manufacturing plant site and associated sites in Jersey City, N.J. (which we refer to as “New Jersey Chrome”) represents the major part of our existing reserves. Included in the amounts mentioned above were $221 million and $129 million in reserves at December 31, 2012 and 2011, respectively, associated with all New Jersey chromium sites.
The Company’s experience to date regarding environmental matters leads it to believe that it will have continuing expenditures for compliance with provisions regulating the protection of the environment and for present and future remediation efforts at waste and plant sites. Management anticipates that such expenditures will occur over an extended period of time.
The Company continues to analyze, assess and remediate the environmental issues associated with New Jersey Chrome. In connection with the preparation of a final draft soil remedial action work plan and cost estimate that was initially required to be submitted to the NJDEP in May 2012 but now will be submitted in 2013, the Company compiled updated information about the sites that was used to develop a new estimate of the cost to remediate these sites which resulted in a charge against earnings of $145 million in the first quarter of 2012. A charge of $165 million for the estimated costs of remediating these sites was recorded in the third quarter of 2006. Information will continue to be generated from the ongoing groundwater remedial investigation activities related to New Jersey Chrome and will be incorporated into a final draft remedial action work plan for groundwater expected to be submitted to NJDEP in the second quarter of 2014.
These charges for estimated environmental remediation costs in 2006 and 2012 were significantly higher than PPG’s historical range. Excluding 2006 and 2012, pre-tax charges


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against income for environmental remediation have ranged between $10 million and $35 million per year for the past 16 years. Charges in 2013 are expected to again be within this historical range. In addition to the amounts currently reserved, we may be subject to loss contingencies related to environmental matters estimated to be as much as $100 million to $275 million. This range of reasonably possible unreserved loss relates to environmental matters at a number of sites including each of the following; i) additional costs at New Jersey Chrome, which represent about one third of this potential range, ii) a number of other locations, including legacy glass and chemical manufacturing sites and iii) the Calcasieu River Estuary and two operating plant sites in the Company's former commodity chemicals business. The loss contingencies related to these sites include significant unresolved issues such as the nature and extent of contamination at these sites and the methods that may have to be employed to remediate them.
All known and currently reserved environmental liabilities associated with the commodity chemicals business were transferred with the separation of this business from PPG and subsequent merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf. The newly merged company, Axiall, will assume responsibility for these liabilities. As a result of this transaction, PPG will retain responsibility for potential environmental liabilities that may result from future Natural Resource Damage claims and any potential tort claims at the Calcasieu River Estuary associated with activities and historical operations of the Lake Charles, La. facility. PPG will additionally retain responsibility for all liabilities relating to, arising out of or resulting from sediment contamination in the Ohio River resulting from historical activities and operations at the Natrium, W.Va. facility.
In management’s opinion, the Company operates in an environmentally sound manner, is well positioned, relative to environmental matters, within the industries in which it operates and the outcome of these environmental contingencies will not have a material adverse effect on PPG’s financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. See Note 15, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K for additional information related to environmental matters and our accrued liability for estimated environmental remediation costs.
Public and governmental concerns related to climate change continue to grow, leading to efforts to limit the greenhouse gas (“GHG”) emissions believed to be responsible. While PPG has operations in many countries, a substantial portion of PPG’s GHG emissions are generated by locations in the U.S., where considerable legislative and regulatory activity has been taking place.
As a result of a U.S. Supreme Court ruling in April 2007 declaring that GHGs are air pollutants covered by the Clean Air Act, USEPA proposed and later finalized in December 2009 an Endangerment Finding that GHG emissions “threaten public health and welfare of current and future generations”. Based on the Endangerment Finding, the USEPA proposed
 
then finalized new, “tailored” thresholds for GHG emissions that define when Clean Air Act New Source Review and Title V operating permit programs would be required for new or existing industrial facilities. These rules impose new permit requirements on PPG facilities emitting more than 100,000 tons of GHGs per year as well as on new equipment installations that will emit more than 75,000 tons of GHGs per year. The U.S. federal government has committed to a 17% economy-wide emission reduction target below 2005 levels by 2020. These rules were upheld by a Federal Appeals court in 2012 in a challenge filed by industry. To date, no PPG facility in the U.S. has triggered either the 100,000 ton or 75,000 ton per year permit requirement thresholds. PPG has, and will continue to, annually report our global GHG emissions to the voluntary Carbon Disclosure project.
Energy prices and availability of supply continue to be a concern for major energy users. Since PPG’s GHG emissions arise principally from combustion of fossil fuels, PPG has for some time recognized the desirability of reducing energy consumption and GHG generation. In 2007, PPG announced corporate targets, namely (i) a reduction in energy intensity by 25% from 2006 to 2016 and (ii) a 10% absolute reduction in GHG emissions from 2006 to 2011. Effective energy management practices led to a 10% reduction in PPG's GHG emissions at the end of 2011. PPG estimates a 50% to 70% reduction in its total annual energy consumption and GHG emissions as a result of the separation of its commodity chemicals business on January 28, 2013. New energy intensity and GHG emissions intensity targets have been established to better reflect what will be possible given the portfolio of businesses that remain with PPG. With the base year of 2012 and a termination year of 2020, the company has established several new key sustainability metrics; 1) an annual energy intensity reduction target of 1.5%, 2) an annual GHG emission intensity reduction of 1.5%, 3) a hazardous waste to landfill reduction of 20%, 4) a non-hazardous waste to landfill reduction of 10%, 5) a 10% reduction in reportable spills, 6) a 5% reduction in serious employee injuries, and 7) a target of 30% of product sales from sustainable technology. These new sustainability goals represent opportunities to reduce costs, improve operational efficiencies and support customer needs.
PPG participates in the U.S. Department of Energy (“DOE”) Save Energy Now LEADER Program reinforcing the company’s voluntary efforts to significantly reduce its industrial energy intensity. In September 2011, the DOE changed its approach to energy efficiency in the industrial sector and initiated the Better Buildings, Better Plants program. PPG is currently participating in this new program, which sets energy savings targets and provides a suite of educational, training, and technical resources to help meet those targets. Recognizing the continuing importance of this matter, PPG has a senior management group with a mandate to guide the Company’s progress in this area.
In December 2012, after lengthy challenges and re-proposals, the USEPA issued its final Clean Air Act emissions standards for large and small boilers and incinerators that burn fossil fuels known as the Boiler Maximum Achievable Control Technology (“Boiler MACT”) regulations. These regulations


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are aimed at controlling emissions of air toxics and will regulate emissions of particulate matter, carbon monoxide, mercury, dioxin and hydrogen chloride from boilers, requiring that covered facilities achieve compliance within three years. There are 13 PPG facilities that are subject to these regulations. The facility most impacted by these regulations is the 115 megawatt coal fired power plant at the Natrium, W. Va. chlor-alkali facility that was part of the commodity chemicals business that was separated as of January 28, 2013. The other 12 facilities have natural gas-fired boilers which are subject to minimal regulatory oversight in the final rule, requiring only routine and reasonable maintenance and recordkeeping and need no add-on pollution control equipment. Facilities must achieve compliance with these regulations by early 2016. The cost impact for PPG's remaining affected facilities is not expected to be significant.
PPG’s public disclosure on energy security and climate change can be viewed in our Sustainability Report at www.ppg.com/sustainability or at the Carbon Disclosure Project www.cdproject.net.
Available Information
The Company’s website address is www.ppg.com . The Company posts, and shareholders may access without charge, the Company’s recent filings and any amendments thereto of its annual reports on Form 10-K, quarterly reports on Form 10-Q and its proxy statements as soon as reasonably practicable after such reports are filed with the Securities and Exchange Commission (“SEC”). The Company also posts all financial press releases, including earnings releases, to its website. All other reports filed or furnished to the SEC, including reports on Form 8-K, are available via direct link on PPG’s website to the SEC’s website, www.sec.gov. Reference to the Company’s and SEC’s websites herein does not incorporate by reference any information contained on those websites and such information should not be considered part of this Form 10-K.
Item 1A. Risk Factors
As a global manufacturer of coatings, optical and specialty materials and glass products, we operate in a business environment that includes risks. These risks are not unlike the risks we have faced in the recent past nor are they unlike risks faced by our competitors. Each of the risks described in this section could adversely affect our operating results, financial position and liquidity. While the factors listed here are considered to be the more significant factors, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles which may adversely affect our businesses and our results of operations.
 
 
Increases in prices and declines in the availability of raw materials could negatively impact our financial results.
Our financial results are significantly affected by the cost of raw materials. Coatings raw materials both organic, primarily petroleum based, materials and inorganic materials, including titanium dioxide, generally comprise between 70-to-80% of cost of goods sold in most coatings formulations and represent PPG’s single largest production cost component. PPG input prices inflated further in the first half of 2012 continuing the trend of 2010 and 2011, and then, in the second half of the year, moderated modestly from the year's peak levels. The largest inflationary impact related to the cost of titanium dioxide pigments, with year-over-year reductions in the costs for various petrochemical-based materials countering those increases. Raw material costs for our coatings businesses increased nearly $725 million due to inflation during the three year period ended December 31, 2012. The inflation rate for 2012 was low single-digit percentages.
We also import raw materials and intermediates, particularly for use at our manufacturing facilities in the emerging regions of the world. In most cases, those imports are priced in the currency of the supplier and, therefore, if that currency strengthens against the currency of our manufacturing facility, our margins are at risk of being lowered.
Most of the raw materials used in production are purchased from outside sources, and the Company has made, and plans to continue to make, supply arrangements to meet the planned operating requirements for the future. Supply of critical raw materials is managed by establishing contracts, procuring from multiple sources, and identifying alternative materials or technology whenever possible. The Company is continuing its aggressive sourcing initiatives to support its continuous efforts to find the lowest raw material costs. These initiatives include reformulation of our products using both petroleum-derived and bio-based materials as part of a product renewal strategy, qualifying multiple and local sources of supply, including suppliers from Asia and other lower cost regions of the world, and strategic initiatives with multiple global suppliers to secure and enhance PPG’s supply of titanium dioxide and other materials.
An inability to obtain critical raw materials would adversely impact our ability to produce products. Increases in the cost of raw materials may have an adverse effect on our earnings or cash flow in the event we are unable to offset these higher costs in a timely manner.
The pace of economic growth and level of uncertainty could have a negative impact on our results of operations and cash flows.
During 2010, the global economy began to mend from the economic downturn of 2008 and 2009; however, the pace of recovery was uneven. Beginning in 2011, overall activity levels in most major global economies and in most end-use markets exhibited year-over-year growth. During 2012, overall activity levels varied greatly among the major global economies, with similar differences experienced among the various coatings end-use markets. Because of this variation, overall aggregate PPG global volume grew modestly for the year, with some deviation from quarter-to-quarter. Entering


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2013, the disparity of economic activity by region and end use market is anticipated to continue. Of the major regions, growth prospects remain in North America, bolstered by further anticipated recovery in construction activity and continued strength in various industrial markets, including automotive production and increased investment related to the energy and chemical industries. However, concerns over fiscal uncertainty and unemployment temper these prospects somewhat. The 2013 growth rate in emerging regions is expected to remain mixed, but improve somewhat based on increases in local consumption, less inventory destocking associated with lower exports, and government stimulus actions. The Eurozone is expected to remain subdued with very few end-use markets expected to deliver growth, and downside risk to regional economic conditions remains.
PPG provides products and services to a variety of end-use markets and in many geographies. This broad end-use market exposure and expanded geographic presence lessens the significance of any significant or rapid decrease in activity levels; nonetheless, lower demand levels may result in lower sales, which would result in reduced earnings and cash flows.
We are subject to existing and evolving standards relating to the protection of the environment.
Environmental laws and regulations control, among other things, the discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of hazardous and non-hazardous wastes, the investigation and remediation of soil and groundwater affected by hazardous substances, and regulate various health and safety matters. The environmental laws and regulations we are subject to, including those in the United States as well as in other countries in which we operate, impose liability for the costs of, and damages resulting from, cleaning up current sites, past spills, disposals and other releases of hazardous substances. Violations of these laws and regulations can also result in fines and penalties. Future environmental laws and regulations may require substantial capital expenditures or may require or cause us to modify or curtail our operations, which may have a material adverse impact on our business, financial condition and results of operations.
As described in Note 15, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K, we are currently undertaking environmental remediation activities at a number of our facilities and properties, the cost of which is substantial. We have accrued a $332 million liability for estimated environmental remediation costs at December 31, 2012 . Our assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments. As such, in addition to the amounts currently reserved, we may be subject to loss contingencies related to environmental matters estimated to be as much as $100 million to $275 million. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence.
 
We are involved in a number of lawsuits and claims, and we may be involved in future lawsuits and claims, in which substantial monetary damages are sought.
PPG is involved in a number of lawsuits and claims, both actual and potential in which substantial monetary damages are sought. Those lawsuits and claims relate to contract, patent, environmental, product liability, antitrust and other matters arising out of the conduct of PPG’s current and past business activities. Any such claims, whether with or without merit, could be time consuming, expensive to defend and could divert management’s attention and resources. We maintain insurance against some, but not all, of these potential claims, and the levels of insurance we do maintain may not be adequate to fully cover any and all losses. We believe that, in the aggregate, the outcome of all current lawsuits and claims involving PPG, including asbestos-related claims in the event the settlement described in Note 15, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K does not become effective, will not have a material effect on PPG’s consolidated financial position or liquidity; however, such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. Nonetheless, the results of any future litigation or claims are inherently unpredictable, but such outcomes could have a material adverse effect on our results of operations, cash flow or financial condition.
For over 30 years, we have been a defendant in lawsuits involving claims alleging personal injury from exposure to asbestos.
Most of our potential exposure relates to allegations by plaintiffs that PPG should be liable for injuries involving asbestos containing thermal insulation products manufactured by Pittsburgh Corning Corporation (“PC”). PPG is a 50% shareholder of PC. Although we have entered into a settlement arrangement with several parties concerning these asbestos claims as discussed in Note 15, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K, the arrangement remains subject to court proceedings and, if not approved, the outcome could be material to the results of operations of any particular period.
We are subject to a variety of complex U.S. and non-U.S. laws and regulations which could increase our compliance costs.
We are subject to a wide variety of complex U.S. and non-U.S. laws and regulations, and legal compliance risks, including securities laws, tax laws, environmental laws, employment and pension-related laws, competition laws, U.S. and foreign export and trading laws, and laws governing improper business practices, including bribery. We are affected by new laws and regulations and changes to existing laws and regulations, including interpretations by courts and regulators. These laws and regulations effectively expand our compliance obligations and potential enforcement actions by governmental authorities or litigation related to them.
New laws and regulations or changes in existing laws or regulations or their interpretation could increase our compliance costs. For example, regulations concerning the composition, use and transport of chemical products continue to evolve. Developments concerning these regulations could


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potentially impact (i) the availability or viability of some of the raw materials we use in our product formulations and/or (ii) our ability to supply certain products to some customers or markets. Import/export regulations also continue to evolve and could result in increased compliance costs, slower product movements or additional complexity in our supply chains.
Our international operations expose us to additional risks and uncertainties that could affect our financial results.
PPG has a significant investment in non-U.S. operations. This broad geographic footprint serves to lessen the significance of economic impacts occurring in any one region. Notwithstanding the benefits of geographic diversification, our ability to achieve and maintain profitable growth in international markets is subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many countries. As a result of our expansion outside the U.S., we are subject to certain inherent risks, including political and economic uncertainty, inflation rates, exchange rates, trade protection measures, local labor conditions and laws, restrictions on foreign investments and repatriation of earnings, and weak intellectual property protection. Our percentage of sales generated in 2012 by products sold outside the U.S. was approximately 57% .
Fluctuations in foreign currency exchange rates could affect our financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses into U.S. dollars at the average exchange rate during each reporting period, as well as assets and liabilities into U.S. dollars at exchange rates in effect at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect our net revenues, operating income and the value of balance sheet items denominated in foreign currencies. We use derivative financial instruments to reduce our net exposure to currency exchange rate fluctuations related to foreign currency transactions. However, fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies, could materially affect our financial results.
As a producer of coatings and specialty materials, we manufacture and transport certain materials that are inherently hazardous due to their toxic nature.
We have significant experience in handling these materials and take precautions to handle and transport them in a safe manner. However, these materials, if mishandled or released into the environment, could cause substantial property damage or personal injuries resulting in significant legal claims against us. The separation of the commodity chemicals business on January 28, 2013, significantly reduces the volumes of these materials that we handle and transport.
Business disruptions could have a negative impact on our results of operations and financial condition.
Unexpected events, including supply disruptions, temporary plant and/or power outages, work stoppages, natural disasters and severe weather events, computer system disruptions, fires, war or terrorist activities, could increase the
 
cost of doing business or otherwise harm the operations of PPG, our customers and our suppliers. It is not possible for us to predict the occurrence or consequence of any such events. However, such events could reduce demand for our products or make it difficult or impossible for us to receive raw materials from suppliers or to deliver products to customers.
We may have difficulty integrating acquired businesses.
In the past 15 years, PPG has completed over 50 acquisitions to further the growth of the Company, and we will likely acquire additional businesses and enter into additional joint ventures in the future as part of our growth strategy. Of particular note, PPG agreed in December 2012 to purchase the North American architectural coatings business of Akzo Nobel N.V. Upon closing, this acquisition will add approximately 600 stores and eight manufacturing facilities to PPG's North American coatings operations. Growth through acquisitions and the formation of joint ventures involve risks, including:
•
difficulties in assimilating acquired companies and products into our existing business;
•
delays in realizing the benefits from the acquired companies or products;
•
diversion of our management’s time and attention from other business concerns;
•
difficulties due to lack of or limited prior experience in any new markets we may enter;
•
unforeseen claims and liabilities, including unexpected environmental exposures or product liability;
•
unexpected losses of customers or suppliers of the acquired or existing business;
•
difficulty in conforming the acquired business’ standards, processes, procedures and controls to those of our operations; and
•
difficulties in retaining key employees of the acquired businesses.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and joint ventures could cause us to fail to realize the anticipated benefits of such acquisitions or joint ventures and could adversely affect our results of operations, cash flow or financial condition.
Item 1B. Unresolved Staff Comments
None.


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Item 2. Properties
The Company’s corporate headquarters is located in Pittsburgh, Pa. The Company’s manufacturing facilities, sales offices, research and development centers and distribution centers are located throughout the world. As of February 21, 2013, the Company operated 124 manufacturing facilities in 44 countries, and the principal manufacturing and distribution facilities were as follows:
Performance Coatings:
 
Clayton, Australia; Delaware, Ohio; Dover, Del.; Huntsville, Ala.; Kunshan, China; Little Rock, Ark.; Milan, Italy; Mojave, Calif.; Stowmarket, United Kingdom; Sylmar, Calif.; about 400 company-owned stores in the United States and about 40 company-owned stores in Australia
Industrial Coatings:
 
Cieszyn, Poland; Circleville, Ohio; Cleveland, Ohio; Oak Creek, Wis.; Sumaré, Brazil; Suzhou, China; Tianjin, China; Zhangjiagang, China; Wuhu, China; Quattordio, Italy; San Juan del Rio, Mexico; Busan, South Korea; Valencia, Spain and Gainesville, Texas
Architectural Coatings—EMEA:
 
Soborg, Denmark; Moreuil, France; Budapest, Hungary; Amsterdam, Netherlands; Uithoorn, Netherlands; Wroclaw, Poland; Birstall, United Kingdom and nearly 700 company-owned stores, including 211 stores in France and 187 stores in the United Kingdom
Optical and Specialty  Materials:
 
Barberton, Ohio; Bangkok, Thailand; Lake Charles, La. and Manila, Philippines
Glass:
 
Carlisle, Pa.; Hoogezand, Netherlands; Lexington, N.C.; Shelby, N.C. and Wichita Falls, Texas
Including the principal manufacturing facilities noted above, the Company has manufacturing facilities in the following geographic areas: 
United States:
 
32 manufacturing facilities in 17 states.
Other Americas:
 
7 manufacturing facilities in 5 countries.
EMEA:
 
57 manufacturing facilities in 27 countries.
Asia:
 
28 manufacturing facilities in 11 countries.
The Company’s principal research and development centers are located in Allison Park, Pa.; Harmarville, Pa.; and Monroeville, Pa.
The Company’s headquarters and substantially all company-owned paint stores are located in facilities that are leased while the Company’s other facilities are generally owned. Our facilities are considered to be suitable and adequate for the purposes for which they are intended and overall have sufficient capacity to conduct business in the upcoming year.
Item 3. Legal Proceedings
PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. These lawsuits and claims, the most significant of which are described below, relate to contract, patent, environmental, product liability, antitrust and other matters arising out of the conduct of PPG’s current and past business activities. To the extent that these lawsuits and claims involve personal injury and property damage, PPG believes it has adequate insurance; however, certain of PPG’s insurers are contesting coverage with respect to some of these claims, and other insurers, as they had prior to the asbestos settlement described below, may
 
contest coverage with respect to some of the asbestos claims if the settlement is not implemented. PPG’s lawsuits and claims against others include claims against insurers and other third parties with respect to actual and contingent losses related to environmental, asbestos and other matters.
The results of any future litigation and the above lawsuits and claims are inherently unpredictable. However, management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG, including asbestos-related claims in the event the settlement described below does not become effective, will not have a material effect on PPG’s consolidated financial position or liquidity; however, such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
For over 30 years, PPG has been a defendant in lawsuits involving claims alleging personal injury from exposure to asbestos. For a description of asbestos litigation affecting the Company and the terms and status of the proposed asbestos settlement arrangement, see Note 15, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K.
In the past, the Company and others have been named as defendants in several cases in various jurisdictions claiming damages related to exposure to lead and remediation of lead-based coatings applications. PPG has been dismissed as a defendant from most of these lawsuits and has never been found liable in any of these cases.
PPG received a Consolidated Compliance Order and Notice of Proposed Penalty (“CO/NOPP”) from the Louisiana Department of Environmental Quality (“LDEQ”) in February 2006 alleging violation of various requirements of its Lake Charles, La. facility’s air permit based largely upon permit deviations self-reported by PPG. The CO/NOPP did not contain a proposed civil penalty. PPG filed a request for hearing and has engaged LDEQ in settlement discussions. Since 2006, PPG has held discussions with LDEQ to try to resolve the CO/NOPP. In late 2012, PPG increased the offer to settle the CO/NOPP for a total of $400,000, plus the performance of two Beneficial Environmental Projects with an expenditure for those projects to be at least $220,000. This increased offer was accepted by the LDEQ in the fourth quarter of 2012. All known and currently reserved environmental liabilities associated with the commodity chemicals business were transferred with the separation of this business from PPG and subsequent merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf. The newly merged company, Axiall, will assume responsibility for these liabilities.



16 2012 PPG ANNUAL REPORT AND FORM 10-K

Executive Officers of the Company
Set forth below is information related to the Company’s executive officers as of February 21, 2013 . 
Name
Age
Title
Charles E. Bunch
63

Chairman and Chief Executive Officer since July 2005
Michael H. McGarry (a)
54

Executive Vice President since September 2012
Viktoras R. Sekmakas (b)
52

Executive Vice President since September 2012
Glenn E. Bost II (c)
61

Senior Vice President and General Counsel since July 2010
David B. Navikas  (d)
62

Senior Vice President, Finance and Chief Financial Officer since June 2011
Richard C. Elias (e)
59

Senior Vice President, Optical and Specialty Materials since July 2008
Cynthia A. Niekamp (f)
53

Senior Vice President, Automotive Coatings since August 2010
(a)
In February 2013, Mr. McGarry became responsible for leading the Architectural Coatings EMEA (Europe, Middle East and Africa) segment, the architectural coatings Americas and Asia Pacific businesses, the flat glass business and the Europe, Middle East and Africa (EMEA) region. His responsibilities will continue to include the global Information Technology, Environmental Health and Safety and Corporate Quality functions. From September 2012 until February 2013, he was responsible for the global aerospace and automotive refinish businesses. Mr. McGarry led the Commodity Chemicals segment from July 2008 until the separation of that business on January 28, 2013. He was appointed Executive Vice President in September 2012 and held the position of Senior Vice President, Commodity Chemicals from July 2008 until August 2012. Mr. McGarry previously served as Vice President, coatings, Europe and Managing Director, PPG Europe from July 2006 through June 2008.
(b)
Mr. Sekmakas is responsible for leading the industrial coatings, packaging coatings and protective and marine coatings businesses. In February 2013, he became responsible for the fiber glass business, the Asia Pacific region and the Purchasing and Logistics function. From September 2012 until February 2013, he was responsible for the EMEA region. He was appointed Executive Vice President in September 2012. Previously, he held the following leadership positions: Senior Vice President, industrial coatings and President, Europe from September 2011 until August 2012; Senior Vice President, industrial coatings and President, Asia Pacific coatings from August 2010 until September 2011; Vice President industrial coatings and President, Asia Pacific coatings from March 2010 until August 2010; President PPG Asia Pacific from July 2008 until March 2010; and Vice President and Managing Director Asia Pacific from July 2006 until July 2008.
(c)
Mr. Bost held the position of Vice President and Associate General Counsel from July 2006 through June 2010. 
(d)
Mr. Navikas held the position of Vice President and Controller from March 2000 until June 2011.
(e)
Mr. Elias held the position of Vice President, Optical Products from April 2000 until June 2008.
(f)
Ms. Niekamp is responsible for the automotive OEM coatings business and the Latin America regions. Ms. Niekamp was appointed Vice President, Automotive Coatings in January 2009 when she joined PPG from BorgWarner, Inc. She previously served as President of BorgWarner's TorqTransfer Systems business from 2004 until 2008.

 
Item 4. Mine Safety Disclosures
Not Applicable.



2012 PPG ANNUAL REPORT AND FORM 10-K 17

Part II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The information required by Item 5 regarding market information, including stock exchange listings and quarterly stock market prices, dividends and holders of common stock is included in Exhibit 13.1 filed with this Form 10-K and is incorporated herein by reference. This information is also included in the PPG Shareholder Information on page 3 of the Annual Report to shareholders.
Directors who are not also officers of the Company receive common stock equivalents pursuant to the PPG Industries, Inc., Deferred Compensation Plan for Directors (“PPG Deferred Compensation Plan for Directors”). Common stock equivalents are hypothetical shares of common stock having a value on any given date equal to the value of a share of common stock. Common stock equivalents earn dividend equivalents that are converted into additional common stock equivalents but carry no voting rights or other rights afforded to a holder of common stock. The common stock equivalents credited to directors under this plan are exempt from registration under Section 4(2) of the Securities Act of 1933 as private offerings made only to directors of the Company in accordance with the provisions of the plan.
Under the PPG Deferred Compensation Plan for Directors, each director may elect to defer the receipt of all or any portion of the compensation paid to such director for serving as a PPG director. All deferred payments are held in the form of common stock equivalents. Payments out of the deferred accounts are made in the form of common stock of the Company (and cash as to any fractional common stock equivalent). The directors, as a group, were credited with 30,491; 20,575; and 15,647 common stock equivalents in 2012, 2011 and 2010, respectively, under this plan. The values of the common stock equivalents, when credited, ranged from $85.12 to $124.55 in 2012, $68.68 to $94.64 in 2011 and $60.36 to $80.90 in 2010.
Issuer Purchases of Equity Securities
No shares were repurchased in the quarter ended December 31, 2012 under the current 10 million share repurchase program approved in October 2011. The maximum number of shares that may yet be purchased under this program is 7,988,694 shares. This repurchase program has no expiration date.
No shares were withheld or certified in satisfaction of the exercise price and/or tax withholding obligation by holders of employee stock options who exercised options granted under the Company's equity compensation plans in the fourth quarter of 2012.
Item 6. Selected Financial Data
The information required by Item 6 regarding the selected financial data for the five years ended December 31, 2012 is included in Exhibit 13.2 filed with this Form 10-K and is incorporated herein by reference. This information is also reported in the Five-Year Digest o n page 86 of th e Annual Report to shareholders.

Item 7. Management’s Discussion and Analysis of
 
Financial Condition and Results of Operations
Separation of PPG's commodity chemicals business and merger of that business with Georgia Gulf Corporation and agreement to acquire the North American architectural coatings business of Akzo Nobel N.V.
Recently PPG took two major steps in its strategic transformation into a more focused coatings and specialty materials company.
On January 28, 2013, PPG completed the separation of its commodity chemicals business and the merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of the Georgia Gulf Corporation ("Georgia Gulf"). The combined company formed by uniting Georgia Gulf with PPG's former commodity chemicals business is named Axiall Corporation. PPG holds no ownership interest in Axiall Corporation. Refer to Note 25, "Separation and Merger Transaction" under Item 8 of this Form 10-K for financial information relating to this transaction.
In addition, in December 2012 PPG entered into an agreement to acquire the North American architectural coatings business of Akzo Nobel N.V. in a deal valued at $1.05 billion. The acquisition, which is currently expected to close in the first half of 2013, includes the acquisition of a number of leading brands and approximately 600 paint stores in the United States, Canada and the Caribbean. With regard to this pending acquisition, the statutory waiting period prescribed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on February 1, 2013.  Canadian competition clearance and Investment Canada Act approval remain pending.  
Performance in 2012 compared with 2011
Performance Overview
Net sales in 2012 totaled $15,200 million compared to $14,885 million in 2011, an increase of 2% . Higher selling prices increased sales 2% , higher volumes increased sales 1% and acquisitions contributed 2% to sales. These increases were partially offset by 3% from negative foreign currency impact. Sales volumes varied significantly by region, with volume growth in North America of nearly 5% and modest growth in emerging regions. European volumes declined 4% versus the prior year period with every coatings business except aerospace experiencing sluggish end-use market conditions. Improved selling prices were achieved in each of the three coatings segments and Optical and Specialty Materials. In our coatings segments, higher selling prices were in response to persistent raw material and other cost inflation. The unfavorable currency impact was primarily driven by the U.S. dollar strengthening against the Euro and Latin American currencies.
Increased demand was driven by stronger industrial production activity, which aided many of our businesses. The global industrial recovery varied by region and end use market in 2012. North American growth was led by strength in the automotive OEM, aerospace and architectural coatings businesses. Automotive OEM coatings volumes were up year over year outpacing growth in industry demand. Aerospace coatings end-use market growth has remained strong. U.S. architectural coatings growth has been supported by


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improvement in construction spending, as U.S. residential construction improved throughout the year following several anemic years. Mild weather early in 2012 also aided U.S. architectural coatings volumes. Sluggish end-use market conditions in Europe were largely offset by incremental sales from acquired businesses in the region. Growth rates in Asia in 2012 were reduced by the low level of marine original-equipment new ship builds; however, aiding growth in Asia was strength in China auto production and the packaging business as well as the absence of the Thailand floods, which particularly impacted optical products in late 2011. Higher selling prices in every coatings reportable segment and the Optical and Specialty Materials segment in 2012 were somewhat offset by pricing declines in Commodity Chemicals and Glass reportable segments. In our coatings segments, prices were increased in response to persistent raw material cost inflation. The Commodity Chemicals segment's pricing declines reflect lower chlorine pricing, offset partially by higher caustic pricing reflecting solid demand and low caustic inventory levels throughout the year. The Glass segment's pricing was down, reflecting weaker global fiber glass demand.
Cost of sales, exclusive of depreciation and amortization, decreased by $12 million in 2012 to $9,069 million compared to $9,081 million for 2011. The decrease was due to the impact of currency translation and lower manufacturing costs. These decreases were largely offset by the cost of sales of acquired businesses, the cost of sales associated with the sales volume growth and the negative impact of inflation. Cost of sales as a percentage of sales for 2012 was 59.7% down from 61.0% in 2011. The pricing for the Company’s input costs varied, as coatings input costs increased; however, lower natural gas and ethylene pricing aided our Commodity Chemicals segment. 
Selling, general and administrative expenses increased by $101 million in 2012 to $3,335 million as compared to 2011. The increase was due to increases from acquisitions, overhead inflation and higher costs to support the sales volume growth offset partially by the reduction in costs due to the impact of currency translation and the benefit of our restructuring actions. These expenses remained relatively flat as a percent of sales at 21.9% in 2012 and 21.7% in 2011 reflecting the benefits of our continuing effort to aggressively manage our costs even as our sales volume increases.
The business restructuring charge of $208 million in 2012 represents the costs associated with a restructuring plan focused on further reducing PPG’s global cost structure. The actions included in the restructuring plan delivered pretax cost savings in the second half of 2012 of approximately $50 million and an additional savings of $80 million expected in 2013. The savings are expected to grow to an annual run rate of about $140 million following completion of these actions in 2013.
Other charges increased to $232 million in 2012 as compared to $73 million in 2011, due largely to the $159 million environmental remediation charge recorded in the first quarter of 2012 related primarily to costs at a former chromium manufacturing plant and associated sites in Jersey City, New Jersey.
Other earnings decreased to $149 million in 2012 as compared to $177 million in 2011. This decrease was primarily
 
due to $26 million of lower equity earnings, primarily from our Asian fiber glass joint ventures, reflecting demand decline in the consumer electronics market.
The effective tax rate on pretax earnings was approximately 24% in 2012 and 2011. The effective tax rate for the year ended December 31, 2012 includes tax benefits of $60 million or approximately 38% on the $159 million charge for environmental remediation costs, $45 million or approximately 21% on the $208 million business restructuring charge, $2 million or approximately 29% for expenses of $6 million stemming from the acquisition of Dyrup A/S in Europe and Colpisa in Latin America, and $3 million or 11% on certain business separation and acquisition related costs of $26 million. The 2011 rate includes a benefit of $12 million resulting from a favorable tax audit settlement. The 2011 rate also includes the impact of the non-taxable bargain purchase gain resulting from the Equa-Chlor acquisition. The effective tax rate on the remaining pre-tax earnings was 25% in 2012 and 2011.
Diluted earnings-per-share for 2012 were $6.06. Excluding the charges related to business restructuring and environmental remediation, acquisition-related costs and the costs related to the separation and merger transaction, adjusted diluted earnings-per share for 2012 were $7.94. This compares to the 2011 diluted earnings-per-share of $6.87. The increase in diluted earnings-per-share resulted primarily from higher adjusted income before income taxes and a reduction in the shares outstanding as a result of share repurchases in the second half of 2011 and first quarter of 2012. Average shares used to calculate earnings per share – assuming dilution were 155.1 million in 2012 and 159.3 million in 2011.
Regulation G Reconciliation - Results from Operations
PPG Industries believes investors’ understanding of the Company’s operating performance is enhanced by the disclosure of income before income taxes, net income and earnings per diluted share adjusted for nonrecurring charges. PPG’s management considers this information useful in providing insight into the company’s ongoing operating performance because it excludes the impact of items that cannot reasonably be expected to recur on an ongoing basis. Income before income taxes, net income and earnings per diluted share adjusted for these items are not recognized financial measures determined in accordance with U.S. generally accepted accounting principles ("GAAP") and should not be considered a substitute for income before income taxes, net income or earnings per diluted share or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted income before income taxes, adjusted net income and adjusted earnings per diluted share may not be comparable to similarly titled measures as reported by other companies.


2012 PPG ANNUAL REPORT AND FORM 10-K 19
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Income before income taxes is reconciled to adjusted income before income taxes below:
Year-ended December 31, 2012
Income Before Income Taxes
(Millions, except per share amounts)
Income before income taxes
$
1,402

Income before income taxes includes:
 
Pretax charges related to business restructuring
208

Pretax charges related to environmental remediation
159

Pretax charges related to the business separation- and acquisition-related costs
26

Pretax charges related to the acquisition of Dyrup and Colpisa
6

Adjusted income before income taxes
$
1,801

Net income (attributable to PPG) and earnings per share – assuming dilution (attributable to PPG) are reconciled to adjusted net income (attributable to PPG) and adjusted earnings per share – assuming dilution below:
Year-ended December 31, 2012
Net Income
   (Millions, except per share amounts)
$
 
EPS
Net income (attributable to PPG)
$
941

 
$
6.06

Net income (attributable to PPG) includes:
 
 
 
Charges related to business restructuring
163

 
1.06

Charges related to environmental remediation
99

 
0.64

Charges related to the business separation- and acquisition-related costs
23

 
0.15

Charges related to the acquisition of Dyrup and Colpisa
4

 
0.03

Adjusted net income
$
1,230

 
$
7.94


Results of Reportable Business Segments
 
Net sales
 
Segment income
(Millions)
2012
 
2011
 
2012
 
2011
Performance Coatings
$
4,752

 
$
4,626

 
$
744

 
$
673

Industrial Coatings
4,379

 
4,158

 
590

 
438

Architectural Coatings –EMEA
2,147

 
2,104

 
145

 
123

Optical and Specialty Materials
1,202

 
1,204

 
348

 
326

Commodity Chemicals
1,688

 
1,732

 
372

 
370

Glass
1,032

 
1,061

 
63

 
97

 
For Performance Coatings, 2012 sales were $4.8 billion , $126 million , or 3% , higher than 2011. The sales increase was comprised of 4% due to price, partially offset by a 2% decline due to the impact of foreign currency translation. Sales from acquired businesses contributed 1% to growth. Higher pricing was achieved by all the businesses in the segment reflecting continuing efforts to offset significant inflationary impacts over the past two years. Year-over-year segment sales volumes were nearly flat in 2012 with aerospace and architectural coatings business volume growth being offset by automotive refinish and protective and marine coatings business volume declines. Sales volume in the aerospace business continued to benefit from excellent end-use market growth despite increasingly difficult prior year comparable periods. U.S. architectural coatings were aided by early signs of a construction market recovery in the U.S. and mild weather early in 2012, offset by the absence of elevated sales in the prior year from the introduction of a new
 
product in the national account channel. Volumes declined in the automotive refinish coatings business, particularly in Europe, and in the protective and marine coatings business as lower marine new build volume was somewhat offset by higher volume in protective coatings. Segment earnings grew to $744 million , a $71 million , or 11% , improvement over prior year. Earnings improved as lower costs, relating to benefits from PPG's restructuring and other cost management actions, coupled with the effect from the higher sales were partly offset by inflation, higher selling costs and the negative impact of foreign currency.
Looking ahead to the first quarter 2013, aerospace sales growth is expected to continue, despite more difficult comparison periods due to consecutive years of good industry growth. Challenging marine new-build conditions remain, and favorable weather conditions during the first quarter 2012 present a difficult comparable period for U.S. architectural coatings. Lastly, the segment is expected to benefit from incremental savings from the previously announced restructuring program and currency-translation impacts are expected to be minimal given current exchange rates.
The Industrial Coatings segment’s sales increased to $4.4 billion , up 5% from the prior year. The sales increase was comprised of 3% due to price and 4% due to volume offset by a 3% decrease due to currency translation. Sales from acquisitions contributed 1% to the increase. The segment sales volume growth of 4% was driven by automotive OEM coatings growth especially in North America, due in part to the recovery from the 2011 Japanese tsunami as well as continued strength in China, offset by European economic weakness. The current year volume gains by our automotive OEM coatings business outpaced industry growth. Industrial and packaging coatings volumes were mixed by region. Europe was weaker in both businesses. U.S. industrial coatings improved while emerging region demand varied by end-use with markets aligned with construction activity being down in Asia and Argentina being impacted by import restrictions. The consumer electronics market in Asia was slower, but packaging volumes in Asia improved. Emerging region sales were supplemented by sales from acquired businesses and the reorganization of our joint venture in India. Segment earnings of $590 million increased $152 million as the impact of higher pricing, sales volume growth and manufacturing cost savings overcame the adverse impact of inflation and higher overhead costs incurred to support growth. Restructuring related cost savings also aided earnings in 2012.
Looking ahead to the first quarter 2013, higher year-over-year general industrial activity is expected globally, aided by modest anticipated improvement in Asia. Global automotive OEM vehicle production is expected to be flat versus robust 2012 results, reflecting less global inventory build and a more severe negative impact from lower European auto builds. However, PPG share gains are expected to continue in this business. Ongoing PPG cost-management actions are expected to continue, including incremental benefits from the 2012 restructuring program. Lastly, currency translation impact is expected to be muted based on current exchange rates.
Architectural Coatings – EMEA segment sales were $2,147 million in 2012, up $43 million , or 2% , versus 2011. The


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acquisition of Dyrup in January 2012 contributed 8% sales growth; however, sales were negatively impacted by 7% due to the impact of foreign currency translation. Pricing increased sales mid-single digit percents which was substantially offset by volume declines due to market weakness throughout the region. Segment earnings increased $22 million , to $145 million , due to lower costs stemming from aggressive ongoing cost management and supplemented by the cost benefits from PPG's restructuring actions and higher pricing.   These earnings improvements were reduced by the impact of lower sales volumes and cost inflation.  In addition, negative currency translation impact of $13 million was largely offset by the absence of a $9 million charge in the prior year related to a customer bankruptcy.
Looking ahead, we expect overall market conditions to remain challenging in the region as we begin 2013. Implementation of previously announced restructuring actions continues, with expanded benefits expected in the first quarter and full year 2013. Currency translation impacts, which have been a significant headwind for the segment, are expected to be minimal in the first quarter.
Optical and Specialty Materials segment 2012 sales were $1.2 billion , essentially flat with sales in 2011. A 3% unfavorable impact of foreign currency translation was offset by a 1% price increase and 2% volume growth. Optical products achieved sales volume growth with the majority due to higher Transitions® lens market penetration. Volumes were also aided by the absence of the prior year negative impacts from extensive Thailand flooding that disrupted optical customers and supply chains in the fourth quarter 2011. Silicas volumes were down modestly year over year. Segment earnings grew by 7% to $348 million as earnings improved in both businesses. The increase in earnings is primarily due to higher sales volumes, overhead and manufacturing cost improvements, including restructuring cost savings, and higher pricing. Earnings were reduced by the negative impact of foreign currency translation and inflation.
Looking ahead, the absence of a segment sales recovery stemming from the 2011 Thailand flooding is expected to be somewhat offset in the first quarter 2013 with the favorable impact from the new Generation VII Transitions product introduction. Modest silica demand growth is expected to continue. Currency impacts are expected to be negligible based on current exchange rates.
As previously disclosed, PPG is currently in discussions with Essilor relating to the future of PPG’s and Essilor’s joint venture, Transitions Optical. PPG cannot predict the outcome of the discussions with Essilor with respect to the future of Transitions Optical; however, PPG believes that possible outcomes may include (1) a modification of the current joint venture structure, (2) a sale of all or a portion of PPG's interests in Transitions Optical to Essilor, or (3) a sale of all or a portion of Essilor's interests in Transitions Optical to PPG. PPG cannot predict the timing of its discussions with Essilor but expects that these discussions are likely to continue over the next several months.
Commodity Chemicals segment sales in 2012 versus the prior year declined by $44 million to $1,688 million while earnings increased $2 million to $372 million . Sales decreased
 
due to lower chlorine selling prices in each quarter, outpacing higher year-over-year caustic pricing achieved in each quarter this year. These price declines were offset partially by higher year over year chlorine and caustic volumes, as well as by the favorable sales impact of the May 2011 acquisition of Equa-Chlor. Segment income was up slightly as the impact on earnings of lower pricing was offset by lower energy, primarily natural gas, and raw material costs. Lower manufacturing costs also benefited earnings. Segment earnings were negatively affected by approximately $5 million stemming from the two unplanned production outages late in 2012.
Looking forward, PPG will report results for the Commodity Chemicals segment in discontinued operations in 2013, following the completion of the separation of its commodity chemicals business and the merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf Corporation, which occurred on January 28, 2013.
Glass segment 2012 sales were $1.0 billion , down $29 million , or 3% . The sales decrease was comprised of 3% due to price and 1% due to currency, offset by higher sales volumes of 1% . Improved flat glass volumes as a result of increased demand in the commercial and solar markets were substantially offset by lower fiber glass volume. Fiber glass volumes have declined due to weak demand in Europe versus a strong prior year comparable period. Lower pricing in both businesses and the negative impact of currency translation drove the sales decline. Segment earnings declined to $63 million compared to $97 million a year ago. Lower pricing, cost inflation, as well as lower equity earnings, primarily related to our fiber glass joint venture selling to the consumer electronics industry, contributed to the earnings decline. These factors were only partially offset with improved flat glass volumes and improved manufacturing cost performance in fiber glass.
Looking ahead to the first quarter 2013, fiber glass volumes are expected to remain consistent with lower 2012 results. Recent positive flat glass volume trends are expected to continue. Equity earnings are expected to remain at lower levels, compared with stronger comparable levels in the beginning of 2012. Both businesses remain focused on cost management.
Outlook
During 2012, overall activity levels varied greatly among the major global economies, with similar variations in activity level experienced by the major coatings end-use markets. Because of these variations, overall aggregate PPG global volume grew modestly for the year.
For PPG, North American demand was the most stable, with growth occurring across most end-use markets. Overall industrial growth continued, aided by declining natural gas costs and further expansion in industries such as aerospace, where growth continued. Also, further strengthening occurred throughout the year in automotive OEM production, as the industry continues to recover, but activity still remains below pre-recession production levels. Regional growth was also supported by a long-awaited improvement in construction spending, as U.S. residential construction improved throughout the year following several anemic years. Moderating growth in the region was continued uncertainty relating to the long-term


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fiscal direction of the federal and state governments. Despite these limitations and persistently high U.S. unemployment rates, the region delivered solid growth during the year, and remains the region with the most promising growth prospects for PPG heading into 2013.
During 2012, the European economy continued to underperform versus most other major economies as elevated regional concerns continued regarding government budget deficits and refinancing of government debt loads. Anxiety rose in the middle of year due to several political elections and associated concerns over the implementation of austerity programs to address fiscal deficits. Export growth from the region, which had been one of the few positive economic factors, began to erode reflecting a slowdown in emerging regions' growth rates, and placing further economic restraint on the Eurozone. Year-over-year activity levels in the region remained negative throughout the year, and demonstrated no meaningful signs of improvement as 2012 came to conclusion.
In the aggregate, emerging region economies continued to expand during 2012, but at a much lower level than recent history and with considerable variation by individual country, and also by industry within countries. PPG's largest emerging region exposure remains Asia, where annual sales are approaching $3.0 billion. Approximately 40% of the company's Asian sales are in China, which now represents PPG's third largest individual country in terms of sales. Activity in China, and more broadly Asia, moderated in 2012, with solid growth realized in certain industrial markets including increased automotive production. These advances were partly offset by considerable declines in other markets due, in large part, to decreased global demand in such markets as consumer electronics and marine new-build, as the majority of the global production in these markets occurs in Asia. Demand in the Latin American economies was also erratic reflecting, in part, heavy annual inflation rates the past few years and lower demand for commodities. PPG's Latin American volumes fell reflecting the weaker regional performance and certain company specific actions to reduce our operations in certain markets and countries based on lower profitability expectations.
As a proactive response to the mixed global end-use market conditions and particularly the lower European demand, PPG initiated a restructuring program in early 2012 to reduce its cost structure. The earnings charge associated with the program, which was focused on our European operations, was just over $200 million, including about $160 million in cash costs. Resultant program savings of $140 million annually are expected, including approximately $50 million achieved during 2012. The remainder of the savings are anticipated to be achieved in 2013.
Since mid-2010, commodity and oil prices have experienced inflation due to tight supply stemming from manufacturing capacity remaining idled or removed from service during the recession and improving demand for commodities. PPG typically experiences fluctuating prices for energy and raw materials used in many of our businesses. Factors which impact our input prices are supply/demand imbalances, global industrial activity levels and changes in supplier feedstock costs and inventories. PPG input prices inflated further in the first half of 2012, and then, in the second half of the year, moderated
 
modestly from the year's peak levels. Our current forecast for the early portion of 2013 is for overall coatings raw material prices to be flat with year-end 2012, but results will be mixed based on the respective commodity. Given the volatility in supply/demand, energy cost and the currency environment, it is not feasible to project full-year 2013 raw material pricing.
Changes in natural gas pricing have a significant impact on the financial performance of our Commodity Chemicals and Glass segments. Our 2012 U.S. natural gas costs averaged approximately $3.00 per mmbtu for the year, while our 2011 costs averaged about $4.65 per unit. Through 2012, each one-dollar change in our unit cost of natural gas per million British Thermal Units had a direct impact of approximately $60 million to $70 million on our annual operating costs. The separation of PPG's commodity chemical business in January 2013 greatly reduced PPG's natural gas exposure, reducing the impact of each one-dollar change in input cost to about $10 million to $20 million in annual costs. Despite the reduced annual requirement, we will continue to use a variety of techniques to manage these costs, which include reducing consumption through improved manufacturing processes, switching to alternative fuels and hedging.
In an effort to offset the adverse impact of cost inflation on earnings during 2011 and 2012, higher coatings selling prices were implemented. In 2012, the higher selling prices reflected efforts to counteract 2012 inflation, as well as absorb 2011 inflation which was not fully offset by higher pricing in that year. In 2013, additional, targeted pricing is expected to be implemented in our businesses which remain impacted by the cost inflation. Selling prices in Commodity Chemicals and Glass declined modestly during 2012.
Pension and postretirement benefit costs were $260 million in 2012. These costs included about $25 million associated with the Commodity Chemicals segment. In 2013, pension and other postretirement benefit costs are expected to decline roughly $40 million due to strong pension asset performance in 2012 and because PPG will no longer bear the costs associated with the Commodity Chemicals segment as a result of the separation of that business. During 2012, PPG's cash contributions to pension plans totaled $81 million, following cash contributions of $121 and $340 million, in 2011 and 2010, respectively we anticipate 2013 contributions will be in the range of $75 million to $100 million.
We expect our ongoing tax rate in 2013 to be in the range of 23.5% to 24.5%, lower than the 2012 rate, due to the absence of Commodity Chemical segment earnings which were primarily U.S. based. The U.S. remains one of the company's highest taxed countries. Because of the differences in country tax rates, a shift in the geographic mix of earnings will impact our overall ongoing tax rate.
The Company generated cash from operations during 2012 of about $1.8 billion, a record level of performance for the company. The Company entered 2013 with about $2.4 billion in cash and short-term investments, which is an historically high level for the Company. During 2012, PPG completed the acquisitions of Dyrup, Colpisa and Spraylat, with the annual sales of these businesses approximating $400 million. PPG also announced the acquisition of Akzo Nobel's North American


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Architectural Coatings business in December 2012, which is expected to close in the first half of 2013. Over the past three years, the Company has repurchased about 19 million shares of stock at a cost of $1.5 billion, and the Company ended the year with approximately 8 million shares available for repurchase under the current authorization from the Board of Directors. We anticipate making additional acquisitions and share repurchases in 2013, as we target earnings accretive deployment of our strong cash position.
Entering 2013, the disparity of economic activity by region is anticipated to continue. Of the major regions, growth prospects remain in North America, bolstered by further anticipated recovery in construction activity and continued strength in various industrial markets, including automotive production and increased investment related to the energy and chemical industries. However, concerns over fiscal uncertainty and unemployment temper these prospects somewhat. The 2013 growth rate in emerging regions is expected to remain mixed, but improve somewhat based on increases in local consumption, less inventory destocking associated with lower exports, and government stimulus actions. Economic activity in the Eurozone is expected to remain subdued with very few end-use markets expected to deliver growth, with downside risk from regional economic conditions continuing.
PPG intends to remain proactive in managing our businesses to address these varied market conditions and economic uncertainty by maintaining strict operating cost management policies, which coupled with the anticipated restructuring savings, are expected to temper the impact of any negative market conditions on our business margins.
Accounting Standards Adopted in 2012
Note 1, “Summary of Significant Accounting Policies,” under Item 8 describes the Company’s recently adopted accounting pronouncements.
Accounting Standards to be Adopted in Future Years
Note 1, “Summary of Significant Accounting Policies,” under Item 8 describes accounting pronouncements that have been promulgated prior to December 31, 2012 but are not effective until a future date.
Performance in 2011 compared with 2010
  Performance Overview
Net sales in 2011 totaled $14,885 million compared to $13,423 million in 2010, an increase of 11%. Higher volumes contributed just over 2% and higher selling prices increased sales by 5%. The remainder of the sales increase was due to the impact of foreign currency translation and acquisitions. The higher sales volumes were achieved in all major geographic regions, while four reportable segments had increased volume levels and the other two had level year-over-year volumes.
Increased demand was driven by stronger global industrial production activity, which aided many of our businesses. The global industrial recovery continued in 2011 with solid growth in emerging regions and North America and with modest improvement in Europe despite a slight decline in volume in the second half of 2011 due to reduced end-use market demand for fiber glass and automotive refinish based on softness in the
 
region. Growth rates in Asia in 2011 were reduced by the shrinking level of marine original-equipment new ship builds. Growth was impacted early in the year due to the effects of the Japanese earthquake and tsunami and was also tempered late in the year by the negative sales impact stemming from the Thailand floods, particularly in optical products. North American growth was impacted by unscheduled production outages in the Commodity Chemicals segment earlier in 2011 as well as decreased chlorine industry demand in the fourth quarter. Activity in construction markets in the developed regions of the world remained at low levels and has not demonstrated any consistent improvement. Our volume growth for 2011 versus the prior year growth which benefited from increasing demand as the global industrial economy began to recover from the recession. Also, volumes were flat in the fourth quarter of 2011 as customers curtailed their inventory and were cautious with their order patterns, reflecting economic uncertainty. The improved selling prices in 2011 were achieved in every reporting segment, led by Commodity Chemicals and each of the three coatings segments. The Commodity Chemicals segment achieved pricing gains due to continued strong demand and tightening supply of caustic soda. In our coatings segments, prices were raised in response to persistent raw material cost inflation. The higher coatings selling prices significantly, but did not fully, offset the impact of raw material inflation rates that began to flatten in the fourth quarter. The favorable currency impact was primarily driven by strengthening European, Asian and Latin American currencies against the U.S. dollar compared to 2010, despite a decline in the value of the Euro in the second half of 2011.
Cost of sales, exclusive of depreciation and amortization, increased by $867 million in 2011 to $9,081 million compared to $8,214 million in 2010. About 55% of the increase was driven by inflation, particularly increases in raw material costs, primarily in our coatings businesses. Manufacturing costs were again positive in 2011. Additionally, about 20% of the increase in cost of sales was due to sales growth from volume and acquisitions. The effect of foreign currency accounts for about 25% of the increase in cost of sales for the year. Cost of sales as a percentage of sales was 61.0% in 2011 compared to 61.2% in 2010. This improvement reflects a combination of slightly higher margins on the sales volume growth in 2011 due to improved product mix and the benefit of selling price increases, particularly in Commodity Chemicals, net of the impact of inflation on cost of sales. For the coatings businesses, higher pricing significantly offset inflation, as raw material costs escalated throughout 2011. However, the coatings businesses did not fully offset raw material cost inflation with higher pricing in 2011, and additional pricing actions are underway in 2012 in several businesses to further counter inflation absorbed in 2011. For the Company in total, inflation was more than offset by higher pricing aided by Commodity Chemicals.
Selling, general and administrative expenses increased by $255 million to $3,234 million in 2011 compared to $2,979 million in 2010. The effects of foreign currency, inflation, and growth in costs to support the increased sales volumes and acquisitions were approximately equal. Selling, general and administrative costs as a percentage of sales were 21.7% in 2011, down from 22.2% in 2010 reflecting the benefit of our


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continuing effort to aggressively manage our cost growth as our sales volume increases.
Interest expense increased $21 million to $210 million in 2011 from $189 million in 2010. This increase was driven by the Company’s $1 billion debt issuance in November of 2010 partially offset by an early repayment of $400 million in term loans in June 2011. Interest income increased $8 million to $42 million in 2011 from $34 million in 2010 due to higher average short term investment balances in 2011 compared to 2010.
Other charges decreased $11 million to $73 million in 2011 from $84 million in 2010 due principally to the absence of a $6 million antitrust litigation settlement charge which occurred in 2010 and lower environmental remediation expense in 2011 of $5 million.
The effective tax rate on pretax earnings in 2011 was approximately 24% compared to approximately 32% in 2010. The 2011 rate includes a benefit of $12 million resulting from a favorable tax audit settlement. The 2011 rate also includes the impact of the non-taxable bargain purchase gain resulting from the Equa-Chlor acquisition. The effective rate was 25% on the remaining pretax earnings in 2011.
The 2010 tax rate includes expense of $85 million resulting from the reduction of our previously provided deferred tax asset related to our liability for retiree medical costs. The deferred tax asset needed to be reduced because the healthcare legislation enacted in March 2010 included a provision that reduced the amount of retiree medical costs that will be deductible after December 31, 2012. The 2010 rate also included a $5 million benefit as a result of enacted changes in statutory tax rates outside the U.S. The effective rate was 26% on the remaining pretax earnings in 2010. The decrease in the tax rate on the remaining pretax earnings in 2011 is mainly the result of tax planning initiatives in the fourth quarter.
Net income (attributable to PPG) and earnings per share – assuming dilution (attributable to PPG) for 2011 and 2010 are summarized below:
(Millions, except per share amounts)
Year ended December 31, 2011
Net Income
 
$
 
EPS
Net income (attributable to PPG)
$
1,095

 
$
6.87

(Millions, except per share amounts)
 
 
 
Year ended December 31, 2010
Net Income
 
$
 
EPS
Net income (attributable to PPG)
$
769

 
$
4.63

Net income (attributable to PPG) includes:
 
 
 
Charge related to change in U.S. tax law
$
85

 
$
0.51

Average shares used to calculate earnings per share – assuming dilution were 157.3 million in 2011 and 164.5 million in 2010. The reduction is the result of share buyback activity in 2011.
 
Results of Reportable Business Segments
 
Net sales
 
Segment income
(Millions)
2011
 
2010
 
2011
 
2010
Performance Coatings
$
4,626

 
$
4,281

 
$
673

 
$
661

Industrial Coatings
4,158

 
3,708

 
438

 
378

Architectural Coatings –EMEA
2,104

 
1,874

 
123

 
113

Optical and Specialty Materials
1,204

 
1,141

 
326

 
307

Commodity Chemicals
1,732

 
1,434

 
370

 
189

Glass
1,061

 
985

 
97

 
74

Performance Coatings sales increased $345 million, or 8%, to $4,626 million in 2011. The sales increase was comprised of 5% due to price and 3% due to currency. Volumes for the segment were slightly favorable as volume increases in automotive refinish and aerospace were offset by low-single digit percentage volume declines in the protective and marine coatings and the architectural-Americas and Asia Pacific coatings businesses. Aerospace volumes continued to grow reflecting robust industry demand and PPG share gains. Automotive refinish volume increased, but growth was impacted by customer inventory management at year-end and weaker European activity levels in the second half of the year. Marine coatings volumes were down reflecting the decline in ship build activity and reduced global shipping during the last quarter of 2011. Improved protective coatings volumes in most regions, reflecting higher energy and infrastructure demand, partly offset the sales decline in marine. U.S. architectural coatings volumes were relatively flat. This included the severely negative volume trends in the U.S. early in 2011 due to weather conditions. Architectural volumes in the emerging regions declined low single digit percentages, including the negative impacts from lower demand near the end of 2011. Segment income in 2011 increased $12 million to $673 million. The impacts of improved volumes in automotive refinish and aerospace, manufacturing cost reductions and favorable currency impacts more than offset the negative impact of inflation net of price to result in the earnings improvement in 2011 compared to 2010. Pricing improved in all businesses reflecting our continuing efforts to address persistent input cost inflation.
Industrial Coatings sales increased $450 million, or 12% compared to 2010, to $4,158 million. The sales increase was comprised of 5% due to volume, 4% due to price and 3% due to currency. Segment income improved 16% versus 2010 to $438 million in 2011. This increase was primarily due to increased volumes, lower manufacturing costs and currency, partially offset by the negative impact of inflation net of increases in selling prices and growth-driven increases in overhead costs. Segment volume grew by 5% on solid global industrial demand, with positive results in all three business units. Growth rates were robust in Asia as a result of continued growth in the region for all three businesses. The automotive OEM business delivered strong single-digit percentage growth reflecting high growth rates due to the automotive industry recovery with continued growth in North America, Asia Pacific and Latin America, and low growth in Europe where volumes were positive for the full year but weakened in the second half of the year. Global volumes in the industrial and packaging businesses were also favorable with Asia Pacific the strongest region delivering the majority of the growth, with somewhat lower or even declining


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volumes in Europe and North America due, in part, to late year customer destocking.  
Architectural Coatings - EMEA sales increased $230 million, or 12%, to $2,104 million in 2011. The sales increase was comprised of 5% due to the positive impact of foreign currency translation, a 1% increase from acquired business and the remainder from an increase in selling prices and volume gains. Segment earnings were up $10 million compared to the prior year. Positive year-over-year earnings resulted from the earnings impact of volume growth and currency translation. Earnings in 2011 were reduced by a $9 million charge related to a U.K.-based retail do-it-yourself customer who filed for bankruptcy during the second quarter of 2011 and the adverse impact of inflation net of price increases.
Optical and Specialty Materials sales for 2011 increased $63 million, or 6%, compared to 2010, to $1,204 million due to a 2% increase in volumes, pricing and the favorable impact of currency. Earnings grew by 6% to $326 million. Both optical products and silicas achieved sales growth coming from higher volumes, pricing and the impact of currency. The silicas business’ volumes benefited from the higher automotive OEM production resulting in increased demand for our products sold into the tire and battery markets. Segment results were tempered by the negative impact from the serious flooding in Thailand that disrupted optical customers and supply chains. The flooding also impacted production of PPG’s optical materials, resulting in a declaration of force majeure during the fourth quarter. Segment earnings increased due to the factors increasing sales, which exceeded the impact of inflation, higher manufacturing costs and volume driven growth in overhead cost.
Commodity Chemicals sales in 2011 versus the prior year increased $298 million, or 21%, to $1,732 million. Higher pricing and the impact of the EquaChlor acquisition were the key factors producing the improved sales and earnings. Segment earnings increased $181 million to $370 million in 2011. Capacity utilization was lower in the second, third and fourth quarters due to planned and unplanned production outages, as well as lower chlorine industry demand in the fourth quarter due to customer inventory management and lower chlorine derivative exports, resulting in higher manufacturing and maintenance expenses. Natural gas unit costs were lower year-over-year, but ethylene costs were higher. An increase in overhead costs was substantially offset by gains from asset sales, primarily related to the lease of Marcellus Shale natural gas drilling rights on PPG owned property, and lower environmental expense.
Glass sales increased $76 million, or 8%, compared to 2010 to $1,061 million in 2011. Sales increased 4% due to pricing, 2% due to volume growth with the remainder attributable to favorable foreign currency impacts. Solid fiber glass pricing gains drove the sales growth, together with improved flat glass volumes. Fiber glass volumes were also up over 2010, but were lower in the fourth quarter of 2011 due to lower European demand. Segment earnings grew to $97 million, compared to $74 million a year ago. Higher sales prices and volumes were the primary drivers of the earnings improvement. The earnings results were tempered somewhat by raw material cost inflation, higher fiber glass maintenance costs and higher overhead costs.
 
See Note 24, “Reportable Business Segment Information,” under Item 8 of this Form 10-K for further information related to the Company’s operating segments and reportable business segments.
Commitments and Contingent Liabilities, including Environmental Matters
PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. See Item 3, “Legal Proceedings” and Note 15, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K for a description of certain of these lawsuits, including a description of the proposed asbestos settlement.
As discussed in Item 3 and Note 15, although the result of any future litigation of such lawsuits and claims is inherently unpredictable, management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG, including asbestos-related claims in the event the proposed asbestos settlement described in Note 15 does not become effective, will not have a material effect on PPG’s consolidated financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
It is PPG’s policy to accrue expenses for environmental contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Reserves for environmental contingencies are exclusive of claims against third parties and are generally not discounted. In management’s opinion, the Company operates in an environmentally sound manner and the outcome of the Company’s environmental contingencies will not have a material effect on PPG’s financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. Management anticipates that the resolution of the Company’s environmental contingencies will occur over an extended period of time.
  As of December 31, 2012 and 2011, PPG had reserves for environmental contingencies totaling $332 million and $226 million , respectively, of which $101 million and $59 million , respectively, were classified as current liabilities. Pretax charges against income for environmental remediation costs in 2012, 2011 and 2010 totaled $167 million , $16 million and $21 million, respectively, and are included in “Other charges” in the accompanying consolidated statement of income. Cash outlays related to such environmental remediation aggregated $66 million , $59 million, and $34 million in 2012, 2011 and 2010, respectively. The impact of foreign currency increased the liability by $2 million in 2012 and decreased the liability by $3 million in 2011. As a result of the allocation of the purchase price of acquisitions to assets acquired and liabilities assumed, the liability for environmental contingencies was increased by $3 million during 2012.
  In addition to the amounts currently reserved for environmental remediation, the Company may be subject to loss contingencies related to environmental matters estimated to be as much as $100 million to $275 million. This range is less than the comparable amount reported at the end of 2011 as a result of


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the additional environmental remediation charge recorded in the first quarter 2012. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence. This range of reasonably possible unreserved loss relates to environmental matters at a number of sites including each of the following; i) additional costs at New Jersey Chrome, which represents about one third of this potential range, ii) a number of other sites, including legacy glass and chemical manufacturing sites and iii) the Calcasieu River Estuary and two operating plant sites in the Company's former commodity chemicals business. The loss contingencies related to these sites include significant unresolved issues such as the nature and extent of contamination at these sites and the methods that may have to be employed to remediate them.
The Company continues to analyze, assess and remediate the environmental issues associated with New Jersey Chrome. In connection with the preparation of a final draft soil remedial action work plan and cost estimate that was initially required to be submitted to the NJDEP in May 2012 but now will be submitted in 2013, the Company compiled updated information about the sites that was used to develop a new estimate of the cost to remediate these sites which resulted in a charge against earnings of $145 million in the first quarter of 2012. A charge of $165 million for the estimated costs of remediating these sites was recorded in the third quarter of 2006. Information will continue to be generated from the ongoing groundwater remedial investigation activities related to New Jersey Chrome and will be incorporated into a final draft remedial action work plan for groundwater expected to be submitted to NJDEP in the second quarter of 2014. There are currently no amounts reserved for groundwater remediation. These charges for estimated environmental remediation costs in 2006 and 2012 were significantly higher than PPG’s historical range. Excluding 2006 and 2012, pre-tax charges against income for environmental remediation have ranged between $10 million and $35 million per year for the past 16 years. Charges in 2013 are expected to again be within this historical range.
Impact of Inflation
Coatings raw materials both organic, primarily petroleum based, and inorganic materials, including titanium dioxide, generally comprise 70-to-80% of coatings cost of goods sold in most coatings formulations and represent PPG’s single largest production cost component. PPG input prices inflated further in the first half of 2012, and then, in the second half of the year, moderated modestly from the year's peak levels. In 2012, PPG experienced a reduction in the price of natural gas, its primary energy cost, and also in ethylene, a Commodity Chemical raw material, and experienced low single digit percentage inflation in coatings raw material prices.
In 2011, PPG experienced a reduction in the price of natural gas, its primary energy cost, but experienced a significant rise in both ethylene, a Commodity Chemical raw material and in coatings raw material prices. In 2011, overall coatings raw material costs inflated by approximately10-to-12% for the Company. The largest inflation impacts were from titanium dioxide pigments and certain propylene-based resins. This impact was not entirely offset by higher selling prices in our Performance Coatings and Architectural Coatings – EMEA
 
reportable segments. There was also a coverage gap in our Industrial Coatings reportable segment even with this segment using product reformulations to attempt to counter this impact. Our Commodity Chemicals and Glass reportable segments were able to more than fully offset the impact of inflation with price increases, while inflation was not significant for our Optical and Specialty Materials reportable segment.
In 2010, PPG experienced a reduction in its primary energy costs but a steady increase in its coatings raw material costs, most notably in the second half of the year. This was driven by higher global demand as a result of the gradual recovery in the global economy and tightness of supply as suppliers have not increased their capacities. This impact was offset by higher selling prices in our Performance Coatings and Architectural Coatings – EMEA reportable segments and partially offset in our Industrial Coatings reportable segment. Industrial Coatings partially addressed the remaining impact of raw material inflation with further cost reductions in 2010. The impact of inflation net of price was positive in the Optical and Specialty Materials reportable segment and negative in the Commodity Chemicals and Glass reportable segments.
Our current forecast for the early portion of 2013 is for overall coatings raw material prices to be flat with year-end 2012, but results will vary by commodity. Given the volatility in supply/demand, energy costs and the currency environment, it is not feasible to project full-year 2013 raw material pricing. The Company is continuing its aggressive sourcing initiatives to support its continuous efforts to find the lowest raw material costs. These initiatives include reformulation of our products using both petroleum-derived and bio-based materials as part of a product renewal strategy, qualifying multiple and local sources of supply, including suppliers from Asia and other lower cost regions of the world, and strategic initiatives with multiple global suppliers to secure and enhance PPG’s supply of titanium dioxide and other materials. We expect these efforts, combined with increases in our selling prices, will offset the negative impact of inflation on our coatings businesses in 2013 and recover margin lost from inflation absorbed over the last three years. The separation of PPG's commodity chemical business in January 2013 greatly reduced PPG's natural gas exposure, with each one-dollar change in unit cost per million BTUs now accounting for about $10 million to $20 million, instead of $60 million to $70 million, in annual costs, and removed PPG's direct exposure with respect to the volatility of ethylene prices. Despite the reduced annual requirement, we will continue to use a variety of techniques to manage our natural gas costs, which include reducing consumption through improved manufacturing processes, switching to alternative fuels and hedging.
Liquidity and Capital Resources
During the past three years, we had sufficient financial resources to meet our operating requirements, to fund our capital spending, share repurchases and pension plans and to pay increasing dividends to our shareholders.
Cash from operating activities was $1,787 million , $1,436 million, and $1,310 million in 2012, 2011, and 2010, respectively. Cash from operations in 2012 compared to 2011 was aided by cash received from a decrease in working capital of $113 million . Higher earnings increased cash from


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operations in 2011 compared to 2010, but the increase was reduced by cash used to fund an increase in working capital of $212 million driven by our sales growth in 2011.
Operating Working Capital is a subset of total working capital and represents (1) trade receivables-net of the allowance for doubtful accounts, plus (2) inventories on a first-in, first-out (“FIFO”) basis, less (3) trade creditors’ liabilities. See Note 3, “Working Capital Detail” under Item 8 of this Form 10-K for further information related to the components of the Company’s Operating Working Capital. We believe Operating Working Capital represents the key components of working capital under the operating control of our businesses. Operating Working Capital at December 31, 2012 and 2011 was $2.9 billion and $2.7 billion, respectively. A key metric we use to measure our working capital management is Operating Working Capital as a percentage of sales (fourth quarter sales annualized). 
(Millions, except percentages)
2012
 
2011
Trade Receivables, net
$
2,568

 
$
2,512

Inventories, FIFO
1,930

 
1,839

Trade Creditor's Liabilities
1,620

 
1,612

Operating Working Capital
$
2,878

 
$
2,739

Operating Working Capital as % of Sales
19.7
%
 
19.5
%
Operating working capital at December 31, 2012 increased $139 million compared with the prior year end level; however, excluding the impact of currency and acquisitions, the change was a decrease of $21 million during the year ended December 31, 2012. This decrease was the net result of decreases in all components of operating working capital. Trade receivables from customers, net, as a percentage of fourth quarter sales, annualized, for 2012 was 17.6% , down slightly from 17.9% for 2011. Days sales outstanding was 61 days in 2012, a one day improvement from 2011. Inventories on a FIFO basis as a percentage of fourth quarter sales, annualized, for 2012 was 13.2% up slightly from 13.1% in 2011. Inventory turnover was 4.8 times in 2012 and 5.0 times in 2011.
Total capital spending, including acquisitions, was $533 million , $446 million and $341 million in 2012, 2011, and 2010, respectively. Spending related to modernization and productivity improvements, expansion of existing businesses and environmental control projects was $411 million , $390 million and $307 million in 2012, 2011, and 2010, respectively, and is expected to be in the range of $350-$450 million during 2013. Capital spending, excluding acquisitions, as a percentage of sales was 2.7% , 2.6% and 2.3% in 2012, 2011 and 2010, respectively. Capital spending related to business acquisitions amounted to $122 million , $56 million, and $34 million in 2012, 2011 and 2010, respectively. A primary focus for the Corporation in 2013 will continue to be prudent cash deployment focused on profitable earnings growth including pursuing opportunities for additional strategic acquisitions.
In January 2013, PPG received $900 million in cash proceeds in connection with the closing of the separation of its
 
commodity chemicals business and subsequent merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf. Refer to Note 25, “Separation and Merger Transaction” for financial information regarding the separation of the commodity chemicals business.
In December 2012, the Company reached a definitive agreement to acquire the North American architectural coatings business of Akzo Nobel, N.V., Amsterdam, in a deal valued at $1.05 billion. The transaction has been approved by the boards of directors of both companies and is expected to close in the first half of 2013, subject to regulatory approvals.
In December 2012, the Company acquired Spraylat Corp., a privately-owned industrial coatings company based in Pelham, N.Y. In January 2012, the Company completed the previously announced acquisitions of Colpisa, a Colombian producer of automotive OEM and refinish coatings, and Dyrup, a European architectural coatings company. The total cost of 2012 acquisitions, including assumed debt, was $288 million .
Dividends paid to shareholders totaled $358 million , $355 million and $360 million in 2012, 2011 and 2010, respectively. PPG has paid uninterrupted annual dividends since 1899, and 2012 marked the 41st consecutive year of increased annual dividend payments to shareholders.
We did not have a mandatory contribution to our U.S. defined benefit pension plans in 2012 and we did not make a voluntary contribution to these plans. In 2011 and 2010, we made voluntary contributions to our U.S. defined benefit pension plans of $50 million and $250 million, respectively. We do not expect to make a contribution to our U.S. defined benefit pension plans in 2013. Contributions were made to our non-U.S. defined benefit pension plans of $81 million , $71 million and $87 million for 2012, 2011 and 2010, respectively, some of which were required by local funding requirements. We expect to make mandatory contributions to our non-U.S. plans in 2013 in the range of approximately $75 million to $100 million.
The Company’s share repurchase activity in 2012, 2011 and 2010 was 1 million shares at a cost of $92 million, 10.2 million shares at a cost of $858 million and 8.1 million shares at a cost of $586 million, respectively. No PPG stock was purchased in the last nine months of 2012 during the completion of the separation of its commodity chemicals business and subsequent merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf. The Company reinitiated our share repurchase activity in the first quarter of 2013. We anticipate spending between $500 million and $750 million for share repurchases during 2013. We can repurchase nearly 8 million shares under the current authorization from the Board of Directors.
In September 2012, PPG entered into a five-year credit agreement (the "Credit Agreement") with several banks and financial institutions as further discussed in Note 8, "Debt and Bank Credit Agreements and Leases". The Credit Agreement provides for a $1.2 billion unsecured revolving credit facility. In connection with entering into this Credit Agreement, the


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Company terminated its $1.2 billion credit facility that was scheduled to expire in August 2013. There was no outstanding amount due under the revolving facility at the time of its termination. The Company has the ability to increase the size of the Credit Agreement by up to an additional $300 million, subject to the receipt of lender commitments and other conditions. The Credit Agreement will terminate and all amounts outstanding thereunder will be due and payable on September 12, 2017.
On July 31, 2012, PPG completed a public offering of $400 million in aggregate principal amount of its 2.70% Notes due 2022 (the "2022 Notes”). The 2022 Notes were offered by the Company pursuant to its existing shelf registration statement. The proceeds of this offering of $397 million, net of discount and issuance costs, are expected to be used to repay a portion of the $600 million of 5.75% notes due in March 2013 (the "2013 Notes”). The discount and issuance costs related to the 2022 Notes, which totaled $3 million, will be amortized to interest expense over the life of the 2022 Notes.
In April 2012, the Company reclassified the $600 million of the 2013 Notes to "Short-term debt and current portion of long-term debt" in the accompanying consolidated balance sheet as these notes are due to be repaid in March 2013. Also during the year-ended December 31, 2012 , the Company assumed $120 million of debt in the Dyrup acquisition; repaid $119 million of that debt, and repaid the $71 million of 6.875% notes upon their maturity.
In June 2011, the Company repaid a $400 million three year unsecured term loan, which had a scheduled maturity date of June 2012. There was no prepayment penalty. This $400 million three year unsecured loan was entered into in June 2009 with a variable interest rate based on a spread over the LIBOR. This term loan was repaid using a portion of the proceeds from the $1 billion debt we issued in November 2010.
On November 12, 2010, PPG completed a public offering of $250 million in aggregate principal amount of its 1.900% Notes due 2016, $500 million in aggregate principal amount of its 3.600% Notes due 2020 and $250 million in aggregate principal amount of its 5.500% Notes due 2040. These notes were offered by the Company pursuant to its existing shelf registration statement. The proceeds of this offering were $983 million (net of discount and issuance costs). We used the proceeds to repay $400 million in term debt and to contribute to employee pension plans and we intend to use the remainder of the proceeds to fund certain asbestos claims and for other general corporate purposes of the Company.
The ratio of total debt, including capital leases, to total debt and equity was 50% at December 31, 2012 down from 53% in 2011.
The Company has $3,476 million and $2,920 million of undistributed earnings of non-U.S. subsidiaries as of December 31, 2012 and December 31, 2011, respectively. These amounts relate to approximately 300 subsidiaries in more than 70 taxable jurisdictions. No deferred U.S. income taxes have been provided on these earnings as they are considered to be
 
reinvested for an indefinite period of time or will be repatriated when it is tax effective to do so. We estimate that of these amounts, $ 2,865 million as of December 31, 2012 and $ 2,454 million as of December 31, 2011 of the Company's undistributed earnings, could be repatriated at little to no U.S. tax cost due in part to the benefit of U.S. foreign tax credits that would be available if these earnings were repatriated. The repatriation of undistributed earnings of non-U.S. subsidiaries of approximately $ 611 million as of December 31, 2012 and $ 466 million as of December 31, 2011 would have resulted in a U.S. tax cost of approximately $ 110 million and $ 85 million , respectively.
We continue to believe that our cash and short term investments on hand, cash from operations and the Company’s available debt capacity will continue to be sufficient to fund our operating activities, capital spending, including acquisitions, dividend payments, debt service, amounts due under the proposed asbestos settlement, share repurchases, contributions to pension plans, and PPG’s significant contractual obligations. These significant contractual obligations, along with amounts due under the proposed asbestos settlement are presented in the following table.
 
 
 
 
Obligations Due In:
(Millions)
Total
 
2013
 
2014-
2015
 
2016-
2017
 
Thereafter
Contractual Obligations
 
 
 
 
 
 
 
 
 
Long-term debt
$
3,939

 
$
600

 
$
409

 
$
472

 
$
2,458

 
Short-term debt
39

 
39

 
—

 
—

 
—

 
Capital lease obligations
32

 
3

 
5

 
5

 
19

 
Operating leases
695

 
171

 
242

 
147

 
135

 
Interest payments (1)
1,604

 
173

 
322

 
269

 
840

 
Pension contributions (2)
77

 
77

 
—

 
—

 
—

 
Unconditional purchase commitments
648

 
212

 
174

 
82

 
180

 
Total
$
7,034

 
$
1,275

 
$
1,152

 
$
975

 
$
3,632

 
 
 
 
 
 
 
 
 
 
 
Asbestos Settlement (3)
 
 
 
 
 
 
 
 
 
Aggregate cash payments
$
825

 
$
479

 
$
5

 
$
67

 
$
274

 
PPG stock and other
204

 
204

 
—

 
—

 
—

 
Total
$
1,029

 
$
683

 
$
5

 
$
67

 
$
274

(1)
Includes interest on all outstanding debt. Interest for variable-rate debt instruments is based on effective rates at December 31, 2012. Interest for fixed-rate debt instruments have been adjusted for the impact of interest rate swaps using the effective rate at December 31, 2012.
(2)
Includes the estimated pension contribution for 2013 only, as PPG is unable to estimate the pension contributions beyond 2013.
(3)
We have recorded an obligation equal to the net present value of the aggregate cash payments, along with the PPG stock and other assets to be contributed to a trust under the proposed asbestos settlement. However, PPG has no obligation to pay any amounts under this settlement until the Funding Effective Date, as more fully discussed in Note 15, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K.



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The unconditional purchase commitments are principally take-or-pay obligations related to the purchase of certain materials, including industrial gases, natural gas, coal and electricity, consistent with customary industry practice. These amounts also include PPG’s commitment to purchase electricity and steam from our RS Cogen joint venture discussed in Note 5, “Investments,” under Item 8 of this Form 10-K.
PPG's interest in RS Cogen including the commitment to purchase electricity of $234 million , future minimum operating lease payments of $32 million , as well as $67 million of other unconditional purchase obligations listed in the contractual obligations table above were transferred in the separation of its commodity chemicals business and subsequent merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf completed on January 28, 2013.
See Note 8, “Debt and Bank Credit Agreements and Leases,” under Item 8 of this Form 10-K for details regarding the use and availability of committed and uncommitted lines of credit, letters of credit, guarantees and debt covenants.
In addition to the amounts available under the lines of credit, the Company has an automatic shelf registration statement on file with the SEC pursuant to which it may issue, offer and sell from time to time on a continuous or delayed basis any combination of securities in one or more offerings.
Off-Balance Sheet Arrangements
The Company’s off-balance sheet arrangements include the operating leases and unconditional purchase commitments disclosed in the “Liquidity and Capital Resources” section in the contractual obligations table as well as letters of credit and guarantees as discussed in Note 8, “Debt and Bank Credit Agreements and Leases,” under Item 8 of this Form 10-K.
Critical Accounting Estimates
Management has evaluated the accounting policies used in the preparation of the financial statements and related notes presented under Item 8 of this Form 10-K and believes those policies to be reasonable and appropriate. We believe that the most critical accounting estimates made in the preparation of our financial statements are those related to accounting for contingencies, under which we accrue a loss when it is probable that a liability has been incurred and the amount can be reasonably estimated, and to accounting for pensions, other postretirement benefits, goodwill and other identifiable intangible assets with indefinite lives because of the importance of management judgment in making the estimates necessary to apply these policies.
Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss. The most important contingencies impacting our financial statements are those related to the collectability of accounts receivable, to environmental remediation, to pending, impending or overtly threatened litigation against the Company and to the resolution
 
of matters related to open tax years. For more information on these matters, see Note 3, “Working Capital Detail,” Note 13, “Income Taxes” and Note 15, “Commitments and Contingent Liabilities” under Item 8 of this Form 10-K.
Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, extensive use is made of assumptions about inflation, investment returns, mortality, turnover, medical costs and discount rates. The Company has established a process by which management reviews and selects these assumptions annually. See Note 14, “Pensions and Other Postretirement Benefits,” under Item 8 for information on these plans and the assumptions used.
The discount rate used in accounting for pensions and other postretirement benefits is determined by reference to a current yield curve and by considering the timing and amount of projected future benefit payments. The discount rate assumption at December 31, 2012 and for 2013 is 4.05% for our U.S. defined benefit pension and other postretirement benefit plans. A change in the discount rate of 75 basis points, with all other assumptions held constant, would impact 2012 net periodic benefit expense for our defined benefit pension and other postretirement benefit plans by approximately $19 million and $9 million, respectively.
The expected return on plan assets assumption used in accounting for our pension plans is determined by evaluating the mix of investments that comprise plan assets and external forecasts of future long-term investment returns. For 2012, the return on plan assets assumption for our U.S. defined benefit pension plans was 7.5%. This assumption will be lowered to 7.25% for 2013. A change in the rate of return of 75 basis points, with other assumptions held constant, would impact 2013 net periodic pension expense by approximately $24 million.
As discussed in Note 1, “Summary of Significant Accounting Policies,” under Item 8 of this Form 10-K, the Company tests goodwill and identifiable intangible assets with indefinite lives for impairment at least annually by comparing the fair value of the reporting units to their carrying values. Fair values are estimated using discounted cash flow methodologies that are based on projections of the amounts and timing of future revenues and cash flows. Based on this testing, none of our goodwill or identifiable intangible assets with indefinite lives was impaired as of December 31, 2012.
As part of our ongoing financial reporting process, a collaborative effort is undertaken involving PPG managers with functional responsibility for financial, credit, environmental, legal, tax and benefit matters. The results of these efforts provide management with the necessary information on which to base their judgments on these contingencies and to develop the estimates and assumptions used to prepare the financial statements.
We believe that the amounts recorded in the financial statements under Item 8 of this Form 10-K related to these contingencies, pensions, other postretirement benefits, goodwill


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and other identifiable intangible assets with indefinite lives are based on the best estimates and judgments of the appropriate PPG management, although actual outcomes could differ from our estimates.
Currency
The U.S. dollar weakened from year-end December 31, 2011 to year-end December 31, 2012, against certain currencies of the countries in which PPG operates, most notably against the Euro, the British pound sterling, Polish zloty, and the South Korean won. A $141 million increase in PPG consolidated net assets and shareholders equity resulted from translating PPG’s foreign denominated net assets to U.S. dollars at December 31, 2012, compared to December 31, 2011. Comparing exchange rates during 2012 to those of 2011, in the countries in which PPG operates, the U.S. dollar was generally stronger, particularly against the Euro, which had an unfavorable impact on full year 2012 pretax earnings of approximately $40 million from the translation of these foreign earnings into U.S. dollars.
From December 31, 2010 to December 31, 2011, the U.S. dollar strengthened against the currencies of most of the countries in which PPG operates, most notably against the Euro, the Brazilian real, and the Polish zloty. A $188 million decrease in PPG consolidated net assets and shareholders equity resulted from translating PPG’s foreign denominated net assets to U.S. dollars at December 31, 2011, compared to December 31, 2010. However, during much of 2011, the U.S. dollar was weaker against the currencies of many countries in which PPG operates than it was in 2010, which had a favorable impact on 2011 pretax earnings of approximately $40 million from the translation of these foreign earnings into U.S. dollars.
From December 31, 2009 to December 31, 2010, the U.S. dollar strengthened against the Euro, the Polish zloty, and the British pound sterling while at the same time it weakened against the Canadian and Australian dollar, the Chinese yuan, the South Korean won, and the Brazilian real, which had a nearly offsetting effect on the translation of the net assets of PPG’s operations denominated in non-U.S. currencies to the U.S. dollar. A $13 million decrease resulted from translating PPG’s foreign denominated net assets at December 31, 2010, compared to December 31, 2009. The impact of translating foreign pretax earnings into U.S. dollars was insignificant.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. Management’s Discussion and Analysis and other sections of this Annual Report contain forward-looking statements that reflect the Company’s current views with respect to future events and financial performance.
You can identify forward-looking statements by the fact that they do not relate strictly to current or historic facts. Forward-looking statements are identified by the use of the words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “outlook,” “forecast” and other expressions that indicate future events and trends. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward looking statement, whether as a result of new information, future events
 
or otherwise, except as otherwise required by applicable law. You are advised, however, to consult any further disclosures we make on related subjects in our reports to the Securities and Exchange Commission. Also, note the following cautionary statements.
Many factors could cause actual results to differ materially from the Company’s forward-looking statements. Such factors include global economic conditions, increasing price and product competition by foreign and domestic competitors, fluctuations in cost and availability of raw materials, the ability to maintain favorable supplier relationships and arrangements, difficulties in integrating acquired businesses and achieving expected synergies therefrom, economic and political conditions in international markets, the ability to penetrate existing, developing and emerging foreign and domestic markets, foreign exchange rates and fluctuations in such rates, fluctuations in tax rates, the impact of future legislation, the impact of environmental regulations, unexpected business disruptions, the unpredictability of existing and possible future litigation, including litigation that could result if the proposed asbestos settlement does not become effective and the effect of the disposition of the Company's commodity chemical business. However, it is not possible to predict or identify all such factors. Consequently, while the list of factors presented here and under Item 1A is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.
This Annual Report also contains statements about PPG’s agreement to purchase the North American architectural coatings business of Akzo Nobel N.V. (the “Transaction”). Many factors could cause actual results to differ materially from the company’s forward-looking statements with respect to the Transaction, including the parties’ ability to satisfy the conditions to the closing of the Transaction; the parties’ ability to complete the Transaction on anticipated terms and schedule; risks relating to the ability of the parties to obtain regulatory approvals for the Transaction, any unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses and future prospects; business and management strategies for the management, expansion and growth of PPG’s coatings operations; PPG’s ability to integrate the North American architectural coatings business of Akzo Nobel N.V. after the closing and to achieve anticipated synergies; and the risk that disruptions from the Transaction will harm PPG’s business.
Consequences of material differences in the results compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties, other factors set forth in Item 1A of this Form 10-K and similar risks, any of which could have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
PPG is exposed to market risks related to changes in foreign currency exchange rates, interest rates, and natural gas prices


30 2012 PPG ANNUAL REPORT AND FORM 10-K
Table of Contents

and to changes in PPG’s stock price. The Company may enter into derivative financial instrument transactions in order to manage or reduce these market risks. A detailed description of these exposures and the Company’s risk management policies are provided in Note 11, “Derivative Financial Instruments and Hedge Activities,” under Item 8 of this Form 10-K.
The following disclosures summarize PPG’s exposure to market risks and information regarding the use of and fair value of derivatives employed to manage its exposure to such risks. Quantitative sensitivity analyses have been provided to reflect how reasonably possible, unfavorable changes in market rates can impact PPG’s consolidated results of operations, cash flows and financial position.
Foreign currency forward and option contracts outstanding during 2012 and 2011 were used to hedge PPG’s exposure to foreign currency transaction risk. The fair value of these contracts as of December 31, 2012 and 2011 were assets of $3 million and liabilities of $1 million, respectively. The potential reduction in PPG’s earnings resulting from the impact of adverse changes in exchange rates on the fair value of its outstanding foreign currency hedge contracts of 10% for European currencies and 20% for Asian and South American currencies for the years ended December 31, 2012 and 2011 would have been $14 million and $23 million, respectively.
As of January 1, 2012, PPG had nine U.S. dollar to euro cross currency swap contracts with a total notional amount of $1.16 billion, of which $600 million were to settle on March 15, 2013 and $560 million were to settle on March 15, 2018. In June 2012, $600 million of the swaps, with a settlement date of March 15, 2013, were settled with PPG receiving $1 million in cash. On settlement of the remaining outstanding contracts, PPG will receive $560 million U.S. dollars and pay euros to the counterparties to the contracts. During the term of these contracts, PPG will receive semiannual payments in March and September of each year based on U.S. dollar, long-term fixed interest rates, and PPG will make annual payments in March of each year to the counterparties based on euro, long-term fixed interest rates. The Company designated all of the cross currency swaps as hedges of its net investment in the acquired SigmaKalon businesses and, as a result, the mark to fair value adjustments of the swaps outstanding have been and will be recorded as a component of Accumulated Other Comprehensive Loss (Income) ("AOCI"), and the cash flow impact of these swaps has been and will be classified as investing activities in the consolidated statement of cash flows. As of December 31, 2012 and December 31, 2011, the fair value of these contracts was a net liability of $95 million and $120 million, respectively. A 10% increase in the value of the euro to the U.S. dollar would have had an unfavorable effect on the fair value of these swap contracts and increased the liability by $84 million and $153 million at December 31, 2012 and 2011, respectively.
PPG had non-U.S. dollar denominated debt outstanding of $449 million as of December 31, 2012 and $441 million as of December 31, 2011. A weakening of the U.S. dollar by 10% against European currencies and by 20% against Asian and South American currencies would have resulted in unrealized translation losses of approximately $51 million and $50 million as of December 31, 2012 and 2011, respectively.
 
The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to minimize its interest costs. At December 31, 2011, the notional value of interest rate swaps converted $445 million of fixed rate debt to variable rate debt. During 2012, PPG settled these swaps, receiving $29 million from such settlements. The fair value of these swaps was an asset of $26 million, as of December 31, 2011. The fair value of these swaps would have changed unfavorably by $1 million as of December 31, 2011, if variable interest rates increased by 10%. A 10% increase in interest rates in the U.S., Canada, Mexico and Europe and a 20% increase in interest rates in Asia and South America would have affected PPG’s variable rate debt obligations by increasing interest expense approximately $0.1 million and $1 million for the years ended December 31, 2012 and 2011, respectively. Further, a 10% reduction in interest rates would have increased the present value of the Company’s fixed rate debt by approximately $81 million and $90 million as of December 31, 2012 and 2011, respectively; however, such changes would not have had an effect on PPG’s annual earnings or cash flows.
 The Company entered into forward starting swaps in 2009 and in the second quarter of 2010 to effectively lock-in a fixed interest rate for future debt refinancings with an anticipated term of ten years based on the ten year swap rate, to which was added a corporate spread. The notional amount of these swaps was $400 million. All of the swap contracts were settled on July 30, 2012, resulting in a cash payment of $121 million. As of December 31, 2011, the fair value of these swaps was a liability of $92 million. A 10% decline in interest rates would have unfavorably affected the fair value of these swaps by $9 million as of December 31, 2011.
The Company used derivative instruments to manage its exposure to fluctuating natural gas prices through the use of natural gas swap contracts. There were no natural gas swap contracts outstanding as of December 31, 2012 as the price of natural gas declined for the past four years and is not expected to be as volatile over the next 12 to 18 months as continued development of shale oil and gas reserves is expected to maintain downward pressure on the price of natural gas. As of December 31, 2011, the fair value of the contracts was a liability of $9 million. A 10% reduction in the price of natural gas would have had an unfavorable effect on the fair value of these contracts by increasing the liability by $2 million at December 31, 2011.
An equity forward arrangement was entered into to hedge the Company’s exposure to changes in fair value of its future obligation to contribute PPG stock into an asbestos settlement trust (see Note 11 “Derivative Financial Instruments and Hedge Activities” and Note 15, “Commitments and Contingent Liabilities,” under Item 8 of this Form 10-K). The fair value of this instrument as of December 31, 2012 and 2011 was an asset of $130 million and $56 million, respectively. A 10% decrease in PPG’s stock price would have had an unfavorable effect on the fair value of this instrument of $19 million and $12 million at December 31, 2012 and 2011, respectively.
 


2012 PPG ANNUAL REPORT AND FORM 10-K 31
Table of Contents

Item 8. Financial Statements and Supplementary Data
 
Internal Controls – Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of PPG Industries, Inc.
We have audited the internal control over financial reporting of PPG Industries, Inc. and subsidiaries (the “Company”) as of December 31, 2012 , based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012 , based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2012 of the Company and our report dated February 21, 2013 expressed an unqualified opinion on those financial statements and financial statement schedule.
 
/s/ Deloitte & Touche LLP
 
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
February 21, 2013
 

32 2012 PPG ANNUAL REPORT AND FORM 10-K

Management Report
 
Responsibility for Preparation of the Financial Statements and Establishing and Maintaining Adequate Internal Control Over Financial Reporting
We are responsible for the preparation of the financial statements included in this Annual Report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and include amounts that are based on the best estimates and judgments of management.
 
We are also responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. All internal control systems, no matter how well designed, have inherent limitations. Therefore, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. In addition, because of changing conditions, there is risk in projecting any evaluation of internal controls to future periods.
 
We conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 . In making this evaluation, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework . Our evaluation included reviewing the documentation of our controls, evaluating the design effectiveness of our controls and testing their operating effectiveness. Based on this evaluation we believe that, as of December 31, 2012 , the Company’s internal controls over financial reporting were effective.
 
Deloitte & Touche LLP, an independent registered public accounting firm, has issued their report, included on page 32 of this Form 10-K, regarding the Company’s internal control over financial reporting.
/s/ Charles E. Bunch
 
/s/ David B. Navikas
Charles E. Bunch
Chairman
and Chief Executive Officer
February 21, 2013
 
David B. Navikas
Senior Vice President, Finance and
Chief Financial Officer
February 21, 2013

 
Consolidated Financial Statements – Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Shareholders of PPG Industries, Inc.
We have audited the accompanying consolidated balance sheets of PPG Industries, Inc. and subsidiaries (the “Company”) as of December 31, 2012 and 2011 , and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012 . Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PPG Industries, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 , in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012 , based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2013 expressed an unqualified opinion on the Company’s internal control over financial reporting.
 
/s/ Deloitte & Touche LLP

  Deloitte & Touche LLP
Pittsburgh, Pennsylvania
February 21, 2013
 

2012 PPG ANNUAL REPORT AND FORM 10-K 33

Consolidated Statement of Income

 
For the Year
(Millions, except per share amounts)
2012
 
2011
 
2010
Net sales
$
15,200

 
$
14,885

 
$
13,423

Cost of sales, exclusive of depreciation and amortization
9,069

 
9,081

 
8,214

Selling, general and administrative
3,335

 
3,234

 
2,979

Depreciation
355

 
346

 
346

Amortization (See Note 6)
110

 
121

 
124

Research and development – net (See Note 22)
455

 
430

 
394

Interest expense
210

 
210

 
189

Interest income
(39
)
 
(42
)
 
(34
)
Asbestos settlement – net (See Notes 11 and 15)
12

 
12

 
12

Business restructuring (See Note 7)
208

 
—

 
—

Other charges (See Note 15)
232

 
73

 
84

Other earnings (See Note 19)
(149
)
 
(177
)
 
(180
)
Income before income taxes
1,402

 
1,597

 
1,295

Income tax expense (See Note 13)
338

 
385

 
415

Net income attributable to the controlling and noncontrolling interests
1,064

 
1,212

 
880

Less: net income attributable to noncontrolling interests
123

 
117

 
111

Net income (attributable to PPG)
$
941

 
$
1,095

 
$
769

Earnings per common share (See Note 12)
 
 
 
 
 
Net income (attributable to PPG)
$
6.13

 
$
6.96

 
$
4.67

Earnings per common share – assuming dilution (See Note 12)
 
 
 
 
 
Net Income (attributable to PPG)
$
6.06

 
$
6.87

 
$
4.63


Consolidated Statement of Comprehensive Income

 
 
For the Year
(Millions)
2012
 
2011
 
2010
Net income attributable to the controlling and noncontrolling interests
$
1,064

 
$
1,212

 
$
880

Other comprehensive income / (loss), net of tax (See Note 17)
 

 
 

 
 

 
Unrealized currency translation adjustment
146

 
(197
)
 
(11
)
 
Defined benefit pension and other postretirement benefit adjustments (See Note 14)
—

 
(169
)
 
(136
)
 
Unrealized gains on marketable equity securities
—

 
—

 
1

 
Net change – derivatives (See Note 11)
(7
)
 
(32
)
 
(2
)
Other comprehensive income / (loss), net of tax
139

 
(398
)
 
(148
)
Total comprehensive income
$
1,203

 
$
814

 
$
732

Less: amounts attributable to noncontrolling interests:
 
 
 
 
 
 
Net income
(123
)
 
(117
)
 
(111
)
 
Unrealized currency translation adjustment
(5
)
 
9

 
(2
)
Comprehensive income attributable to PPG
$
1,075

 
$
706

 
$
619


The accompanying notes to the consolidated financial statements are an integral part of these consolidated statements.
 

34 2012 PPG ANNUAL REPORT AND FORM 10-K

Consolidated Balance Sheet
 
 
 
 
December 31
(Millions)
2012
 
2011
Assets
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
$
1,306

 
$
1,457

 
 
Short-term investments (See Note 9)
1,087

 
25

 
 
Receivables (See Note 3)
2,813

 
2,830

 
 
Inventories (See Note 3)
1,687

 
1,607

 
 
Deferred income taxes (See Note 13)
430

 
473

 
 
Other
392

 
302

 
Total current assets
7,715

 
6,694

Property (See Note 4)
9,030

 
8,614

Less accumulated depreciation
6,142

 
5,893

 
Property – net
2,888

 
2,721

Investments (See Note 5)
422

 
387

Goodwill (See Note 6)
2,761

 
2,660

Identifiable intangible assets – net (See Note 6)
1,085

 
1,125

Other assets
1,007

 
795

 
Total
$
15,878

 
$
14,382

 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Current liabilities
 
 
 
 
 
Short-term debt and current portion of long-term debt (See Note 8)
$
642

 
$
108

 
 
Asbestos settlement (See Note 15)
683

 
593

 
 
Accounts payable and accrued liabilities (See Note 3)
3,061

 
2,996

 
 
Business restructuring (See Note 7)
75

 
5

 
Total current liabilities
4,461

 
3,702

Long-term debt (See Note 8)
3,368

 
3,574

Asbestos settlement (See Note 15)
237

 
241

Deferred income taxes (See Note 13)
231

 
272

Accrued pensions (See Note 14)
1,057

 
968

Other postretirement benefits (See Note 14)
1,287

 
1,307

Other liabilities
915

 
872

 
Total liabilities
11,556

 
10,936

Commitments and contingent liabilities (See Note 15)

 

Shareholders’ equity (See Note 16)
 
 
 
 
 
Common stock
484

 
484

 
 
Additional paid-in capital
870

 
783

 
 
Retained earnings
9,871

 
9,288

 
 
Treasury stock, at cost
(5,496
)
 
(5,506
)
 
 
Accumulated other comprehensive loss (See Note 17)
(1,666
)
 
(1,800
)
 
Total PPG shareholders’ equity
4,063

 
3,249

 
 
Noncontrolling interests
259

 
197

 
Total shareholders’ equity
4,322

 
3,446

 
Total
$
15,878

 
$
14,382


Shares outstanding were 153,566,297 and 151,888,780 as of December 31, 2012 and 2011, respectively.

The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement.
 

2012 PPG ANNUAL REPORT AND FORM 10-K 35

Consolidated Statement of Shareholders’ Equity
 
(Millions)
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
(See Note 17)
 
Total
PPG
 
Non-
controlling
Interests
 
Total
Balance, January 1, 2010
$
484

 
$
609

 
$
8,139

 
$
(4,218
)
 
$
(1,261
)
 
$
3,753

 
$
169

 
$
3,922

Net income attributable to the controlling and noncontrolling interests
—

 
—

 
769

 
—

 
—

 
769

 
111

 
880

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
(150
)
 
(150
)
 
2

 
(148
)
Cash dividends
—

 
—

 
(360
)
 
—

 
—

 
(360
)
 
—

 
(360
)
Purchase of treasury stock
—

 
—

 
—

 
(521
)
 
—

 
(521
)
 
—

 
(521
)
Issuance of treasury stock
—

 
77

 
—

 
96

 
—

 
173

 
—

 
173

Stock-based compensation activity
—

 
12

 
—

 
—

 
—

 
12

 
—

 
12

Equity forward arrangement
—

 
27

 
—

 
(65
)
 
—

 
(38
)
 
—

 
(38
)
Dividends paid on subsidiary common stock to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(87
)
 
(87
)
Balance, December 31, 2010
$
484

 
$
725

 
$
8,548

 
$
(4,708
)
 
$
(1,411
)
 
$
3,638

 
$
195

 
$
3,833

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to the controlling and noncontrolling interests
—

 
—

 
1,095

 
—

 
—

 
1,095

 
117

 
1,212

Other comprehensive (loss) income, net of tax
—

 
—

 
—

 
—

 
(389
)
 
(389
)
 
(9
)
 
(398
)
Cash dividends
—

 
—

 
(355
)
 
—

 
—

 
(355
)
 
—

 
(355
)
Purchase of treasury stock
—

 
—

 
—

 
(858
)
 
—

 
(858
)
 
—

 
(858
)
Issuance of treasury stock
—

 
47

 
—

 
60

 
—

 
107

 
—

 
107

Stock-based compensation activity
—

 
11

 
—

 
—

 
—

 
11

 
—

 
11

Dividends paid on subsidiary common stock to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(106
)
 
(106
)
Balance, December 31, 2011
$
484

 
$
783

 
$
9,288

 
$
(5,506
)
 
$
(1,800
)
 
$
3,249

 
$
197

 
$
3,446

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to the controlling and noncontrolling interests
—

 
—

 
941

 
—

 
—

 
941

 
123

 
1,064

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
134

 
134

 
5

 
139

Cash dividends
—

 
—

 
(358
)
 
—

 
—

 
(358
)
 
—

 
(358
)
Purchase of treasury stock
—

 
—

 
—

 
(92
)
 
—

 
(92
)
 
—

 
(92
)
Issuance of treasury stock
—

 
35

 
—

 
102

 
—

 
137

 
—

 
137

Stock-based compensation activity
—

 
55

 
—

 
—

 
—

 
55

 
—

 
55

Dividends paid on subsidiary common stock to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(111
)
 
(111
)
Joint venture formation and consolidation (See Note 5)
—

 
(3
)
 
—

 
—

 
—

 
(3
)
 
45

 
42

Balance, December 31, 2012
$
484

 
$
870

 
$
9,871

 
$
(5,496
)
 
$
(1,666
)
 
$
4,063

 
$
259

 
$
4,322


  The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement.

36 2012 PPG ANNUAL REPORT AND FORM 10-K

Consolidated Statement of Cash Flows
 
 
For the Year
(Millions)
2012
 
2011
 
2010
Operating activities
 
 
 
 
 
Net income attributable to the controlling and noncontrolling interests
$
1,064

 
$
1,212

 
$
880

Adjustments to reconcile to cash from operations:
 
 
 
 
 
 
Depreciation and amortization
465

 
467

 
470

 
Pension expense
159

 
131

 
161

 
Business restructuring (See Note 7)
208

 
—

 
—

 
Environmental remediation charge (See Note 15)
159

 
—

 
—

 
Charge related to change in U.S. tax law (See Note 13)
—

 
—

 
85

 
Equity affiliate (earnings), net of dividends
1

 
(18
)
 
(39
)
 
Asbestos settlement, net of tax
7

 
7

 
7

 
Cash contributions to pension plans
(81
)
 
(121
)
 
(340
)
 
Restructuring cash spending
(88
)
 
(18
)
 
(103
)
Change in certain asset and liability accounts:
 
 
 
 
 
 
Decrease / (increase) in receivables
90

 
(129
)
 
(188
)
 
Decrease / (increase) in inventories
29

 
(73
)
 
(34
)
 
Decrease / (increase) in other current assets
4

 
(32
)
 
16

 
(Decrease) / increase in accounts payable and accrued liabilities
(10
)
 
22

 
306

 
Increase in noncurrent assets
(30
)
 
(3
)
 
(9
)
 
Decrease in noncurrent liabilities
(45
)
 
(12
)
 
(22
)
 
Change in accrued tax and interest accounts
(158
)
 
39

 
170

Other
13

 
(36
)
 
(50
)
 
Cash from operating activities
1,787

 
1,436

 
1,310

Investing activities
 
 
 
 
 
Capital spending:
 
 
 
 
 
 
Additions to property and investments
(411
)
 
(390
)
 
(307
)
 
Business acquisitions, net of cash balances acquired (See Note 2)
(122
)
 
(56
)
 
(34
)
Deposit of cash into escrow (See Note 2)
(35
)
 
(16
)
 
(7
)
Release of cash held in escrow
19

 
—

 
1

Proceeds from maturity of short-term investments
250

 
749

 
—

Purchase of short-term investments
(1,332
)
 
(125
)
 
(624
)
Payments on cross currency swap contracts (See Note 11)
(23
)
 
(10
)
 
(9
)
Proceeds from termination of cross currency swap contracts (See Note 11)
1

 
—

 
5

Collection of notes receivable, equity affiliate (See Note 5)
—

 
90

 
—

Return of capital, equity affiliate (See Note 5)
—

 
78

 
—

Reductions of other property and investments
42

 
33

 
26

 
Cash from/(used for) investing activities
(1,611
)
 
353

 
(949
)
Financing activities
 
 
 
 
 
Debt:
 
 
 
 
 
 
Net change in borrowings with maturities of three months or less
(1
)
 
9

 
(23
)
 
Proceeds from long term debt (net of discount and issuance costs) (See Note 8)
397

 
—

 
983

 
Proceeds from other debt
—

 
7

 
15

 
Repayment of long-term debt (See Note 8)
(71
)
 
(400
)
 
—

 
Repayment of acquired debt (See Note 8)
(119
)
 
—

 
—

 
Repayment of other debt
(13
)
 
(7
)
 
(239
)
 
Settlement of forward starting swaps (Note 11)
(121
)
 
—

 
—

 
Proceeds from termination of interest rate swaps
29

 
19

 
—

Other financing activities:
 
 
 
 
 
 
Purchase of treasury stock
(92
)
 
(858
)
 
(586
)
 
Issuance of treasury stock
122

 
81

 
146

 
Dividends paid on subsidiary common stock to noncontrolling interests
(111
)
 
(106
)
 
(87
)
 
Dividends paid on PPG common stock
(358
)
 
(355
)
 
(360
)
 
Other
(13
)
 
(22
)
 
47

 
Cash used for financing activities
(351
)
 
(1,632
)
 
(104
)
Effect of currency exchange rate changes on cash and cash equivalents
24

 
(41
)
 
27

Net (decrease) / increase in cash and cash equivalents
(151
)
 
116

 
284

Cash and cash equivalents, beginning of year
1,457

 
1,341

 
1,057

Cash and cash equivalents, end of year
$
1,306

 
$
1,457

 
$
1,341


The accompanying notes to the consolidated financial statements are an integral part of this consolidated statement.

2012 PPG ANNUAL REPORT AND FORM 10-K 37

Notes to the Consolidated Financial Statements
 
1. Summary of Significant Accounting Policies

Principles of Consolidation
The accompanying consolidated financial statements include the accounts of PPG Industries, Inc. (“PPG” or the “Company”) and all subsidiaries, both U.S. and non-U.S., that it controls. PPG owns more than 50% of the voting stock of most of the subsidiaries that it controls. For those consolidated subsidiaries in which the Company’s ownership is less than 100% , the outside shareholders’ interests are shown as noncontrolling interests. Investments in companies in which PPG owns 20% to 50% of the voting stock and has the ability to exercise significant influence over operating and financial policies of the investee are accounted for using the equity method of accounting. As a result, PPG’s share of the earnings or losses of such equity affiliates is included in the accompanying consolidated statement of income and PPG’s share of these companies’ shareholders’ equity is included in "Investments" in the accompanying consolidated balance sheet. Transactions between PPG and its subsidiaries are eliminated in consolidation.
 
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Actual outcomes could differ from those estimates.
 
Revenue Recognition
Revenue from sales is recognized by all operating segments when goods are shipped and title to inventory and risk of loss passes to the customer or when services have been rendered.
 
Shipping and Handling Costs
Amounts billed to customers for shipping and handling are reported in “Net sales” in the accompanying consolidated statement of income. Shipping and handling costs incurred by the Company for the delivery of goods to customers are included in “Cost of sales, exclusive of depreciation and amortization” in the accompanying consolidated statement of income.
 
Selling, General and Administrative Costs
Amounts presented as “Selling, general and administrative” in the accompanying consolidated statement of income are comprised of selling, customer service, distribution and advertising costs, as well as the costs of providing corporate-wide functional support in such areas as finance, law, human resources and planning. Distribution costs pertain to the movement and storage of finished goods inventory at company-owned and leased warehouses, terminals and other distribution facilities. Certain of these costs may be included in cost of sales by other companies, resulting in a lack of comparability with other companies.
 
 
Legal Costs
Legal costs are expensed as incurred.
 
Foreign Currency Translation
The functional currency of most significant non-U.S. operations is their local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end exchange rates; income and expenses are translated using the average exchange rates for the reporting period. Unrealized currency translation adjustments are deferred in accumulated other comprehensive loss, a separate component of shareholders’ equity.
 
Cash Equivalents
Cash equivalents are highly liquid investments (valued at cost, which approximates fair value) acquired with an original maturity of three months or less.
 
Short-term Investments
Short-term investments are highly liquid, high credit quality investments (valued at cost plus accrued interest) that have stated maturities of greater than three months to one year. The purchases and sales of these investments are classified as investing activities in the consolidated statement of cash flows.

Marketable Equity Securities
The Company’s investment in marketable equity securities is recorded at fair market value and reported in “Other current assets” and “Investments” in the accompanying consolidated balance sheet with changes in fair market value recorded in income for those securities designated as trading securities and in other comprehensive income, net of tax, for those designated as available for sale securities.

Inventories
Most U.S. inventories are stated at cost, using the last-in, first-out (“LIFO”) method of accounting, which does not exceed market. All other inventories are stated at cost, using the first-in, first-out (“FIFO”) method of accounting, which does not exceed market. PPG determines cost using either average or standard factory costs, which approximate actual costs, excluding certain fixed costs such as depreciation and property taxes.
 
Property
Property is recorded at cost. PPG computes depreciation by the straight-line method based on the estimated useful lives of depreciable assets. Additional expense is recorded when facilities or equipment are subject to abnormal economic conditions or obsolescence.
 
Significant improvements that add to productive capacity or extend the lives of properties are capitalized. Costs for repairs and maintenance are charged to expense as incurred. When property is retired or otherwise disposed of, the original cost and related accumulated depreciation balance are removed from the accounts and any related gain or loss is included in income. Amortization of the cost of capitalized leased assets is included in depreciation expense. Property and other long-lived assets are reviewed for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable.


38 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

 
Goodwill and Identifiable Intangible Assets
Goodwill represents the excess of the cost over the fair value of acquired identifiable tangible and intangible assets less liabilities assumed from acquired businesses. Identifiable intangible assets acquired in business combinations are recorded based upon their fair value at the date of acquisition.
 
The Company tests goodwill of each reporting unit for impairment at least annually in connection with PPG’s strategic planning process. The goodwill impairment test is performed by comparing the estimated fair value of the associated reporting unit as of September 30 to its carrying value. The Company’s reporting units are its operating segments. (See Note 24, “Reportable Business Segment Information” for further information concerning the Company’s operating segments.) Fair value is estimated using discounted cash flow methodologies.
 
The Company has determined that certain acquired trademarks have indefinite useful lives. The Company tests the carrying value of these trademarks for impairment at least annually, as of September 30, by comparing the fair value of each trademark to its carrying value. Fair value is estimated by using the relief from royalty method (a discounted cash flow methodology).
 
Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives ( 2 to 25 years) and are reviewed for impairment whenever events or circumstances indicate that their carrying amount may not be recoverable.
 
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts to reduce receivables to their estimated net realizable value when it is probable that a loss will be incurred. Those estimates are based on historical collection experience, current economic and market conditions, a review of the aging of accounts receivable and the assessments of current creditworthiness of customers.
 
Product Warranties
The Company accrues for product warranties at the time the associated products are sold based on historical claims experience. As of December 31, 2012 and 2011, the reserve for product warranties was $14 million and $11 million , respectively. Pretax charges against income for product warranties in 2012, 2011 and 2010 totaled $15 million , $14 million and $7 million , respectively. Cash outlays related to product warranties were $12 million , $10 million ; $7 million in 2012, 2011 and 2010 respectively.
 
Asset Retirement Obligations
An asset retirement obligation represents a legal obligation associated with the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction, development or normal operation of that long-lived asset. PPG recognizes asset retirement obligations in the period in which they are incurred, if
 
a reasonable estimate of fair value can be made. The asset retirement obligation is subsequently adjusted for changes in fair value. The associated estimated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and depreciated over its useful life. PPG’s asset retirement obligations are primarily associated with closure of certain assets used in the chemicals manufacturing process.
 
The accrued asset retirement obligation was $13 million and $12 million as of December 31, 2012 and 2011, respectively.
 
PPG’s only conditional asset retirement obligation relates to the possible future abatement of asbestos contained in certain PPG production facilities. The asbestos in PPG’s production facilities arises from the application of normal and customary building practices in the past when the facilities were constructed. This asbestos is encapsulated in place and, as a result, there is no current legal requirement to abate it. Inasmuch as there is no requirement to abate, the Company does not have any current plans or an intention to abate and therefore the timing, method and cost of future abatement, if any, are not known. The Company has not recorded an asset retirement obligation associated with asbestos abatement, given the uncertainty concerning the timing of future abatement, if any.
 
Accounting Standards Adopted in 2012
In May 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to the fair value measurement guidance and disclosure requirements that established common U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”) measurement and reporting requirements. The new requirements were effective for the first interim or annual period beginning after December 15, 2011 and were to be applied prospectively. PPG adopted the new requirements in the first quarter of 2012; however, the adoption of this guidance did not have a material effect on its consolidated financial position, results of operations or cash flows.
In June 2011, the FASB issued an amendment to the requirements for presenting comprehensive income. The new requirements were effective for the first interim or annual period beginning after December 15, 2011 and were to be applied retrospectively. The standard requires other comprehensive income to be presented in a continuous statement of comprehensive income that would combine the components of net income and other comprehensive income, or in a separate, but consecutive, statement following the statement of income. PPG adopted these new requirements in the first quarter of 2012.
 
Accounting Standards to be Adopted in Future Years
On February 5, 2013, the FASB issued an amendment to the disclosure requirements for reporting reclassifications out of accumulated other comprehensive income (“AOCI”). The update is effective for the first interim or annual period beginning after December 15, 2012. The new amendments require presentation, either on the statement of income or in the notes, of the effect on the line items of the statement of income


2012 PPG ANNUAL REPORT AND FORM 10-K 39

Notes to the Consolidated Financial Statements

of significant amounts reclassified out of AOCI directly to net income in their entirety in the same reporting period. The update also requires the new disclosure to be cross referenced to other financial statement disclosures required for other reclassification items that are not reclassified directly to net income in their entirety in the same reporting period. PPG will adopt the new requirements in the first quarter of 2013; however, the adoption of this guidance will not have an effect on its consolidated financial position, results of operations or cash flows.
2. Acquisitions
During 2012, the Company completed four acquisitions related to its coatings businesses. The total cost of acquisitions was $288 million , including debt assumed of $122 million . These acquisitions also provide for contingent payments and escrowed holdbacks of a portion of the acquisition cost. Substantially all of the acquisition activity relates to the three acquisitions described below.
In December 2012, the Company completed the acquisition of the business of Spraylat Corp., a privately-owned industrial coatings company based in Pelham, N.Y. Spraylat had annual sales of approximately $125 million in 2011. The company operates production facilities in the U.S., Europe and China. Spraylat specializes in high-quality industrial liquid and powder coatings with excellent performance characteristics that are applied to metal, glass and plastic substrates.
In early January 2012, PPG completed the purchase of European coatings company Dyrup A/S (“Dyrup”), based in Copenhagen, Denmark, from its owner, Monberg & Thorsen, a public holding company, for $44 million of which $26 million is currently being held in escrow, and assumed debt of $120 million and acquired cash of $6 million . Dyrup, a producer of architectural coatings and woodcare products, operates six manufacturing facilities throughout Europe, and its products are sold primarily in Denmark, France, Germany, Portugal, Poland, and Spain through professional and do-it-yourself channels.
Also in early January 2012, PPG completed the purchase of the coatings businesses of Colpisa Colombiana de Pinturas and its affiliate, Colpisa Equador (“Colpisa”), for $38 million , of which $2 million is currently being held back as contingent payments. Colpisa manufactures and distributes coatings for automotive OEM, automotive refinish and industrial customers in Colombia and Ecuador.
The purchase price allocations related to the acquisitions made in 2012 resulted in an excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, which has been recorded as an addition to "Goodwill." The Dyrup and Colpisa acquisitions included an $8 million flow-through cost of sales, primarily in the first quarter of 2012, of the step up to fair value of inventory acquired.
The following table summarizes the fair value of assets acquired and liabilities assumed as reflected in the purchase
 
price allocations for the Dyrup and Colpisa acquisitions and the preliminary purchase price allocation for the Spraylat acquisition recorded as of December 31, 2012 .
 
(Millions)
Cash
$
6

Current assets
165

Property, plant, and equipment
89

Goodwill
30

Intangible Assets
60

Other non-current assets
20

Total assets
$
370

Short-term debt
(110
)
Current liabilities
(72
)
Long-term debt
(10
)
Other long-term liabilities
(19
)
Net assets
$
159

Total purchase price including cash in escrow and contingent payments
$
159

The Company spent $56 million on acquisitions in 2011, including purchase price adjustments related to acquisitions that were completed prior to December 31, 2010. In May 2011, PPG acquired the assets of Equa-Chlor, Inc. for $28 million , of which $3 million is held in escrow until May 2013. Equa-Chlor, Inc. is part of the Commodity Chemicals reportable segment. PPG assessed the fair value of the assets acquired and liabilities assumed, which consisted principally of property and operating working capital. PPG recorded a net benefit of $9 million stemming from a bargain purchase gain of $10 million reflecting the excess of the fair value of the net assets acquired over the price paid for the business and a $1 million loss related to the flow-through cost of sales of the step up to fair value of acquired inventory. The gain is reported in "Other earnings" in the accompanying consolidated statement of income for the year-ended December 31, 2011 . The remaining amounts spent on acquisitions during the year-ended December 31, 2011 represent other acquisitions in the coatings businesses, including the acquisition of a South African automotive refinish distributor.
The Company spent $34 million on acquisitions (net of cash acquired of $6 million ) in 2010, including purchase price adjustments related to acquisitions that were completed prior to January 1, 2010.



40 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

3. Working Capital Detail
 
(Millions)
2012
 
2011
Receivables
 
 
 
 
Trade - net (1)
$
2,568

 
$
2,512

 
Equity affiliates
22

 
28

 
Other - net
223

 
290

 
Total
$
2,813

 
$
2,830

Inventories (2)
   
 
   
 
Finished products
$
980

 
$
935

 
Work in process
144

 
144

 
Raw materials
443

 
414

 
Supplies
120

 
114

 
Total
$
1,687

 
$
1,607

Accounts payable and accrued liabilities
   
 
   
 
Trade creditors
$
1,620

 
$
1,612

 
Accrued payroll
459

 
414

 
Customer rebates
212

 
201

 
Other postretirement and pension benefits
103

 
108

 
Income taxes
71

 
51

 
Other
596

 
610

 
Total
$
3,061

 
$
2,996

(1)
Allowance for Doubtful Accounts equaled $77 million and $71 million as of December 31, 2012 and 2011 , respectively.
(2)
Inventories valued using the LIFO method of inventory valuation comprised 36% and 35% of total gross inventory values as of December 31, 2012 and 2011 , respectively. If the FIFO method of inventory valuation had been used, inventories would have been $243 million and $232 million higher as of December 31, 2012 and 2011 , respectively. During the year ended December 31, 2012 and 2011 , certain inventories accounted for on the LIFO method of accounting were reduced, which resulted in the liquidation of certain quantities carried at costs prevailing in prior years. The effect on earnings was income of $3.0 million and $0.9 million for the years ended December 31, 2012 and 2011 , respectively.
4. Property
(Millions)
Useful
Lives
(years)
 
2012
 
2011
 
Land and land improvements
5-30
 
$
504

 
$
482

 
Buildings
20-40
 
1,568

 
1,482

 
Machinery and equipment
5-25
 
5,952

 
5,736

 
Other
3-20
 
735

 
694

 
Construction in progress
 
 
271

 
220

 
Total (1)
 
 
$
9,030

 
$
8,614

(1)
Interest capitalized in 2012 , 2011 and 2010 was $8 million , $9 million and $7 million , respectively.


 
5. Investments
(Millions)
2012
 
2011
Investments in and advances to equity affiliates
$
262

 
$
261

Marketable equity securities - Trading (See Note 14)
60

 
56

Other
 
100

 
70

 
Total
$
422

 
$
387

The Company’s investments in and advances to equity affiliates are comprised principally of 50% ownership interests in a number of joint ventures that manufacture and sell coatings, glass and chemicals products, the most significant of which produce fiber glass products and are located in Asia. The Company’s investments in and advances to equity affiliates also include its approximate 40% interest in Pittsburgh Glass Works L.L.C. (“PGW”), which had a carrying value of $33 million and $29 million at December 31, 2012 and December 31, 2011 , respectively. In April 2011, the Company received $168 million from PGW, which was comprised of the repayment of $90 million of notes receivable from PGW and a $78 million return of capital.
In July 2012, PPG and Asian Paints Ltd. ("Asian Paints"), expanded their coatings operations in India through the creation of a new joint venture and the expansion of the operations of an existing joint venture. PPG gained effective management control of the existing joint venture, with Asian Paints obtaining effective management control of the newly formed joint venture. The accounting for the changes to the existing joint venture resulted in recording assets at their fair values, including "Goodwill" of $22 million and "Identifiable intangible assets" of $12 million . Also, as PPG now consolidates the existing joint venture that is under its control, an amount has been recorded within "Noncontrolling interests" of $49 million for the portion of the net assets of this entity owned by Asian Paints.
In addition, PPG has a 50% ownership interest in RS Cogen, L.L.C., which toll produces electricity and steam primarily for PPG's former Lake Charles, La. commodity chemicals facility and its joint venture partner. The joint venture was formed with a wholly-owned subsidiary of Entergy Corporation in 2000 for the construction and operation of a $300 million process steam, natural gas-fired cogeneration facility in Lake Charles, La., the majority of which was financed by a syndicate of banks. As of December 31, 2012, PPG’s future commitment to purchase electricity and steam from the joint venture approximated $23 million per year subject to contractually defined inflation adjustments for the next 10 years. The purchases for the years ended December 31, 2012, 2011 and 2010 were $25 million , $23 million and $23 million , respectively. On January 28, 2013, PPG's investment in R.S. Cogen was transferred with the separation of its commodity chemicals business and the merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf. Refer to Note 25, "Separation and Merger Transaction."
      RS Cogen is a variable interest entity under U.S. accounting guidance. The joint venture’s critical operations are overseen by


2012 PPG ANNUAL REPORT AND FORM 10-K 41

Notes to the Consolidated Financial Statements

a management committee, which had equal representation by PPG and Entergy. With the power to direct the activities of RS Cogen equally shared between RS Cogen’s two owners, PPG did not consider itself to be the joint venture’s primary beneficiary. Accordingly, PPG accounted for its investment in RS Cogen as an equity method investment.
The following table summarizes the Company’s maximum exposure to loss associated with RS Cogen as of December 31, 2012 :
(Millions)
 

Investment in and advances to RS Cogen
$
19

 
Take-or-pay obligation under power tolling arrangement
234

 
Maximum exposure to loss
$
253

Summarized financial information of PPG’s equity affiliates on a 100% basis, in the aggregate, is as follows: 
(Millions)
 
 
2012
 
2011
Working capital
 
 
$
286

 
$
339

Property, net
 
 
1,047

 
952

Short-term debt
 
 
(162
)
 
(202
)
Long-term debt
 
 
(731
)
 
(626
)
Other, net
 
 
73

 
61

Net assets
 
 
$
513

 
$
524

 
 
 
 
 
 
(Millions)
2012
 
2011
 
2010
Revenues
$
1,539

 
$
1,633

 
$
1,519

Net earnings
$
28

 
$
80

 
$
103

PPG’s share of undistributed net earnings of equity affiliates was $79 million and $101 million as of December 31, 2012 and 2011 , respectively. Dividends received from equity affiliates were $12 million , $19 million and $6 million in 2012 , 2011 and 2010 , respectively. The decline in 2012 equity earnings compared to 2011 was primarily due to lower results from Asian fiber glass joint ventures.
As of December 31, 2012 and 2011, there were no unrealized pretax gains or losses related to marketable equity securities available for sale. In 2012, there were no pretax gains or losses realized and no cash proceeds from the sale of these investments. PPG sold certain of these investments resulting in recognition of pretax gains of $3 million and $2 million in 2011 and 2010 , respectively. Cash proceeds of $9 million , and $3 million were received in 2011 and 2010 , respectively.

 
6. Goodwill and Other Identifiable Intangible Assets
 
The change in the carrying amount of goodwill attributable to each reportable business segment for the years ended December 31, 2012 and 2011 was as follows:
(Millions)
Perform-ance
Coatings
Industrial
Coatings
Architectural
Coatings—
EMEA
Optical
and
Specialty
Materials
Glass
Commodity
Chemicals
Total
Balance, Jan. 1, 2011
$
1,151

$
495

$
966

$
49

$
52

$
6

$
2,719

Goodwill from acquisitions
4

—

1

—

—

—

5

Currency translation
(16
)
(11
)
(34
)
(1
)
(2
)
—

(64
)
Balance, Dec. 31, 2011
$
1,139

$
484

$
933

$
48

$
50

$
6

$
2,660

Goodwill from acquisitions
22

18

18

—

—

—

58

Currency translation
12

10

19

—

2

—

43

Balance, Dec. 31, 2012
$
1,173

$
512

$
970

$
48

$
52

$
6

$
2,761


The carrying amount of acquired trademarks with indefinite lives as of December 31, 2012 and 2011 totaled $324 million and $316 million , respectively.
 
The Company’s identifiable intangible assets with finite lives are being amortized over their estimated useful lives and are detailed below.
 
Dec. 31, 2012
 
Dec. 31, 2011
(Millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Acquired 
technology
$
516

 
$
(342
)
 
$
174

 
$
511

 
$
(308
)
 
$
203

Customer-related intangibles
1,010

 
(491
)
 
519

 
945

 
(412
)
 
533

Tradenames
120

 
(57
)
 
63

 
116

 
(50
)
 
66

Other
34

 
(29
)
 
5

 
32

 
(25
)
 
7

Balance
$
1,680

 
$
(919
)
 
$
761

 
$
1,604

 
$
(795
)
 
$
809


Aggregate amortization expense was $110 million , $121 million and $124 million in 2012 , 2011 and 2010 , respectively. The estimated future amortization expense of identifiable intangible assets per year is approximately $102 million during 2013 , approximately $100 million during 2014 and 2015 , approximately $80 million in 2016 and approximately $70 million in 2017 .
 
7. Business Restructuring
In March 2012, the Company finalized a restructuring plan to reduce its cost structure, primarily due to continuing weak economic conditions in Europe and in the commercial and residential construction markets in the U.S. and Europe. As part of this restructuring plan, PPG will close several laboratory, warehouse and distribution facilities and small production units and will reduce staffing. The restructuring will impact a number of businesses globally, primarily the global architectural businesses and general and administrative functions in Europe.


42 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

As a result of this restructuring plan, in March 2012 the Company recorded a charge of $208 million , including severance and other costs of $160 million , asset write-offs of $53 million , and a net pension curtailment gain of $5 million . The Company expects to incur additional costs of approximately $5 million directly associated with the restructuring actions for demolition, dismantling, relocation and training that will be charged to expense as incurred. To date, approximately $4 million of these expenses have been recognized. The Company expects to incur the remainder of these additional expenses in the first half of 2013.
In the fourth quarter of 2012, adjustments of approximately $12 million were recorded to reduce the restructuring reserve established in the first quarter of 2012 to reflect the current estimate of the costs to complete these actions. Also in the fourth quarter of 2012, some additional restructuring actions were approved and charges of approximately $12 million for the cost of these actions were recorded. The additional actions increased the number of employees impacted by 273 .
The following table summarizes the restructuring plan and the activity in the restructuring reserve during the year ended December 31, 2012 :
(Millions, except no. of employees)
Severance
and Other
Costs
 
Pension Curtailment (Gains)/Losses
 
Asset
Write-offs
 
Total
Reserve
 
Employees
Impacted
Performance Coatings
$
55

 
$
1

 
$
12

 
$
68

 
867

Industrial Coatings
38

 
(1
)
 
8

 
45

 
394

Architectural Coatings - EMEA
61

 
(5
)
 
3

 
59

 
881

Optical & Specialty Materials
2

 
—

 
30

 
32

 
50

Glass
3

 
—

 
—

 
3

 
36

Corporate
1

 
—

 
—

 
1

 
4

Total
$
160

 
$
(5
)
 
$
53

 
$
208

 
2,232

2012 activity
(83
)
 
$
5

 
(53
)
 
(131
)
 
(1,631
)
Currency impact
$
(2
)
 
$
—

 
$
—

 
$
(2
)
 
—

Balance as of December 31, 2012
$
75

 
$
—

 
$
—

 
$
75

 
601

At December 31, 2011, there was a remaining reserve of $4 million and $1 million , respectively related to 2009 and 2008 restructuring plans. All accrued amounts have been paid during 2012.
 
8. Debt and Bank Credit Agreements and Leases
(Millions)
2012
 
2011
6    7 / 8 % notes, due 2012 (1)
$
—

 
$
71

5.75% notes, due 2013 (1)
600

 
600

3    7 / 8 % notes, due 2015 (€300)
395

 
388

1.9 % notes, due 2016 (1)
249

 
248

7   3 / 8 % notes, due 2016 (1)
146

 
146

6    7 / 8 % notes, due 2017
74

 
74

6.65% notes, due 2018
700

 
700

7.4% notes, due 2019
198

 
198

3.6% notes, due 2020
495

 
495

9% non-callable debentures, due 2021
149

 
149

2.70% notes, due 2022 (2)
400

 
—

7.70% notes, due 2038
249

 
249

5.5% notes, due 2040
248

 
248

Impact of derivatives on debt (1)
31

 
42

Various other non-U.S. debt, weighted average 3.4% as of December 31, 2012 and 2.3% of December 31, 2011.
5

 
9

Capital lease obligations
32

 
32

Total
3,971

 
3,649

Less payments due within one year
603

 
75

Long-term debt
$
3,368

 
$
3,574

(1)
PPG entered into several interest rate swaps which as of December 31, 2011 had the effect of converting $445 million , of these fixed rate notes to variable rates, based on the three-month London Interbank Offered Rate (LIBOR). There were no interest rate swaps outstanding at December 31, 2012 . The fair values of these interest rate swaps were based on Level 2 inputs as described in Note 9. The weighted average effective interest rate for these borrowings, including the effects of the swaps, was 2.7% and 3.1% for the years ended December 31, 2012 and 2011 , respectively. Refer to Note 11 for additional information.
(2)
In 2012, the $400 million notes were issued at a discount. Concurrently, PPG settled forward starting swaps with a payment of $121 million . This loss will be amortized to interest expense over the life of the debt. The effective interest rate on the $400 million notes was 5.8% at December 31, 2012 .

Aggregate maturities of long-term debt during the next five years are (in millions) $603 in 2013 , $9 in 2014 , $405 in 2015 , $400 in 2016 , and $77 in 2017 .
In July 2012 , PPG entered into a five -year credit agreement with several banks and financial institutions (the “Credit Agreement”). The Credit Agreement provides for a $1.2 billion unsecured revolving credit facility. In connection with entering into this Credit Agreement, the Company terminated its existing $1.2 billion revolving credit facility that was scheduled to expire in August 2013 . There was no outstanding amount due under this revolving facility at the time of its termination. The Company has the ability to increase the size of the Credit Agreement by up to an additional $300 million , subject to the receipt of lender commitments and other conditions. The Credit Agreement will terminate and all amounts outstanding thereunder will be due and payable on September 12, 2017 , although under circumstances specified in the Credit Agreement and subject to the lenders' approval, the Company may make one request to extend such termination date by one year with respect to the approving lenders. The Company has the right, subject to


2012 PPG ANNUAL REPORT AND FORM 10-K 43

Notes to the Consolidated Financial Statements

certain conditions set forth in the Credit Agreement, to designate certain subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation, the Company is required to guarantee the obligations of any such subsidiaries under the Credit Agreement. There were no amounts outstanding under the credit agreement at December 31, 2012 ; however, the available borrowing rate on a one month, U.S. dollar denominated borrowing would have been 0.84% .
Borrowings under the Credit Agreement may be made in U.S. dollars or in euros. The Credit Agreement provides that loans will bear interest at rates based, at the Company's option, on one of two specified base rates plus a margin based on certain formulas defined in the Credit Agreement. Additionally, the Credit Agreement contains a Commitment Fee, as defined in the Credit Agreement, on the amount of unused commitments under the Credit Agreement ranging from 0.080% to 0.225% per annum. The applicable date and the Commitment Fee will be determined with reference to the pricing grid set forth in the Credit Agreement referencing the ratings established by Standard & Poor's Financial Services LLC and Moody's Investor Service Inc. for the Company's non-credit enhanced, long-term, senior, unsecured debt. The average Commitment Fee in 2012 was 0.175% and PPG is committed to pay 0.125% in 2013. There were no amounts outstanding under the Credit Agreement at December 31, 2012 .
The Credit Agreement contains usual and customary restrictive covenants for facilities of its type, which include, with specified exceptions, limitations on the Company's ability to create liens or other encumbrances, to enter into sale and leaseback transactions and to enter into consolidations, mergers or transfers of all or substantially all of its assets. The Credit Agreement maintains the same restrictive covenant as the prior revolving credit facility whereby the Company must maintain a ratio of Total Indebtedness to Total Capitalization, as defined in the Credit Agreement, of 60% or less.
The Credit Agreement contains customary events of default, including the failure to make timely payments when due under the Credit Agreement or other material indebtedness, the failure to satisfy covenants contained in the Credit Agreement, a change in control of the Company and specified events of bankruptcy and insolvency that would permit the lenders to accelerate the repayment of any loans.
On July 31, 2012 , PPG completed a public offering of $400 million in aggregate principal amount of its 2.70% Notes due 2022 (the "2022 Notes”). The 2022 Notes were offered by the Company pursuant to its existing shelf registration statement and pursuant to an indenture dated as of March 18, 2008 (the “Original Indenture”) between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), as supplemented by a first supplemental indenture dated as of March 18, 2008 between the Company and the Trustee (the “First Supplemental Indenture”), a second supplemental indenture dated as of November 12, 2010 between the Company and the Trustee (the “Second Supplemental Indenture”) and a third supplemental indenture dated as of
 
August 3, 2011 between the Company and the Trustee (the “Third Supplemental Indenture” and, together with the Original Indenture, the First Supplemental Indenture and the Second Supplemental Indenture, the “Indenture”). The Company may issue additional debt from time to time pursuant to the Original Indenture. The Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these notes also require the Company to make an offer to repurchase the Notes upon a Change of Control Triggering Event (as defined in the Second Supplemental Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest.
The proceeds from this offering of $397 million , net of discount and issuance costs, are expected to be used to repay a portion of the $600 million of 5.75% notes due in March 2013 (the "2013 Notes”). The discount and issuance costs related to the 2022 Notes, which totaled $3 million , will be amortized to interest expense over the life of the 2022 Notes. Concurrently with the issuance of the 2022 Notes, PPG settled forward starting swaps with a payment of $121 million on July 30, 2012 . This loss will be amortized to interest expense over the term of the notes, resulting in an effective interest rate of 5.8% . (Refer to Note 11, "Derivative Financial Instruments and Hedge Activities" for additional information).
In April 2012, the Company reclassified the $600 million of the 2013 Notes to Short-term debt and current portion of long-term debt in the accompanying consolidated balance sheet as these notes are due to be repaid in March 2013 . Also during the year-ended December 31, 2012 , the Company assumed $120 million of debt in the Dyrup acquisition and repaid $119 million of that debt, and repaid the $71 million of 6.875% notes upon their maturity.
In June 2011 , the Company repaid a $400 million three year, unsecured term loan, which had a scheduled maturity date of June 2012 . There was no prepayment penalty. The interest rate was variable based on a spread over LIBOR. This term loan was repaid using a portion of the proceeds from our November 2010 $1 billion debt issuance.
 
On November 12, 2010 , PPG completed a public offering of $250 million in aggregate principal amount of its 1.900% Notes due 2016, $500 million in aggregate principal amount of its 3.600% Notes due 2020 and $250 million in aggregate principal amount of its 5.500% Notes due 2040. These notes were issued pursuant to the Original Indenture as supplemented by the First Supplemental Indenture and Second Supplemental Indenture. The indentures governing these notes contains covenants substantially similar those in the indentures governing the 2022 Notes.
Cash proceeds from the sale of these notes was $983 million (net of discount and issuance costs). The discount and issuance


44 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

costs related to these notes, which totaled $17 million , will be amortized to interest expense over the respective terms of the notes.
In August 2010, PPG entered into a three-year credit agreement with several banks and financial institutions (the "2010 Credit Agreement") which was subsequently terminated in July 2012. The 2010 Credit Agreement provided for a $1.2 billion unsecured revolving credit facility. In connection with entering into the 2010 Credit Agreement, the Company terminated its €650 million and its $1 billion revolving credit facilities that were each set to expire in 2011. There were no outstanding amounts due under either revolving facility at the times of their termination. The 2010 Credit Agreement was set to terminate on August 5, 2013 .
PPG’s non-U.S. operations have uncommitted lines of credit totaling $705 million of which $34 million was used as of December 31, 2012 . These uncommitted lines of credit are subject to cancellation at any time and are generally not subject to any commitment fees.
Short-term debt outstanding as of December 31, 2012 and 2011 , was as follows:
(Millions)
2012
 
2011
Other, weighted average 2.27% as of Dec. 31, 2012 and 3.72% as of December 31, 2011
$
39

 
$
33

Total
$
39

 
$
33


PPG is in compliance with the restrictive covenants under its various credit agreements, loan agreements and indentures. The Company’s revolving credit agreements include a financial ratio covenant. The covenant requires that the amount of total indebtedness not exceed 60% of the Company’s total capitalization excluding the portion of accumulated other comprehensive income (loss) related to pensions and other postretirement benefit adjustments. As of December 31, 2012 , total indebtedness was 42% of the Company’s total capitalization excluding the portion of accumulated other comprehensive income (loss) related to pensions and other postretirement benefit adjustments. Additionally, substantially all of the Company’s debt agreements contain customary cross-default provisions. Those provisions generally provide that a default on a debt service payment of $10 million or more for longer than the grace period provided (usually 10 days) under one agreement may result in an event of default under other agreements. None of the Company’s primary debt obligations are secured or guaranteed by the Company’s affiliates.
Interest payments in 2012 , 2011 and 2010 totaled $219 million , $212 million and $189 million , respectively.
In October 2009 , the Company entered into an agreement with a counterparty to repurchase up to 1.2 million shares of the Company’s stock of which 1.1 million shares were purchased in the open market ( 465,006 of these shares were purchased as of December 31, 2009 at a weighted average price of $56.66 per share). The counterparty held the shares until September of 2010
 
when the Company paid $65 million and took possession of these shares.
Rental expense for operating leases was $233 million , $249 million and $233 million in 2012 , 2011 and 2010 , respectively. The primary leased assets include paint stores, transportation equipment, warehouses and other distribution facilities, and office space, including the Company’s corporate headquarters located in Pittsburgh, Pa. Minimum lease commitments for operating leases that have initial or remaining lease terms in excess of one year as of December 31, 2012 , are (in millions) $171 in 2013 , $135 in 2014 , $107 in 2015 , $83 in 2016 , $64 in 2017 and $135 thereafter.
The Company had outstanding letters of credit and surety bonds of $119 million as of December 31, 2012 . The letters of credit secure the Company’s performance to third parties under certain self-insurance programs and other commitments made in the ordinary course of business. As of December 31, 2012 and 2011 , guarantees outstanding were $96 million and $90 million , respectively. The guarantees relate primarily to debt of certain entities in which PPG has an ownership interest and selected customers of certain of the Company’s businesses. A portion of such debt is secured by the assets of the related entities. The carrying values of these guarantees were $11 million and $13 million as of December 31, 2012 and 2011 , respectively, and the fair values were $11 million and $21 million , as of December 31, 2012 and 2011 , respectively. The fair value of each guarantee was estimated by comparing the net present value of two hypothetical cash flow streams, one based on PPG’s incremental borrowing rate and the other based on the borrower’s incremental borrowing rate, as of the effective date of the guarantee. Both streams were discounted at a risk free rate of return. The Company does not believe any loss related to these letters of credit, surety bonds or guarantees is likely.
9. Fair Value Measurement
The accounting guidance on fair value measurements establishes a hierarchy with three levels of inputs used to determine fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities, are considered to be the most reliable evidence of fair value, and should be used whenever available. Level 2 inputs are observable prices that are not quoted on active exchanges. Level 3 inputs are unobservable inputs employed for measuring the fair value of assets or liabilities.
 


2012 PPG ANNUAL REPORT AND FORM 10-K 45

Notes to the Consolidated Financial Statements

Assets and liabilities reported at fair value on a recurring basis:
 
 
 
December 31, 2012
(Millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term investments:
 
 
 
 
 
 
 
 
 
Commercial paper and certificates of deposit
 
$
—

 
$
455

 
$
—

 
$
455

Other current assets:
 
 
 
 
 
 
 
 
 
Marketable equity securities
 
5

 
—

 
—

 
5

 
Foreign currency contracts (1)
 
—

 
3

 
—

 
3

 
Equity forward arrangement (1)
 
—

 
130

 
—

 
130

Investments:
 
 
 
 
 
 
 
 
 
Marketable equity securities
 
60

 
—

 
—

 
60

Accounts payable and accrued liabilities:
 
 
 
 
 
 
 
 
 
Foreign currency contracts (1)
 
—

 
1

 
—

 
1

Other liabilities:
 
 
 
 
 
 
 
 
 
Cross currency swaps (1)
 
—

 
95

 
—

 
95

(1)
This entire balance is designated as a hedging instrument under GAAP.

 
 
 
December 31, 2011
(Millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term investments:
 
 
 
 
 
 
 
 
 
Commercial paper and restricted cash
 
$
—

 
$
21

 
$
—

 
$
21

 
Marketable equity securities
 
4

 
—

 
—

 
4

Other current assets:
 
 
 
 
 
 
 
 
 
Foreign currency contracts (1)
 
—

 
1

 
—

 
1

 
Interest rate swaps (1)
 
—

 
1

 
—

 
1

 
Equity forward arrangement (1)
 
—

 
56

 
—

 
56

Investments:
 
 
 
 
 
 
 
 
 
Marketable equity securities
 
56

 
—

 
—

 
56

Other assets:
 
 
 
 
 
 
 
 
 
Interest rate swaps (1)
 
—

 
25

 
—

 
25

Accounts payable and accrued liabilities:
 
 
 
 
 
 
 
 
 
Foreign currency contracts (1)
 
—

 
6

 
—

 
6

 
Forward starting swaps (1)
 
—

 
92

 
—

 
92

 
Natural gas swap contracts (1)
 
—

 
9

 
—

 
9

Other liabilities:
 
 
 
 
 
 
 
 
 
Cross currency swaps (1)
 
—

 
120

 
—

 
120

 
Foreign currency contracts (1)
 
—

 
1

 
—

 
1

(1)
This entire balance is designated as a hedging instrument under GAAP.
Assets and liabilities reported at fair value on a nonrecurring basis:
As a result of finalizing a restructuring plan, as discussed in Note 7, “Business Restructuring”, long-lived assets with a carrying amount of $10 million were written-down to their fair value of $7 million , resulting in a charge of $3 million , which was included in the business restructuring expense reported in the year-ended December 31, 2012. These long-lived assets were valued using Level 3 inputs.
 
There were no nonmonetary assets or liabilities written down to fair value on a nonrecurring basis during 2010 or 2011.
10. Financial Instruments, Excluding Derivative Financial Instruments
Included in PPG’s financial instrument portfolio are cash and cash equivalents, short-term investments, cash held in escrow, marketable equity securities, company-owned life insurance and short and long-term debt instruments. The fair values of these financial instruments approximated their carrying values at December 31, 2012 and 2011 , in the aggregate, except for long-term debt.
Long-term debt (excluding capital lease obligations), had carrying and fair values totaling $3,939 million and $4,484 million , respectively, as of December 31, 2012 . Long-term debt (excluding capital lease obligations), had carrying and fair values totaling $3,617 million and $4,154 million , respectively, as of December 31, 2011 . The fair values of the debt instruments were based on discounted cash flows and interest rates then currently available to the Company for instruments of the same remaining maturities.
11. Derivative Financial Instruments and Hedge Activities
The Company recognizes all derivative financial instruments as either assets or liabilities at fair value on the balance sheet. The accounting for changes in the fair value of a derivative depends on the use of the instrument. To the extent that a derivative is effective as a hedge of an exposure to future changes in cash flows, the change in fair value of the instrument is deferred in AOCI. Any portion considered to be ineffective is reported in earnings immediately, including changes in value related to credit risk. To the extent that a derivative is effective as a hedge of an exposure to future changes in fair value, the change in the derivative’s fair value is offset in the consolidated statement of income by the change in fair value of the item being hedged. To the extent that a derivative or a financial instrument is effective as a hedge of a net investment in a foreign operation, the change in the derivative’s fair value is deferred as an unrealized currency translation adjustment in AOCI.

PPG’s policies do not permit speculative use of derivative financial instruments. PPG uses forward currency and option contracts as hedges against its exposure to variability in exchange rates on short-term intercompany transactions, unrecognized firm sales commitments and cash flows denominated in foreign currencies. PPG uses foreign denominated debt and cross currency swap contracts to hedge net investments in foreign operations. PPG also uses an equity forward arrangement to hedge the Company’s exposure to changes in the fair value of PPG stock that is to be contributed to the asbestos settlement trust as discussed in Note 15, “Commitments and Contingent Liabilities.” In 2011 and 2010, interest rate swaps were used to manage the Company’s exposure to changing interest rates as such rate changes affected the fair value of fixed rate borrowings. Forward starting swaps


46 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

were used to lock-in a fixed interest rate, to which was added a corporate spread, related to future long-term debt refinancings. PPG also used derivative instruments to manage its exposure to fluctuating natural gas prices through the use of natural gas swap contracts.

PPG enters into derivative financial instruments with high credit quality counterparties and diversifies its positions among such counterparties in order to reduce its exposure to credit losses. The Company did not realize a credit loss on derivatives during the three-year period ended December 31, 2012 .
 
PPG centrally manages certain of its foreign currency transaction risks to minimize the volatility in cash flows caused by currency fluctuations. Decisions on whether to use derivative financial instruments to hedge the net transaction exposures related to all regions of the world are made based on the amount of those exposures by currency and, in certain situations, an assessment of the near-term outlook for certain currencies. This net hedging strategy does not qualify for hedge accounting; therefore, the change in the fair value of these instruments is recorded in “Other charges” in the accompanying consolidated statement of income in the period of change. As of December 31, 2012 and 2011 , the fair value of these contracts were assets of less than $0.1 million and $0.4 million , respectively.
 
PPG designates forward currency contracts as hedges against the Company’s exposure to variability in exchange rates on short-term intercompany borrowings and transactions denominated in foreign currencies. To the extent effective, changes in the fair value of these instruments are deferred in AOCI and subsequently reclassified to “Other charges” in the accompanying consolidated statement of income as foreign exchange gains and losses are recognized on the related intercompany and other transactions. The portion of the change in fair value considered to be ineffective is recognized immediately in “Other charges” in the accompanying consolidated statement of income. All amounts related to these instruments deferred in AOCI as of December 31, 2012 will be reclassified to earnings within the next twelve months. As of December 31, 2012 and 2011 , the fair value of these instruments was a net liability of $1 million and $5 million , respectively.
 
PPG designates forward currency contracts as hedges against the Company’s exposure to future changes in fair value related to certain firm sales commitments denominated in foreign currencies. These contracts are designated as fair value hedges. As such, they are reported at fair value in the Company’s consolidated balance sheet, with changes in the fair value of these contracts and that of the related firm sales commitments reported in net sales. As of December 31, 2012 , these contracts converted $56 million to the South Korean won over the 21 month period ending September 30, 2014 . As of December 31, 2011 , contracts converted $91 million to the South Korean won over the 30 month period ending June 30, 2014 . As of December 31, 2012 and 2011 , the fair value of the contracts was
 
a net asset of $3 million and a net liability of $1 million , respectively.
 
As of January 1, 2012, PPG had nine U.S. dollar to euro cross currency swap contracts with a total notional amount of $1.16 billion , of which $600 million were to settle on March 15, 2013 and $560 million were to settle on March 15, 2018. In June 2012, $600 million of swaps, with a settlement date of March 15, 2013, were settled with PPG receiving $1 million in cash. On settlement of the remaining outstanding contracts, PPG will receive $560 million U.S. dollars and pay euros to the counterparties to the contracts. During the term of these contracts, PPG will receive semiannual payments in March and September of each year based on U.S. dollar, long-term fixed interest rates, and PPG will make annual payments in March of each year to the counterparties based on euro, long-term fixed interest rates. The Company designated all of the cross currency swaps as hedges of its net investment in the acquired SigmaKalon businesses and, as a result, the mark to market fair value adjustments of the swaps outstanding have been and will be recorded as a component of AOCI, and the cash flow impact of these swaps has been and will be classified as investing activities in the consolidated statement of cash flows. As of December 31, 2012 and December 31, 2011 , the fair value of these contracts was a net liability of $95 million and $120 million , respectively.
 
As of December 31, 2012 and 2011 , PPG designated €300 million euro-denominated borrowings as a hedge of a portion of PPG’s net investment in the Company’s European operations. Also, during 2010, certain portions of PPG’s various other euro-denominated borrowings were designated as hedges of PPG’s investments in its European operations. As a result, the change in book value from adjusting these foreign-denominated borrowings to current spot rates was deferred in AOCI.
 
As of December 31, 2012 and December 31, 2011, the Company had accumulated pretax unrealized translation gains in AOCI of $9 million and $14 million , respectively, related to both the euro-denominated borrowings and the cross currency swaps that have been designated as hedges of net investments.
 
Deferrals in AOCI related to hedges of the Company’s net investments in European operations would be reclassified and recognized in earnings upon a substantial liquidation, sale or partial sale of such investments or upon impairment of all or a portion of such investments.
 
The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to minimize its interest costs. Generally, the Company maintains variable interest rate debt at a level of approximately 25 percent to 50 percent of total borrowings. PPG principally manages its fixed and variable interest rate risk by retiring and issuing debt from time to time and through the use of interest rate swaps. As of December 31, 2011, interest rate swaps converted $445 million of fixed rate debt to variable rate debt. During the year


2012 PPG ANNUAL REPORT AND FORM 10-K 47

Notes to the Consolidated Financial Statements

ended December 31, 2012, PPG settled these swaps and received $29 million from such settlements. When outstanding, the swaps were designated as fair value hedges. As such, they were carried at fair value. Changes in the fair value of these swaps and that of the related debt were recorded in "Interest expense" in the accompanying consolidated statement of income. As of December 31, 2011, the fair value of these contracts was a net asset of $26 million .

The Company entered into forward starting swaps in 2009 and in the second quarter of 2010 to effectively lock-in a fixed interest rate for future debt refinancings with an anticipated term of ten years based on the ten year swap rate, to which was added a corporate spread. The notional amount of the swaps outstanding totaled $400 million . To the extent that the swaps were effective, changes in the fair values of the swap contracts were deferred in AOCI. The portion of the change in fair value considered to be ineffective was recognized immediately in Other charges in the accompanying consolidated statement of income. All of the swap contracts were settled on July 30, 2012, resulting in a cash payment of $121 million . As of December 31, 2012, the amount of loss recorded in AOCI was $116 million . The remaining balance will be amortized to interest expense over the remaining term of the ten-year debt that was issued on July 31, 2012. (See Note 8, “Debt and Bank Credit Agreements and Leases” for further discussion regarding this debt issuance.) As of December 31, 2011, the fair value of these swaps was a liability of $92 million .

Derivative instruments have been used to manage the Company's exposure to fluctuating natural gas prices through the use of natural gas swap contracts. There were no natural gas swap contracts outstanding as of December 31, 2012 as the price of natural gas has declined for the past four years and is not expected to be as volatile over the next 12 to 18 months as continued development of shale oil and gas reserves will maintain downward pressure on the price of natural gas. To the extent that these instruments were effective in hedging PPG’s exposure to price changes, changes in the fair values of the hedge contracts were deferred in AOCI and reclassified to "Cost of sales, exclusive of depreciation and amortization" as the natural gas was purchased. The amount of ineffectiveness was reported in "Other charges" in the accompanying consolidated statement of income immediately. As of December 31, 2011 , the fair value of these contracts was a liability of $9 million . There was no balance in AOCI as of December 31, 2012 related to the contracts.

PPG entered into a one-year renewable equity forward arrangement with a bank in 2003 in order to mitigate the impact on PPG earnings of changes in the fair value of 1,388,889 shares of PPG stock that are to be contributed to the asbestos settlement trust as discussed in Note 15, “Commitments and Contingent Liabilities.” This instrument, which has been renewed annually, is recorded at fair value as an asset or liability and changes in the fair value of this instrument are reflected in the “Asbestos settlement – net” caption of the accompanying consolidated
 
statement of income. The total principal amount payable for these shares is $62 million . PPG will pay to the bank interest based on the principal amount and the bank will pay to PPG an amount equal to the dividends paid on these shares during the period this instrument is outstanding. The difference between the principal amount and any amounts related to unpaid interest or dividends and the current market price for these shares, adjusted for credit risk, represents the fair value of the instrument as well as the amount that PPG would pay or receive if the bank chose to net settle the instrument. Alternatively, the bank may, at its option, require PPG to purchase the shares covered by the arrangement at the principal amount adjusted for unpaid interest and dividends as of the date of settlement. As of December 31, 2012 and 2011 , the fair value of this contract was an asset of $130 million and $56 million , respectively.
 
No derivative instrument initially designated as a hedge instrument was undesignated or discontinued as a hedging instrument during 2012 or 2011. Nor were any amounts deferred in AOCI reclassified to earnings during the three-year period ended December 31, 2012 related to hedges of anticipated transactions that were no longer expected to occur.
 
All of the outstanding derivative instruments are subject to accelerated settlement in the event of PPG’s failure to meet its debt obligations or payment obligations under the terms of the instruments’ contractual provisions. In addition, should the Company be acquired and its payment obligations under the derivative instruments’ contractual arrangements not be assumed by the acquirer, or should PPG enter into bankruptcy, receivership or reorganization proceedings, the instruments would also be subject to accelerated settlement.
 
For the year ended December 31, 2012 , Other comprehensive income included a net pretax loss due to cash flow hedge derivatives of $11 million ( $7 million , net of tax). This loss was comprised of realized losses of $27 million and unrealized losses of $38 million . The realized losses related to the settlement during the period of natural gas swap contracts and interest rate swaps owned by RS Cogen (Refer to Note 5, “Investments” for a discussion regarding this equity method investment.), amortization of a portion of the loss on the forward starting swaps that was deferred in AOCI, and realized losses on foreign currency contracts. The unrealized losses related to the change in fair value of the natural gas swap contracts, forward starting swaps, interest rate swaps owned by RS Cogen, and the change in fair value of the foreign currency contracts.
 
For the year ended December 31, 2011 , Other comprehensive loss included a net pretax loss due to cash flow hedge derivatives of $51 million ( $32 million , net of tax). This loss was comprised of realized losses of $28 million and unrealized losses of $79 million . The realized losses related to the settlement during the period of natural gas swap contracts and interest rate swaps owned by RS Cogen (Refer to Note 5, “Investments” for a discussion regarding this equity method investment.), offset in part by realized gains on foreign currency contracts. The unrealized losses related to the change in fair


48 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

value of the natural gas swap contracts, forward starting swaps and interest rate swaps owned by RS Cogen, offset in part by the change in fair value of the foreign currency contracts.
 
For the year ended December 31, 2010, Other comprehensive loss included a net pretax loss due to cash flow hedge derivatives of $3 million ( $2 million , net of tax). This loss was comprised of realized losses of $93 million and unrealized losses of $96 million . The realized losses related to the settlement during the period of natural gas swap contracts, interest rate swaps owned by RS Cogen (Refer to Note 5, “Investments” for a discussion regarding this equity method investment.) and foreign currency contracts. The unrealized losses related to the change in fair value of the natural gas swap contracts, forward starting swaps, foreign currency contracts and interest rate swaps owned by RS Cogen.
 
Refer to Note 9, “Fair Value Measurement,” for additional disclosures related to the Company’s derivative instruments outstanding as of December 31, 2012 and 2011 .

The following tables provide details for the years ended December 31, 2012 and 2011 related to fair value, cash flow and net investment hedges, by type of derivative and financial instrument. All dollar amounts are pretax.
 
 
December 31, 2012
Hedge Type (Millions)
 
Gain
(Loss)
Deferred
in OCI
 
Gain (Loss) Recognized
Amount
 
Caption
Fair Value
 
 
 
 
 
 
 
 
Interest rate swaps (a)
 
Not
applicable
 
$
17

 
Interest
expense
 
 
Foreign currency contracts (b)
 
Not
applicable
 
1

 
Sales
 
 
Equity forward arrangements (a)
 
Not
applicable
 
74

 
Asbestos - net
 
 
Total Fair Value
 
 
 
$
92

 
 
Cash Flow
 
 
 
 
 
 
 
 
Natural gas swaps (a)
 
$
(2
)
 
$
(11
)
 
Cost of sales
 
 
Interest rate swaps of RS Cogen
 
(1
)
 
(2
)
 
Other
earnings
 
 
Forward starting swaps (c)
 
(26
)
 
(5
)
 
Interest
expense
 
 
Foreign currency contracts (d)
 
(9
)
 
(9
)
 
Other charges
 
 
Total Cash Flow
 
$
(38
)

$
(27
)
 
 
Net Investment
 
 
 
 
 
 
 
 
Cross currency swaps (a)
 
$
3

 
$
—

 
Other charges
 
 
Foreign denominated debt
 
(7
)
 
 
 
Other charges
 
 
Total Net Investment
 
$
(4
)
 
$
—

 
 
Non-Hedge
 
 
 
 
 
 
 
 
Foreign currency contracts
 
Not
applicable
 
$
1

 
Other 
charges
 
 
Total Non-Hedge
 
 
 
$
1

 
 
(a)
The ineffective portion related to each of the items was less than $ 0.1 million of expense .
 
(b)
The ineffective portion related to this item was $ 0.5 million of income .
(c)
The ineffective portion related to this item was $ 4 million of expense .
(d)
The ineffective portion related to this item was $ 8 million of expense .

 
 
December 31, 2011
Hedge Type (Millions)
 
Gain
(Loss)
Deferred
in OCI
 
Gain (Loss) Recognized
Amount
 
Caption
Fair Value
 
 
 
 
 
 
 
 
Interest rate swaps (a)
 
Not
applicable
 
$
16

 
Interest
expense
 
 
Foreign currency contracts (b)
 
Not
applicable
 
2

 
Sales
 
 
Equity forward arrangements (a)
 
Not
applicable
 
1

 
Asbestos - net
 
 
Total Fair Value
 
 
 
$
19

 
 
Cash Flow
 
 
 
 
 
 
 
 
Natural gas swaps (a)
 
$
(10
)
 
$
(32
)
 
Cost of sales
 
 
Interest rate swaps of RS Cogen
 
(2
)
 
(2
)
 
Other
earnings
 
 
Forward starting swaps (c)
 
(73
)
 
—

 
Interest
expense
 
 
Foreign currency contracts (d)
 
6

 
6

 
Other charges
 
 
Total Cash Flow
 
$
(79
)
 
$
(28
)
 
 
Net Investment
 
 
 
 
 
 
 
 
Cross currency swaps (e)
 
$
34

 
$
—

 
Other charges
 
 
Foreign denominated debt
 
13

 
 

 
Other charges
 
 
Total Net Investment
 
$
47

 
$
—

 
 
Non-Hedge
 
 
 
 
 
 
 
 
Foreign currency contracts
 
Not
applicable
 
$
—

 
Other
charges
 
 
Total Non-Hedge
 
 
 
$
—

 
 
(a)
The ineffective portion related to each of the items was less than $0.1 million of either income or expense.
(b)
The ineffective portion related to this item was $0.8 million of income.
(c)
The ineffective portion related to this item was $3 million of income.
(d)
The ineffective portion related to this item was $6 million of expense.
(e)
The ineffective portion related to this item was $2 million of expense.



2012 PPG ANNUAL REPORT AND FORM 10-K 49

Notes to the Consolidated Financial Statements

12. Earnings Per Common Share
The earnings per common share calculations for the three years ended December 31, 2012 , are as follows:
(Millions, except per share amounts)
2012
 
2011
 
2010
Earnings per common share (attributable to PPG)
 
Net income (attributable to PPG)
$
941

 
$
1,095

 
$
769

 
Weighted average common shares outstanding
153.4

 
157.3

 
164.5

 
Earnings per common share (attributable to PPG):
 
Net income (attributable to PPG)
$
6.13

 
$
6.96

 
$
4.67

Earnings per common share - assuming dilution (attributable to PPG)
 
Net income (attributable to PPG)
$
941

 
$
1,095

 
$
769

 
Weighted average common shares outstanding
153.4

 
157.3

 
164.5

 
Effect of dilutive securities:
 

 
 

 
 

 
Stock options
0.8

 
1.1

 
0.8

 
Other stock compensation plans
0.9

 
0.9

 
0.6

 
Potentially dilutive common shares
1.7

 
2.0

 
1.4

 
Adjusted weighted average common shares outstanding
155.1

 
159.3

 
165.9

Earnings per common share - assuming dilution (attributable to PPG)
 
Net income (attributable to PPG)
$
6.06

 
$
6.87

 
$
4.63

There were no outstanding stock options excluded in 2012 and 0.6 million and 1.2 million outstanding stock options excluded in 2011 and 2010 , respectively, from the computation of diluted earnings per common share due to their anti-dilutive effect.
13. Income Taxes
The following table presents a reconciliation of the statutory U.S. corporate federal income tax rate to the Company’s effective income tax rate:
 
 
2012
 
2011
 
2010
U.S. federal income tax rate
35.00
 %
 
35.00
 %
 
35.00
 %
Changes in rate due to:
 
 
 
 
 
 
U.S. State and local taxes
1.04

 
1.03

 
1.31

 
U.S. tax benefit on foreign dividends
(1.43
)
 
(1.04
)
 
0.05

 
Taxes on non-U.S. earnings
(7.99
)
 
(8.03
)
 
(8.11
)
 
PPG dividends paid to the ESOP
(0.44
)
 
(0.43
)
 
(0.67
)
 
U.S. tax incentives
(2.08
)
 
(1.67
)
 
(1.83
)
 
Significant audit settlements
—

 
(1.09
)
 
—

 
Other
0.03

 
0.34

 
(0.28
)
 
One-time charge, tax law change
—

 
—

 
6.57

 
Effective income tax rate
24.13
 %
 
24.11
 %
 
32.04
 %

The effective tax rate for 2012 includes tax benefits of $60 million , or 37.7% , on the $159 million charge for environmental remediation costs, $45 million , or 21.4% , on the $208 million business restructuring charge, $2 million , or 28.6% , on the acquisition-related expenses of $6 million , $3 million , or 11.0% , on the commodity chemicals separation and merger and acquisition-related costs of $26 million . The separation of PPG's commodity chemicals business and subsequent merger of the subsidiary holding that business with a subsidiary of Georgia
 
Gulf (Refer to Note 25, "Separation and Merger Transaction") is expected to be generally tax free to PPG, as a result of this, the deductibility for U.S. federal tax purposes of the costs associated with the transaction is expected to be limited. We currently estimate that approximately 20% of the separation and merger costs incurred to date will be tax deductible.
U.S. tax incentives include the R&D credit, the U.S. manufacturing deduction and the tax free Medicare Part D subsidy. The increase of the impact of U.S. tax incentives in 2012 can be explained by an increase in the manufacturing deduction which more than offset the absence of the R&D credit in 2012.
The 2012 and 2011 increase in the U.S. tax benefit on foreign dividends was mainly due to the tax efficient repatriation of high taxed foreign earnings resulting from tax planning.
The 2010 effective tax rate was increased because PPG recorded a one-time, aftertax charge in the first quarter of 2010 of $85 million , or 51 cents per share, as a result of a change in U.S. tax law included in the U.S. Patient Protection and Affordable Care Act enacted in March 2010. Under the prior tax law, the total amount paid for prescription drug costs for retirees over the age of 65 was tax deductible. Beginning in 2013, however, these costs will only be deductible to the extent they exceed the amount of the annual subsidy PPG receives from the U.S. government under Medicare Part D. As a result of this change, the Company’s deferred tax asset, which reflects the future tax deductibility of these post retirement costs, had to be reduced in the first quarter of 2010, the period that the change in the tax law was enacted, as required by the accounting guidance for income taxes.
Income before income taxes of the Company’s non-U.S. operations for 2012 , 2011 and 2010 was $793 million , $896 million and $793 million , respectively.
The following table gives details of income tax expense reported in the accompanying consolidated statement of income.
(Millions)
2012
 
2011
 
2010
Current income tax expense
 
 
 
 
 
 
U.S. federal
$
332

 
$
193

 
$
62

 
Non-U.S.
203

 
176

 
170

 
U.S. State and local
28

 
20

 
15

 
Total current income tax
563

 
389

 
247

Deferred income tax expense
 
 
 
 
 
 
U.S. federal
(162
)
 
11

 
70

 
Non-U.S.
(48
)
 
(17
)
 
2

 
U.S. State and local
(15
)
 
2

 
11

 
One-time charge, tax law change
—

 
—

 
85

 
Total deferred income tax
(225
)
 
(4
)
 
168

 
Total
$
338

 
$
385

 
$
415


Income tax payments in 2012 , 2011 and 2010 totaled $503 million , $353 million and $198 million , respectively.


50 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

Net deferred income tax assets and liabilities as of December 31, 2012 and 2011 , were as follows:
(Millions)
2012
 
2011
Deferred income tax assets related to
 
 
 
 
Employee benefits
$
1,000

 
$
963

 
Contingent and accrued liabilities
598

 
524

 
Operating loss and other carry-forwards
223

 
183

 
Inventories
21

 
29

 
Property
5

 
3

 
Derivatives
38

 
95

 
Other
41

 
97

 
Valuation allowance
(138
)
 
(134
)
 
Total
1,788

 
1,760

Deferred income tax liabilities related to
 
 
 
 
Property
405

 
500

 
Intangibles
452

 
460

 
Employee benefits
69

 
64

 
Other
3

 
63

 
Total
929

 
1,087

 
Deferred income tax assets – net
$
859

 
$
673


As of December 31, 2012 , subsidiaries of the Company had available net operating loss carryforwards of approximately $611 million for income tax purposes, of which approximately $529 million has an indefinite expiration. The remaining $82 million expires between the years 2013 and 2027. The tax effected amount of the net operating loss carryforwards is $177 million . A valuation allowance has been established for carry-forwards at December 31, 2012 , when the ability to utilize them is not likely.
The Company has $3,476 million and $2,920 million of undistributed earnings of non-U.S. subsidiaries as of December 31, 2012 and December 31, 2011, respectively.  These amounts relate to approximately 300 subsidiaries in more than 70 taxable jurisdictions. No deferred U.S. income taxes have been provided on these earnings as they are considered to be reinvested for an indefinite period of time or will be repatriated when it is tax effective to do so. The Company estimates that of these amounts, $ 2,865 million as of December 31, 2012 and $ 2,454 million as of December 31, 2011 of the undistributed earnings, could be repatriated at little to no U.S. tax cost due in part to the benefit of U.S. foreign tax credits that would be available if these earnings were repatriated. The repatriation of undistributed earnings of non-U.S. subsidiaries of approximately $ 611 million as of December 31, 2012 and $ 466 million as of December 31, 2011 would have resulted in a U.S. tax cost of approximately $ 110 million and $ 85 million , respectively.
The Company files federal, state and local income tax returns in numerous domestic and foreign jurisdictions. In most tax jurisdictions, returns are subject to examination by the relevant tax authorities for a number of years after the returns have been filed. The Company is no longer subject to examinations by tax authorities in any major tax jurisdiction for years before 2003. Additionally, the Internal Revenue Service
 
has completed its examination of the Company’s U.S. federal income tax returns filed for years through 2009. The examination of the Company’s U.S. federal income tax return for 2010 is currently underway and is expected to be finalized during 2013.
The activity in the accrued liability for unrecognized tax benefits for the three years ended December 31, 2012 is as follows:
(Millions)
2012
 
2011
 
2010
Balance at January 1
$
107

 
$
111

 
$
108

Additions based on tax positions related to the current year
12

 
15

 
7

Additions for tax positions of prior years
2

 
17

 
15

Reductions for tax positions of prior years
(12
)
 
(19
)
 
(5
)
Pre-acquisition unrecognized tax benefits
2

 
—

 
—

Reductions for expiration of the applicable statute of limitations
(6
)
 
(7
)
 
(6
)
Settlements
(23
)
 
(8
)
 
(2
)
Currency
—

 
(2
)
 
(6
)
Balance at December 31
$
82

 
$
107

 
$
111

 
The amount of unrecognized tax benefits was $82 million , $107 million and $111 million as of December 31, 2012 , 2011 and 2010 , respectively. If recognized, $79 million , $100 million and $103 million would impact the effective rate as of December 31, 2012 , 2011 and 2010 , respectively. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued as of December 31, 2012 , 2011 and 2010 , $10 million , $15 million and $15 million , respectively, for estimated interest and penalties on unrecognized tax benefits. The Company recognized $5 million of income in 2012 related to the reduction of estimated interest and penalties. The Company recognized no expense and $2 million of expense for estimated interest and penalties during the years ended December 31, 2011 and 2010 , respectively.
While it is expected that the amount of unrecognized tax benefits will change in the next 12 months, quantification of an estimated range cannot be made at this time. The Company does not expect this change to have a significant impact on the results of operations or financial position of the Company, however, actual settlements may differ from amounts accrued.
14. Pensions and Other Postretirement Benefits
 
Defined Benefit Plans
PPG has defined benefit pension plans that cover certain employees worldwide. The principal defined benefit pension plans are those in the U.S., Canada, the Netherlands and the U.K. which, in the aggregate, represent 99% of the market value of plan assets at December 31, 2012 . PPG also sponsors welfare benefit plans that provide postretirement medical and life insurance benefits for certain U.S. and Canadian employees and their dependents. These programs require retiree contributions based on retiree-selected coverage levels for certain retirees and


2012 PPG ANNUAL REPORT AND FORM 10-K 51

Notes to the Consolidated Financial Statements

their dependents and provide for sharing of future benefit cost increases between PPG and participants based on management discretion. The Company has the right to modify or terminate certain of these benefit plans in the future. Salaried and certain hourly employees hired on or after October 1, 2004, are not eligible for postretirement medical benefits. Salaried employees hired, rehired or transferred to salaried status on or after January 1, 2006, and certain hourly employees hired in 2006 or thereafter are eligible to participate in a defined contribution retirement plan. These employees are not eligible for defined benefit pension plan benefits.
 
Plan Design Changes
  In January 2011, the Company approved an amendment to one of its U.S. defined benefit pension plans that represents about 77% of the total U.S. projected benefit obligation at December 31, 2012, 2011 and 2010. Depending upon the affected employee's combined age and years of service to PPG, this change resulted in certain employees no longer accruing benefits under this plan as of December 31, 2011, while the remaining employees will no longer accrue benefits under this plan as of December 31, 2020. The affected employees will participate in the Company’s defined contribution retirement plan from the date their benefit under the defined benefit plan is frozen. The Company remeasured the projected benefit obligation of this amended plan, which resulted in an approximate $65 million reduction in the liability and lowered 2011 pension expense by approximately $12 million . The Company made similar changes to certain other U.S. defined benefit pension plans in 2011. The Company recognized a curtailment loss and special termination benefits associated with these plan amendments of $5 million in 2011. During 2010, PPG made changes to certain of its defined benefit pension plans to shift benefits for future service to defined contribution plans. The Company plans to continue reviewing and potentially changing other PPG defined benefit plans in the future.
Separation and Merger of Commodity Chemicals Business
On January 28, 2013, PPG completed the separation of its commodity chemicals business and the merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf, as discussed in Note 25, “Separation and Merger Transaction”. PPG transferred the defined benefit pension plan and other postretirement benefit liabilities for the affected employees in the U.S., Canada, and Taiwan in the separation resulting in net settlement and curtailment charges of approximately $30 million that will be recorded in the first quarter of 2013. This transaction will lower the projected benefit obligation of PPG's defined benefit pension plans by approximately $550 million and the accumulated benefit obligation of the other postretirement benefit plans by approximately $165 million . PPG will also transfer pension assets of approximately $480 million . Pension and other postretirement benefit expense of approximately $25 million was incurred by the Commodity Chemicals business in 2012.
 
Postretirement medical
Beginning in 2004, PPG's other postretirement benefit plan provided a retiree prescription drug benefit which was at least actuarially equivalent to Medicare Part D. Therefore, PPG received the federal subsidy provided for under the Medicare Act of 2003. The federal subsidy is not subject to U.S. federal income tax and is recorded as a reduction in annual net periodic benefit cost of other postretirement benefits. Since 2004, PPG has made periodic amendments to its U.S. other postretirement benefit plan; however, from January 1, 2010 to December 31, 2012 the Company has provided a self-insured plan for certain retirees and their dependents that was at least actuarially equivalent to Medicare Part D and has received the subsidy under the Medicare Act of 2003 for those retirees and their dependents. 
In October 2012, the Company decided, effective January 1, 2013, to move to an Employee Group Waiver Plan ("EGWP") for certain Medicare-eligible retirees and their dependents. The EGWP includes a fully-insured Medicare Part D prescription drug plan. As such, beginning in 2013 PPG is no longer eligible to receive the federal subsidy provided under the Medicare Act of 2003 for these retirees and their dependents.


52 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

The following table sets forth the changes in projected benefit obligations (“PBO”) (as calculated as of December 31), plan assets, the funded status and the amounts recognized in the accompanying consolidated balance sheet for the Company’s defined benefit pension and other postretirement benefit plans:
 
Pensions
 
Other
Postretirement
Benefits
(Millions)
2012
 
2011
 
2012
 
2011
Projected benefit
obligation, January 1
$
5,333

 
$
4,952

 
$
1,394

 
$
1,235

Service cost
61

 
63

 
22

 
19

Interest cost
239

 
254

 
57

 
63

Plan amendments
(2
)
 
—

 
(19
)
 
22

Actuarial losses / (gains) - net
443

 
444

 
(33
)
 
126

Benefits paid
(347
)
 
(281
)
 
(62
)
 
(64
)
Foreign currency translation adjustments
59

 
(37
)
 
3

 
(3
)
Curtailment and special termination benefits
(6
)
 
(58
)
 
—

 
—

Other
4

 
(4
)
 
—

 
(4
)
Projected benefit
obligation, December 31
$
5,784

 
$
5,333

 
$
1,362

 
$
1,394

Market value of plan
assets, January 1
$
4,382

 
$
4,127

 
 
 
 
Actual return on plan assets
571

 
426

 
 
 
 
Company contributions
81

 
121

 
 
 
 
Participant contributions
2

 
2

 
 
 
 
Benefits paid
(335
)
 
(262
)
 
 
 
 
Plan expenses and other-net
(1
)
 
(2
)
 
 
 
 
Foreign currency translation adjustments
50

 
(30
)
 
 
 
 
Market value of plan
assets, December 31
$
4,750

 
$
4,382

 
 
 
 
Funded Status
$
(1,034
)
 
$
(951
)
 
$
(1,362
)
 
$
(1,394
)
Amounts recognized in the Consolidated Balance Sheet:
 
 
 
 
Other assets (long-term)
27

 
23

 
—

 
—

Accounts payable and accrued liabilities
(20
)
 
(13
)
 
(75
)
 
(87
)
Accrued pensions
(1,041
)
 
(961
)
 
—

 
—

Other postretirement benefits
—

 
—

 
(1,287
)
 
(1,307
)
Net liability recognized
$
(1,034
)
 
$
(951
)
 
$
(1,362
)
 
$
(1,394
)
The PBO is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation (“ABO”) is the actuarial present value of benefits attributable to employee service rendered to date, but does not include the effects of estimated future pay increases. The ABO for all defined benefit pension plans as of December 31, 2012 and 2011 was $5,517 million and $5,117 million , respectively.
The aggregate PBO and fair value of plan assets (in millions) for the pension plans with PBO in excess of plan assets were $5,588 and $4,534 , respectively, as of December 31, 2012 , and $5,164 and $4,196 , respectively, as of December 31, 2011 . The aggregate ABO and fair value of plan assets (in millions) for
 
the pension plans with ABO in excess of plan assets were $5,186 and $4,352 , respectively, as of December 31, 2012 , and $4,771 and $3,992 , respectively, as of December 31, 2011 .
Amounts (pretax) not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss include the following:
(Millions)
Pensions
 
Other
Postretirement
Benefits
 
2012
 
2011
 
2012
 
2011
Accumulated net actuarial losses
$
2,097

 
$
2,052

 
$
505

 
$
571

Accumulated prior service credit
(3
)
 
(2
)
 
(45
)
 
(37
)
Total
$
2,094

 
$
2,050

 
$
460

 
$
534


The accumulated net actuarial losses for pensions relate primarily to the actual return on plan assets being less than the expected return on plan assets in 2000-2002, and 2008 and a decline in the discount rate since 1999. The accumulated net actuarial losses for other postretirement benefits relate primarily to actual healthcare costs increasing at a higher rate than assumed during the 2001-2003 period and the decline in the discount rate. Since the accumulated net actuarial losses exceed 10% of the higher of the market value of plan assets or the PBO at the beginning of the year, amortization of such excess over the average remaining service period of active employees expected to receive benefits has been included in net periodic benefit costs for pension and other postretirement benefits in each of the last three years. The decrease in 2012 of the accumulated prior service credit for other postretirement benefits relates to several amendments to these plans approved by the Company during 2011. Accumulated prior service cost (credit) is amortized over the future service periods of those employees who are active at the dates of the plan amendments and who are expected to receive benefits.
The decrease in accumulated other comprehensive loss (pretax) in 2012 relating to defined benefit pension and other postretirement benefits consists of:
(Millions)
Pensions
 
Other
Postretirement
Benefits
Net actuarial loss (gain) arising during the year
$
177

 
$
(33
)
New prior service credit
(1
)
 
(19
)
Amortization of actuarial loss
(150
)
 
(34
)
Amortization of prior service cost
—

 
12

Foreign currency translation adjustments and other
18

 
—

Net change
$
44

 
$
(74
)
 
The net actuarial loss arising during 2012 related to the Company’s pension plans was primarily due to a decrease in the discount rate, partially offset by actual plan asset returns greater than expected plan asset returns. The net actuarial gain arising during 2012 related to the Company’s other postretirement benefit plans was primarily due to demographic changes and


2012 PPG ANNUAL REPORT AND FORM 10-K 53

Notes to the Consolidated Financial Statements

updated claim costs, partially offset by a decrease in the discount rate.
The estimated amounts of accumulated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2013 are $139 million and $(1) million , respectively. The estimated amounts of accumulated net actuarial loss and prior service (credit) for the other postretirement benefit plans that will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost in 2013 are $34 million and $(11) million , respectively.
Net periodic benefit cost for the three years ended December 31, 2012 , included the following:
 
Pensions
 
Other
Postretirement
Benefits
(Millions)
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Service cost
$
61

 
$
63

 
$
64

 
$
22

 
$
19

 
$
19

Interest cost
239

 
254

 
249

 
57

 
63

 
64

Expected return on plan assets
(292
)
 
(312
)
 
(278
)
 
—

 
—

 
—

Amortization of prior service cost (credit)
—

 
1

 
5

 
(12
)
 
(12
)
 
(5
)
Amortization of actuarial losses
151

 
120

 
121

 
34

 
30

 
19

Curtailments and special termination benefits
—

 
5

 
—

 
—

 
—

 
—

Net periodic benefit cost
$
159

 
$
131

 
$
161

 
$
101

 
$
100

 
$
97


Net periodic benefit cost is included in Cost of sales, exclusive of depreciation and amortization, Selling, general and administrative and Research and development in the accompanying consolidated statement of income.
 
Assumptions
The following weighted average assumptions were used to determine the benefit obligation for the Company’s defined benefit pension and other postretirement plans as of December 31, 2012 and 2011 :
 
2012
 
2011
Discount rate
4.1
%
 
4.6
%
Rate of compensation increase
4.0
%
 
3.9
%
 
The following weighted average assumptions were used to determine the net periodic benefit cost for the Company’s defined benefit pension and other postretirement benefit plans for the three years in the period ended December 31, 2012 :
 
2012
 
2011
 
2010
Discount rate
4.6
%
 
5.3
%
 
5.7
%
Expected return on assets
7.0
%
 
7.6
%
 
7.8
%
Rate of compensation increase
3.9
%
 
3.8
%
 
3.9
%
 
 
These assumptions for each plan are reviewed on an annual basis. In determining the expected return on plan asset assumption, the Company evaluates the mix of investments that comprise each plan’s assets and external forecasts of future long-term investment returns. The Company compares the expected return on plan assets assumption to actual historic returns to ensure reasonability. The expected return on plan assets assumption to be used in determining 2013 net periodic pension expense will be 6.8% ( 7.3% for the U.S. plans).
At December 31, 2010, the Company updated the mortality table used to calculate its U.S. defined benefit pension and other postretirement benefit liabilities. Previously, the Company had used the mortality table known as RP 2000, projected to 2006 and now uses the RP 2000 table projected to 2017. This updated table reflects improvements in mortality rates.
The weighted-average healthcare cost trend rate (inflation) used for 2012 was 6.3% declining to 4.5% in the year 2024 . For 2013, the assumed weighted-average healthcare cost trend rate used will be 6.4% declining to 4.5% in the year 2024 . These assumptions are reviewed on an annual basis. In selecting rates for current and long-term health care cost assumptions, the Company takes into consideration a number of factors including the Company’s actual health care cost increases, the design of the Company’s benefit programs, the demographics of the Company’s active and retiree populations and external expectations of future medical cost inflation rates. If these 2013 health care cost trend rates were increased or decreased by one percentage point per year, such increase or decrease would have the following effects:
 
One-Percentage Point
(Millions)
Increase
 
Decrease
Increase (decrease) in the aggregate of service and interest cost components of annual expense
$
10

 
$
(8
)
Increase (decrease) in the benefit obligation
$
155

 
$
(91
)
  Contributions
On August 17, 2006, the Pension Protection Act of 2006 (“PPA”) was signed into law, changing the funding requirements for the Company’s U.S. defined benefit pension plans beginning in 2008. In July 2012, the Moving Ahead for Progress in the 21 st Century Act (“MAP-21”) was signed into law. MAP-21 included discount-rate stabilization rules that reduce the funding targets required on an ERISA basis for the U.S. defined benefit pension plans. As a result, PPG did not have to make a mandatory contribution to these plans in 2012 and does not expect to have to make a mandatory contribution in 2013. PPG did not make a voluntary contribution to these plans in 2012. PPG made a voluntary contribution to its U.S. defined benefit plans of $50 million and $250 million in 2011 and 2010, respectively. PPG made contributions to its non-U.S. defined benefit pension plans of $81 million in 2012, $71 million in 2011 and approximately $85 million in 2010, some of which were required by local funding requirements. PPG expects to make no voluntary contributions to its U.S. plans and


54 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

mandatory contributions to its non-U.S. plans of approximately $77 million in 2013 .
Benefit Payments
The estimated pension benefits to be paid under the Company’s defined benefit pension plans during the next five years are (in millions) $360 in 2013 , $333 in 2014 , $306 in 2015 , $314 in 2016 and $291 in 2017 and are expected to aggregate $1,550 million for the five years thereafter. The estimated other postretirement benefits to be paid during the next five years are (in millions) $75 in 2013 , $75 in 2014 , $76 in 2015 , $76 in 2016 and $77 in 2017 and are expected to aggregate $389 million for the five years thereafter.
During 2012, the Company initiated a lump sum payout program that gave certain terminated vested participants in certain U.S. defined benefit pension plans the option to take a one-time lump sum cash payment in lieu of receiving a future monthly annuity.  PPG paid $70 million in 2012 in lump sum benefits to terminated vested participants who elected to participate in the program. 
Under the Medicare Act of 2003, in 2012 the amount of subsidy received was $6 million as of December 31, 2012 .  
Plan Assets
Each PPG sponsored defined benefit pension plan is managed in accordance with the requirements of local laws and regulations governing defined benefit pension plans for the exclusive purpose of providing pension benefits to participants and their beneficiaries. Investment committees comprised of PPG managers have fiduciary responsibility to oversee the management of pension plan assets by third party asset managers. Pension plan assets are held in trust by financial institutions and managed on a day-to-day basis by the asset managers. The asset managers receive a mandate from each investment committee that is aligned with the asset allocation targets established by each investment committee to achieve the plan’s investment strategies. The performance of the asset managers is monitored and evaluated by the investment committees throughout the year.  
Pension plan assets are invested to generate investment earnings over an extended time horizon to help fund the cost of benefits promised under the plans while mitigating investment risk. The asset allocation targets established for each pension plan are intended to diversify the investments among a variety of asset categories and among a variety of individual securities within each asset category to mitigate investment risk and provide each plan with sufficient liquidity to fund the payment of pension benefits to retirees.
 
The following summarizes the weighted average target pension plan asset allocation as of December 31, 2012 and 2011 for all PPG defined benefit plans:
Asset Category
Dec. 31, 2012
 
Dec. 31, 2011
Equity securities
35-70%
 
40-75%
Debt securities
30-65%
 
25-60%
Real estate
0–10%
 
0-10%
Other
0–10%
 
0-10%
 
The fair values of the Company’s pension plan assets at December 31, 2012 , by asset category, are as follows:
(Millions)
Level 1 (1)
 
Level 2 (1)
 
Level 3 (1)
 
Total
Asset Category
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
 
 
Large cap
$
1

 
$
172

 
$
—

 
$
173

 
 
Small cap
—

 
146

 
—

 
146

 
 
PPG common stock
244

 
—

 
—

 
244

 
Non-U.S.
 
 
 
 
 
 
 
 
 
Developed and emerging markets (2)
—

 
578

 
—

 
578

Debt securities:
 
 
 
 
 
 
 
 
Cash and cash equivalents
—

 
499

 
—

 
499

 
Corporate (3)
 
 
 
 
 
 
 
 
 
U.S. (4)
—

 
922

 
76

 
998

 
 
Developed and emerging markets (2)
—

 
185

 
—

 
185

 
Diversified (5)
—

 
635

 
4

 
639

 
Government
 
 
 
 
 
 
 
 
 
U.S. (4)
196

 
69

 
—

 
265

 
 
Developed markets
—

 
301

 
—

 
301

 
Other (6)
—

 
155

 
27

 
182

Real estate, hedge funds, and other
—

 
128

 
412

 
540

 
Total
$
441

 
$
3,790

 
$
519

 
$
4,750

(1)
These levels refer to the accounting guidance on fair value measurement described in Note 9, “Fair Value Measurement.”
(2)
These amounts represent holdings in investment grade debt or equity securities of issuers in both developed markets and emerging economies.
(3)
This category represents investment grade debt securities from a diverse set of industry issuers.
(4)
These investments are primarily long duration fixed income securities.
(5)
This category represents commingled funds invested in diverse portfolios of debt securities.
(6)
This category includes mortgage-backed and asset backed debt securities, municipal bonds and other debt securities including derivatives.
 


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Notes to the Consolidated Financial Statements

The fair values of the Company’s pension plan assets at December 31, 2011 , by asset category, are as follows:
(Millions)
Level 1 (1)
 
Level 2 (1)
 
Level 3 (1)
 
Total
Asset Category
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
 
 
Large cap
$
—

 
$
342

 
$
—

 
$
342

 
 
Small cap
125

 
80

 
—

 
205

 
 
PPG common stock
151

 
—

 
—

 
151

 
Non-U.S.
 
 
 
 
 
 
 
 
 
Developed and emerging markets (2)
—

 
640

 
—

 
640

Debt securities:
 
 
 
 
 
 
 
 
Cash and cash equivalents
—

 
270

 
—

 
270

 
Corporate (3)
 
 
 
 
 
 
 
 
 
U.S. (4)
—

 
672

 
68

 
740

 
 
Developed and emerging markets (2)
—

 
338

 
—

 
338

 
Diversified (5)
—

 
339

 
—

 
339

 
Government
 
 
 
 
 
 
 
 
 
U.S. (4)
397

 
113

 
—

 
510

 
 
Developed markets
—

 
267

 
—

 
267

 
Other (6)
5

 
188

 
28

 
221

Real estate, hedge funds, and other
41

 
73

 
245

 
359

 
Total
$
719

 
$
3,322

 
$
341

 
$
4,382

(1)
These levels refer to the accounting guidance on fair value measurement described in Note 9, “Fair Value Measurement.”
(2)
These amounts represent holdings in investment grade debt or equity securities of issuers in both developed markets and emerging economies.
(3)
This category represents investment grade debt securities from a diverse set of industry issuers.
(4)
These investments are primarily long duration fixed income securities.
(5)
This category represents commingled funds invested in diverse portfolios of debt securities.
(6)
This category includes mortgage-backed and asset backed debt securities, municipal bonds and other debt securities.

During 2012, the Company determined that certain pension assets at December 31, 2011 were previously presented in the Level 1 category and should have been presented in the Level 2 category and certain pension assets presented in Level 2 should have been presented in the Level 3 category based on the inputs used to value the securities.  Accordingly, the 2011 presentation of pension assets has been revised in the table above and in the Level 3 table below. This revision had no impact on the Company's consolidated balance sheet, statement of income or statement of cash flows.

 
The change in the fair value of the Company’s Level 3 pension assets for the years ended December 31, 2012 and 2011 was as follows:
(Millions)
Real
Estate
 
Other Debt
Securities
 
Hedge Funds
&
Other assets
 
Total
Balance, January 1, 2011
$
117

 
$
39

 
$
22

 
$
178

Realized gain/(loss)
(1
)
 
—

 
(9
)
 
(10
)
Unrealized gain/(loss) for positions still held
15

 
—

 
6

 
21

Transfers in/(out)
25

 
(11
)
 
138

 
152

Currency
—

 
—

 
—

 
—

Balance, December 31, 2011
$
156

 
$
28

 
$
157

 
$
341

Realized gain/(loss)
8

 
—

 
13

 
21

Unrealized gain/(loss) for positions still held
8

 
—

 
(1
)
 
7

Transfers in/(out)
4

 
(1
)
 
148

 
151

Currency
—

 
—

 
(1
)
 
(1
)
Balance, December 31, 2012
$
176

 
$
27

 
$
316

 
$
519


Real Estate properties are externally appraised at least annually by reputable, independent appraisal firms. Property valuations are also reviewed on a regular basis and are adjusted if there has been a significant change in circumstances related to the property since the last valuation.
Other debt securities consist of insurance contracts, which are externally valued by insurance companies based on the present value of the expected future cash flows. Hedge funds consist of a wide range of investments which target a relatively stable investment return. The underlying funds are valued at different frequencies, some monthly and some quarterly, based on the value of the underlying investments. Other assets consist primarily of small investments in private equity funds and senior secured debt obligations of non-investment grade borrowers.
Other Plans
PPG has retained certain liabilities for pension and post-employment benefits earned for service up to the 2008 date of sale of its former automotive glass and service business, totaling approximately $1,047 million and $1,011 million at December 31, 2012 and 2011 , respectively, for employees who were active as of the divestiture date and for individuals who were retirees of the business as of the divestiture date. PPG recognized expense of approximately $35 million and $35 million related to these obligations in 2012 and 2011, respectively.
Pittsburgh Glass Works LLC ceased production at its Oshawa, Canada plant in 2009 and closed its Hawkesbury, Canada plant in 2010. Under Canadian pension regulations, these plant closures will result in partial wind-ups of the pension plans for former employees at these plants, the liability for which was retained by PPG. Each of these partial windups will result in settlement charges against PPG earnings and require cash contributions to the plans. The final settlement charge and


56 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

cash amounts will be determined following the required review of the partial wind-ups by the Canadian pension authorities. The amount of each pretax charge and the cash contribution is currently estimated to be in the range of $20-30 million and $10-15 million, respectively. The proposed effective dates of the partial windups related to the Oshawa and Hawkesbury plant closures are February 27, 2009 and August 31, 2010, respectively. Cash contributions are currently being made to the plans based on estimated cash requirements and must be completed by the end of the five year period following the proposed effective dates of the partial windups. The settlement charges will be recorded following the approval of the partial windups by the Canadian pension authorities and when the related cash contributions are completed.
The Company recognized expense for defined contribution pension plans in 2012 , 2011 and 2010 of $42 million , $38 million and $31 million , respectively. As of December 31, 2012 and 2011 , the Company’s liability for contributions to be made to the defined contribution pension plans was $13 million and $13 million , respectively.
The Company has a deferred compensation plan for certain key managers which allows them to defer a portion of their compensation in a phantom PPG stock account or other phantom investment accounts. The amount deferred earns a return based on the investment options selected by the participant. The amount owed to participants is an unfunded and unsecured general obligation of the Company. Upon retirement, death, disability, termination of employment, scheduled payment or unforeseen emergency, the compensation deferred and related accumulated earnings are distributed in accordance with the participant’s election in cash or in PPG stock, based on the accounts selected by the participant.
The plan provides participants with investment alternatives and the ability to transfer amounts between the phantom non-PPG stock investment accounts. To mitigate the impact on compensation expense of changes in the market value of the liability, the Company has purchased a portfolio of marketable securities that mirror the phantom non-PPG stock investment accounts selected by the participants, except the money market accounts. These investments are carried by PPG at fair market value, and the changes in market value of these securities are also included in earnings. Trading occurs in this portfolio to align the securities held with the participant’s phantom non-PPG stock investment accounts, except the money market accounts.
The cost of the deferred compensation plan, comprised of dividend equivalents accrued on the phantom PPG stock account, investment income and the change in market value of the liability, was expense in 2012 , 2011 and 2010 of $10 million , $2 million and $10 million , respectively. These amounts are included in “Selling, general and administrative” in the accompanying consolidated statement of income. The change in market value of the investment portfolio was income of $8 million , $1 million , and $9 million in 2012 , 2011 and 2010 , respectively, of which $0.9 million , $0.8 million and $0.4
 
million was realized gains, and is also included in “Selling, general and administrative.”
The Company’s obligations under this plan, which are included in “Accounts payable and accrued liabilities” and “Other liabilities” in the accompanying consolidated balance sheet, totaled $102 million and $95 million as of December 31, 2012 and 2011 , respectively, and the investments in marketable securities, which are included in “Investments” and “Other current assets” in the accompanying consolidated balance sheet, were $64 million and $59 million as of December 31, 2012 and 2011 , respectively.
 
15. Commitments and Contingent Liabilities
PPG is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which substantial monetary damages are sought. These lawsuits and claims, the most significant of which are described below, relate to contract, patent, environmental, product liability, antitrust and other matters arising out of the conduct of PPG’s current and past business activities. To the extent that these lawsuits and claims involve personal injury and property damage, PPG believes it has adequate insurance; however, certain of PPG’s insurers are contesting coverage with respect to some of these claims, and other insurers, as they had prior to the asbestos settlement described below, may contest coverage with respect to some of the asbestos claims if the settlement is not implemented. PPG’s lawsuits and claims against others include claims against insurers and other third parties with respect to actual and contingent losses related to environmental, asbestos and other matters.
The results of any future litigation and the above lawsuits and claims are inherently unpredictable. However, management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG, including asbestos-related claims in the event the settlement described below does not become effective, will not have a material effect on PPG’s consolidated financial position or liquidity; however, such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
Antitrust Matters
As previously disclosed, in 2010 PPG reached agreements to resolve flat glass antitrust matters in which PPG was a defendant, for approximately $6 million . The court approved the settlements and distribution of the funds occurred in the first quarter 2012.
In 2010, Transitions Optical, Inc. (“TOI”), a consolidated subsidiary of the Company, entered into a settlement agreement, without admitting liability, with the Federal Trade Commission, which had alleged that TOI violated Section 5 of the Federal Trade Commission Act. Following the announcement of the settlement with the Federal Trade Commission, 30 private putative class cases were filed against TOI, alleging that it has monopolized and/or conspired to monopolize the market for photochromic lenses. All of the federal actions have been transferred and centralized in the Middle District of Florida (the “MDL Action”). Amended complaints in the MDL Action were


2012 PPG ANNUAL REPORT AND FORM 10-K 57

Notes to the Consolidated Financial Statements

filed in November and December 2010. In late 2011, the court ruled on TOI’s motion to dismiss and allowed the plaintiffs to file new or further amended complaints. Plaintiffs in the MDL Action include Insight Equity A.P. X, LP, d/b/a Vision-Ease Lens Worldwide, Inc., which has sued on its own behalf, and putative classes of “direct purchasers,” including laboratories and retailers (the “Lab/Retailer Plaintiffs”), and “indirect purchasers,” consisting of end-user consumers. Plaintiffs in the MDL Action generally allege that TOI’s exclusive dealing arrangements resulted in higher prices and seek lost profits and damages determined by the price premium attributable to wrongful exclusive deals. The damages sought are subject to trebling. The Lab/Retailer Plaintiffs also allege that TOI and certain affiliates of Essilor International SA conspired with respect to the wrongful exclusive dealing arrangements. Briefing with respect to class certification is expected to be completed in 2013. TOI believes it has meritorious defenses and continues to defend all of the above-described actions vigorously.
Asbestos Matters
For over 30 years, PPG has been a defendant in lawsuits involving claims alleging personal injury from exposure to asbestos. Most of PPG’s potential exposure relates to allegations by plaintiffs that PPG should be liable for injuries involving asbestos-containing thermal insulation products, known as Unibestos, manufactured and distributed by Pittsburgh Corning Corporation (“PC”). PPG and Corning Incorporated are each 50% shareholders of PC. PPG has denied responsibility for, and has defended, all claims for any injuries caused by PC products. As of the April 16, 2000 order which stayed and enjoined asbestos claims against PPG (as discussed below), PPG was one of many defendants in numerous asbestos-related lawsuits involving approximately 114,000 claims served on PPG. During the period of the stay, PPG generally has not been aware of the dispositions, if any, of these asbestos claims.
 
Background of PC Bankruptcy Plan of Reorganization
On April 16, 2000, PC filed for Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the Western District of Pennsylvania located in Pittsburgh, Pa. Accordingly, in the first quarter of 2000, PPG recorded an after-tax charge of $35 million for the write-off of all of its investment in PC. As a consequence of the bankruptcy filing and various motions and orders in that proceeding, the asbestos litigation against PPG (as well as against PC) has been stayed and the filing of additional asbestos suits against them has been enjoined, until 30 days after the effective date of a confirmed plan of reorganization for PC substantially in accordance with the settlement arrangement among PPG and several other parties discussed below. The stay may be terminated if the Bankruptcy Court determines that such a plan will not be confirmed, or the settlement arrangement set forth below is not likely to be consummated.
On May 14, 2002, PPG announced that it had agreed with several other parties, including certain of its insurance carriers, the official committee representing asbestos claimants in the PC bankruptcy, and the legal representatives of future asbestos
 
claimants appointed in the PC bankruptcy, on the terms of a settlement arrangement relating to certain asbestos claims against PPG and PC (the “2002 PPG Settlement Arrangement”).
On March 28, 2003, Corning Incorporated announced that it had separately reached its own arrangement with the representatives of asbestos claimants for the settlement of certain asbestos claims against Corning Incorporated and PC (the “2003 Corning Settlement Arrangement”).
The terms of the 2002 PPG Settlement Arrangement and the 2003 Corning Settlement Arrangement were incorporated into a bankruptcy reorganization plan for PC along with a disclosure statement describing the plan, which PC filed with the Bankruptcy Court on April 30, 2003. Amendments to the plan and disclosure statement were subsequently filed. On November 26, 2003, after considering objections to the second amended disclosure statement and plan of reorganization, the Bankruptcy Court entered an order approving such disclosure statement and directing that it be sent to creditors, including asbestos claimants, for voting. In March 2004, the second amended PC plan of reorganization (the “second amended PC plan of reorganization”) received the required votes to approve the plan with a channeling injunction for present and future asbestos claimants under §524(g) of the Bankruptcy Code. After voting results for the second amended PC plan of reorganization were received, the Bankruptcy Court judge conducted a hearing regarding the fairness of the settlement, including whether the plan would be fair with respect to present and future claimants, whether such claimants would be treated in substantially the same manner, and whether the protection provided to PPG and its participating insurers would be fair in view of the assets they would convey to the asbestos settlement trust (the “Trust”) to be established as part of the second amended PC plan of reorganization. At that hearing, creditors and other parties in interest raised objections to the second amended PC plan of reorganization. Following that hearing, the Bankruptcy Court scheduled oral arguments for the contested items.
The Bankruptcy Court heard oral arguments on the contested items on November 17-18, 2004. At the conclusion of the hearing, the Bankruptcy Court agreed to consider certain post-hearing written submissions. In a further development, on February 2, 2005, the Bankruptcy Court established a briefing schedule to address whether certain aspects of a decision of the U.S. Third Circuit Court of Appeals in an unrelated case had any applicability to the second amended PC plan of reorganization. Oral arguments on these matters were subsequently held in March 2005. During an omnibus hearing on February 28, 2006, the Bankruptcy Court judge stated that she was prepared to rule on the PC plan of reorganization in the near future, provided certain amendments were made to the plan. Those amendments were filed, as directed, on March 17, 2006. After further conferences and supplemental briefings, in December 2006, the court denied confirmation of the second amended PC plan of reorganization, on the basis that the plan was too broad in the treatment of allegedly independent asbestos claims not associated with PC.


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Notes to the Consolidated Financial Statements

Terms of 2002 PPG Settlement Arrangement
PPG had no obligation to pay any amounts under the 2002 PPG Settlement Arrangement until 30 days after the second amended PC plan of reorganization was finally approved by an appropriate court order that was no longer subject to appellate review (the “Effective Date”). If the second amended PC plan of reorganization had been approved as proposed, PPG and certain of its insurers (along with PC) would have made payments on the Effective Date to the Trust, which would have provided the sole source of payment for all present and future asbestos bodily injury claims against PPG, its subsidiaries or PC alleged to be caused by the manufacture, distribution or sale of asbestos products by these companies. PPG would have conveyed the following assets to the Trust: (i) the stock it owns in PC and Pittsburgh Corning Europe, (ii)  1,388,889 shares of PPG’s common stock and (iii) aggregate cash payments to the Trust of approximately $998 million , payable according to a fixed payment schedule over 21 years, beginning on June 30, 2003 , or, if later, the Effective Date. PPG would have had the right, in its sole discretion, to prepay these cash payments to the Trust at any time at a discount rate of 5.5%  per annum as of the prepayment date. In addition to the conveyance of these assets, PPG would have paid $30 million in legal fees and expenses on behalf of the Trust to recover proceeds from certain historical insurance assets, including policies issued by certain insurance carriers that were not participating in the settlement, the rights to which would have been assigned to the Trust by PPG.
Under the proposed 2002 PPG Settlement Arrangement, PPG’s participating historical insurance carriers would have made cash payments to the Trust of approximately $1.7 billion between the Effective Date and 2023. These payments could also have been prepaid to the Trust at any time at a discount rate of 5.5%  per annum as of the prepayment date. In addition, as referenced above, PPG would have assigned to the Trust its rights, insofar as they related to the asbestos claims to have been resolved by the Trust, to the proceeds of policies issued by certain insurance carriers that were not participating in the 2002 PPG Settlement Arrangement and from the estates of insolvent insurers and state insurance guaranty funds.
Under the proposed 2002 PPG Settlement Arrangement, PPG would have granted asbestos releases to all participating insurers, subject to a coverage-in-place agreement with certain insurers for the continuing coverage of premises claims (discussed below). PPG would have granted certain participating insurers full policy releases on primary policies and full product liability releases on excess coverage policies. PPG would have also granted certain other participating excess insurers credit against their product liability coverage limits.
 
If the second amended PC plan of reorganization incorporating the terms of the 2002 PPG Settlement Arrangement and the 2003 Corning Settlement Arrangement had been approved by the Bankruptcy Court, the Court would have entered a channeling injunction under §524(g) and other provisions of the Bankruptcy Code, prohibiting present and future claimants from asserting bodily injury claims after the Effective Date against PPG or its subsidiaries or PC relating to the manufacture, distribution or sale of asbestos-containing products by PC or PPG or its subsidiaries. The injunction would have also prohibited codefendants in those cases from asserting claims against PPG for contribution, indemnification or other recovery. All such claims would have been filed with the Trust and only paid from the assets of the Trust.
Modified Third Amended PC Plan of Reorganization
To address the issues raised by the Bankruptcy Court in its December 2006 ruling, the interested parties engaged in extensive negotiations regarding the terms of a third amended PC plan of reorganization, including modifications to the 2002 PPG Settlement Arrangement. A modified third amended PC plan of reorganization (the “third amended PC plan of reorganization”), including a modified PPG settlement arrangement (the “2009 PPG Settlement Arrangement”), was filed with the Bankruptcy Court on January 29, 2009. The parties also filed a disclosure statement describing the third amended PC plan of reorganization with the court. The third amended PC plan of reorganization also includes a modified settlement arrangement of Corning Incorporated.
Several creditors and other interested parties filed objections to the disclosure statement. Those objections were overruled by the Bankruptcy Court by order dated July 6, 2009 approving the disclosure statement. The third amended PC plan of reorganization and disclosure statement were then sent to creditors, including asbestos claimants, for voting. The report of the voting agent, filed on February 18, 2010, revealed that all voting classes, including asbestos claimants, voted overwhelmingly in favor of the third amended PC plan of reorganization, which included the 2009 PPG Settlement Arrangement. In light of the favorable vote on the third amended PC plan of reorganization, the Bankruptcy Court conducted a hearing regarding the fairness of the proposed plan, including whether (i) the plan would be fair with respect to present and future claimants, (ii) such claimants would be treated in substantially the same manner, and (iii) the protection provided to PPG and its participating insurers would be fair in view of the assets they would convey to the Trust to be established as part of the third amended PC plan of reorganization. The hearing was held in June of 2010. The remaining objecting parties (a number of objections were resolved through plan amendments and stipulations filed before the hearing) appeared at the hearing and presented their cases. At the conclusion of the hearing, the Bankruptcy Court established a briefing schedule for its consideration of confirmation of the plan and the objections to confirmation. That briefing was completed and final oral arguments held in October 2010. On June 16, 2011 the Bankruptcy Court issued a decision denying confirmation of the


2012 PPG ANNUAL REPORT AND FORM 10-K 59

Notes to the Consolidated Financial Statements

third amended PC plan of reorganization. Although denying confirmation, PPG believes that the decision viewed favorably many features of that plan.
Since the June 16, 2011 ruling, the third amended plan of reorganization has been the subject of negotiations among the parties in interest, amendments, proposed amendments and hearings. On April 20, 2012, PC filed plan materials with proposed amendments to the third amended PC plan of reorganization, which PPG believed would, upon adoption as a final amended plan, resolve all of the issues raised by the Bankruptcy Court in its June 16, 2011 ruling. On June 21, 2012, the Bankruptcy Court heard argument regarding whether the remaining insurer objectors had standing to continue to prosecute their objections to the plan materials. The Bankruptcy Court did not rule at that time on the question of the remaining insurer objectors’ standing, but took the matter under advisement. On July 17, 2012, the Bankruptcy Court issued an order setting forth the schedule for finalizing an amended plan and moving the PC bankruptcy reorganization proceedings forward. Specifically, the Bankruptcy Court ordered that an amended plan of reorganization be filed on or before August 20, 2012 . Consistent with that order, PC filed an amended PC plan of reorganization on August 17, 2012, along with a certification advising the Bankruptcy Court that the August 17, 2012 amended PC plan of reorganization was identical to the plan materials filed on April 20, 2012. The July 17 order contemplated further proceedings in connection with potential objections to that plan and set a hearing for October 10, 2012 for arguments on any objections. Objections were filed by three entities on or before the deadline prescribed by the Bankruptcy Court. One set of objections was resolved by PC and another set merely restated for appellate purposes objections filed by a party that the Bankruptcy Court previously overruled. The Bankruptcy Court heard oral argument on the one remaining set of objections filed by the remaining insurer objectors on October 10, 2012. At the conclusion of that argument, the Bankruptcy Court set forth a schedule for negotiating and filing language that would resolve some, but not all, of the objections to confirmation advanced by the insurer objectors. On October 25, 2012, PC filed a notice regarding proposed confirmation order language that resolved those specific objections. The Bankruptcy Court has taken the remaining objections under advisement.
If the Bankruptcy Court ultimately finds the amended PC plan of reorganization to be acceptable, the Bankruptcy Court will enter a confirmation order if all requirements to confirm a plan of reorganization under the Bankruptcy Code have been satisfied. Such an order could be appealed to the U.S. District Court for the Western District of Pennsylvania by any remaining insurer or other objectors to the amended and confirmed PC plan of reorganization. Assuming that the District Court approves a confirmation order, any remaining insurer or other objectors could appeal the order to the U.S. Third Circuit Court of Appeals and subsequently could seek review by the U.S. Supreme Court.
The 2009 PPG Settlement Arrangement will not become effective until an amended PC plan of reorganization is finally
 
approved by an appropriate court order that is no longer subject to appellate review, and PPG’s initial contributions will not be due until 30 business days thereafter (the “Funding Effective Date”).
Asbestos Claims Subject to Bankruptcy Court’s Channeling Injunction
If an amended PC plan of reorganization is approved by the Bankruptcy Court and becomes effective, a channeling injunction will be entered under §524(g) of the Bankruptcy Code prohibiting present and future claimants from asserting asbestos claims against PC. With regard to PPG, the channeling injunction by its terms will prohibit present and future claimants from asserting claims against PPG that arise, in whole or in part, out of exposure to Unibestos, or any other asbestos or asbestos-containing products manufactured, sold and/or distributed by PC, or asbestos on or emanating from any PC premises. The injunction by its terms will also prohibit codefendants in these cases that are subject to the channeling injunction from asserting claims against PPG for contribution, indemnification or other recovery. Such injunction will also preclude the prosecution of claims against PPG arising from alleged exposure to asbestos or asbestos-containing products to the extent that a claimant is alleging or seeking to impose liability, directly or indirectly, for the conduct of, claims against or demands on PC by reason of PPG’s: (i) ownership of a financial interest in PC; (ii) involvement in the management of PC, or service as an officer, director or employee of PC or a related party; (iii) provision of insurance to PC or a related party; or (iv) involvement in a financial transaction affecting the financial condition of PC or a related party. The foregoing PC related claims are referred to as “PC Relationship Claims” and constitute, in PPG management’s opinion, the vast majority of the pending asbestos personal injury claims against PPG. All claims channeled to the Trust will be paid only from the assets of the Trust.


60 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

Asbestos Claims Retained by PPG
The channeling injunction provided for under the third amended PC plan of reorganization, as amended, will not extend to any claim against PPG that arises out of exposure to any asbestos or asbestos-containing products manufactured, sold and/or distributed by PPG or its subsidiaries that is not a PC Relationship Claim, and in this respect differs from the channeling injunction contemplated by the second amended PC plan of reorganization filed in 2003. While management believes that the vast majority of the approximately 114,000 claims against PPG alleging personal injury from exposure to asbestos relate to products manufactured, distributed or sold by PC, the potential liability for any non-PC Relationship Claims will be retained by PPG. Because a determination of whether an asbestos claim is a non-PC Relationship Claim would typically not be known until shortly before trial and because the filing and prosecution of asbestos claims (other than certain premises claims) against PPG has been enjoined since April 2000, the actual number of non-PC Relationship Claims that may be pending at the expiration of the stay or the number of additional claims that may be filed against PPG in the future cannot be determined at this time. PPG does not expect the Bankruptcy Court to lift the stay until after confirmation or rejection of the third amended PC plan of reorganization, as amended, although the bankruptcy court may entertain motions to lift the stay as to specific claims. PPG intends to defend against all such claims vigorously and their ultimate resolution in the court system is expected to occur over a period of years.
In addition, similar to what was contemplated by the second amended PC plan of reorganization, the channeling injunction will not extend to claims against PPG alleging personal injury caused by asbestos on premises owned, leased or occupied by PPG (so called “premises claims”), which generally have been subject to the stay imposed by the Bankruptcy Court. Historically, a small proportion of the claims against PPG and its subsidiaries have been premises claims, and based upon review and analysis, PPG believes that the number of premises claims currently comprises less than 2% of the total asbestos related claims against PPG. Beginning in late 2006, the Bankruptcy Court lifted the stay with respect to certain premises claims against PPG. As a result, PPG and its primary insurers have settled approximately 500 premises claims. PPG’s insurers agreed to provide insurance coverage for a major portion of the payments made in connection with the settled claims, and PPG accrued the portion of the settlement amounts not covered by insurance. PPG, in conjunction with its primary insurers as appropriate, evaluates the factual, medical, and other relevant information pertaining to additional claims as they are being considered for potential settlement. The number of such claims under consideration for potential settlement, currently approximately 380 , varies from time to time. Premises claims remain subject to the stay, as outlined above, although certain claimants have requested the Court to lift the stay with respect to these claims and the stay has been lifted as to some claims. PPG believes that any financial exposure resulting from such premises claims, taking into account available insurance
 
coverage, will not have a material adverse effect on PPG’s consolidated financial position, liquidity or results of operations.
PPG’s Funding Obligations
PPG has no obligation to pay any amounts under the third amended PC plan of reorganization, as amended, until the Funding Effective Date. If the third amended PC plan of reorganization, as amended, is approved, PPG and certain of its insurers will make the following contributions to the Trust. On the Funding Effective Date, PPG will relinquish any claim to its equity interest in PC, convey the stock it owns in Pittsburgh Corning Europe and transfer 1,388,889 shares of PPG’s common stock or cash equal to the fair value of such shares as defined in the 2009 PPG Settlement Arrangement. PPG will make aggregate cash payments to the Trust of approximately $825 million , payable according to a fixed payment schedule over a period ending in 2023. The first payment is due on the Funding Effective Date. PPG would have the right, in its sole discretion, to prepay these cash payments to the Trust at any time at a discount rate of 5.5% per annum as of the prepayment date. PPG’s historical insurance carriers participating in the third amended PC plan of reorganization will also make cash payments to the Trust of approximately $1.7 billion between the Funding Effective Date and 2027. These payments could also be prepaid to the Trust at any time at a discount rate of 5.5% per annum as of the prepayment date. PPG will grant asbestos releases and indemnifications to all participating insurers, subject to amended coverage-in-place arrangements with certain insurers for remaining coverage of premises claims. PPG will grant certain participating insurers full policy releases on primary policies and full product liability releases on excess coverage policies. PPG will also grant certain other participating excess insurers credit against their product liability coverage limits.
PPG’s obligation under the 2009 PPG Settlement Arrangement at December 31, 2008 was $162 million less than the amount that would have been due under the 2002 PPG Settlement Arrangement. This reduction is attributable to a number of negotiated provisions in the 2009 PPG Settlement Arrangement, including the provisions relating to the channeling injunction under which PPG retains liability for any non-PC Relationship Claims. PPG will retain such amount as a reserve for asbestos-related claims that will not be channeled to the Trust, as this amount represents PPG’s best estimate of its liability for these claims. PPG does not have sufficient current claim information or settlement history on which to base a better estimate of this liability, in light of the fact that the Bankruptcy Court’s stay has been in effect since 2000. As a result, PPG’s reserve at December 31, 2012 and December 31, 2011 for asbestos-related claims that will not be channeled to the Trust is $162 million . This amount is included within "Other liabilities" on the accompanying consolidated balance sheets. In addition, under the 2009 PPG Settlement Arrangement, PPG will retain for its own account rights to recover proceeds from certain historical insurance assets, including policies issued by non-participating insurers. Rights to recover these proceeds would


2012 PPG ANNUAL REPORT AND FORM 10-K 61

Notes to the Consolidated Financial Statements

have been assigned to the Trust by PPG under the 2002 PPG Settlement Arrangement.
Following the effective date of the third amended PC plan of reorganization, as amended, and the lifting of the Bankruptcy Court stay, PPG will monitor the activity associated with asbestos claims which are not channeled to the Trust pursuant to the third amended PC plan of reorganization, and evaluate its estimated liability for such claims and related insurance assets then available to the Company as well as underlying assumptions on a periodic basis to determine whether any adjustment to its reserve for these claims is required.
Of the total obligation of $920 million and $834 million under the 2009 PPG Settlement Arrangement at December 31, 2012 and 2011 , respectively, $683 million and $593 million are reported as a current liabilities and the present value of the payments due in the years 2014 to 2023 totaling $237 million and 2013 to 2023 totaling $241 million are reported as a non-current liability in the accompanying consolidated balance sheet as of December 31, 2012 and 2011 . The future accretion of the non-current portion of the liability totals $109 million at December 31, 2012 , and will be reported as expense in the consolidated statement of income over the period through 2023, as follows (in millions):
2013
$
14

2014
14

2015 – 2023
81

Total
$
109


 
The following table summarizes the impact on PPG’s financial statements for the three years ended December 31, 2012 resulting from the 2009 PPG Settlement Arrangement including the change in fair value of the stock to be transferred to the Trust and the related equity forward instrument (see Note 11, “Derivative Financial Instruments and Hedge Activities”) and the increase in the net present value of the future payments to be made to the Trust.
 
 
Consolidated Balance Sheet
 
 
 
 
Asbestos Settlement Liability
 
Equity
Forward
(Asset)
Liability
 
Pretax
Charge
(Millions)
Current
 
Long-term
 
Balance as of January 1, 2010
$
534

 
$
238

 
$
(18
)
 
$
13

Change in fair value:
 
 
 
 
 
 
 
 
PPG stock
35

 
—

 
—

 
35

 
Equity forward instrument
—

 
—

 
(37
)
 
(37
)
Accretion of asbestos liability
—

 
14

 
—

 
14

Reclassification
9

 
(9
)
 
—

 
—

Balance as of and Activity for the year ended December 31, 2010
$
578

 
$
243

 
$
(55
)
 
$
12

Change in fair value:
 
 
 
 
 
 
 
 
PPG stock
(1
)
 
—

 
—

 
(1
)
 
Equity forward instrument
—

 
—

 
(1
)
 
(1
)
Accretion of asbestos liability
—

 
14

 
—

 
14

Reclassification
16

 
(16
)
 
—

 
—

Balance as of and Activity for the year ended December 31, 2011
$
593

 
$
241

 
$
(56
)
 
$
12

Change in fair value:
 
 
 
 
 
 
 
 
PPG stock
72

 
—

 
—

 
72

 
Equity forward instrument
—

 
—

 
(74
)
 
(74
)
Accretion of asbestos liability
—

 
14

 
—

 
14

Reclassification
18

 
(18
)
 
—

 
—

Balance as of and Activity for the year ended December 31, 2012
$
683

 
$
237

 
$
(130
)
 
$
12

 
The fair value of the equity forward instrument is included as an "Other current asset" as of December 31, 2012 and 2011 in the accompanying consolidated balance sheet. Payments under the fixed payment schedule require annual payments that are due each June. The current portion of the asbestos settlement liability included in the accompanying consolidated balance sheet as of December 31, 2012 , consists of all such payments required through June 2013, the fair value of PPG’s common stock and the value of PPG’s investment in Pittsburgh Corning Europe. The amount due June 30, 2014 of $5 million and the net present value of the remaining payments is included in the long-term asbestos settlement liability in the accompanying consolidated balance sheet as of December 31, 2012 .

Enjoined Claims
If the 2009 PPG Settlement Arrangement is not implemented, for any reason, and the Bankruptcy Court stay expires, PPG intends to defend vigorously the pending and any future asbestos claims, including PC Relationship Claims,


62 2012 PPG ANNUAL REPORT AND FORM 10-K

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asserted against it and its subsidiaries. PPG continues to assert that it is not responsible for any injuries caused by PC products, which it believes account for the vast majority of the pending claims against PPG. Prior to 2000, PPG had never been found liable for any PC-related claims. In numerous cases, PPG was dismissed on motions prior to trial, and in others PPG was released as part of settlements by PC. PPG was found not responsible for PC-related claims at trial in two cases. In January 2000, one jury found PPG, for the first time, partly responsible for injuries to five plaintiffs alleged to be caused by PC products. The plaintiffs holding the judgment on that verdict moved to lift the injunction as applied to their claims. Before the hearing on that motion, PPG entered into a settlement with those claimants in the second quarter of 2010 to avoid the costs and risks associated with the possible lifting of the stay and appeal of the adverse 2000 verdict. The settlement resolved both the motion to lift the injunction and the judgment against PPG. The cost of this settlement was not significant to PPG’s results of operations for the second quarter of 2010 and was fully offset by prior insurance recoveries. Although PPG has successfully defended asbestos claims brought against it in the past, in view of the number of claims, and the significant verdicts that other companies have experienced in asbestos litigation, the result of any future litigation of such claims is inherently unpredictable.
Environmental Matters
It is PPG’s policy to accrue expenses for environmental contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Reserves for environmental contingencies are exclusive of claims against third parties and are generally not discounted. In management’s opinion, the Company operates in an environmentally sound manner and the outcome of the Company’s environmental contingencies will not have a material effect on PPG’s financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. Management anticipates that the resolution of the Company’s environmental contingencies will occur over an extended period of time.
As of December 31, 2012 and 2011, PPG had reserves for environmental contingencies totaling $332 million and $226 million , respectively, of which $101 million and $59 million , respectively, were classified as current liabilities. The reserve at December 31, 2012 included $221 million for environmental contingencies associated with PPG’s former chromium manufacturing plant in Jersey City, N.J. (“New Jersey Chrome”), $80 million for other environmental contingencies, including National Priority List sites and legacy glass and chemical manufacturing sites, and $31 million for environmental contingencies associated with the Calcasieu River estuary located near the Lake Charles, La. chlor-alkali plant and two operating plant sites in PPG’s former commodity chemicals business. The reserve at December 31, 2011 included $129 million for environmental contingencies associated with the former chromium manufacturing plant in Jersey City, $63
 
million for other environmental contingencies, including National Priority List sites and legacy glass and chemical manufacturing sites, and $34 million for environmental contingencies associated with the Calcasieu River Estuary and two operating plant sites in PPG’s former commodity chemicals business. Pretax charges against income for environmental remediation costs in 2012, 2011 and 2010 totaled $167 million , $16 million and $21 million , respectively, and are included in “Other charges” in the accompanying consolidated statement of income. Cash outlays related to such environmental remediation aggregated $66 million , $59 million , and $34 million in 2012, 2011 and 2010, respectively. The impact of foreign currency increased the liability by $2 million in 2012 and decreased the liability by $3 million in 2011. As a result of the allocation of the purchase price of acquisitions to assets acquired and liabilities assumed, the liability for environmental contingencies was increased by $3 million during 2012.
The Company continues to analyze, assess and remediate the environmental issues associated with New Jersey Chrome. In connection with the preparation of a final draft soil remedial action work plan and cost estimate that was originally required to be submitted to the NJDEP in May 2012, which has been delayed while PPG is working with NJDEP and the City of Jersey City to address issues related to PPG's proposed approach to obtaining use limitations for the properties that will be remediated, the Company compiled updated information about the sites that was used to develop a new estimate of the cost to remediate these sites which resulted in a charge against earnings of $145 million in the first quarter of 2012. A pretax charge of $165 million for the estimated costs of remediating these sites was recorded in the third quarter of 2006. These charges for estimated environmental remediation costs in 2006 and 2012 were significantly higher than PPG’s historical range. Excluding 2006 and 2012, pre-tax charges against income for environmental remediation have ranged between $10 million and $35 million per year for the past 16 years. Charges in 2013 are expected to again be within this historical range.
Management expects cash outlays for environmental remediation costs to be approximately $100 million annually through 2015 and to range from $10 million to $30 million annually in 2016 and 2017. It is possible that technological, regulatory and enforcement developments, the results of environmental studies and other factors could alter the Company’s expectations with respect to future charges against income and future cash outlays. Specifically, the level of expected future remediation costs and cash outlays is highly dependent upon activity related to New Jersey Chrome as discussed below.
Remediation: New Jersey Chrome
Since 1990, PPG has remediated 47 of 61 residential and nonresidential sites under the 1990 Administrative Consent Order (“ACO”) with the New Jersey Department of Environmental Protection (“NJDEP”). The most significant of the 14 remaining sites is the former chromium manufacturing location in Jersey City, New Jersey. The principal contaminant of


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Notes to the Consolidated Financial Statements

concern is hexavalent chromium. The Company submitted a feasibility study work plan to the NJDEP in October 2006 that included a review of the available remediation technology alternatives for the former chromium manufacturing location. As a result of the extensive analysis undertaken in connection with the preparation and submission of that feasibility study work plan, the Company recorded a pretax charge of $165 million in the third quarter of 2006. This charge included estimated costs for remediation at the 14 remaining ACO sites, including the former manufacturing site, and for the resolution of litigation filed by NJDEP in May 2005 as discussed below. The principal estimated cost elements of the third quarter 2006 charge were based on competitively derived or readily available remediation industry cost data. The major cost components of this charge were (i) transportation and disposal of excavated soil and in place soil treatment and (ii) construction services (related to soil excavation, groundwater management and site security).
In May 2005, the NJDEP filed a complaint against PPG and two other former chromium producers seeking to hold the parties responsible for a further 53 sites where the source of chromium contamination is not known and to recover costs incurred by the agency in connection with its response activities at certain of those sites. During the third quarter of 2008, the parties reached an agreement in principle on all claims relating to these 53 sites (the “Orphan Sites Settlement”). Under the terms of this Orphan Sites Settlement, PPG accepted responsibility for remediation of 6 of the 53 sites, one half of the cost for remediating ten sites where chrome ore processing residue was used as fill in connection with the installation or repair of sewer lines owned by Jersey City, reimburse the NJDEP for a portion of past costs in the amount of $5 million and be responsible for the NJDEP’s oversight costs associated with the sites for which PPG is wholly or partially responsible. This settlement was finalized and issued for public comment in June 2011. After the close of the public comment period, NJDEP determined that no changes to the settlement were necessary and a motion was filed with the court to enter the settlement as a final order. In September 2011, the court entered the Orphan Sites Settlement as a final order. PPG paid its share of past costs in October 2011. This Orphan Sites Settlement did not affect PPG’s responsibilities for the 14 remaining unremediated sites covered by PPG’s ACO. The investigation and remediation of the soils and sources of contamination of the ten sewer sites will occur over an extended period of time to allow for investigation and determination of impacts associated with these sites, and coordination of remediation with the maintenance and repair of the sewers by Jersey City.
A settlement agreement among PPG, NJDEP and Jersey City (which had asserted claims against PPG for lost tax revenue) has been reached and memorialized in the form of a Judicial Consent Order (the “JCO”) that was entered by the court on June 26, 2009. PPG’s remedial obligations under the ACO with NJDEP have been incorporated into the JCO. Pursuant to the JCO, a new process has been established for the review of the technical reports PPG must submit for the investigation and remedy selection for the 14 ACO sites and the six sites for which
 
PPG has accepted sole responsibility under the terms of the Orphan Sites Settlement (“ 20 PPG sites”). The JCO also provided for the appointment of a court-approved Site Administrator who is responsible for establishing a master schedule for the remediation of the 20 PPG sites. The JCO established a goal, based on currently applicable remedial provisions, to remediate soils and sources of contamination at the 20 PPG sites as expeditiously as possible for completion at the end of 2014 in accordance with the master schedule developed by the Site Administrator. On July 6, 2009, former United States Environmental Protection Agency Deputy Administrator, Michael McCabe, was appointed as Site Administrator under the JCO. The JCO also resolved the claims for reparations for lost tax revenues by Jersey City with the payment of $1.5 million over a five year time period. The JCO did not otherwise affect PPG’s responsibility for the remediation of the 14 ACO sites. PPG’s estimated costs under the JCO, including amounts related to site administration, are included in the December 31, 2012 reserve for New Jersey Chrome environmental remediation matters.
In the first quarter of 2012, an additional site was identified for which PPG has assumed responsibility for hexavalent chromium contamination. PPG learned that chromate waste from its former plant site was transported and used as construction fill at this location. PPG is working cooperatively with the property owner to support his cleanup of the site. A preliminary estimate of the cost to investigate and remediate hexavalent chromium contamination has been included in the accrued liability balance at December 31, 2012.
Since October 2006, activities contained in the feasibility study work plan have been undertaken and remedial alternatives were assessed which included, but were not limited to, soil excavation and offsite disposal in a licensed disposal facility, in situ chemical stabilization of soil and groundwater, and in situ solidification of soils. The feasibility study work plan for the former chromium manufacturing site previously submitted in 2006 was incorporated into a remedial action work plan. PPG submitted a preliminary draft soil remedial action work plan for the former chromium manufacturing and adjacent sites to NJDEP in June 2011. PPG received commentary from the NJDEP in connection with their review. The work plans for interim remedial measures at the chromium manufacturing site, which consisted of the removal and off-site disposal of approximately 70,000 tons of chromium impacted soil and concrete foundations, was approved by NJDEP and the associated work was completed in the third quarter 2011. The submission of a final draft soil remedial action work plan for the former chromium manufacturing and adjacent sites was initially required to be submitted to NJDEP in May 2012. However, this submission has been delayed while PPG is working with NJDEP and Jersey City to address issues related to PPG’s proposed approach to obtaining use limitations for the properties that will be remediated. Property owners must accept use limitations before NJDEP may approve a remedial action work plan. In the meantime, NJDEP has completed a review of the technical aspects of PPG's proposed soil remedial action work plan and


64 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

has expressed their support of the remediation activities identified therein which PPG continues to perform while the issues related to use limitations for these properties are being addressed. PPG has submitted a final draft remedial action work plan for one other remaining site under the ACO which has been conditionally approved by the NJDEP. Remedial activities are expected to begin at this site in early 2013. In addition, during 2012 PPG completed remedial activities at three sites for which PPG has accepted sole responsibility under the terms of the Orphan Sites Settlement and has received "No Further Action" determination from the NJDEP for these sites. Soil investigation activities for all remaining sites covered by the ACO are also expected to be completed in 2013, and PPG believes the results of the work performed in connection with the preparation of the plan, as described above provides the Company with relevant information concerning remediation alternatives and estimated costs at these sites.
As work continued at all of the New Jersey Chrome sites and the final draft soil remedial action work plan for the former chromium manufacturing and adjacent sites was being developed, the estimated remediation costs were refined for all New Jersey Chrome sites and the updated information was used to compile a new estimate of the remediation costs, which resulted in a charge of $145 million in the first quarter of 2012. The liability for remediation of the New Jersey Chrome sites totals $221 million at December 31, 2012. The major cost components of this liability continue to be related to transportation and disposal of impacted soil as well as construction services. These components account for approximately 55% and 30% of the accrued amount, respectively, as of December 31, 2012. The accrued liability also includes estimated costs for water treatment, engineering and project management. The final draft soil remedial action work plan is based upon plans for PPG to obtain use limitations for the properties that will be remediated by various means including the purchase of certain sites. Based on our recently completed and on going investigations, approximately one million tons of soil may be potentially impacted for all New Jersey Chrome sites. The most significant assumptions underlying the current cost estimate are those related to the extent and concentration of chromium impacts in the soil, as these determine the quantity of soil that must be treated in place, the quantity that will have to be excavated and transported for offsite disposal, and the nature of disposal required. The charges taken for the estimated cost to remediate the New Jersey Chrome sites are exclusive of any third party indemnification, as the recovery of any such amounts is uncertain. Information will continue to be generated from the ongoing groundwater remedial investigation activities related to New Jersey Chrome and will be incorporated into a final draft remedial action work plan for groundwater expected to be submitted to NJDEP in the second quarter of 2014.
As described above, there are multiple future events yet to occur, including further remedy selection and design, remedy implementation and execution, the obtaining of required approvals from applicable governmental agencies or community organizations and the final draft remedial action work plan for
 
groundwater to be submitted to NJDEP in 2014. Considerable uncertainty exists regarding the timing of these future events for the New Jersey Chrome sites. Final resolution of these events is expected to occur over the next two to three years. As these events occur and to the extent that the cost estimates of the environmental remediation remedies change, the existing reserve for this environmental remediation will be adjusted.
Remediation: Calcasieu River Estuary
In Lake Charles, La. the U.S. Environmental Protection Agency (“USEPA”) completed an investigation of contamination levels in the Calcasieu River Estuary and issued a final remedial investigation report in September 2003, which incorporates the Human Health and Ecological Risk Assessments, indicating that elevated levels of risk exist in the estuary. PPG and other potentially responsible parties have completed a feasibility study under the authority of the Louisiana Department of Environmental Quality (“LDEQ”). PPG’s exposure with respect to the Calcasieu Estuary is focused on the lower few miles of Bayou d’Inde, a small tributary to the Calcasieu Estuary near PPG’s Lake Charles facility, and about 150 to 200 acres of adjacent marshes. The Company and three other potentially responsible parties submitted a draft remediation feasibility study report to the LDEQ in October 2006. The proposed remedial alternatives include sediment dredging, sediment capping, and biomonitoring of fish and shellfish. Principal contaminants of concern which may require remediation include various metals, dioxins and furans, and polychlorinated biphenyls. In response to agency comments on the draft study, the companies conducted additional investigations and submitted a revised feasibility report to the agencies in the third quarter of 2008. Government officials have indicated that a U.S. Army Corps of Engineers’ study has concluded that the proposed remedy will not adversely affect drainage in communities adjacent to Bayou d’Inde. In response to the revised feasibility study, LDEQ issued a draft decision document for the Bayou d’Inde area in February 2010. The decision document includes LDEQ’s selection of remedial alternatives for the Bayou d’Inde area and is in accordance with those recommended in the revised feasibility study. LDEQ held a public hearing on March 23, 2010 and subsequently issued its final decision document in March 2011. As in its draft document, LDEQ’s selection of remedial approaches is in accordance with those proposed in the feasibility study.
In June 2011, the agency proposed entering into a new Cooperative Agreement with the four companies to implement the remedy for Bayou d’Inde based on the final decision document, and transmitted a draft document for the companies’ consideration. At the same time, the companies initiated discussions among themselves on allocation of costs associated with remedy implementation. In October 2011, one of the three other potentially responsible parties that had participated in funding the feasibility study withdrew from further discussions with LDEQ regarding implementation of the remedy. The withdrawal of this party did not have an effect on the cost to PPG to complete this remedy implementation. On November 5, 2012, PPG and the two remaining parties submitted a revised


2012 PPG ANNUAL REPORT AND FORM 10-K 65

Notes to the Consolidated Financial Statements

Cooperative Agreement to LDEQ and are awaiting LDEQ's response. The estimated costs associated with PPG's responsibility with respect to this Cooperative Agreement are consistent with the amounts currently reserved by PPG for this project.
Multiple future events, such as remedy design and remedy implementation involving agency action or approvals related to the Calcasieu River Estuary will be required and considerable uncertainty exists regarding the timing of these future events. Final resolution of these events is expected to occur over an extended period of time. However, LDEQ approved the remedial design submittal in late 2012, and the remedy implementation could occur during 2013 to 2015, with some period of long-term monitoring for remedy effectiveness to follow.
Remediation: Reasonably Possible Matters
In addition to the amounts currently reserved for environmental remediation, the Company may be subject to loss contingencies related to environmental matters estimated to be as much as $100 million to $275 million . This range is less than the comparable amount reported at the end of 2011 as a result of the additional environmental remediation charge recorded in the first quarter 2012. Such unreserved losses are reasonably possible but are not currently considered to be probable of occurrence. This range of reasonably possible unreserved loss relates to environmental matters at a number of sites including each of the following; i) additional costs at New Jersey Chrome, which represents about one third of this potential range, ii) a number of other sites, including legacy glass and chemical manufacturing sites and iii) the Calcasieu River Estuary and two operating plant sites in the Company's former commodity chemicals business. The loss contingencies related to these sites include significant unresolved issues such as the nature and extent of contamination at these sites and the methods that may have to be employed to remediate them.
The status of the remediation activity at New Jersey Chrome and at the Calcasieu River Estuary and the factors that could result in the need for additional environmental remediation reserves at those sites are described above. Certain remedial actions are occurring at a legacy chemical site in Barberton, Ohio and the two operating plant sites in the former commodity chemicals business. The operating plant sites are in Lake Charles, Louisiana and Natrium, West Virginia. At Barberton, PPG has completed a Facility Investigation and Corrective Measure Study (“CMS”) under USEPA’s Resource Conservation and Recycling Act (“RCRA”) Corrective Action Program. PPG has been implementing the remediation alternatives recommended in the CMS using a performance-based approach with USEPA Region V oversight. However, USEPA Region V transferred its oversight authority to the Ohio Environmental Protection Agency (“OEPA”) in 2010. The Barberton Corrective Action Permit was issued by OEPA on September 24, 2010. As part of this permit, PPG is responsible for filing engineering remedies for various issues at this site. Several of these remedies have not yet been filed with the OEPA. Similarly, the Company
 
has completed a Facility Investigation and CMS for the Lake Charles facility under the oversight of the LDEQ. The LDEQ has accepted the proposed remedial alternatives. PPG received notice of LDEQ issuance of the final Hazardous Waste Post-Closure/HSWA Permit on June 28, 2010. The Permit was issued in final form on September 23, 2010. Planning for or implementation of these proposed alternatives is in progress. At Natrium, a facility investigation has been completed and initial interim remedial measures have been implemented to mitigate soil impacts. There is additional investigation of groundwater contamination ongoing, including Ohio River sediment and sediment pore-water sampling. If it is found that contamination from the plant site is contaminating the river, this may indicate the need for further onsite remedial actions to address specific areas of the facility. Installation of a groundwater treatment system has been completed. PPG has been addressing impacts from a legacy plate glass manufacturing site in Kokomo, Indiana under the Voluntary Remediation Program of the Indiana Department of Environmental Management. PPG is currently performing additional investigation activities.
With respect to certain waste sites, the financial condition of any other potentially responsible parties also contributes to the uncertainty of estimating PPG’s final costs. Although contributors of waste to sites involving other potentially responsible parties may face governmental agency assertions of joint and several liability, in general, final allocations of costs are made based on the relative contributions of wastes to such sites. PPG is generally not a major contributor to such sites.
The impact of evolving programs, such as natural resource damage claims, industrial site reuse initiatives and state remediation programs, also adds to the present uncertainties with regard to the ultimate resolution of this unreserved exposure to future loss. The Company’s assessment of the potential impact of these environmental contingencies is subject to considerable uncertainty due to the complex, ongoing and evolving process of investigation and remediation, if necessary, of such environmental contingencies, and the potential for technological and regulatory developments.
Separation and Merger of the Commodity Chemicals Business
All known and currently reserved environmental liabilities associated with the commodity chemicals business were transferred with the separation of this business from PPG and subsequent merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf. The newly merged company, Axiall, will assume responsibility for these liabilities. As a result of this transaction, PPG will retain responsibility for potential environmental liabilities that may result from future Natural Resource Damage claims and any potential tort claims at the Calcasieu River Estuary associated with activities and historical operations of the Lake Charles, La. facility. PPG will additionally retain responsibility for all liabilities relating to, arising out of or resulting from sediment contamination in the Ohio River resulting from historical activities and operations at the Natrium, W.Va. facility.


66 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

Other Matters
PPG is a defendant in a matter in the California State Court in San Francisco in which the City of Modesto and its Redevelopment Authority claim that PPG and other defendants manufactured a defective product, the dry cleaning solvent perchloroethylene (“PCE”), and failed to provide adequate warnings regarding the environmental risks associated with the use of PCE. The plaintiffs claimed the defendants are responsible for remediation of soil and groundwater contamination at numerous dry cleaner sites in Modesto, California. In 2006, a Phase 1 trial was conducted as to four sites. The jury returned a verdict in the amount of $3.1 million against PPG, The Dow Chemical Company, Vulcan, Oxy, and R.R. Street. The verdict was not apportioned.
Subsequent to the Phase 1 verdict, Vulcan and Oxy settled. In 2008, trial commenced on 18 Phase 2 Sites. Prior to submission of the case to the jury, the Court granted motions that limited PPG’s potential liability to one of the 18 sites. The damages sought at this one site totaled $27 million . A jury verdict in the amount of $18 million was returned against PPG and The Dow Chemical Company on May 18, 2009. The verdict was not apportioned. The jury was not able to reach a verdict on the statute of limitations issue on the site in question. However, on August 24, 2009, the trial court issued an opinion finding that the City’s claims were barred by the statute of limitations. The effect of the ruling was to nullify the jury’s Phase 2 damage award. In October 2009, the trial court held a non-jury trial of the Redevelopment Authority’s damage claims under the “Polanco Act”. On November 11, 2011, the court entered a final judgment consistent with all of the above results finding that prior settlements offset the $3.1 million verdict against PPG and others. Requests for costs and fees based on whether the City or defendants were “prevailing parties” have been resolved in PPG’s favor. On September 24, 2012, the Court ordered the City to pay PPG $0.3 million . Appeals are expected. On January 28, 2013, the responsibility for this pending legal matter was transferred as part of separation of its commodity chemicals business and the merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf. See Note 25, "Separation and Merger Transaction" for financial information relating to this transaction.
16. Shareholders’ Equity
A class of 10 million shares of preferred stock, without par value, is authorized but unissued. Common stock has a par value of $1.66  2 / 3 per share; 600 million shares are authorized.
 
The following table summarizes the shares outstanding for the three years ended December 31, 2012 :
 
Common
Stock
 
Treasury
Stock
 
Shares
Outstanding
Balance, Jan. 1, 2010
290,573,068

 
(124,905,409
)
 
165,667,659

Purchases
—

 
(8,124,621
)
 
(8,124,621
)
Issuances
—

 
2,838,777

 
2,838,777

Balance, Dec. 31, 2010
290,573,068

 
(130,191,253
)
 
160,381,815

Purchases
—

 
(10,236,694
)
 
(10,236,694
)
Issuances
—

 
1,743,659

 
1,743,659

Balance, Dec. 31, 2011
290,573,068

 
(138,684,288
)
 
151,888,780

Purchases
—

 
(1,000,000
)
 
(1,000,000
)
Issuances
—

 
2,677,517

 
2,677,517

Balance, Dec. 31, 2012
290,573,068

 
(137,006,771
)
 
153,566,297

 
Per share cash dividends paid were $2.34 in 2012, $2.26 in 2011 and $2.18 in 2010.
17. Accumulated Other Comprehensive Loss
(Millions)
Unrealized
Currency
Translation
Adjustments
 
Pension 
and
Other
Post
retire-
ment
Benefit
Adjust-ments
 
Unrealized
Gain (Loss)
on
Marketable
Securities
 
Unrealized
Gain (Loss)
on
Derivatives
 
Accum-
ulated
Other
Comp-rehensive
(Loss)
Income
Balance, January 1, 
2010
$
66

 
$
(1,292
)
 
$
(1
)
 
$
(34
)
 
$
(1,261
)
Net change
(13
)
 
(136
)
 
1

 
(2
)
 
(150
)
Balance, December 31, 2010
$
53

 
$
(1,428
)
 
$
—

 
$
(36
)
 
$
(1,411
)
Net change
(188
)
 
(169
)
 
—

 
(32
)
 
(389
)
Balance, December 31, 2011
$
(135
)
 
$
(1,597
)
 
$
—

 
$
(68
)
 
$
(1,800
)
Net change
141

 
—

 
—

 
(7
)
 
134

Balance, December 31, 2012
$
6

 
$
(1,597
)
 
$
—

 
$
(75
)
 
$
(1,666
)
With the exception of unrealized currency translation adjustments, all other components of accumulated other comprehensive loss are reported net of tax.
Unrealized currency translation adjustments related to translation of foreign denominated balance sheets are not presented net of tax given that no deferred U.S. income taxes have been provided on undistributed earnings of non-U.S. subsidiaries because they are deemed to be reinvested for an indefinite period of time.
The tax (cost) benefit related to unrealized currency translation adjustments other than translation of foreign denominated balance sheets, for the years ended December 31, 2012, 2011 and 2010 was $(1) million , $(7) million and $8 million , respectively.
The tax (cost) benefit related to the adjustment for pension and other postretirement benefits for the years ended


2012 PPG ANNUAL REPORT AND FORM 10-K 67

December 31, 2012, 2011 and 2010 was $(30) million , $98 million and $65 million , respectively. The cumulative tax benefit related to the adjustment for pension and other postretirement benefits at December 31, 2012 and 2011 was approximately $960 million and $990 million , respectively. There was no tax (cost) benefit related to the change in the unrealized gain (loss) on marketable securities for the year ended December 31, 2012. The tax (cost) benefit related to the change in the unrealized gain (loss) on marketable securities for the years ended December 31, 2011 and 2010 was $(0.2) million and $0.6 million , respectively. The tax benefit related to the change in the unrealized gain (loss) on derivatives for the years ended December 31, 2012, 2011 and 2010 was $4 million , $19 million and $1 million , respectively.
18. Employee Savings Plan
PPG’s Employee Savings Plan (“Savings Plan”) covers substantially all U.S. employees. The Company makes matching contributions to the Savings Plan, at management's discretion, based upon participants’ savings, subject to certain limitations. For most participants not covered by a collective bargaining agreement, Company-matching contributions are established each year at the discretion of the Company and are applied to participant savings up to a maximum of 6% of eligible participant compensation. For those participants whose employment is covered by a collective bargaining agreement, the level of Company-matching contribution, if any, is determined by the relevant collective bargaining agreement.
The Company-matching contribution was suspended from March 2009 through June 2010 as a cost savings measure in recognition of the adverse impact of the global recession. Effective July 1, 2010, the Company match was reinstated at 50% on the first 6% of compensation contributed for most employees eligible for the Company-matching contribution feature. This included the union represented employees in accordance with their collective bargaining agreements. On January 1, 2011, the Company match was increased to 75% on the first 6% of compensation contributed by these eligible employees and this level was maintained throughout 2012.
Compensation expense and cash contributions related to the Company match of participant contributions to the Savings Plan for 2012, 2011 and 2010 totaled $28 million , $26 million and $9 million , respectively. A portion of the Savings Plan qualifies under the Internal Revenue Code as an Employee Stock Ownership Plan. As a result, the dividends on PPG shares held by that portion of the Savings Plan totaling $18 million , $20 million and $24 million for 2012, 2011 and 2010, respectively, were tax deductible to the Company for U.S. Federal tax purposes.
 
19. Other Earnings
(Millions)
2012
 
2011
 
2010
Royalty income
$
51

 
$
55

 
$
58

Share of net earnings of equity affiliates (See Note 5)
11

 
37

 
45

Gain on sale of assets
4

 
12

 
8

Other
83

 
73

 
69

Total
$
149

 
$
177

 
$
180

 
20. Stock-Based Compensation
The Company’s stock-based compensation includes stock options, restricted stock units (“RSUs”) and grants of contingent shares that are earned based on achieving targeted levels of total shareholder return. All current grants of stock options, RSUs and contingent shares are made under the PPG Industries, Inc. Amended and Restated Omnibus Incentive Plan (“PPG Amended Omnibus Plan”), which was amended and restated effective April 21, 2011. Shares available for future grants under the PPG Amended Omnibus Plan were 8.5 million as of December 31, 2012 .
Total stock-based compensation cost was $73 million , $36 million and $52 million in 2012, 2011 and 2010, respectively. Stock-based compensation expense increased year over year due to the increase in the expected payout percentage of the 2010 performance-based RSU grants and PPG's total shareholder return performance in 2012 in comparison with the Standard & Poors (S&P) 500 index, which has increased the expense related to outstanding grants of contingent shares. The total income tax benefit recognized in the accompanying consolidated statement of income related to the stock-based compensation was $25 million , $13 million and $18 million in 2012, 2011 and 2010, respectively.
Stock Options
PPG has outstanding stock option awards that have been granted under two stock option plans: the PPG Industries, Inc. Stock Plan (“PPG Stock Plan”) and the PPG Amended Omnibus Plan. Under the PPG Amended Omnibus Plan and the PPG Stock Plan, certain employees of the Company have been granted options to purchase shares of common stock at prices equal to the fair market value of the shares on the date the options were granted. The options are generally exercisable beginning from six to 48 months after being granted and have a maximum term of 10 years. Upon exercise of a stock option, shares of Company stock are issued from treasury stock. The PPG Stock Plan includes a restored option provision for options originally granted prior to January 1, 2003 that allows an optionee to exercise options and satisfy the option cost by certifying ownership of mature shares of PPG common stock with a market value equal to the option cost.
The fair value of stock options issued to employees is measured on the date of grant and is recognized as expense over the requisite service period. PPG estimates the fair value of stock options using the Black-Scholes option pricing model. The risk-free interest rate is determined by using the U.S. Treasury yield


68 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

curve at the date of the grant and using a maturity equal to the expected life of the option. The expected life of options is calculated using the average of the vesting term and the maximum term, as prescribed by accounting guidance on the use of the simplified method for determining the expected term of an employee share option. This method is used as the vesting term of stock options was changed to three years in 2004 and, as a result, the historical exercise data does not provide a reasonable basis upon which to estimate the expected life of options. The expected dividend yield and volatility are based on historical stock prices and dividend amounts over past time periods equal in length to the expected life of the options.
The following weighted average assumptions were used to calculate the fair values of stock option grants in each year:
 
2012
 
2011
 
2010
Risk free interest rate
1.3
%
 
2.9
%
 
2.8
%
Expected life of option in years
6.5

 
6.4

 
5.9

Expected dividend yield
3.3
%
 
3.3
%
 
3.4
%
Expected volatility
29.4
%
 
28.0
%
 
28.5
%
 
The weighted average fair value of options granted was $17.97 per share, $19.00 per share and $13.45 per share for the years ended December 31, 2012, 2011, and 2010, respectively.
A summary of stock options outstanding and exercisable and activity for the year ended December 31, 2012 is presented below:
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(in years)
 
Intrinsic
Value
(in millions)
Outstanding, January 1, 2012
4,907,885

 
$
60.52

 
5.6
 
$
116

Granted
792,957

 
$
90.28

 
 
 
 
Exercised
(2,251,975
)
 
$
54.10

 
 
 
 
Forfeited/Expired
(40,168
)
 
$
88.94

 
 
 
 
Outstanding, December 31, 2012
3,408,699

 
$
71.34

 
6.6
 
$
218

Vested or expected to vest,
December 31, 2012
3,341,323

 
$
71.05

 
6.6
 
$
215

Exercisable, December 31, 2012
1,271,875

 
$
57.78

 
4.0
 
$
99

At December 31, 2012 , unrecognized compensation cost related to outstanding stock options that have not yet vested totaled $7 million . This cost is expected to be recognized as expense over a weighted average period of 1.5 years.
 
The following table presents stock option activity for the years ended December 31, 2012, 2011 and 2010:
(Millions)
2012
 
2011
 
2010
Total intrinsic value of stock options exercised
$
110

 
$
40

 
$
37

Cash received from stock option exercises
122

 
81

 
146

Income tax benefit from the exercise of stock options
35

 
9

 
9

Total fair value of stock options vested
6

 
10

 
13

 
Restricted Stock Units ("RSUs")
Long-term incentive value is delivered to selected key management employees by granting RSUs, which have either time or performance-based vesting features. The fair value of an RSU is equal to the market value of a share of PPG stock on the date of grant. Time-based RSUs vest over the three -year period following the date of grant, unless forfeited, and will be paid out in the form of stock, cash or a combination of both at the Company’s discretion at the end of the three year vesting period. Performance-based RSUs vest based on achieving specific annual performance targets for earnings per share growth and cash flow return on capital over the three calendar year-end periods following the date of grant. Unless forfeited, the performance-based RSUs will be paid out in the form of stock, cash or a combination of both at the Company’s discretion at the end of the three -year performance period if PPG meets the performance targets. The amount paid for performance-based awards may range from 0% to 180% of the original grant, based upon the frequency with which the annual earnings per share growth and cash flow return on capital performance targets are met over the three calendar year periods comprising the vesting period. For the purposes of expense recognition, PPG has assumed that performance-based RSUs granted in 2010 will vest at the 180% level and those granted in 2011 and 2012 will vest at the 100% level. As of December 31, 2012, four of the four possible performance targets had been met for the 2011 grant and two of the two possible performance targets had been met for the 2012 grant.
The following table summarizes RSU activity for the year ended December 31, 2012 : 
 
Number of
Shares
 
Weighted
Average
Fair Value
 
Intrinsic
Value
(in millions)
Outstanding, January 1, 2012
1,005,757

 
$
46.98

 
$
84

Granted
248,732

 
$
83.48

 
 
Additional shares vested
208,228

 
$
55.30

 
 
Released from restrictions
(465,879
)
 
$
28.37

 
 
Forfeited
(42,902
)
 
$
53.68

 
 
Outstanding, December 31, 2012
953,936

 
$
67.11

 
$
129

Vested or expected to vest, December 31, 2012
945,429

 
$
66.97

 
$
128

 
There was $11 million of total unrecognized compensation cost related to unvested RSUs outstanding as of December 31, 2012 . This cost is expected to be recognized as expense over a weighted average period of 1.5 years.


2012 PPG ANNUAL REPORT AND FORM 10-K 69

Notes to the Consolidated Financial Statements

Contingent Share Grants
The Company also provides grants of contingent shares to selected key executives that may be earned based on PPG total shareholder return ("TSR") over the three -year period following the date of grant. Contingent share grants (referred to as “TSR awards”) are made annually and are paid out at the end of each three -year period based on the Company’s performance. Performance is measured by determining the percentile rank of the total shareholder return of PPG common stock in relation to the total shareholder return of the S&P 500 for the three -year period following the date of grant. This comparison group represents the entire S&P 500 Index as it existed at the beginning of the performance period. The payment of awards following the three -year award period will be based on performance achieved in accordance with the scale set forth in the plan agreement and may range from 0% to 220% of the initial grant. A payout of 100% is earned if the target performance is achieved. Contingent share awards for the 2010-2012, 2011-2013, and 2012-2014 periods earn dividend equivalents for the award period, which will be paid to participants with the award payout at the end of the period based on the actual number of contingent shares that are earned. Any payments made at the end of the award period may be in the form of stock, cash or a combination of both. The TSR awards qualify as liability awards, and compensation expense is recognized over the three -year award period based on the fair value of the awards (giving consideration to the Company’s percentile rank of total shareholder return) remeasured in each reporting period until settlement of the awards.
As of December 31, 2012 , there was $10.2 million of total unrecognized compensation cost related to outstanding TSR awards based on the current estimate of fair value. This cost is expected to be recognized as expense over a weighted average period of 1.4 years.
21. Advertising Costs
Advertising costs are expensed in the year incurred and totaled $288 million , $245 million and $288 million in 2012, 2011 and 2010, respectively.
22. Research and Development
(Millions)
2012
 
2011
 
2010
Research and development – total
$
470

 
$
445

 
$
408

Less depreciation on research facilities
15

 
15

 
14

Research and development – net
$
455

 
$
430

 
$
394

 
23. Quarterly Financial Information (unaudited)
 
2012 Quarter Ended
 
Total
Millions
(except per share
amounts)
March 31
 
June 30
 
Sept. 30
 
Dec. 31
 
Net sales
$
3,752

 
$
3,955

 
$
3,845

 
$
3,648

 
$
15,200

Cost of Sales (1)
2,229

 
2,352

 
2,288

 
2,200

 
9,069

Net income (attributable to PPG) (2)
13

 
362

 
339

 
227

 
941

Earnings per common share
0.08

 
2.37

 
2.21

 
1.47

 
6.13

Earnings per common share – assuming dilution (2)
$
0.08

 
$
2.34

 
$
2.18

 
$
1.46

 
$
6.06

 
2011 Quarter Ended
 
Total
Millions
(except per share
amounts)
March 31
 
June 30
 
Sept. 30
 
Dec. 31
 
Net sales
$
3,533

 
$
3,986

 
$
3,849

 
$
3,517

 
$
14,885

Cost of Sales (1)
2,127

 
2,417

 
2,353

 
2,184

 
9,081

Net income (attributable to PPG)
228

 
340

 
311

 
216

 
1,095

Earnings per common share
1.42

 
2.15

 
1.98

 
1.41

 
6.96

Earnings per common share – assuming dilution
$
1.40

 
$
2.12

 
$
1.96

 
$
1.39

 
$
6.87

(1)
Exclusive of depreciation and amortization.
(2)
First quarter 2012 includes charge of $163 million or $1.06 per diluted share related to restructuring (See Note 7, "Business Restructuring") and charge of $99 million or $0.64 per diluted share related to environmental remediation (See Note 15, "Commitments and Contingent Liabilities").




70 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

24. Reportable Business Segment Information
Segment Organization and Products
PPG is a multinational manufacturer with 13 operating segments that are organized based on the Company’s major products lines. These operating segments are also the Company’s reporting units for purposes of testing goodwill for impairment (see Note 1, “Summary of Significant Accounting Policies”). The operating segments have been aggregated based on economic similarities, the nature of their products, production processes, end-use markets and methods of distribution into six reportable business segments.
The Performance Coatings reportable segment is comprised of the refinish, aerospace, architectural coatings – Americas and Asia Pacific and protective and marine coatings operating segments. This reportable segment primarily supplies a variety of decorative and functional coatings, sealants and finishes along with paint strippers, stains and related chemicals, as well as transparencies and transparent armor.
The Industrial Coatings reportable segment is comprised of the automotive OEM, industrial coatings and packaging coatings operating segments. This reportable segment primarily supplies a variety of protective and decorative coatings and finishes along with adhesives, sealants, inks and metal pretreatment products.
The Architectural Coatings – EMEA reportable segment is comprised of the architectural coatings – EMEA operating segment. This reportable segment primarily supplies a variety of coatings under a number of brands and purchased sundries to painting contractors and consumers in Europe, the Middle East and Africa.
The Optical and Specialty Materials reportable segment is comprised of the optical products and silicas businesses. The primary Optical and Specialty Materials products are Transitions ® lenses, optical lens materials and high performance sunlenses; amorphous precipitated silicas for tire, battery separator and other end-use markets; and Teslin ® substrate used in such applications as radio frequency identification (RFID) tags and labels, e-passports, drivers’ licenses and identification cards. Transitions ® lenses are processed and distributed by PPG’s 51 percent -owned joint venture with Essilor International.
The Commodity Chemicals reportable segment is comprised of the chlor-alkali and derivatives operating segment. The primary chlor-alkali and derivative products are chlorine, caustic soda, vinyl chloride monomer, chlorinated solvents, calcium hypochlorite, ethylene dichloride, hydrochloric acid and phosgene derivatives. On January 28, 2013, PPG completed the separation of its commodity chemicals business and merger of the subsidiary holding the PPG commodity chemicals business with a subsidiary of Georgia Gulf. Refer to Note 25, "Separation and Merger Transaction" for financial information relating to this transaction.
The Glass reportable segment is comprised of the flat glass and fiber glass operating segments. This reportable segment
 
primarily supplies flat glass and continuous-strand fiber glass products.
Production facilities and markets for Performance Coatings, Industrial Coatings, Architectural Coatings – EMEA, Optical and Specialty Materials, Commodity Chemicals and Glass are global. PPG’s reportable segments continue to pursue opportunities to further develop their global markets, including efforts in Asia, Eastern Europe and Latin America. Each of the reportable segments in which PPG is engaged is highly competitive. The diversification of our product lines and the worldwide markets served tend to minimize the impact on PPG’s total sales and earnings of changes in demand in a particular market or in a particular geographic area.
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies (See Note 1, "Summary of Significant Accounting Policies"). The Company allocates resources to operating segments and evaluates the performance of operating segments based upon segment income, which is earnings before interest expense – net, income taxes and noncontrolling interests and excludes certain charges which are considered to be unusual or non-recurring. The Company also evaluates performance of operating segments based on working capital reduction, margin growth and sales volume growth. Legacy items include current costs related to former operations of the Company, including certain environmental remediation, pension and other postretirement benefit costs, and certain charges for legal and other matters which are considered to be unusual or non-recurring. These legacy costs are excluded from the segment income that is used to evaluate the performance of the operating segments. Legacy items also include equity earnings from PPG’s approximate 40% investment in its former automotive glass and services business and $35 million , $35 million and $30 million of costs in 2012, 2011 and 2010, respectively, related to the pension and other postemployment benefit liabilities of the divested business retained by PPG. Corporate unallocated costs include the costs of corporate staff functions not directly associated with the operating segments, the cost of corporate legal cases, net of related insurance recoveries, and the cost of certain insurance, variable pay, stock-based compensation and employee benefit programs. Net periodic pension expense is allocated to the operating segments and the portion of net periodic pension expense related to the corporate staff functions is included in the Corporate unallocated costs.
For Optical and Specialty Materials, Commodity Chemicals and Glass, intersegment sales and transfers are recorded at selling prices that approximate market prices. Product movement between Performance Coatings, Industrial Coatings and Architectural Coatings – EMEA is limited, is accounted for as an inventory transfer and is recorded at cost plus a mark-up, the impact of which is not significant to the segment income of the three coatings reportable segments.



2012 PPG ANNUAL REPORT AND FORM 10-K 71

Notes to the Consolidated Financial Statements

(Millions)
Reportable Business Segments
Performance
Coatings
 
Industrial
Coatings
 
Architectural
Coatings –
EMEA
 
Optical
and
Specialty
Materials
 
Commodity
Chemicals
 
Glass  
 
Corporate /
Eliminations /
Non-
Segment
Items (1)
 
Consolidated
Totals
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
4,752

 
$
4,379

 
$
2,147

 
$
1,202

 
$
1,688

 
$
1,032

 
$
—

 
$
15,200

Intersegment net sales
—

 
—

 
—

 
3

 
12

 
—

 
(15
)
 
—

Total net sales
$
4,752

 
$
4,379

 
$
2,147

 
$
1,205

 
$
1,700

 
$
1,032

 
$
(15
)
 
$
15,200

Segment income
$
744

 
$
590

 
$
145

 
$
348

 
$
372

 
$
63

 
$
—

 
$
2,262

Legacy items (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(219
)
Business restructuring (See Note 7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(208
)
Business separation and certain acquisition-related costs (5)  (See Note 25)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(26
)
Charges related to acquisition of Dyrup and Colpisa (See Note 2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6
)
Interest expense, net of interest income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(171
)
Corporate unallocated (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(230
)
Income before income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,402

Depreciation and amortization (See Note 1)
$
112

 
$
87

 
$
115

 
$
32

 
$
43

 
$
53

 
$
23

 
$
465

Share of net earnings (loss) of equity affiliates
1

 
(1
)
 
2

 
—

 
2

 
4

 
3

 
11

Segment assets (3)
3,993

 
2,886

 
2,727

 
646

 
738

 
914

 
3,974

 
15,878

Investment in equity affiliates
10

 
15

 
19

 
—

 
1

 
166

 
51

 
262

Expenditures for property
103

 
184

 
52

 
65

 
48

 
46

 
22

 
520

2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
4,626

 
$
4,158

 
$
2,104

 
$
1,204

 
$
1,732

 
$
1,061

 
$
—

 
$
14,885

Intersegment net sales
—

 
—

 
—

 
3

 
9

 
—

 
(12
)
 
—

Total net sales
$
4,626

 
$
4,158

 
$
2,104

 
$
1,207

 
$
1,741

 
$
1,061

 
$
(12
)
 
$
14,885

Segment income
$
673

 
$
438

 
$
123

 
$
326

 
$
370

 
$
97

 
$
—

 
$
2,027

Legacy items (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(66
)
Interest expense, net of interest income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(168
)
Acquisition-related gain, net (See Note 2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9

Corporate unallocated (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(205
)
Income before income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,597

Depreciation and amortization (See Note 1)
$
115

 
$
90

 
$
113

 
$
36

 
$
41

 
$
52

 
$
20

 
$
467

Share of net earnings of equity affiliates
2

 
1

 
2

 
—

 
1

 
24

 
7

 
37

Segment assets (3)
4,017

 
2,614

 
2,626

 
610

 
690

 
919

 
2,906

 
14,382

Investment in equity affiliates
12

 
12

 
20

 
—

 
—

 
170

 
47

 
261

Expenditures for property
79

 
73

 
48

 
54

 
89

 
56

 
41

 
440



72 2012 PPG ANNUAL REPORT AND FORM 10-K

Notes to the Consolidated Financial Statements

(Millions)
Reportable Business Segments
Performance
Coatings
 
Industrial
Coatings
 
Architectural
Coatings –
EMEA
 
Optical
and
Specialty
Materials
 
Commodity
Chemicals
 
Glass  
 
Corporate /
Eliminations /
Non-
Segment
Items (1)
 
Consolidated
Totals
2010
 

 
 

 
 

 
 

 
 

 
 

 
 

 
—

Net sales to external customers
4,281

 
3,708

 
1,874

 
1,141

 
1,434

 
985

 
—

 
13,423

Intersegment net sales
—

 
(1
)
 
1

 
3

 
7

 
—

 
(10
)
 
—

Total net sales
4,281

 
3,707

 
1,875

 
1,144

 
1,441

 
985

 
(10
)
 
13,423

Segment income
661

 
378

 
113

 
307

 
189

 
74

 
—

 
1,722

Legacy items (2)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(67
)
Interest expense, net of interest income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(155
)
Corporate unallocated (1)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(205
)
Income before income taxes
 

 
 

 
 

 
 

 
 

 
 

 
 

 
1,295

Depreciation and amortization (See Note 1)
117

 
95

 
107

 
36

 
39

 
56

 
20

 
470

Share of net earnings (loss) of equity affiliates
2

 
2

 
1

 
—

 
(1
)
 
26

 
15

 
45

Segment assets (3)
4,027

 
2,620

 
2,759

 
597

 
587

 
893

 
3,492

 
14,975

Investment in equity affiliates
13

 
13

 
18

 
—

 
1

 
156

 
215

 
416

Expenditures for property
89

 
68

 
51

 
39

 
40

 
32

 
20

 
339

(Millions)
 
 
 
 
 
Geographic Information
2012
 
2011
 
2010
Net sales (4)
 
 
 
 
 
 
The Americas
 
 
 
 
 
 
 
United States
$
6,575

 
$
6,203

 
$
5,623

 
 
Other Americas
1,166

 
1,121

 
1,040

 
Europe, Middle East and Africa (“EMEA”)
4,839

 
5,043

 
4,536

 
Asia Pacific
2,620

 
2,518

 
2,224

 
 
Total
$
15,200

 
$
14,885

 
$
13,423

Segment income
 
 
 
 
 
 
The Americas
 
 
 
 
 
 
 
United States
$
1,285

 
$
1,116

 
$
893

 
 
Other Americas
121

 
97

 
99

 
EMEA
475

 
454

 
387

 
Asia Pacific
381

 
360

 
343

 
 
Total
$
2,262

 
$
2,027

 
$
1,722

Property—net
 
 
 
 
 
 
The Americas
 
 
 
 
 
 
 
United States
$
1,379

 
$
1,345

 
$
1,274

 
 
Other Americas
100

 
98

 
106

 
EMEA
903

 
841

 
897

 
Asia Pacific
506

 
437

 
409

 
 
Total
$
2,888

 
$
2,721

 
$
2,686

(1)
Corporate intersegment net sales represent intersegment net sales eliminations. Corporate unallocated costs include the costs of corporate staff functions not directly associated with the operating segments and certain legal, variable pay, stock-based compensation and benefit costs.
(2)
Legacy items include current costs related to former operations of the Company, including certain environmental remediation, pension and other postretirement benefit costs, legal costs and certain charges which are considered to be non-recurring, including a charge related to flat glass antitrust matters in the third quarter of 2010. The Legacy items for 2012 include an environmental remediation pretax charge of $159 million . The charge relates to continued environmental remediation activities at legacy chemicals sites, primarily at PPG's former Jersey City, N.J. chromium manufacturing plant and associated sites (See Note 15). Legacy items also include equity earnings from PPG’s approximate 40% investment in the former automotive glass and services business.
(3)
Segment assets are the total assets used in the operation of each segment. Corporate assets are principally cash and cash equivalents, cash held in escrow, short term investments, deferred tax assets and the approximate 40% investment in the former automotive glass and services business.
(4)
Net sales to external customers are attributed to geographic regions based upon the location of the operating unit shipping the product.
(5)
Acquisition-related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred to effect significant acquisitions. PPG expects to incur additional acquisition-related costs in 2013.


2012 PPG ANNUAL REPORT AND FORM 10-K 73

Notes to the Consolidated Financial Statements

25. Separation and Merger Transaction
On January, 28, 2013, the Company completed the previously announced separation of its commodity chemicals business and merger of its wholly-owned subsidiary, Eagle Spinco Inc., with a subsidiary of Georgia Gulf Corporation in a tax efficient Reverse Morris Trust transaction (the “Transaction”). Pursuant to the merger, Eagle Spinco, the entity holding PPG's former commodity chemicals business, is now a wholly-owned subsidiary of Georgia Gulf. The closing of the merger followed the expiration of the related exchange offer and the satisfaction of certain other conditions. The combined company formed by uniting Georgia Gulf with PPG's former commodity chemicals business is named Axiall Corporation (“Axiall”). PPG holds no ownership interest in Axiall. PPG received the necessary ruling from the Internal Revenue Service and as a result this Transaction was generally tax free to PPG and its shareholders.
Under the terms of the exchange offer, 35,249,104 shares of Eagle Spinco common stock were available for distribution in exchange for shares of PPG common stock accepted in the offer. Following the merger, each share of Eagle Spinco common stock automatically converted into the right to receive one share of Axiall Corporation common stock. Accordingly, PPG shareholders who tendered their shares of PPG common stock as part of this offer received 3.2562 shares of Axiall common stock for each share of PPG common stock accepted for exchange. PPG was able to accept the maximum of 10,825,227 shares of PPG common stock for exchange in the offer, and thereby, reduced its outstanding shares by approximately 7% .
Under the terms of the Transaction, PPG received $900 million of cash and 35.2 million shares of Axiall common stock (market value of $1.8 billion on January 25, 2013) which was distributed to PPG shareholders by the exchange offer as described above. The cash consideration is subject to customary post-closing adjustment, including a working capital adjustment. In the Transaction, PPG transferred environmental remediation liabilities, defined benefit pension plan assets and liabilities and other post-employment benefit liabilities related to the commodity chemicals business to Axiall. PPG will report a gain on the Transaction reflecting the excess of the sum of the cash proceeds received and the cost (closing stock price on January 25, 2013) of the PPG shares tendered and accepted in the exchange for the 35.2 million shares of Axiall common stock over the net book value of the net assets of PPG's former commodity chemicals business. The Transaction will also result in a net partial settlement loss associated with the spin out and termination of defined benefit pension liabilities and the transfer of other post-retirement benefit liabilities under the terms of the Transaction. During 2012, the Company incurred $21 million of pretax expense, primarily for professional services, related to the Transaction. Additional Transaction-related expenses will be incurred in 2013.
PPG will report the results of its commodity chemicals business for January 2013 and a net gain on the Transaction as results from discontinued operations when it reports its results
 
for the quarter ending March 31, 2013. In the PPG results for prior periods, presented for comparative purposes beginning with the first quarter 2013, the results of its former commodity chemicals business will be reclassified from continuing operations and presented as the results from discontinued operations. The net sales and income before income taxes of the commodity chemicals business that will be reclassified and reported as discontinued operations are presented in the table below for the years ended December 31, 2012, 2011 and 2010:
 
Year-ended
Millions
2012
 
2011
 
2010
Net sales
$
1,700

 
$
1,741

 
$
1,441

Income before income taxes
$
368

 
$
376

 
$
187

Income before income taxes for the year ended December 31, 2012, 2011 and 2010 is $4 million lower, $6 million higher and $2 million lower, respectively, than segment earnings for the PPG Commodity Chemicals segment reported for these periods. These differences are due to the inclusion of certain gains, losses and expenses associated with the chlor-alkali and derivatives business that were not reported in the PPG Commodity Chemicals segment earnings in accordance with the accounting guidance on segment reporting.



74 2012 PPG ANNUAL REPORT AND FORM 10-K

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a)
Evaluation of disclosure controls and procedures.
Based on their evaluation as of the end of the period covered by this Form 10-K, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
(b)
Changes in internal control.
There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
See Management Report on page 33 for management’s annual report on internal control over financial reporting. See Report of Independent Registered Public Accounting Firm on page 32 for Deloitte & Touche LLP’s attestation report on the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
 

Part III
 
Item 10. Directors, Executive Officers and Corporate Governance
The information about the Company’s directors required by Item 10 and not otherwise set forth below is contained under the caption “Proposal 1: Election of Directors” in PPG’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders (the “Proxy Statement”) which the Company anticipates filing with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the Company’s fiscal year, and is incorporated herein by reference.
The executive officers of the Company are elected by the Board of Directors. The information required by this item concerning the Company’s executive officers is incorporated by reference herein from Part I of this report under the caption “Executive Officers of the Company.”  
Information regarding the Company’s Audit Committee is included in the Proxy Statement under the caption “Corporate Governance – Audit Committee” and is incorporated herein by reference.
Information regarding the Company’s codes of ethics is included in the Proxy Statement under the caption “Corporate Governance – Codes of Ethics” and is incorporated herein by reference.
Information about compliance with Section 16(a) of the Exchange Act is included in the Proxy Statement under the caption “Beneficial Ownership – Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 11 is contained in the Proxy Statement under the captions “Compensation of Directors,” “Compensation Discussion and Analysis,” “Compensation of Executive Officers,” “Potential Payments upon Termination or Change in Control,” “Corporate Governance – Compensation Committee Interlocks and Insider Participation,” and “Corporate Governance – Officers-Directors Compensation Committee Report to Shareholders” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is contained in the Proxy Statement under the captions “Beneficial Ownership” and “Equity Compensation Plan Information” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is contained in the Proxy Statement under the captions “Corporate Governance – Director Independence,” “Corporate Governance – Review and Approval or Ratification of Transactions with Related Persons”


2012 PPG ANNUAL REPORT AND FORM 10-K 75
Table of Contents

and “Corporate Governance – Certain Relationships and Related Transactions” and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 is contained in the Proxy Statement under the caption “Independent Registered Public Accounting Firm” and is incorporated herein by reference.

 
Part IV
 
Item 15. Exhibits, Financial Statement Schedules
(a)(1)    Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firm (see Part II, Item 8 of this Form 10-K).
 
The following information is filed as part of this Form 10-K:
 
(a)(2)    Consolidated Financial Statement Schedule for years ended December 31, 2012, 2011 and 2010.
 
The following Consolidated Financial Statement Schedule should be read in conjunction with the previously referenced financial statements:
 
Schedule II – Valuation and Qualifying Accounts
 
Allowance for Doubtful Accounts for the Years Ended December 31, 2012, 2011 and 2010
(Millions)
Balance at
Beginning
of Year
 
Charged to
Costs and
Expenses
 
Deductions (1)
 
Balance at
End of
Year
2012
$
71

 
$
24

 
$
(18
)
 
$
77

2011
$
91

 
$
31

 
$
(51
)
 
$
71

2010
$
122

 
$
18

 
$
(49
)
 
$
91

(1)
Notes and accounts receivable written off as uncollectible, net of recoveries, amounts attributable to divestitures and changes attributable to foreign currency translation.
(2)
Expenses and deductions during 2011 were elevated by $9 million due to a U.K. based retail do-it-yourself customer who filed for bankruptcy during the second quarter of 2011.

All other schedules are omitted because they are not applicable.

(a)(3)    Exhibits. The following exhibits are filed as a part of, or incorporated by reference into, this Form 10-K.


76 2012 PPG ANNUAL REPORT AND FORM 10-K

 
2.1
Agreement and Plan of Merger, dated as of July 18, 2012, by and among PPG Industries, Inc., Eagle Spinco Inc., Georgia Gulf Corporation and Grizzly Acquisition Sub, Inc., was filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on July 19, 2012.

 
2.2
Amendment No. 1 to the Agreement and Plan of Merger, dated as of August 31, 2012, by and PPG Industries, Inc., Eagle Spinco Inc., Georgia Gulf Corporation and Grizzly Acquisition Sub, Inc., was filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on September 5, 2012.

†
2.3
Sale and Purchase Agreement, dated December 13, 2012, between Akzo Nobel N.V. and PPG Industries, Inc.
 
3
PPG Industries, Inc., Restated Articles of Incorporation, as amended, were filed as Exhibit 3 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2012.
 
3.1
PPG Industries, Inc., Bylaws, as amended and restated on April 19, 2007, were filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2007.
 
4
Indenture, dated as of Aug. 1, 1982, was filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 (No. 333-44397) dated January 16, 1998.
 
4.1
First Supplemental Indenture, dated as of April 1, 1986, was filed as Exhibit 4.2 to the Registrant’s Registration Statement on Form S-3 (No. 333-44397) dated January 16, 1998.
 
4.2
Second Supplemental Indenture, dated as of October 1, 1989, was filed as Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (No. 333-44397) dated January 16, 1998.
 
4.3
Third Supplemental Indenture, dated as of November 1, 1995, was filed as Exhibit 4.4 to the Registrant’s Registration Statement on Form S-3 (No. 333-44397) dated January 16, 1998.
 
4.4
Indenture, dated as of June 24, 2005, was filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated June 20, 2005.
 
4.5
Indenture, dated as of March 18, 2008, was filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 18, 2008.
 
4.6
Supplemental Indenture, dated as of March 18, 2008, was filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on March 18, 2008.
 
4.7
Second Supplemental Indenture, dated as of November 12, 2010, was filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on November 12, 2010.
 
 
4.8
Third Supplemental Indenture, dated as of August 3, 2011, was filed as Exhibit 4.4 to the Registrant's Current Report on Form 8-K filed on August 3, 2012.
*
10
PPG Industries, Inc. Nonqualified Retirement Plan, as amended and restated September 24, 2008, was filed as Exhibit 10 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 2011.
*
10.1
Form of Change in Control Employment Agreement entered into with executives prior to January 1, 2008, as amended, was filed as Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2007.
*
10.2
Form of Change in Control Employment Agreement entered into with executives on or after January 1, 2008 through December 31, 2009, was filed as Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2007.
*
10.3
Form of Change in Control Employment Agreement entered into with executives on or after January 1, 2010, was filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2009.
†*
10.4
Form of Change in Control Employment Agreement entered into with executives on or after June 30, 2012.

*
10.5
PPG Industries, Inc. Deferred Compensation Plan for Directors related to compensation deferred prior to January 1, 2005, was filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 1997.
*
10.6
PPG Industries, Inc. Deferred Compensation Plan for Directors related to compensation deferred on or after January 1, 2005, as amended February 15, 2006, was filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2006.
*
10.7
PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred prior to January 1, 2005, as amended effective July 14, 2004, was filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004.
*
10.8
PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred on or after January 1, 2005, as amended and restated September 24, 2008, was filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.9
PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred on or prior to January 1, 2005, as amended and restated effective January 1, 2011, was filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2012.


2012 PPG ANNUAL REPORT AND FORM 10-K 77
Table of Contents

*
10.10
PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred on or after to January 1, 2005, as amended and restated effective January 1, 2011, was filed as Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2012.
*
10.11
PPG Industries, Inc. Executive Officers’ Long Term Incentive Plan was filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 16, 2005.
*
10.12
PPG Industries, Inc. Incentive Compensation Plan for Key Employees, as amended April 20, 2006, was filed as Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.13
PPG Industries, Inc. Management Award Plan, as amended April 20, 2006, was filed as Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.14
PPG Industries, Inc. Stock Plan, dated as of April 17, 1997, as amended July 20, 2005, was filed as Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2005.
*
10.15
PPG Industries, Inc. Omnibus Incentive Plan was filed as Exhibit 10.18 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2006.
*
10.16
PPG Industries, Inc. Amended and Restated Omnibus Incentive Plan, was filed as Annex A to the Registrant’s Definitive Proxy Statement for its 2011 Annual Meeting of Shareholders filed on March 10, 2011.
*
10.17
Form of Non-Qualified Option Agreement for Directors was filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated February 15, 2005.
*
10.18
Form of Time-Vested Restricted Stock Unit Award Agreement, was filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.19
Form of Time-Vested Restricted Stock Unit Award Agreement for Directors, was filed as Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.20
Form of Non-Qualified Stock Option Award Agreement, was filed as Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.21
Form of Non-Qualified Stock Option Award Agreement, was filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.22
Form of Non-Qualified Stock Option Award Agreement, was filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.23
Form of TSR Share Award Agreement, was filed as Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
 
*
10.24
Form of TSR Share Award Agreement, was filed as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.25
Form of TSR Share Award Agreement, was filed as Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.26
Form of TSR Share Award Agreement, was filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2012.
*
10.27
Form of Performance-Based Restricted Stock Unit Award Agreement for Key Employees, was filed as Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.28
Form of Performance-Based Restricted Stock Unit Award Agreement for Key Employees, was filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.29
Form of Performance-Based Restricted Stock Unit Award Agreement, was filed as Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.30
Form of Performance-Based Restricted Stock Unit Award Agreement, was filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.31
Form of Performance-Based Restricted Stock Unit Award Agreement for Key Employees, was filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.32
Form of Performance-Based Restricted Stock Unit Award Agreement, was filed as Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.33
Form of Performance-Based Restricted Stock Unit Award Agreement for Key Employees, was filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2012.

*
10.34
Form of Time-Vested Restricted Stock Unit Award Agreement, was filed as Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.35
Form of Time-Vested Restricted Stock Unit Award Agreement, was filed as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.36
Form of letter to certain executives regarding 2008 deferred compensation plan elections, was filed as Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2007.


78 2012 PPG ANNUAL REPORT AND FORM 10-K
Table of Contents

 
10.37
Three-Year Credit Agreement, dated August 2, 2010, among PPG Industries, Inc.; the several banks and financial institutions party thereto; JPMorgan Chase Bank, N.A., as administrative agent; J.P. Morgan Securities, Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd. and BNP Paribas Securities Corp., as co-lead arrangers and co-bookrunners; and The Bank of Tokyo-Mitsubishi UFJ, Ltd. and BNP Paribas, as co-syndication agents was filed Exhibit 10 to the Registrant’s Current Report on Form 8-K filed on August 6, 2010.
 
10.38
Five-Year Credit Agreement among PPG Industries, Inc.; the several banks and financial institutions party thereto; JPMorgan Chase Bank, N.A., as administrative agent; The Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Citigroup Global Markets Inc. and PNC Bank, National Association, as co-syndication agents; and J.P. Morgan Securities LLC, The Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas Securities Corp., Citigroup Global Markets Inc., and PNC Capital Markets LLC, as co-lead arrangers and co-bookrunners, was filed as Exhibit 10 to the Registrant's Current Report on Form 8-K filed on September 13, 2012.

*
10.39
Employment Agreement between PPG Industries Europe Sàrl, Rolle and Pierre-Marie DeLeener, was filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.40
Employment Agreement, dated September 12, 2011, between PPG Industries, Inc. and Pierre-Marie De Leener, was filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2011.
*
10.41
Agreement, dated September 12, 2011, between PPG Industries Europe Sárl and Pierre-Marie De Leener terminating the Employment Agreement, between PPG Industries Europe Sárl and Pierre-Marie De Leener, was filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2011.
*
10.42
Separation Agreement, dated August 22, 2012, between PPG Industries, Inc. and Pierre-Marie De Leener, was filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2012.

*
10.43
Letter Agreement with David B. Navikas, was filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
 
10.44
Separation Agreement, dated as of July 18, 2012, by and between PPG Industries, Inc. and Eagle Spinco Inc., was filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on July 19, 2012.
†
12
Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended December 31, 2012.
†
13.1
Market Information, Dividends and Holders of Common Stock.
†
13.2
Selected Financial Data for the Five Years Ended December 31, 2012.
†
21
Subsidiaries of the Registrant.
 
†
23
Consent of Independent Registered Public Accounting Firm.
†
24
Powers of Attorney.
†
31.1
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†
31.2
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**
101.INS
XBRL Instance Document
**
101.SCH
XBRL Taxonomy Extension Schema Document
**
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
**
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
**
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
**
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
†
 
Filed herewith.
*
 
Management contracts, compensatory plans or arrangements required to be filed as an exhibit hereto pursuant to Item 601 of Regulation S-K.
**
 
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language) as of and for the year ended December 31, 2012: (i) the Consolidated Statement of Income, (ii) the Consolidated Balance Sheet, (iii) the Consolidated Statement of Shareholders’ Equity, (iv) the Consolidated Statement of Comprehensive Income (Loss), (v) the Consolidated Statement of Cash Flows, (vi) Notes to Consolidated Financial Statements and (vii) Financial Schedule of Valuation and Qualifying Accounts.




2012 PPG ANNUAL REPORT AND FORM 10-K 79
Table of Contents

Signatures
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on February 21, 2013 .
  
 
PPG INDUSTRIES, INC.
(Registrant)
 
 
 
 
By  
/s/ David B. Navikas
 
 
David B. Navikas, Senior Vice President, Finance
    and Chief Financial Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on February 21, 2013 .
 
Signature.
  
Capacity
 
 
 
/s/ Charles E. Bunch
  
Director, Chairman and Chief Executive Officer
 
 
 
Charles E. Bunch
 
 
 
 
 
 
 
 
 
/s/ David B. Navikas
  
Senior Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer)
 
 
 
David B. Navikas
 
 
 
 
 
 
 
 
 
 
 
S. F. Angel
  
Director
  
  
 
 
 
 
J. G. Berges
  
Director
  
  
 
 
 
 
J. V. Faraci
 
Director
 
 
 
 
 
 
H. Grant
  
Director
  
  
 
 
 
 
V. F. Haynes
  
Director
  
  
 
 
 
 
M. J. Hooper
  
Director
  
  
 
By  
 
/s/ David B. Navikas
R. Mehrabian
  
Director
  
  
 
 
 
David B. Navikas,  Attorney-in-Fact
M. H. Richenhagen
  
Director
  
  
 
 
 
 
R. Ripp
  
Director
  
  
 
 
 
 
T. J. Usher
  
Director
  
  
 
 
 
 
D. R. Whitwam
  
Director
  
  
 
 
 
 
 
  
 
  
  
 
 
 
 



80 2012 PPG ANNUAL REPORT AND FORM 10-K

PPG Industries Inc. and Consolidated Subsidiaries
Index to Exhibits
 
2.1
Agreement and Plan of Merger, dated as of July 18, 2012, by and among PPG Industries, Inc., Eagle Spinco Inc., Georgia Gulf Corporation and Grizzly Acquisition Sub, Inc., was filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on July 19, 2012.
 
2.2
Amendment No. 1 to the Agreement and Plan of Merger, dated as of August 31, 2012, by and PPG Industries, Inc., Eagle Spinco Inc., Georgia Gulf Corporation and Grizzly Acquisition Sub, Inc., was filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on September 5, 2012.
†
2.3
Sale and Purchase Agreement, dated December 13, 2012, between Akzo Nobel N.V. and PPG Industries, Inc.
 
3
PPG Industries, Inc., Restated Articles of Incorporation, as amended, were filed as Exhibit 3 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2012.
 
3.1
PPG Industries, Inc., Bylaws, as amended and restated on April 19, 2007, were filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2007.
 
4
Indenture, dated as of Aug. 1, 1982, was filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-3 (No. 333-44397) dated January 16, 1998.
 
4.1
First Supplemental Indenture, dated as of April 1, 1986, was filed as Exhibit 4.2 to the Registrant’s Registration Statement on Form S-3 (No. 333-44397) dated January 16, 1998.
 
4.2
Second Supplemental Indenture, dated as of October 1, 1989, was filed as Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (No. 333-44397) dated January 16, 1998.
 
4.3
Third Supplemental Indenture, dated as of November 1, 1995, was filed as Exhibit 4.4 to the Registrant’s Registration Statement on Form S-3 (No. 333-44397) dated January 16, 1998.
 
4.4
Indenture, dated as of June 24, 2005, was filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated June 20, 2005.
 
4.5
Indenture, dated as of March 18, 2008, was filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 18, 2008.
 
4.6
Supplemental Indenture, dated as of March 18, 2008, was filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on March 18, 2008.
 
4.7
Second Supplemental Indenture, dated as of November 12, 2010, was filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on November 12, 2010.
 
4.8
Third Supplemental Indenture, dated as of August 3, 2011, was filed as Exhibit 4.4 to the Registrant's Current Report on Form 8-K filed on August 3, 2012.
*
10
PPG Industries, Inc. Nonqualified Retirement Plan, as amended and restated September 24, 2008 , was filed as Exhibit 10 to the Registrant's Annual Report on Form 10-K for the period ended December 31, 2011.
*
10.1
Form of Change in Control Employment Agreement entered into with executives prior to January 1, 2008, as amended, was filed as Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2007.
*
10.2
Form of Change in Control Employment Agreement entered into with executives on or after January 1, 2008 through December 31, 2009, was filed as Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2007.
*
10.3
Form of Change in Control Employment Agreement entered into with executives on or after January 1, 2010, was filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2009.
†*
10.4
Form of Change in Control Employment Agreement entered into with executives on or after June 30, 2012.
*
10.5
PPG Industries, Inc. Deferred Compensation Plan for Directors related to compensation deferred prior to January 1, 2005, was filed as Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 1997.
*
10.6
PPG Industries, Inc. Deferred Compensation Plan for Directors related to compensation deferred on or after January 1, 2005, as amended February 15, 2006, was filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2006.
*
10.7
PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred prior to January 1, 2005, as amended effective July 14, 2004, was filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004.
*
10.8
PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred on or after January 1, 2005, as amended and restated September 24, 2008, was filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.9
PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred on or prior to January 1, 2005, as amended and restated effective January 1, 2011, was filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2012.



*
10.10
PPG Industries, Inc. Deferred Compensation Plan related to compensation deferred on or after to January 1, 2005, as amended and restated effective January 1, 2011, was filed as Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2012.
*
10.11
PPG Industries, Inc. Executive Officers’ Long Term Incentive Plan was filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated February 16, 2005.
*
10.12
PPG Industries, Inc. Incentive Compensation Plan for Key Employees, as amended April 20, 2006, was filed as Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.13
PPG Industries, Inc. Management Award Plan, as amended April 20, 2006, was filed as Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.14
PPG Industries, Inc. Stock Plan, dated as of April 17, 1997, as amended July 20, 2005, was filed as Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2005.
*
10.15
PPG Industries, Inc. Omnibus Incentive Plan was filed as Exhibit 10.18 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2006.
*
10.16
PPG Industries, Inc. Amended and Restated Omnibus Incentive Plan, was filed as Annex A to the Registrant’s Definitive Proxy Statement for its 2011 Annual Meeting of Shareholders filed on March 10, 2011.
*
10.17
Form of Non-Qualified Option Agreement for Directors was filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated February 15, 2005.
*
10.18
Form of Time-Vested Restricted Stock Unit Award Agreement, was filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.19
Form of Time-Vested Restricted Stock Unit Award Agreement for Directors, was filed as Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.20
Form of Non-Qualified Stock Option Award Agreement, was filed as Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.21
Form of Non-Qualified Stock Option Award Agreement, was filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.22
Form of Non-Qualified Stock Option Award Agreement, was filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.23
Form of TSR Share Award Agreement, was filed as Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.24
Form of TSR Share Award Agreement, was filed as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.25
Form of TSR Share Award Agreement, was filed as Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.26
Form of TSR Share Award Agreement, was filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2012.
*
10.27
Form of Performance-Based Restricted Stock Unit Award Agreement for Key Employees, was filed as Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.28
Form of Performance-Based Restricted Stock Unit Award Agreement for Key Employees, was filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.29
Form of Performance-Based Restricted Stock Unit Award Agreement, was filed as Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2008.
*
10.30
Form of Performance-Based Restricted Stock Unit Award Agreement, was filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.31
Form of Performance-Based Restricted Stock Unit Award Agreement for Key Employees, was filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.32
Form of Performance-Based Restricted Stock Unit Award Agreement, was filed as Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.33
Form of Performance-Based Restricted Stock Unit Award Agreement for Key Employees, was filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2012.
*
10.34
Form of Time-Vested Restricted Stock Unit Award Agreement, was filed as Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.35
Form of Time-Vested Restricted Stock Unit Award Agreement, was filed as Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
*
10.36
Form of letter to certain executives regarding 2008 deferred compensation plan elections, was filed as Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for the period ended December 31, 2007.


 
10.37
Three-Year Credit Agreement, dated August 2, 2010, among PPG Industries, Inc.; the several banks and financial institutions party thereto; JPMorgan Chase Bank, N.A., as administrative agent; J.P. Morgan Securities, Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd. and BNP Paribas Securities Corp., as co-lead arrangers and co-bookrunners; and The Bank of Tokyo-Mitsubishi UFJ, Ltd. and BNP Paribas, as co-syndication agents was filed Exhibit 10 to the Registrant’s Current Report on Form 8-K filed on August 6, 2010.
 
10.38
Five-Year Credit Agreement among PPG Industries, Inc.; the several banks and financial institutions party thereto; JPMorgan Chase Bank, N.A., as administrative agent; The Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Citigroup Global Markets Inc. and PNC Bank, National Association, as co-syndication agents; and J.P. Morgan Securities LLC, The Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas Securities Corp., Citigroup Global Markets Inc., and PNC Capital Markets LLC, as co-lead arrangers and co-bookrunners, was filed as Exhibit 10 to the Registrant's Current Report on Form 8-K filed on September 13, 2012.
*
10.39
Employment Agreement between PPG Industries Europe Sàrl, Rolle and Pierre-Marie DeLeener, was filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.
*
10.40
Employment Agreement, dated September 12, 2011, between PPG Industries, Inc. and Pierre-Marie De Leener, was filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2011.
*
10.41
Agreement, dated September 12, 2011, between PPG Industries Europe Sárl and Pierre-Marie De Leener terminating the Employment Agreement, between PPG Industries Europe Sárl and Pierre-Marie De Leener, was filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2011.
*
10.42
Separation Agreement, dated August 22, 2012, between PPG Industries, Inc. and Pierre-Marie De Leener, was filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 2012.
*
10.43
Letter Agreement with David B. Navikas, was filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2011.
 
10.44
Separation Agreement, dated as of July 18, 2012, by and between PPG Industries, Inc. and Eagle Spinco Inc., was filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on July 19, 2012.
†
12
Computation of Ratio of Earnings to Fixed Charges for the Five Years Ended December 31, 2012.
†
13.1
Market Information, Dividends and Holders of Common Stock.
†
13.2
Selected Financial Data for the Five Years Ended December 31, 2012.
†
21
Subsidiaries of the Registrant.
†
23
Consent of Independent Registered Public Accounting Firm.
†
24
Powers of Attorney.
†
31.1
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†
31.2
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**
101.INS
XBRL Instance Document
**
101.SCH
XBRL Taxonomy Extension Schema Document
**
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
**
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
**
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
**
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
†
 
Filed herewith.
*
 
Management contracts, compensatory plans or arrangements required to be filed as an exhibit hereto pursuant to Item 601 of Regulation S-K.
**
 
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language) as of and for the year ended December 31, 2012: (i) the Consolidated Statement of Income, (ii) the Consolidated Balance Sheet, (iii) the Consolidated Statement of Shareholders’ Equity, (iv) the Consolidated Statement of Comprehensive Income (Loss), (v) the Consolidated Statement of Cash Flows, (vi) Notes to Consolidated Financial Statements and (vii) Financial Schedule of Valuation and Qualifying Accounts.




Exhibit 2.3

 
 
 
Sale and Purchase Agreement
 
 
 
 
 
 
 
 
 
relating to
 
 
 
 
 
 
 
 
 
 
AkzoNobel’s Decorative Paints North America Business
 
 
 
 
 
 
 
 
 
Between
 
 
 
 
 
 
 
 
 
 
 
Akzo Nobel N.V.

 
 
 
 
 
( as Seller )
 
 
 
 
 
 
 
 
 
 
and
 
 
 
 
 
 
 
 
 
 
 
 
PPG Industries, Inc.
 
 
 
 
 
( as Purchaser )
 
 
 
 
 
 
 
 
 
 
 
 
Dated
December 13, 2012





 


Contents

 
Clause
Page
1 INTERPRETATION 7
2 SALE AND PURCHASE 7
3 CONSIDERATION 7
3.1 Purchase Price 7
3.2 Payments at Closing 8
3.3 Allocation 8
3.4 Adjustment to Purchase Price in respect of claims 8
4 CONDITIONS PRECEDENT 8
4.1 Conditions 8
4.2 Responsibility for satisfaction 9
4.3 (Non-)Satisfaction/Waiver 14
5 PRE-CLOSING COVENANTS 14
5.1 General conduct of business 14
5.2 Consent matters 15
5.3 Excused conduct 15
5.4 Access to Operations 16
5.5 Employees and Retirement Benefit arrangements 17
5.6 Intra-group agreements 17
5.7 Estimated Closing Statement 17
5.8 Restructuring 18
5.9 Ancillary agreements 18
5.10 Titanium Dioxide Antitrust Claims 19
5.11 Transferred Intellectual Property 19
6 CLOSING 20
6.1 Date and place 20
6.2 Payments and Closing events 20
6.3 Repayment of Estimated Intra-Group Indebtedness 21
7 POST-CLOSING ADJUSTMENTS 21
7.1 Working Capital Statement and Net Debt Statements 21
7.2 Purchase Price adjustments and repayment of Intra-Group Indebtedness 23
7.2.1 Working Capital 23
7.2.2 Net Debt 23
7.2.3 Intra-Group Indebtedness 24
7.2.4 Interest 24
7.2.5 Payment 24
8 POST-CLOSING OBLIGATIONS 25
8.1 Indemnity by Purchaser 25


 


8.2 Indemnity by Seller 26
8.3 Release of Guarantees 26
8.4 Trade receivables/payables; Post-Closing receipts 27
8.5 Non-Operating Facilities 28
8.6 Retention of records 28
8.7 Insurance 29
8.7.1 Termination of coverage 29
8.7.2 Availability of Seller's Group's rights of recovery 29
8.7.3 Payment of Proceeds 30
8.7.4 Reimbursement of Certain Costs and Expenses 30
8.8 Transaction Bonuses 31
8.9 Tax Indemnity 31
8.10 Environmental Indemnity 31
8.11 Devoe HD stranded costs 31
9 REPRESENTATIONS AND WARRANTIES 31
9.1 Seller's Warranties 31
9.2 Disclosure 33
9.3 Liability for breach 33
9.4 Purchaser's Warranties 33
10 LIMITATION OF LIABILITY 34
10.1 Time limitation 34
10.2 Minimum claims 35
10.3 Aggregate minimum claims 36
10.4 Maximum liability 36
10.5 Provisions 37
10.6 Matters arising after Signing / Closing 37
10.7 Insurance 37
10.8 Net tax benefit 38
10.9 Mitigation of Losses 38
10.10 Rights to recover 38
10.11 Customer relations 39
10.12 Credit for recoveries 39
10.13 Double claims 40
10.14 Fraud 40
11 CLAIMS 40
11.1 Notification of potential claims 40
11.2 Notification of claims 41
11.3 Investigation 41
11.4 Procedure for third party claims 41
12 RESTRICTIONS 44
12.1 Restrictions on Seller 44
12.2 Restriction on Purchaser 45


 


13 CONFIDENTIALITY 45
13.1 Announcements 45
13.2 Confidentiality undertaking 45
14 TERMINATION 47
15 MISCELLANEOUS 49
15.1 Nomination of other purchasers 49
15.2 Singular liability and right to claim 49
15.3 Transfer Documents 49
15.4 Further assurances 50
15.5 Whole agreement 50
15.6 No assignment 50
15.7 Waiver 51
15.8 Variation/Amendment 51
15.9 Third party rights 51
15.10 Method of payment 51
15.11 Costs 52
15.12 Interest 52
15.13 Tax Deductions 52
15.14 No set-off 52
15.15 Notices 52
15.16 Invalidity 53
15.17 Counterparts 53
15.18 Dispute resolution 54
15.19 Specific Performance 55
15.20 Governing law 56



 



 
Schedules
 
The Sale and Purchase Agreement contains a number of Schedules that have not been provided in this Exhibit 2.3.  These Schedules include, among other things, various disclosures relating to the business being acquired and the AkzoNobel businesses that are not being acquired as well as forms of closing documents that the parties will be delivering at the closing.  The Corporation will provide copies of these omitted Schedules to the Commission upon request.

Schedule 1 Definitions and interpretation
Schedule 2 Shares, Companies and Subsidiaries
Schedule 3 Intra-Group Retained Agreements
Schedule 4 Employees
Schedule 5 Benefit Arrangements
Schedule 6 Closing
Schedule 7 Transfer Documents
Schedule 8 Transitional Services Agreement
Schedule 9 Allocation and Base Working Capital
Schedule 10 Closing statements and Reporting Accountants
Schedule 11 Tax Indemnity
Schedule 12 Representations, Warranties and Disclosure
Schedule 13 Accounts
Schedule 14 Notices and bank accounts
Schedule 15 Restructuring
Schedule 16 IP Agreement
Schedule 17 Other Anti-trust Approvals
Schedule 18 Affidavit of Non-Foreign Status of Akzo Nobel Coatings Inc.
Schedule 19 Environmental Indemnity
Schedule 20 Consent Matters
Schedule 21 Guarantees
Schedule 22 Non-Operating Facilities
Schedule 23 Devoe HD stranded costs
Schedule 24 Supply Agreement Term Sheet
Schedule 25 IP Allocation Chart




 


Sale and Purchase Agreement
THIS AGREEMENT IS MADE BETWEEN:
(1)
AKZO NOBEL N.V. , a public limited liability company incorporated under the laws of the Netherlands, with corporate seat in Amsterdam, and whose address is at Strawinskylaan 2555 Amsterdam, the Netherlands (" Seller "),
and

(2)
PPG Industries, Inc. , a corporation organized and existing under the laws of the Commonwealth of Pennsylvania, United States, with its principal place of business at One PPG Place, Pittsburgh, Pennsylvania 15272, United States (" Purchaser "),
WHEREAS:
(A)
Seller is the ultimate parent company of the Share Sellers and, together with the Share Sellers, wishes to sell to Purchaser, and Purchaser wishes to purchase from Seller and members of Seller's Group, all of the Shares of the Companies, on the terms and subject to the conditions set out in this Agreement;
(B)
The Group conducts AkzoNobel’s Decorative Paints North America business, operating principally in the United States, Canada and Puerto Rico;
(C)
Seller and Purchaser entered into the Confidentiality Agreement, pursuant to which certain confidential information relating to the Group was made available to Purchaser and its Representatives;
(D)
Seller gave Purchaser and its Representatives access to the Data Room, as well as the opportunity to attend and participate in a management presentation and interviews, to make site visits, and to ask questions and carry out investigations in relation to the Group and the Operations; and
(E)
Seller's executive board and supervisory board, and Purchaser's board of directors have approved the execution and performance of this Agreement.
IT IS AGREED AS FOLLOWS:



 


1
INTERPRETATION
In this Agreement, unless the context otherwise requires, the provisions of Schedule 1 shall apply throughout.
2
SALE AND PURCHASE
2.1
On the terms and subject to the conditions of this Agreement, at the Closing, Seller, on behalf of the Share Sellers, shall sell, transfer, assign, convey and deliver all of the Shares of the Companies to Purchaser or to one or more Affiliates of Purchaser designated by Purchaser (in accordance with Clause 15.1), and Purchaser or any such Affiliates shall purchase all the right, title and interest in and to the Shares free from Encumbrances.
2.2
On the terms and subject to the conditions of this Agreement, immediately following transfer of the Shares described in Clause 2.1, Seller, on behalf of the Note Seller, shall sell, transfer, convey, deliver and assign the Note to Purchaser, and Purchaser shall purchase and accept the Note free from Encumbrances.
3
CONSIDERATION
3.1
Purchase Price
3.1.1
Subject to adjustments in accordance with this Agreement, the purchase price for the Shares (the " Purchase Price ") shall be an aggregate amount equal to the following:
(a)
the aggregate Offer Value; plus
(b)
the Working Capital Adjustment; less
(c)
the Net Debt; less
(d)
the Pensions Adjustment Amount.
3.1.2
The purchase price for the Note (the " Note Purchase Price ") shall be an aggregate amount equal to the outstanding principal amount of the Note as of the Effective Time, expressed in CAD, plus accrued and unpaid interest on the Note up to the Effective Time, subject to Clause 6.2.1.



 


3.2
Payments at Closing
3.2.1
No later than 3 (three) Business Days prior to the Closing Date, Seller shall calculate in good faith an estimate of the Purchase Price (the " Estimated Purchase Price "), equal to the following, which shall be set forth in the Estimated Closing Statement:
(a)
the aggregate Offer Value; plus
(b)
the Estimated Working Capital Adjustment; less
(c)
the Estimated Net Debt; less
(d)
the Estimated Pensions Adjustment Amount.
3.2.2
At Closing, Purchaser shall pay an amount equal to the Estimated Purchase Price in accordance with Clause 6.2.1.
3.2.3
At Closing, Purchaser shall pay the Note Purchase Price in accordance with Clause 6.2.1.
3.3
Allocation
The Estimated Purchase Price and the Purchase Price shall be allocated in accordance with Schedule 9 Part 1 and Seller's Group and Purchaser's Group shall adopt such allocation for all purposes, including in respect of Tax, except where another allocation is required by Law or applicable generally accepted accounting principles.
3.4
Adjustment to Purchase Price in respect of claims
If any payment is made by Seller to Purchaser or by Purchaser to Seller in respect of any claim (i) for any breach of this Agreement (including, for the avoidance of doubt, a breach of a Seller's Warranty) or (ii) pursuant to any indemnity under this Agreement, the portion of the Purchase Price allocated in Schedule 9 Part 1 to the Shares and assets to which the payment and/or claim relates under this Agreement shall be adjusted accordingly.
4
CONDITIONS PRECEDENT
4.1
Conditions
Closing shall be conditional upon satisfaction or waiver of the following conditions:
4.1.1
The Competition Act Clearance, the Investment Canada Act Clearance, the HSR Act Clearance and the Suspensory Other Anti-Trust Approvals shall have been obtained (the " Merger Condition "); and


 



4.1.2
No Governmental Authority shall have enacted, issued, promulgated or enforced any Law, and no judgment, decree or injunction shall be in effect, that prohibits the Closing.
4.2
Responsibility for satisfaction
4.2.1
Subject to Clause 4.2.2, each of the Parties shall use its commercially reasonable efforts to ensure satisfaction of the Condition Precedent set out in Clause 4.1.2.
4.2.2
In respect of the Merger Condition:
(a)
No later than 10 (ten) Business Days after the Signing Date, the Parties shall prepare and file with the competent Governmental Authorities their respective notification and report form pursuant to the HSR Act, and Purchaser shall file a request to the Commissioner for an ARC or, in the alternative, a NAL and an application for review under Part IV of the Investment Canada Act.
(b)
If either Purchaser or Seller notifies the other party at any time after 10 (ten) Business Days following when Purchaser submitted a request to the Commissioner for an ARC or NAL that it intends to make a Notification, then, as soon as reasonably practicable, and in any event within 10 (ten) Business Days following the delivery of such notice, both Purchaser and Seller shall submit a Notification.
(c)
As soon as reasonably practicable, the Parties shall prepare and file with the competent Governmental Authorities identified in Schedule 17 any other applicable notifications that the Parties deem advisable or appropriate or that may be required by the applicable Governmental Authority (the " Other Anti-trust Approvals "), and in all cases in such manner as is necessary to start any applicable waiting period or other process for approval or clearance.
(d)
The Parties shall supply as soon as reasonably practicable any additional information, documentary material or other filings that may be requested by any competent Governmental Authority in connection with the Merger Condition or any Other Anti-trust Approvals.
(e)
Each of the Parties shall, and shall cause its respective Affiliates and Representatives (including inside and outside counsel) to cooperate in good faith with counsel and other Representatives of the other Party in connection with the Merger Condition and the Other Anti-Trust Approvals. Each Party shall furnish to the other (or to the other’s counsel) such information and assistance as such other Party (or its counsel) may request in good faith in connection with its preparation of any filing or submission to any Governmental Authority under the HSR Act and any other Competition Laws.


 



(f)
The Parties shall, and shall cause their respective Affiliates and Representatives to, (i) cooperate with and keep one another fully informed as to the status of and the processes and proceedings relating to obtaining or satisfying the Merger Condition and the Other Anti-trust Approvals, (ii) promptly notify each other of any communication from any Governmental Authority, including any request for additional information, (iii) consult and cooperate with each other in connection with any analysis, appearance, discussion, presentation, memorandum, brief, argument, opinion or proposal made or submitted to any Governmental Authority in connection with any proceeding or communication relating to the Transaction, (iv) not make any submissions or filings to any Governmental Authority, or participate in any substantive (telephonic or in-person) meeting, unless it consults with the other Party in advance, (v) to the extent not precluded by the relevant Governmental Authority or by legal requirement, permit authorized representatives of the other Party to be present at each substantive (telephonic or in-person) meeting with any representative of a Governmental Authority, and (vi) subject to Clause 4.2.3, give the other Party access to any document, opinion or proposal made or submitted to any Governmental Authority and provide the other Party a reasonable opportunity to review drafts of any submissions or filings, and give due consideration to any comments received from the other Party.
(g)
In the event that the Federal Trade Commission, Canadian Competition Bureau, or any other Governmental Authority requests additional information, each of the Parties shall, and shall cause their respective Affiliates and Representatives to, respond thereto as promptly as practicable. Without limiting the foregoing, each Party shall use its reasonable best efforts promptly to provide all information, documents and data requested by any Governmental Authority, including pursuant to any "second request", and to facilitate and expedite the identification and resolution of any issues raised by any Governmental Authority and, consequently, the expiration or the completion of the applicable HSR Act waiting period and the waiting periods or other processes for approval or clearance with respect to each Merger Condition under any other Competition Laws as soon as reasonably practicable (and in any event no later than the Outside Date), such reasonable best efforts and cooperation to include causing their respective inside and outside counsel (A) to keep each other appropriately informed on a current basis of communications from and to personnel of the reviewing Governmental Authority and (B) to confer on a current basis with each other regarding appropriate contacts with and response to personnel of such Government Authority, and respond as promptly as practicable thereto.


 



(h)
Purchaser shall take any and all steps necessary to avoid or eliminate each and every impediment to, and procure the fulfillment of the Merger Condition and the obtaining of all Other Anti-trust Approvals as soon as reasonably practicable but in any event no later than the Outside Date, including by:
(i)
taking or giving to, or otherwise entering into with, the competent Governmental Authorities a binding undertaking or consent agreement in which Purchaser will take any action that may be necessary or appropriate in order to satisfy the Merger Condition and obtain all Other Anti-trust Approvals and to remove any legal prohibition to completing the Transaction (including by agreeing to sell, lease, license or otherwise dispose of, or to hold separate pending such disposition, and promptly to effect the sale, lease, license, disposal and holding separate of, assets, rights, product lines, licenses, categories of any assets or businesses or other operations, or interests therein, of Purchaser or its subsidiaries, including the shares, properties and all other assets to be acquired (directly or indirectly) by Purchaser hereunder (collectively, a " Divestiture "), and the entry into agreements with, and submission to orders of, the relevant Governmental Authority giving effect thereto, and/or providing any commitments regarding the operations of the Group, that may be required by any Governmental Authority);
(ii)
requesting early termination of the applicable waiting period under the HSR Act; and
(iii)
duly and promptly complying with any condition that a Governmental Authority may impose or require to approve the completion of the Transaction or to avoid any action being taken by a Governmental Authority that could prohibit the completion of the Transaction.
(i)
If Purchaser is required to effect any Divestiture pursuant to the foregoing Clause 4.2.2(h), Seller shall, and shall cause Seller's Group (including the Group Companies) to, take any and all steps necessary to effect any such Divestiture on the terms and conditions agreed by Purchaser (after consultation with Seller) with the relevant Governmental Authority, including making available to potential purchasers due diligence materials and access to management, employees and facilities of Seller and Seller's Group (including the Group Companies), effecting transfers and disposals of assets and liabilities and granting rights and licenses in the Group Companies’ properties and assets (including intellectual property), agreeing to provisions with respect to non-competition and non-solicitation of the Group Companies’ customers and employees and executing any agreements, documents or instruments of transfer necessary in connection with such Divestiture; provided that Seller shall not be required to effect any transaction with a third party on terms less favorable to Seller than the terms and


 


conditions contemplated in this Agreement and the Ancillary Agreements and shall not be required to grant any rights or assume any obligations to any purchaser of all or a part of the Group Companies in excess of those rights or obligations contemplated in this Agreement and the Ancillary Agreements.
(j)
If the Parties have certified substantial compliance and satisfied all requests for information, materials and witness testimony of any Governmental Authority and all applicable waiting periods, review periods and conditions in timing agreements have been satisfied, and Purchaser has proposed and negotiated resolutions designed in good faith to resolve the objections to the Transaction of any Governmental Authority (including but not limited to proposing to make appropriate Divestitures), and any such Governmental Authority has nonetheless determined that, despite any such proposals and actions by Purchaser, the Governmental Authority will seek to enjoin the transaction, in such case (and only in such case), Purchaser shall contest through litigation on the merits or otherwise any action, position or claim, including any demand for Divestiture, asserted by such Governmental Authority. Purchaser shall determine the overall strategy concerning any such litigation with counsel of its own choosing. Upon request, Seller agrees to reasonably cooperate, and to cause Seller's Group and the Group Companies to reasonably cooperate, with Purchaser in connection with any such litigation.
(k)
If Purchaser is unsuccessful in any litigation contemplated by Clause 4.2.2(j), or in the event that any such litigation is not resolved and the Conditions Precedent have not been satisfied, then Purchaser shall resolve the objections of any relevant Governmental Authority (including but not limited to making Divestitures to resolve any objections of the relevant Governmental Authority) as required by Clause 4.2.2(h), in order to enable the Closing to be effected on or prior to the Outside Date.
(l)
In the event that any administrative or judicial action or proceeding is instituted by any Governmental Authority or by a private party challenging the Transaction, each of the Parties shall, and shall cause its respective Affiliates to, cooperate with each other in all respects and to use its reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the Transaction. Notwithstanding the foregoing, (i) Purchaser shall be entitled to determine the overall strategy concerning any legal, administrative or judicial action or proceeding in respect of the Transaction, or negotiations with, any such Governmental Authority or private party relating thereto, or regulatory filings under applicable Competition Laws, and (ii) Seller shall not make (and shall cause its Affiliates (including the Group Companies) not to make) any offer, acceptance or counter-offer to or otherwise engage in negotiations or initiate discussions with any such Governmental Authority or private party with respect to any proposed settlement, consent decree,


 


stay, toll, extension of any waiting period, commitment or remedy, or, in the event of litigation, discovery, admissibility of evidence, timing or scheduling, without prior consultation with Purchaser or its counsel. Seller shall use its reasonable best efforts to assist Purchaser and its counsel in all such negotiations and discussions with representatives of any Governmental Authority to the extent requested by Purchaser or its counsel.
4.2.3
Notwithstanding any provision in this Clause 4.2, draft and final submissions, filings or other written communications of a Party with or to any Governmental Authority may be redacted as necessary before sharing with the other Party to address reasonable legal privilege protections or to protect against the exchange of competitively-sensitive information, provided that a Party, upon request, must provide the external legal counsel to the receiving Party with a non-redacted version on the basis that such non-redacted version will not be shared with its client and will not otherwise breach applicable legal privilege protections.
4.2.4
Neither Purchaser nor Seller may withdraw or re-file any notification or application before a Governmental Authority, or otherwise agree to extend any applicable waiting period, without the other Party’s prior written consent.
4.2.5
Purchaser shall bear all filing fees associated with the filing notifications of the HSR Act and Competition Act and any other applicable filing notifications, provided that each Party will be responsible for their respective other costs (including legal fees) incurred in relation to the Merger Condition and any Other Anti-trust Approvals.
4.2.6
Without prejudice to Clause 4.2.2, Seller and Purchaser shall:
(a)
to the extent that the Parties deem appropriate and necessary, promptly cooperate with and provide all necessary information and assistance reasonably required by any Governmental Authority in connection with the Conditions Precedent set out in Clause 4.1 upon being requested to do so by the other Party; and


 



(b)
promptly inform the other Party of any communication received from, or given by it to, any Governmental Authority with respect to any of the Conditions Precedent.
4.3
(Non-)Satisfaction/Waiver
4.3.1
As soon as reasonably practicable, but in any event within 2 (two) Business Days of becoming aware of the same:
(a)
Purchaser shall give notice to Seller of the satisfaction of the Merger Condition; and
(b)
Purchaser shall give notice to Seller, or vice versa, of non-satisfaction of the Condition Precedent set out in Clause 4.1.2.
4.3.2
The Conditions Precedent may only be waived by written agreement between Seller and Purchaser. Notwithstanding a waiver of any Condition Precedent by any Party, such waiver shall not in any way affect or limit such Party’s right to claim Losses or seek indemnification under this Agreement in respect of the matter waived or otherwise.
5
PRE-CLOSING COVENANTS
5.1
General conduct of business
5.1.1
Subject to Clause 5.3, except as otherwise permitted or provided in this Agreement or as otherwise requested, agreed or consented to by Purchaser in writing (such consent not to be unreasonably withheld or delayed), between Signing and Closing, Seller shall:
(a)
cause each Group Company to (i) carry on its business activities as a going concern in the ordinary course, consistent with past practice, and (ii) maintain its books, accounts and records in the ordinary course, consistent with past practice; and
(b)
use its commercially reasonable efforts to procure that each Group Company shall preserve its present business organizations, goodwill, lines of business and its relationships with customers, suppliers, employees and other third parties, in each case in the ordinary course, consistent with past practice.
5.1.2
Seller shall notify Purchaser as soon as it becomes aware of any action, event, matter or circumstance that causes any of Seller's Warranties to become untrue or that results in a breach of any of the covenants set out in Clause 5.2.
5.1.3
Until the Closing Date, Seller shall, as soon as reasonably practicable, cause to be prepared and delivered to Purchaser management accounts for each calendar month consistent with those customarily prepared by the Group Companies in the ordinary


 


course of business. This information shall be provided in the same format as was the customary practice of the Group Companies prior to the date of this Agreement.
5.1.4
Seller shall, and shall cause members of Seller's Group to, cooperate with Purchaser and members of Purchaser's Group (at Purchaser’s cost and expense) to obtain pre-approval from the Puerto Rico Tax Authorities for a continuation of the Puerto Rico Tax Exemption Grant and the PRIDCO Incentives following the change in control of Akzo Nobel Paints (Puerto Rico) Inc.
5.2
Consent matters
5.2.1
Without prejudice to the generality of Clause 5.1 and subject to Clause 5.3, between Signing and Closing Seller shall, and shall cause the Share Sellers to, cause the Group Companies not to do any of the matters set forth on Schedule 20 , without the prior written consent of Purchaser pursuant to Clause 5.2.2, provided that no such consent shall be required where the seeking of such consent is prohibited by Law (including Competition Law).
5.2.2
Any request for consent as set forth in Clause 5.2.1 shall be made to Purchaser in accordance with Clause 15.15. The request for consent shall be accompanied by such information and sufficiently detailed documentation so as to permit Purchaser to consider the request and the consequences thereof. A written response to a request for consent as set forth in Clause 5.2.1 shall in any event be provided by e-mail to Seller as soon as reasonably practicable, and in any event within 10 (ten) Business Days after the date of receipt of such request in accordance with Clause 15.15. In the event such response is not received within such 10 (ten) Business Day period, consent will be deemed to have been given by Purchaser.
5.3
Excused conduct
5.3.1
Clauses 5.1 and 5.2 shall not operate so as to restrict or prevent:
(a)
any of the Restructuring transactions in accordance with Schedule 15 (to the extent implemented between Signing and Closing); or
(b)
any act or conduct which any Group Company is required to take, or omit to take, as a result of, or in order to comply with, any Law or its obligations under this Agreement (other than Clauses 5.1 and 5.2);
(c)
the completion or performance of any obligations pursuant to any contract or arrangement entered into by any Group Company prior to the Signing Date and included in the Data Room; and


 



(d)
any act or conduct provided for in the capital expenditure budgets disclosed in the Data Room under index number 02.05.01 or in the Disclosure Letter.
5.3.2
Purchaser shall in any event not invoke the provisions of Clause 5.1 against Seller or withhold or delay its consent under Clause 5.2 if compliance with the provisions of Clause 5.1 or if such withholding or delay would materially adversely affect the value of the Group.
5.4
Access to Operations
5.4.1
Seller acknowledges Purchaser's desire to plan for an efficient and effective integration of the Group into Purchaser's Group as soon as reasonably practicable after Closing and, subject to Clause 5.4.2, Seller shall for these purposes:
(a)
procure that until the Closing Date or the earlier termination of this Agreement, the Group Companies shall give Purchaser and its Representatives reasonable access during normal working hours to the personnel, premises, books and records (including copies of Contracts of the Group Companies except to the extent prohibited under such Contracts; provided that with respect to any Contracts that prohibit disclosure to Purchaser, Seller shall use its commercially reasonable efforts to obtain consent to such disclosure) of or relating to the Operations upon reasonable notice to Seller; and
(b)
furnish or cause to be furnished to Purchaser and its Representatives such financial and operating data and other information relating to the Operations and the Group Companies as Purchaser reasonably may request, and as soon as reasonably practicable following the request thereof by Purchaser, seek to arrange meetings and telephone conferences with material customers, suppliers, distributors and other Persons relevant to the Operations.
5.4.2
Purchaser shall not seek to use such access in any manner or to any extent as:
(a)
would be contrary to any applicable Law (including Competition Law); or
(b)
would reasonably be expected to cause undue disruption of the relevant Operations or their management.
5.4.3
Purchaser shall ensure that any interaction (whether in writing or otherwise) between its Representatives and personnel of the Group, customers, suppliers, distributors and other Persons relevant to the Operations is done in compliance with applicable Law (including Competition Law). Seller shall ensure that any interaction (whether in writing or otherwise) between its Representatives or personnel or Representatives or personnel of the Group Companies, or customers, suppliers, distributors and other Persons relevant to the Operations, on the one hand, and Purchaser and its Representatives, on the other hand, is done in compliance with applicable Law (including Competition Law).


 


5.5
Employees and Retirement Benefit arrangements
5.5.1
Save as provided in Schedule 5 , the provisions of Schedule 4 shall apply in respect of the Employees.
5.5.2
The provisions of Schedule 5 shall apply in respect of the Benefit Arrangements.
5.6
Intra-group agreements
Seller covenants that, except as expressly set out in this Agreement or otherwise agreed in writing between the Parties, all existing agreements and arrangements (except for the Intra-Group Retained Agreements) between one or more members of Seller's Group (excluding the Group Companies) on the one hand, and one or more Group Companies, on the other hand, shall be terminated, without liability or continuing obligation to the Group Companies, prior to or at Closing to the extent related to the Operations, or be amended prior to or at Closing such that they are not applicable to the Operations.
5.7
Estimated Closing Statement
5.7.1
No later than 3 (three) Business Days prior to the Closing Date, Seller shall deliver to Purchaser a certificate (the " Estimated Closing Statement ") signed by Seller's Chief Financial Officer on behalf of Seller, setting forth the Estimated Net Debt Statements, the Estimated Working Capital Statement and the Estimated Purchase Price.
5.7.2
The Estimated Closing Statement shall be prepared in accordance with the Accounting Principles and in the form set out in Schedule 10 .
5.7.3
Any amounts included in the determination of an Estimated Net Debt Statement in currencies other than USD (U.S. dollars) shall be translated into USD (U.S. dollars) at the spot rate of exchange (closing mid-point) on the 2 nd (second) Business Day prior to the date the Estimated Closing Statement is provided to Purchaser, as such spot rate is published in the U.S. edition of the Financial Times first published thereafter.
5.7.4
Purchaser shall have the right to review the Estimated Closing Statement and Seller shall make itself and its authorized Representatives who participated in the preparation of the Estimated Closing Statement available to discuss any questions or comments Purchaser may have regarding the Estimated Closing Statement. Seller shall consider such Purchaser questions, comments and discussions in determining if any revisions to the Estimated Closing Statement are necessary or appropriate.


 


 
5.7.5
Notwithstanding the provisions of Clause 5.7.4, Purchaser's review of the Estimated Closing Statement shall not delay Closing and Seller's determination of the Estimated Closing Statement shall be final and binding on the Parties for purposes of the calculation and allocation of the Estimated Purchase Price, it being agreed that the Estimated Closing Statement shall have no presumptive effect for purposes of the post-Closing adjustments contemplated in Clause 7.
5.8
Restructuring
The provisions of Schedule 15 shall apply in respect of the Restructuring.
5.9
Ancillary agreements
5.9.1
As soon as reasonably practicable after Signing, but in any event prior to Closing:
(a)
Seller and Purchaser shall negotiate in good faith definitive agreements in respect of the supply agreements and shared site services agreement referred to in, and consistent with the principal terms and conditions set out in, the term sheet set forth in Schedule 24 . In the event that a definitive agreement is not executed at the time of Closing, the Parties shall procure that the relevant members of their respective groups execute the aforesaid term sheet, which term sheet shall then, to the extent relating to the subject matter of such definitive agreement, become effective as of Closing and remain applicable until such definitive agreement has been negotiated and executed. In the event that a definitive agreement is not executed at the time of Closing and the aforesaid term sheet is not executed at Closing, the terms of the aforesaid term sheet shall constitute binding obligations of Seller and Purchaser in the same manner as if such term sheet had been executed by Seller and Purchaser at the Closing.
(b)
Seller and Purchaser shall complete the remaining open schedules to the IP Agreement in accordance with the allocation of Intellectual Property as set out in Schedule 25 . In the event that a definitive IP Agreement complete with all schedules thereto is not executed at the time of Closing, then Seller hereby grants a license, effective as from the Closing Date, to the Intellectual Property referenced in the IP Agreement and/or Schedule 25 on the terms and conditions (including with respect to exclusivity, use, scope and restrictions) set forth therein and in any event for such use and scope necessary to enable Purchaser's Group and the Group Companies to continue the Operations as from the Closing Date, for the period as from the Closing Date and until such time as the Parties shall mutually agree to and execute the definitive IP Agreement.


 



5.9.2
Prior to the Closing, Seller shall, at Seller’s cost and expense, cause the transfers, filings, recordings, registrations and other matters, as applicable, contemplated under the IP Agreement to be performed by Seller's Group (including the Group Companies) with respect to the Transferred Group Intellectual Property. Prior to the Closing, Seller shall, at Seller’s cost and expense, cause the transfer from the applicable Group Company to Seller’s Group of any Retained Intellectual Property. Seller shall, with respect to each such transfer, filing, recording, registration and other matter, provide Purchaser with evidence of each such transfer, filing, recording, registration and other matter in connection therewith.
5.10
Titanium Dioxide Antitrust Claims
Before Closing, the Group Companies will irrevocably contribute, convey, grant, assign, transfer and deliver to a member of Seller's Group, and a member of Seller's Group will accept from each Group Company, all of such Group Company’s rights, interests, and privileges of every kind and nature whatsoever in all claims, demands, obligations and causes of action of whatsoever kind or nature (including any related obligations), whether known or unknown, or suspected or unsuspected, which such Group Company now owns or holds, will at any time in the future (up to the Effective Time) own or hold, or has at any time in the past owned or held relating directly or indirectly to In re: Titanium Dioxide Antitrust Litigation (Civil Action No. RDB-10-0318, Md. Dist. Ct.) and any other antitrust or other claims based upon or arising from, in whole or in part, the Group Companies’ purchase of Titanium Dioxide prior to the Closing .
5.11
Transferred Intellectual Property
Within 10 (ten) Business Days after the Signing Date, Seller shall provide to Purchaser a document summarizing all the due dates with respect to the Transferred Group Intellectual Property that occur from the Signing Date through the period ending on June 30, 2014, including due dates for maintenance and renewal fees, as well as due dates for responses to official action or pending conflict matters.



 


6
CLOSING
6.1
Date and place
6.1.1
Closing shall take place at 9:00 a.m., New York time, on the 1 st (first) Business Day of the month following the 5th (fifth) Business Day following the earlier of (i) satisfaction of that Condition Precedent that is last satisfied and (ii) the waiver under Clause 4.3.2 in respect of all Conditions Precedent that have not been satisfied, or on such other date and such other time as agreed in writing by the Parties.
6.1.2
Closing shall take place in New York, NY, U.S. at the offices of Seller's U.S. Lawyers or at such other location as agreed in writing by the Parties.
6.2
Payments and Closing events
6.2.1
On the Closing Date, Purchaser shall pay the Estimated Purchase Price (in USD) and the Note Purchase Price (in CAD), without any deduction or set off (except as provided for in Clause 15.13 or as provided in the following sentence), in immediately available funds to the relevant bank account set out in Schedule 1 . Seller shall cause Akzo Nobel Canada Inc. to pre-pay, prior to the Effective Time, any and all interest accrued and to be accrued on the Note prior to the Effective Time (and withhold and remit any applicable Tax Deduction on such payments), provided, however, if such interest is not paid prior to the Effective Time, the Note Purchase Price shall be reduced by the Tax Deduction that would have been applicable had the accrued interest been paid by Akzo Nobel Canada Inc. immediately before the Effective Time.
6.2.2
At Closing, the Parties shall procure that:
(a)
the Transfer Documents listed in Schedule 7 are executed and/or delivered and/or made available, as the case may be;
(b)
those of the obligations set out in Schedule 6 Part 1 for which they are respectively responsible and which are not dealt with under Clause 6.2.2(a), are performed; and
(c)
the relevant members of Seller's Group on the one hand, and Purchaser (or the relevant other member of Purchaser's Group) and/or the relevant Group Companies, on the other hand, shall enter into the Ancillary Agreements to the extent not already entered into prior to Closing.


 



6.3
Repayment of Estimated Intra-Group Indebtedness
6.3.1
On the Closing Date:  
(a)
Purchaser shall procure that each relevant Group Company pays to the relevant member of Seller's Group (excluding any Group Company) the Estimated Intra-Group Payables, except for the Note, of said Group Company; and
(b)
Seller shall procure that each relevant member of Seller's Group (excluding any Group Company) pays to each relevant Group Company the Estimated Intra-Group Receivables of said Group Company;
in each case as such amounts are set out in the relevant Estimated Net Debt Statement.
6.3.2
The payments to be made pursuant to Clause 6.3.1 may, by written agreement of the Parties, be aggregated and discharged by way of set-off.
7
POST-CLOSING ADJUSTMENTS
7.1
Working Capital Statement and Net Debt Statements
7.1.1
Within 40 (forty) Business Days after the Closing Date, Seller shall prepare and deliver to Purchaser:
(a)
a proposed Working Capital Statement in the form set out in Schedule 10 Part 1; and
(b)
a proposed Net Debt Statement for each Group Company in the form set out in Schedule 10 Part 2,
(collectively, the " Initial Closing Statement ").
7.1.2
The Initial Closing Statement shall be prepared in accordance with Schedule 10 Part 3.
7.1.3
Following delivery of the Initial Closing Statement to Purchaser:
(a)
if Purchaser disagrees with the Initial Closing Statement, Purchaser shall within 40 (forty) Business Days after receipt thereof, deliver notice of such disagreement to Seller, such notice (the " Notice of Disagreement ") to specify (i) each line item in the Initial Closing Statement with which Purchaser disagrees (the " Disputed Line Items "), including the dollar amounts involved in respect of such line item and (ii) in reasonable detail, the reason for Purchaser's disagreement in respect of each such line item;


 



(b)
if Purchaser does not deliver a Notice of Disagreement in accordance with the terms of, and by the deadline set out in, Clause 7.1.3(a), the Initial Closing Statement shall be final and binding on Seller (and each relevant other member of Seller's Group) and Purchaser (and each relevant other member of Purchaser's Group) for all purposes;
(c)
if Purchaser delivers a Notice of Disagreement in accordance with the terms of, and by the deadline set out in, Clause 7.1.3(a), then:
(i)
each line item in the Initial Closing Statement which is not a Disputed Line Item shall be final and binding on Seller (and each other member of Seller's Group) and Purchaser (and each other member of Purchaser's Group) for all purposes; provided that Seller shall have the right to identify further line items directly related to the Disputed Line Items identified by Purchaser as being in dispute (by written notice delivered to Purchaser within 10 (ten) Business Days of receipt of the Notice of Disagreement), and such further line items shall be deemed Disputed Line Items, and Purchaser thereafter shall have the right to update its Notice of Disagreement (by written notice delivered to Seller within 5 (five) Business Days of receipt of Seller's election notice) by adding further line items (such further line items also being Disputed Line Items) to the extent that such addition is directly related to the further line items identified in Seller's election notice as being in dispute; and
(ii)
Seller and Purchaser shall attempt in good faith to reach agreement in respect of the Disputed Line Items. If Seller and Purchaser do not reach such agreement within 30 (thirty) Business Days after delivery of the (if applicable, updated) Notice of Disagreement, Seller or Purchaser may by notice to the other require that the Disputed Line Items that have not been agreed upon between Seller and Purchaser within the aforesaid 30 (thirty) Business Days, be referred to the Reporting Accountants in accordance with the terms of Schedule 10 Part 4; and
(d)
The final Working Capital Statement, as mutually agreed by the Parties in accordance with this Clause 7.1.3 (including, as applicable, as per Clause 7.1.3(c)) or as determined by the Reporting Accountants in the manner set forth in Schedule 10 Part 4 is referred to herein as the " Final Working Capital Statement ". The final Net Debt Statements, as mutually agreed by the Parties in accordance with this Clause 7.1.3 (including, if applicable, as per Clause 7.1.3(c)) or as determined by the Reporting Accountants in the manner set forth in Schedule 10 Part 4 are referred to herein as the " Final Net Debt Statements " and, together with the Final Working Capital Statement, the " Final Closing Statement ".


 


7.1.4
In order to enable the preparation and determination of the Initial Closing Statement and the Final Closing Statement, and until such time as the Final Closing Statement shall become final, Purchaser shall procure the keeping up-to-date and, subject to reasonable notice, making available to Seller and its Representatives (subject to customary confidentiality or similar agreements) during normal office hours of all books and records relating to the Group, and shall cooperate with them and their Representatives with regard to the preparation and determination of the Initial Closing Statement and the Final Closing Statement, including by giving reasonable access to employees of the Group (in the presence of Representatives of Purchaser) for purposes of obtaining any relevant data.
7.2
Purchase Price adjustments and repayment of Intra-Group Indebtedness
7.2.1
Working Capital
(a)
To the extent that the Working Capital Adjustment for the Group Companies reflected in the Final Working Capital Statement is less than the Estimated Working Capital Adjustment, Seller, on behalf of the Share Sellers, shall repay to Purchaser, acting on behalf of the Share Purchasers, an amount equal to such deficit.
(b)
To the extent that the Working Capital Adjustment for the Group Companies reflected in the Final Working Capital Statement exceeds the aggregate amount of the Estimated Working Capital Adjustment, Purchaser, on behalf of the Share Purchasers, shall pay Seller, acting on behalf of the Share Sellers, an amount equal to such excess.
7.2.2
Net Debt
(a)
In respect of each Group Company, to the extent that the Net Debt for such Group Company reflected in the relevant Final Net Debt Statement exceeds the Estimated Net Debt for such Group Company, Seller shall repay to Purchaser, or a designated other member of Purchaser's Group, an amount equal to such excess.
(b)
In respect of each Group Company, to the extent that the Net Debt for such Group Company reflected in the relevant Final Net Debt Statement is less than the Estimated Net Debt for such Group Company, Purchaser shall pay to Seller or a designated other member of Seller's Group, an amount equal to such deficit.


 



7.2.3
Intra-Group Indebtedness
In respect of each Group Company:
(a)
to the extent that the amount of any Intra-Group Payable as reflected in the relevant Final Net Debt Statement is less than the relevant amount of the Estimated Intra-Group Payable repaid pursuant to Clause 6.3.1(a), Seller shall procure that the relevant member of Seller's Group pays to the relevant Group Company an amount equal to such deficit;
(b)
to the extent that the amount of any Intra-Group Payable as reflected in the relevant Final Net Debt Statement exceeds the relevant amount of the Estimated Intra-Group Payable repaid pursuant to Clause 6.3.1(a), Purchaser shall procure that the relevant Group Company pays to the relevant member of Seller's Group an amount equal to such excess;
(c)
to the extent that the amount of any Intra-Group Receivable as reflected in the relevant Final Net Debt Statement is less than the relevant amount of the Estimated Intra-Group Receivable repaid pursuant to Clause 6.3.1(a), Purchaser shall procure that the relevant Group Company pays to the relevant member of Seller's Group an amount equal to such deficit; and
(d)
to the extent that the amount of any Intra-Group Receivable as reflected in the relevant Final Net Debt Statement exceeds the relevant amount of the Estimated Intra-Group Receivable repaid pursuant to Clause 6.3.1(a), Seller shall procure that the relevant member of Seller's Group pays to the relevant Group Company an amount equal to such excess.
7.2.4
Interest
Any payment to be made in accordance with this Clause 7.2 shall include interest thereon calculated from the day after the Effective Time to the day of payment, both days inclusive, at the Interest Rate.
7.2.5
Payment
(a)
The due date for any payment to be made under this Clause 7.2, shall be the 5th (fifth) Business Day after the Final Closing Statement has been determined as set forth in Clause 7.1.3(d).
(b)
The payment (other than interest payments) made under Clause 7.2.1 (Working Capital) shall be made on account of the Purchase Price and allocated to each Company in accordance with the percentages set opposite each Company in Paragraph 1 of Schedule 9 Part 1, unless expressly otherwise agreed in writing by the Parties.


 



(c)
All payments (other than interest payments) made under Clause 7.2.2 (Net Debt) shall be made on account of the Purchase Price of the Shares of the relevant Group Company and the allocation of the Purchase Price shall be adjusted in accordance with Schedule 9 Part 1, unless otherwise required by Law.
(d)
To the extent legally permissible, the payments to be made pursuant to this Clause 7.2, may, by written agreement of the Parties, be aggregated and discharged by way of set-off.
8
POST-CLOSING OBLIGATIONS
8.1
Indemnity by Purchaser
In addition to indemnification provided elsewhere in this Agreement, effective as of the Closing and subject to Clause 10, Purchaser shall indemnify and hold harmless Seller, its Affiliates and their respective Representatives (the " Seller Indemnified Parties "), from and against any and all Losses suffered or incurred by such Seller Indemnified Parties that arise out of, relate to or result from:
(a)
any breach of Purchaser's Warranties, it being understood and agreed that no materiality or similar qualifier in the relevant Purchaser's Warranties shall be given any effect for the purpose of determining the existence or extent of the breach or the amount of Losses associated therewith;
(b)
any breach of or failure by Purchaser to perform or fulfill any of the covenants or agreements required to be performed by Purchaser under this Agreement (excluding any breach of a Purchaser's Warranty);
(c)
except to the extent subject to indemnification by Seller under this Agreement, any Group Liabilities; or
(d)
any Continuing Seller Guarantees, subject to the Purchaser Indemnified Parties’ entitlement to indemnification pursuant to this Agreement.



 


8.2
Indemnity by Seller
In addition to indemnification provided elsewhere in this Agreement, effective as of the Closing and subject to Clause 10, Seller shall indemnify and hold harmless Purchaser, its Affiliates (including following the Closing, the Group Companies) and their respective Representatives (collectively, the " Purchaser Indemnified Parties ") from and against:
8.2.1
any and all Losses suffered or incurred by such Purchaser Indemnified Parties that arise out of, relate to or result from:
(a)
any breach of Seller's Warranties (other than Tax Warranties which are governed by Schedule 11 ), it being understood and agreed that no materiality or similar qualifier in the relevant Seller's Warranties (other than as set forth in Part 6 of Schedule 12 ) shall be given any effect for the purpose of determining the existence or extent of the breach or the amount of Losses associated therewith;
(b)
any breach of or failure by Seller to perform or fulfill any of the covenants or agreements required to be performed by Seller under this Agreement (excluding any breach of a Seller's Warranty);
(c)
any Unrelated Liabilities (the " Unrelated Liabilities Indemnity ");
(d)
any Pre-Closing Liabilities (the " Pre-Closing Liabilities Indemnity ");
(e)
any Continuing Group Guarantees;
(f)
any Pre-Closing Toxic Tort Liabilities;
(g)
any Pre-Closing Product Liabilities; or
(h)
any Pre-Closing FLSA Liabilities; or
8.2.2
the amount owed to the relevant customer under any Pre-Closing Home Center Customer Claims, together with all reasonable costs and expenses (including reasonable legal costs) in respect thereof, incurred by the relevant Group Company.
8.3
Release of Guarantees
8.3.1
The Parties shall use commercially reasonable efforts to terminate, effective as of the Closing, any and all continuing obligations of Seller and any other member of Seller's Group (excluding the Group Companies) from any (joint and/or several) Guarantees given by, assumed by or binding upon Seller or any other member of Seller's Group (excluding the Group Companies) in relation to any of the Liabilities of the Group Companies, including those listed in Paragraph 1 of Schedule 21 (the " Seller Guarantees "), and to procure the release of Seller and Seller's Group from the Seller Guarantees, including seeking to have the beneficiaries of such Seller Guarantees substitute Purchaser or its Affiliates for Seller or any other member of Seller's Group (excluding the Group Companies) as the indemnitor or guarantor under such Seller Guarantees (in respect of any Seller Guarantees not listed in Paragraph 1 of Schedule 21 , on terms no less favorable to Purchaser than the terms of the applicable existing Seller Guarantee). To the extent that the obligations of Seller's Group on a Seller Guaranty are not terminated and the applicable member


 


of Seller's Group is not released effective as of the Closing (a Seller Guaranty not so terminated being a " Continuing Seller Guaranty "), the Parties shall continue to use their commercially reasonable efforts to terminate the Continuing Seller Guaranty as soon as practicable following the Closing.
8.3.2
The Parties shall use commercially reasonable efforts to terminate, effective as of the Closing, any and all continuing obligations of each Group Company from any (joint and/or several) Guarantees given by, assumed by or binding upon the Group Companies in relation to any of the Liabilities of Seller or any other member of Seller's Group (excluding the Group Companies), including those listed in Paragraph 2 of Schedule 21 (the " Group Guarantees "), and to procure the release of the Group Companies from the Group Guarantees, including seeking to have the beneficiaries of such Group Guarantees substitute Seller or its Affiliates for such Group Company as the indemnitor or guarantor under such Group Guarantees (in respect of any Group Guarantees listed in Paragraph 2 of Schedule 21 , on terms no less favorable to Seller than the terms of the applicable existing Group Guarantee). To the extent that the obligations of Group Companies on a Group Guaranty are not terminated and the applicable Group Company is not released as of the Closing (a Group Guaranty not so terminated being a " Continuing Group Guaranty "), the Parties shall continue to use their commercially reasonable efforts to terminate the Continuing Group Guaranty as soon as practicable following the Closing.
8.4
Trade receivables/payables; Post-Closing receipts
8.4.1
Each Party shall procure that any indebtedness (other than indebtedness that is part of Intra-Group Receivables or Intra-Group Payables) incurred in the ordinary course of trading prior to Closing between the Group and Seller's Group and outstanding at Closing, shall be settled in cash in accordance with the usual terms and conditions of trading between such entities or, if there are no such terms, within 30 (thirty) days of invoice.
8.4.2
If at any time after the Effective Time, any member of Seller's Group (excluding any Group Companies) receives any monies in respect of any receivable of a Group Company, then Seller shall procure that the relevant member of Seller's Group shall pay the amount received to the relevant Group Company within 5 (five) Business Days.
8.4.3
If at any time after the Effective Time, any member of Purchaser's Group (including the Group Companies) receives any monies in respect of any item forming part of the Carve-Out Businesses (including any liquidation proceeds), then Purchaser shall procure that the relevant member of Purchaser's Group shall pay the amount received to Seller within 5 (five) Business Days , provided such member of Purchaser’s Group is obligated to pay such amount under the relevant transfer agreement for such Carve-Out Businesses.



 


8.5
Non-Operating Facilities
Except to the extent prohibited by applicable Law, Seller shall cause the Group Companies to sell, transfer or assign, to one or more third parties or to members of Seller's Group (other than the Group Companies) all of the Non-Operating Facilities and all properties and assets related thereto, as soon as reasonably practicable after Signing and in any event prior to the Closing. In the event the sale, transfer or assignment of any of the Non-Operating Facilities, or any of the properties or assets related thereto, shall not have been completed prior to the Closing, the provisions of Schedule 11 and Paragraph 2 of Schedule 22 shall apply.
8.6
Retention of records
8.6.1
Subject to Paragraph 7.6 of Schedule 11 , Purchaser shall retain for a period of 6 (six) years from Closing, or such longer period as may be prescribed by Law (if known by Purchaser), all books and records relating to the Group which are at the Properties at Closing or which are held by or on behalf of any member of, or otherwise delivered to, Purchaser's Group in connection with the Closing and, to the extent reasonably required by Seller, including in connection with the preparation of any Tax Returns, any judicial, administrative, Tax, audit or arbitration proceeding or the preparation of any financial statements or reports, shall allow Seller, upon reasonable notice, access during normal office hours to such books, records and other information to the extent relating to the Operations prior to the Closing, including the right to inspect and take copies (at Seller's cost and expense).
8.6.2
Seller's Group shall retain for a period of 6 (six) years from Closing, or such longer period as may be prescribed by Law (if known by Seller), all books and records relating to the Group which are not at the Properties at Closing or held by or on behalf of any member of the Group or otherwise delivered to Purchaser at Closing and, to the extent reasonably required by Purchaser, including in connection with the preparation of any Tax Returns, any judicial, administrative, Tax, audit or arbitration proceeding or the preparation of any financial statements or reports, shall allow Purchaser, upon reasonable notice, access during normal office hours to such books, records and information, including the right to inspect and take copies (at Purchaser's cost and expense).


 



8.7
Insurance
8.7.1
Termination of coverage
(a)
Until the Closing Date, Seller shall maintain the effectiveness of all Insurance Policies with respect to the Group Companies.
(b)
As of the Closing Date, all coverage with respect to the Group Companies under the Insurance Policies in respect of events, occurrences or accidents occurring on or after the Closing Date shall be cancelled and terminated, excluding those Insurance Policies in respect of which one or more Group Companies are the sole policy holders or named insureds.
8.7.2
Availability of Seller's Group's rights of recovery
(a)
From and after the Closing Date, Seller shall, at the request, cost and expense of Purchaser, and subject to the terms and conditions of the Insurance Policies (and with Purchaser acknowledging that no member of Seller's Group gives any assurance as to recoverability under any of the Insurance Policies, subject to Seller's Warranty contained in Paragraph 13 of Schedule 12 Part 1), submit, file and pursue any claims under any Insurance Policies maintained by Seller's Group that cover the Group Companies or any of the Employees (the " Retained Insurance Policies "), arising out of or relating to events, occurrences or accidents occurring prior to or at the Closing to the extent coverage is available under such Retained Insurance Policies. Seller shall keep Purchaser reasonably informed of the status of any such insurance claims and shall as soon as reasonably practicable provide Purchaser with copies of any and all written communications regarding such insurance claims. Upon request of Purchaser and to the extent permitted under the relevant Retained Insurance Policy, Seller shall assign any such insurance claims to Purchaser. After any such insurance claim has been filed, Seller shall take no action with respect thereto or compromise or settle any such insurance claim unless directed to do so by Purchaser. Seller shall take all lawful actions in respect of insurance claims as are reasonably requested by Purchaser, including the prosecution of insurance claims against insurers providing the Retained Insurance Policies, using legal counsel selected by Purchaser, the foregoing all at the cost and expense of Purchaser and provided that no member of Seller's Group shall be required to admit any liability of Seller's Group (other than the Group Companies after Closing) in respect of any matter to which an insurance claim relates.
(b)
Without limiting the provisions of Clause 8.7.2(a), from and after the Closing Date, Seller shall cause the relevant members of Seller's Group to make available (to the extent permitted under the relevant Retained Insurance Policies (and with Purchaser acknowledging that no member of Seller's Group gives any assurance as to recoverability under any of the Retained Insurance Policies, subject to Seller's Warranty contained in Paragraph 13 of Schedule 12 Part 1)) to the Group Companies Seller's Group's rights of recovery under the Retained Insurance Policies with respect to events, occurrences or accidents occurring prior to the Closing Date, to the extent that the claim is not taken into account in the Final Closing Statement. Seller and


 


Purchaser shall cooperate in connection with the handling and administration of these claims.
(c)
The foregoing provisions of this Clause 8.7.2 shall be without prejudice to any rights that the Purchaser Indemnified Parties may have pursuant to Clause 8.2 to the extent that the indemnified Loss is not recovered in accordance with this Clause 8.7.2.
8.7.3
Payment of Proceeds
Subject to compliance by Purchaser of its obligations under Clause 8.7.4, Seller's Group shall pay to Purchaser (acting on behalf of the relevant Group Company, as the case may be), as soon as reasonably practicable after receipt after Closing by a member of Seller's Group, the net proceeds (after subtracting any deductible, retention or similar amounts, or with respect to any Retained Insurance Policies provided by a captive insurer of Seller's Group, any allocated loss adjustment expenses (ALAE) assessed by such captive insurer, calculated in the manner calculated under such Retained Insurance Policies as of the Signing Date) actually received after Closing under the Insurance Policies in respect of events, occurrences or accidents occurring prior to or on the Closing Date, to the extent that:
(a)
the Losses in respect of which the claim was made have not been recompensed or made good (according to the terms of such relevant Insurance Policy) prior to the Closing; or
(b)
the Losses are not taken into account in the determination of any line item forming part of the Final Closing Statement or are not indemnified by Seller under this Agreement.
8.7.4
Reimbursement of Certain Costs and Expenses
Subject to Closing, for all claims filed and accepted under the Insurance Policies on behalf of the Group Companies prior to the Closing Date and remaining open after the Closing Date and for all claims filed and accepted under the Retained Insurance Policies after the Closing Date pursuant to Clause 8.7.2, Purchaser shall be responsible for and pay to Seller or a designated other member of Seller's Group within 30 (thirty) days of presentment of invoice, all related reasonable out-of-pocket costs and expenses incurred by Seller's Group, as well as any related allocated loss adjustment expenses (ALAE) assessed against Seller by Seller's Group’s captive insurer, calculated in the manner calculated under the Retained Insurance Policies as of the Signing Date, (to the extent not already taken into account pursuant to Clause 8.7.3), until each such claim is settled or otherwise concluded and no further payments are made in relation thereto.


 



8.8
Transaction Bonuses
At the later of (i) 5 (five) Business Days after written notice from Purchaser or (ii) the date of payment by a Group Company of a Transaction Bonus after the Closing Date (such payment having been made in accordance with the terms of a binding obligation of a Group Company), Seller shall pay to Purchaser an amount equal to such Transaction Bonus taking into account any net Tax benefit of such Transaction Bonuses as determined in accordance with Clause 10.8. For this purpose, " Transaction Bonus " means any bonus or change of control amount (in excess of normal salary and benefits) to be paid to any Employee by a Group Company after the Closing Date as a result of the Transaction and pursuant to a Contract agreed to by and between a member of Seller's Group and the Employee prior to the Closing.
8.9
Tax Indemnity
The provisions of Schedule 11 shall apply in respect of Taxes, including with respect to any breach of a Tax Warranty.
8.10
Environmental Indemnity
The provisions of Schedule 19 shall apply in respect of environmental matters.
8.11
Devoe HD stranded costs
The provisions of Schedule 23 shall apply in respect of Devoe Heavy Duty.
9
REPRESENTATIONS AND WARRANTIES
9.1
Seller's Warranties
9.1.1
Subject to the remaining provisions of this Clause 9 and to Clauses 10 and 11, Seller represents and warrants to Purchaser that the statements set out in Schedule 12 Part 1 (" Seller's Warranties ") are true and accurate as at Signing and Closing.
9.1.2
Each Seller's Warranty applies only to the subject expressly referred to therein. Without detracting from the generality of the foregoing, the only Seller's Warranties given:
(a)
in respect of the Properties are those contained in Paragraph 5.1 of Schedule 12 Part 1 and all other Seller's Warranties shall be deemed not to be given in respect of the Properties;


 



(b)
in respect of Intellectual Property are those contained in Paragraph 6 of Schedule 12 Part 1 and all other Seller's Warranties shall be deemed not to be given in respect of Intellectual Property;
(c)
in respect of employment or pension matters are those contained in Paragraphs 8, 9 and 12 of Schedule 12 Part 1 and all other Seller's Warranties shall be deemed not to be given in respect of such matters;
(d)
in respect of the Environment are those contained in Paragraph 10 of Schedule 12 Part 1 and all other Seller's Warranties shall be deemed not to be given in respect of the Environment other than those contained in Paragraphs 5.1 (Properties) and 5.2 (Ownership of assets) of Schedule 12 Part 1, which also shall be deemed given in respect of the Environment;
(e)
in respect of anti-trust, fair trading, dumping, state and consumer protection or similar matters are those contained in Paragraph 11 of Schedule 12 Part 1 and all other Seller's Warranties shall be deemed not to be given in respect of such matters; and
(f)
in respect of Tax matters are those contained in Paragraph 15 of Schedule 12 Part 1 and all other Seller's Warranties (except for Seller's Warranties under Paragraphs 3 (Accounts) and 21 (Disclosure of Information) of Schedule 12 Part 1 which shall be deemed given in respect of Taxes) shall be deemed not to be given in respect of such matters,
provided that, to the extent relevant, Seller's Warranty under Paragraphs 3 (Accounts), 5.4 (Sufficiency of Assets), 7 (Contracts), 12 (Litigation), 13 (Insurance), 16 (Events since June 30, 2012) and 21 (Disclosure of Information) of Schedule 12 Part 1 shall also apply to the matters referred to in Clause 9.1.2(a) through (e).
9.1.3
Purchaser acknowledges and agrees that, except as expressly set forth in Schedule 12 , Seller makes no representation or warranty as to the accuracy of any forecasts, estimates, projections, statements of intent or statements of opinion howsoever provided to Purchaser or any of its Representatives at or prior to Signing. Purchaser acknowledges that no representations or warranties, express or implied, have been given or are given other than Seller's Warranties. Purchaser further acknowledges and agrees that, notwithstanding any other provision of this Agreement, but without limiting any indemnification provisions relating to the Non-Operating Facilities, Seller makes no representation or warranty as to the Non-Operating Facilities.
9.1.4
Any Seller's Warranty qualified by the expression "so far as Seller is aware", "to Seller's knowledge" or any similar expression shall be deemed to refer to the actual knowledge of those persons whose names are set out in Schedule 12 Part 3.


 



9.2
Disclosure
Seller's Warranties are limited by, and Seller shall not be in breach of any Seller's Warranties:
(a)
in respect of the matters Fairly Disclosed in the Data Room or specifically disclosed in the Disclosure Letter; and
(b)
to the extent that the breach is to the actual knowledge of those persons whose names are set out in Schedule 12 Part 5 at Signing.
9.3
Liability for breach
9.3.1
Save as expressly otherwise provided in this Agreement (including Clause 10.14), the sole and exclusive remedy of the Purchaser Indemnified Parties in respect of any breach by Seller under this Agreement (including a breach of a Seller's Warranty, whether given as at Signing or as at Closing) or under any indemnity given by Seller in this Agreement, shall be, subject to any other limitations of liability set out in this Agreement, a claim for Losses. A Loss suffered by the relevant Group Company in respect of such breach or as falls under such indemnity, as the case may be, shall, subject to any other limitations of liability set out in this Agreement, be deemed to be a Loss suffered by Purchaser. In the event of any breach of Purchaser's Warranties, as its sole and exclusive remedy and subject to any other limitation of liability set out in this Agreement, Seller shall have the right to claim the Losses suffered or incurred by Seller and any other member of Seller's Group as a result of such breach. Notwithstanding the foregoing, in the event the Purchaser Indemnified Parties shall be entitled to indemnification under more than one provision of this Agreement, the relevant Purchaser Indemnified Party shall specify the provision under which an indemnification claim is made.
9.3.2
For purposes of this Agreement, it is agreed that a breach of a Seller's Warranty or Purchaser's Warranty, as the case may be, shall occur where same is untrue or inaccurate as at any date on which the same is given.
9.4
Purchaser's Warranties
9.4.1
Purchaser represents and warrants to Seller that as at Signing the statements set out in Schedule 12 Part 4 (" Purchaser's Warranties ") are true and accurate.
9.4.2
Purchaser further represents and warrants to Seller that the statements set out in Schedule 12 Part 4 will also be true and accurate at Closing as if they had been repeated at such Closing.


 



9.4.3
Seller acknowledges and agrees that Purchaser gives no representations or warranties, express or implied, other than Purchaser's Warranties.
9.4.4
Any Purchaser's Warranty qualified by the expression "so far as Purchaser is aware", "to Purchaser's knowledge" or any similar expression shall be deemed to refer to the actual knowledge of those persons whose names are set out in Schedule 12 Part 5.
9.4.5
Purchaser’s Warranties are limited by, and Purchaser shall not be in breach of any Purchaser’s Warranties to the extent that the breach is to the actual knowledge of those persons whose names are set out in Schedule 12 Part 3 at Signing.
10
LIMITATION OF LIABILITY
10.1
Time limitation
10.1.1
The right to make a claim with respect to any breach of the representations and warranties under the indemnification provisions of Clauses 8.1 or 8.2 or otherwise under this Agreement (other than those related to Tax matters or the Environmental Indemnity, which shall be governed exclusively by Schedule 11 and Schedule 19 , respectively) will survive the Closing as follows:
(a)
the right of the Purchaser Indemnified Parties to make claims with respect to any breach of Fundamental Warranties shall survive the Closing until expiration of 60 (sixty) days following the expiry of the applicable statutory period for such claims;
(b)
the right of the Purchaser Indemnified Parties to make claims under the Environmental Warranties shall survive the Closing until the 5 th (fifth) anniversary of the Closing Date;
(c)
the right of the Purchaser Indemnified Parties to make claims with respect to any breach of Seller's Warranties (other than Fundamental Warranties, Environmental Warranties, Benefit Warranties and Tax Warranties) shall survive the Closing for a period of 18 (eighteen) months following the Closing Date;
(d)
the right of the Purchaser Indemnified Parties to make claims with respect to any breach of the Benefit Warranties shall survive the Closing for a period of 3 (three) years following the Closing Date;
(e)
the right of the Purchaser Indemnified Parties to make claims under the Pre-Closing Liabilities Indemnity shall survive the Closing until the 5 th (fifth) anniversary of the Closing Date;
(f)
the right of the Purchaser Indemnified Parties to make claims under the Unrelated Liabilities Indemnity shall survive the Closing until the 10 th (tenth) anniversary of the Closing Date;


 


(g)
the right of Purchaser Indemnified Parties to make claims under the Special Pre-Closing Indemnities shall survive the Closing until the 5 th (fifth) anniversary of the Closing Date;
(h)
the right of the Seller Indemnified Parties to make claims with respect to any breach of Fundamental Warranties shall survive the Closing until expiration of 60 (sixty) days following expiry of the applicable statutory period for such claim and the right of the Seller Indemnified Parties to make claims with respect to any breach of the other Purchaser’s Warranties shall survive the Closing for a period of 18 (eighteen) months; and
(i)
except as expressly provided otherwise in this Agreement, each covenant and agreement hereunder required to be performed at or prior to Closing, and each Party’s rights to make claims for Losses or indemnification with respect thereto shall survive the Closing for a period of 18 (eighteen) months following the Closing Date,
provided that any right to bring a claim that would otherwise terminate in accordance with the foregoing provisions will continue to survive if a proper notice of a claim shall have been given specifying the matters set out in Clause 11.2 on or prior to the date on which it otherwise would terminate, until the related claim for Losses or indemnification has been satisfied or otherwise resolved as provided in this Clause 10, but such survival shall only be with respect to the matters covered by such notice of claim.
10.1.2
If any of the time limitations set out in Clauses 10.1.1(a) through (i) exceeds the relevant statutory period which would otherwise apply, the relevant aforesaid time limitation shall continue to apply, without regard to any statute of limitations or claims or defenses of laches, estoppel or any other defense concerning the timeliness of a civil action, which the Parties hereby waive.
10.2
Minimum claims
Subject to any other applicable limitations set out in this Agreement, Seller shall only be liable under this Agreement in respect of any individual claim, or a series of claims arising from the same facts, (i) in respect of a claim under Clause 8.2.1(a) for a breach of any Seller's Warranty (other than a Fundamental Warranty or Tax Warranty) or (ii) pursuant to the Pre-Closing Liabilities Indemnity, if the Losses agreed or determined in respect of any such claim or series of claims exceed USD 100,000 (one hundred thousand U.S. dollars) (the " De Minimis Threshold "), and then for the full Loss and not only the excess over the De Minimis Threshold. For the avoidance of doubt, the De Minimis Threshold shall not apply to any other claim for indemnification.


 



10.3
Aggregate minimum claims
Subject to any other applicable limitations set out in this Agreement, Seller shall not be liable under this Agreement:
(a)
(i) in respect of any claim under Clause 8.2.1(a) for breach of any Seller's Warranty (other than a Fundamental Warranty or Tax Warranty) or (ii) pursuant to the Pre-Closing Liabilities Indemnity, except to the extent that the aggregate amount of all Losses in respect of all such claims under such clauses (i) and (ii) exceeds USD 20,000,000 (twenty million U.S. dollars) (the " Basket "); or
(b)
in respect of an individual claim, or a series of claims arising from the same facts, except to the extent the Losses exceed USD 25,000 (twenty-five thousand U.S. dollars):
(i)
in respect of Pre-Closing Toxic Tort Liabilities, other than Pre-Closing Toxic Tort Liabilities as to which a claim has been made by a third party as of Closing (which shall be indemnified by Seller from the first dollar of Loss);
(ii)
in respect of Pre-Closing Product Liabilities; or
(iii)
in respect of Pre-Closing Home Center Customer Claims.
For the avoidance of doubt, the Basket and the limitations set forth in Clause 10.3(b) shall not apply to Pre-Closing FLSA Liabilities, which shall be indemnified by Seller from the first dollar of Loss.
10.4
Maximum liability
10.4.1
The aggregate liability of Seller in respect of all claims for breach of Seller's Warranties (other than the Fundamental Warranties and the Tax Warranties), the Pre-Closing Liabilities Indemnity, the Environmental Indemnity and the Special Pre-Closing Indemnities shall not exceed USD 262,500,000 (two hundred sixty-two million, five hundred thousand US dollars).
10.4.2
Without detracting from the limitation set out in Clause 10.4.1, the maximum aggregate liability of Seller in respect of all claims under this Agreement (a) for breach of Seller's Warranties (other than Tax Warranties), (b) pursuant to the Unrelated Liabilities Indemnity, (c) pursuant to the Pre-Closing Liabilities Indemnity, (d) pursuant to the Special Pre-Closing Indemnities, (e) pursuant to the Environmental Indemnity, and (f) in respect of breaches of pre-Closing covenants and agreements of Seller, shall not exceed the Offer Value.


 



10.5
Provisions
Seller shall not be liable under this Agreement in respect of any claim if and to the extent that any allowance, provision or reserve is made in the Final Closing Statement.
10.6
Matters arising after Signing / Closing
Seller shall not be liable under Clause 8.2.1(a) in respect of Losses to the extent resulting from:
(a)
any action taken by a member of Seller’s Group to the extent necessary for Seller to comply with its express obligations under this Agreement where the failure to take such action would constitute a breach of this Agreement, provided that the compliance by members of Seller’s Group with the obligations under Clause 5.1.1 shall not in and of itself excuse Seller from liability under Clause 8.2.1(a);
(b)
any matter or thing done or knowingly omitted to be done at the written request or with the written approval of the Purchaser Representative in accordance with Clause 15.15;
(c)
any knowing act, omission or transaction of any of Purchaser or any other member of Purchaser’s Group, including the Group Companies, or their respective directors, officers, employees or agents or successors in title, after Closing, save to the extent required under the terms of any Contract of the Group Companies as at Closing or by any Law or administrative practice of any Governmental Authority as applicable at Closing;
(d)
the passing of, or any change in, any Law after Closing;
(e)
any change by Purchaser in any accounting or Taxation policy, basis or practice of Purchaser or any other member of Purchaser’s Group (including the Group Companies after Closing), introduced or having effect after Closing;
provided that notwithstanding the foregoing, the provisions of this Clause 10.6 shall not relieve Seller for liability for Losses to the extent resulting from any Purchaser Indemnified Parties’ efforts to mitigate Losses pursuant to Clause 10.9.
10.7
Insurance
An Indemnifying Party shall not be liable in respect of any claim made by an Indemnified Party to the extent that the Losses in respect of which the claim is made are covered by a policy of insurance and such Indemnified Party or any of its Affiliates actually recovers such Losses, provided that the Indemnified Party shall, and shall procure that its Affiliates use all commercially reasonable efforts to recover such Losses under such insurance.


 



10.8
Net tax benefit
10.8.1
An Indemnifying Party shall not be liable under this Agreement in respect of any claims to the extent of any corresponding Tax savings, including any Relief, to the Indemnified Party or any of its Affiliates arising in respect of such Losses.
10.8.2
Any Tax detriment suffered or incurred by the Indemnified Party or any of its Affiliates as a result of receipt of the indemnification payment in respect of such Losses (including a reduction of depreciable tax basis) shall be taken into account in calculating any corresponding Tax savings, including any Relief.
10.8.3
The following Tax rates shall apply for purposes of this Clause 10.8 except that, in the event of a change in the Canadian or U.S. federal Tax rates after the Signing Date, the Tax rates that shall apply for purposes of this Clause 10.8 shall be such Tax rates as are then agreed upon in writing between Seller and Purchaser as appropriately reflecting such changes in Canadian or U.S. federal Tax rates:
(a)
U.S.            38.5%
(b)
Canada            26.0%
(c)
Puerto Rico        4.0%
10.9
Mitigation of Losses
Each Party shall procure that all commercially reasonable steps are taken and all reasonable assistance is given to the other Party to avoid or mitigate any Losses which in the absence of mitigation might give rise to a liability in respect of any claim under this Agreement, provided that such obligations shall not delay a Party’s right to receive indemnification hereunder and Purchaser’s Group (including the Group Companies) shall have no obligations hereunder to pursue claims against a customer of the Group Companies.
10.10
Rights to recover
10.10.1
No Party shall be liable under this Agreement in respect of any Excluded Losses.
10.10.2
No Party shall be liable for any Losses relating to any actual liability owed to a third party unless and until such actual liability is due and payable, or any Losses relating to any liability owed to a third party which is contingent unless and until such contingent liability becomes an actual liability owed to such third party and is due and payable, provided that this Clause 10.10.2 shall not operate to exclude liability in relation to a claim made in respect of an actual or contingent liability within the relevant time limit specified in Clause 10.1 and specifying the matters set out in Clause 11.2.


 



10.11
Customer relations
Purchaser acknowledges and agrees that, notwithstanding any other provision of this Agreement except for a claim pursuant to a breach of Seller's Warranty contained in Paragraph 7.4.2 or Paragraph 17 of Schedule 12 Part 1:
(a)
Seller makes no representation or warranty whatsoever (expressed, implied or otherwise) as to the term, continuation or renewal (under any terms and conditions) of the relationship or Contract with any customer material to the Operations or any future sales, revenue, or income with respect to any such relationship or Contract; and
(b)
Seller's Liability, if any, in relation to any Contract with any customer material to the Operations shall (except as expressly provided in this Agreement) be limited to a claim by the relevant Purchaser Indemnified Party under Clause 8.2.2. Purchaser's Group shall not make any claim against any member of Seller's Group in relation to any such Contract except as expressly provided in the preceding sentence.
10.12
Credit for recoveries
10.12.1
Without detracting from Clause 10.9, the Indemnified Party shall use all commercially reasonable efforts to pursue recovery of Losses to the maximum amount possible (whether by payment, discount, credit, relief, insurance or otherwise) from any third party, provided that such obligations shall not delay a Party’s right to receive indemnification hereunder and Purchaser’s Group (including the Group Companies) shall have no obligations hereunder to pursue claims against a customer of the Group Companies.
10.12.2
If, before an Indemnifying Party pays an amount in discharge of any claim under this Agreement, the Indemnified Party has received (whether by payment, discount, credit, relief, insurance or otherwise) from a third party a sum in respect of the Loss which is the subject matter of the claim, then the Indemnifying Party’s obligations shall be reduced to the extent of the recoveries so received by the Indemnified Party less the costs and expenses reasonably incurred by the Indemnified Party to seek such recovery and any Taxes payable on such recovery and net of any Relief associated therewith.
10.12.3
If an Indemnifying Party has paid an amount in discharge of any claim under this Agreement and the Indemnified Party subsequently recovers (whether by payment, discount, credit, relief, insurance or otherwise) from a third party with respect to any Loss which is the subject matter of the claim, then the Indemnified Party shall forthwith pay to the Indemnifying Party the amount recovered, less any costs and expenses reasonably incurred in obtaining such recovery and any Taxes payable on such recovery and net of any deductible amount associated therewith, and limited to the amount actually paid by the Indemnifying Party in respect of the claim.


 


10.12.4
If any Losses in respect of which a claim is made are covered by a right of recovery, in the form of an indemnification, contribution or similar obligation against a third party, then upon making any indemnification payment, the Indemnifying Party may request in writing and the Indemnified Party shall procure, to the extent of such payment, that it is subrogated to all rights of the Indemnified Party against such third party in respect of the Loss to which the payment relates; provided that notwithstanding the foregoing, the relevant Seller Indemnifying Party shall only exercise its rights pursuant to such subrogation against a customer of a Group Company if, consistent with the manner in which the relevant Group Company managed its business before Closing, the relevant Group Company would have pursued such a course of action against such customer in the ordinary course of business.
10.13
Double claims
No Party shall be entitled to recover under this Agreement more than once in respect of the same Losses suffered.
10.14
Fraud
The limitations of liability set out in this Agreement shall not apply to any claim under this Agreement arising out of, or relating to, fraud on the part of the Indemnifying Party, and nothing in this Agreement shall limit the right of a Party to pursue an action for or seek remedies with respect to fraud.
11
CLAIMS
11.1
Notification of potential claims
If an Indemnified Party or any of its Affiliates becomes aware of any matter or circumstance that may give rise to a claim under this Agreement, save for any claim made under the Tax Indemnity, such Indemnified Party shall within 20 (twenty) Business Days, or within such shorter period as may be necessary to formally respond to any related third party legal proceeding, deliver a notice to the Indemnifying Party setting out such information as is available to the Indemnified Party as is reasonably necessary to enable the Indemnifying Party to assess the merits of the claim, to act to preserve evidence and to make such provision as the Indemnifying Party may consider necessary. The failure of the Indemnified Party to give notice within the time limits referred to in this Clause 11.1 shall not release the Indemnifying Party of its liability, except for the amount of Losses arising as a result of such failure to give notice within these time limits.


 



11.2
Notification of claims
Without detracting from Clause 11.1, notices of claims under this Agreement shall be given by the Indemnified Party to the Indemnifying Party within the time limits specified in Clause 10.1, specifying to the extent then known the full information of the legal and factual basis of the claim and the evidence on which the Indemnified Party relies and, if practicable, an estimate of the amount of Losses which are, or are to be, the subject of the claim (including any Losses which are contingent on the occurrence of any future event).
11.3
Investigation
In connection with any matter or circumstance notified by an Indemnified Party pursuant to Clause 11.1 or 11.2:
(a)
the Indemnified Party shall allow the Indemnifying Party (at its own cost and expense) and its financial, accounting, legal and other advisors such access (upon reasonable notice) to books, records and such personnel of the Indemnified Party as the Indemnifying Party may reasonably request to investigate such claim; and
(b)
the Indemnified Party shall procure that all relevant Affiliates of such Indemnified Party give all such reasonable information and assistance, including access (upon reasonable notice and at reasonable times) to premises and personnel, and the right to examine and copy or photograph any assets, accounts, documents and records, in each case as the Indemnifying Party or its financial, accounting, legal or other advisors may reasonably request, provided that the Indemnifying Party procures to (i) solely use the information for the purpose of such claim and (ii) compensate the Indemnified Party for its reasonable costs and expenses in connection with the disclosure of information and any related outside legal counsel costs or other out-of-pocket expenses incurred in connection therewith.
Notwithstanding the foregoing, neither Party shall be obligated to make any books, records, personnel or other information available that would, in the reasonable judgment of such party, violate or jeopardize any applicable attorney-client privilege, provided that such party shall use its commercially reasonable efforts to make available such books, records, personnel or other information in a manner that does not violate such privilege.
11.4
Procedure for third party claims
11.4.1
Except with respect to Tax Indemnity and Tax Warranty claims which are governed solely by Schedule 11 , or except as provided otherwise under Schedule 19 , with respect to Environmental Claims and Environmental Costs, if any claim for indemnification involves a claim by a third party against the Indemnified Party then:


 


(a)
the Indemnifying Party shall be entitled at its own cost and expense and in its discretion, by notice to the Indemnified Party, to assume control of the defense of such third party claim at the sole cost and expense of the Indemnifying Party, provided, however, the Indemnifying Party shall not be entitled to assume control of the defense of such claim if such claim:
(i)
involves a criminal prosecution against the Indemnified Party;
(ii)
reasonably may result in equitable relief or orders or injunctions restricting the Indemnified Party’s on-going business operations; or
(iii)
reasonably may result in Liabilities that, when taken with other then-existing claims under Clause 8, would exceed the maximum liability limitations set forth in Clause 10.4; and provided further that the assumption of the defense of any such third party claim by the Indemnifying Party shall constitute assumption by the Indemnifying Party of full responsibility, subject to all applicable limitations of liability under this Agreement, for all Losses of any Purchaser Indemnified Parties or Seller Indemnified Parties, as the case may be, resulting from any such third party claim.
(b)
The Indemnifying Party shall select counsel, contractors, experts and consultants, as appropriate, of recognized standing and competence, and reasonably acceptable to the Indemnified Party and shall diligently and promptly secure resolution of any such third party claim. The Indemnified Party shall be permitted to participate in the defense of any Third Party Claim and to employ separate counsel of its choice for such purpose at its own cost and expense (except as otherwise provided in the next sentence). If the Indemnified Party determines in good faith that representation by the Indemnifying Party’s counsel of both the Indemnifying Party and the Indemnified Party may present such counsel with a conflict of interest, then the Indemnified Party shall be entitled to engage separate counsel at its own cost and expense (but subject to recovery thereof from the Indemnifying Party in the event of the Indemnifying Party being held responsible for the underlying claim under this Agreement). The Indemnified Party shall cooperate fully with the Indemnifying Party to enable the Indemnifying Party to effectively defend against such third party claim. Each of the Indemnified Party and the Indemnifying Party shall at all times act as if all Losses relating to the third party claim were for its own account and shall act in good faith and with reasonable prudence to minimize Losses therefrom. The Indemnifying Party may not settle or compromise any Third Party Claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed.


 



(c)
The Indemnified Party may assume control of the defense or settlement of a third party claim at any time if it irrevocably waives in writing its right to indemnity under Clause 8.1 or 8.2 with respect to such claim or series of related claims.
(d)
The Indemnified Party may not settle or compromise any Third Party Claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed, unless such settlement, compromise or consent includes an unconditional release of the Indemnifying Party from all liability arising out of such claim or series of related claims (including liability for indemnification hereunder). In determining whether to grant any consent for any settlement or compromise of a Third Party Claim in accordance with the foregoing sentence, the Indemnifying Party shall consider only the merits of the Third Party Claim and the terms of the compromise or settlement, and shall not take into account such Indemnifying Party’s position upon whether or not the Losses resulting from such Third Party Claim are subject to indemnification under this Agreement.
(e)
Subject to Clause 10.9, if the Indemnifying Party does not notify the Indemnified Party in writing of its intent to assume control of the defense of a third party claim within 20 (twenty) Business Days following the Indemnifying Party’s receipt of notice of such Third Party Claim in accordance with the foregoing provisions, and, during any period prior to the Indemnifying Party’s assumption of the defense and control of a Third Party Claim, the Indemnified Party shall have the right to defend such claim in such manner as it, acting reasonably, may deem appropriate, and, subject to all applicable limitations of liability under this Agreement, the Indemnified Party shall be entitled to seek indemnification from the Indemnifying Party for all Losses in respect thereof, including costs and expenses of legal counsel and other advisors.
11.4.2
Purchaser shall promptly reimburse to Seller any settlement amount or judgments paid by a member of Seller’s Group (excluding the Group Companies), as well as any costs and expenses reasonably incurred by Seller in defending, settling or otherwise disposing of any third party claims in respect of which Seller has been notified pursuant to Clause 11.1 or 11.2 and for which the Purchaser Indemnified Parties would have been entitled to indemnification under this Agreement but for the limitations set out in Clause 10.2 or 10.3.


 



12
RESTRICTIONS
12.1
Restrictions on Seller
12.1.1
Seller undertakes, covenants and agrees with Purchaser that, subject to Closing, for a period commencing on the Closing Date and continuing during the Restricted Period, Seller shall not, and Seller shall cause each member of Seller's Group not to:
(a)
directly or indirectly undertake any Restricted Activity in the Restricted Territory; or
(b)
induce or seek to induce any Restricted Employee to become employed by any member of Seller's Group or to leave the employ of the Group Companies or Purchaser or any of its other subsidiaries, provided that the placing of an advertisement of a post available to a member of the public generally (so long as such advertisement is not targeted directly to areas in which the Group Companies maintain Operations as at Closing) shall not constitute a breach of this Clause 12.1.1.
12.1.2
The restrictions in Clause 12.1.1 shall not operate to prohibit any member of Seller's Group from:
(a)
exercising any right or fulfilling any obligation pursuant to this Agreement and any agreement with any member of Purchaser's Group (including the Group Companies) entered into pursuant to this Agreement;
(b)
acquiring or holding for investment purposes 5% (five percent) or less of any class or series of equity securities of any Person, which class or series of equity securities is (a) registered under Section 12 of the Securities Exchange Act of 1934, as amended or (b) listed on a stock exchange outside the U.S, even if that Person is engaged in a Restricted Activity;
(c)
acquiring control of a business or Person (whether through the acquisition of assets, securities or other ownership interests, the effecting of a merger, consolidation, share exchange, business combination, reorganization, recapitalization or other similar transaction) (an " Acquired Business ") that is engaged in a Restricted Activity where the revenues of the Restricted Activity of the Acquired Business in its most recently completed fiscal year were less than the lower of (A) 20% (twenty percent) of the total revenues of the Acquired Business for such fiscal year, and (B) USD 250,000,000 (two hundred fifty million U.S. dollars);


 



(d)
manufacturing any products for its own use or for any member of Purchaser's Group.
12.1.3
If any restriction contained in this Clause 12.1 is held to be invalid or unenforceable but would be valid and enforceable if part of the wording of the respective restriction is deleted or amended, the restriction applies with such amendment as is necessary to make it valid and enforceable.
12.2
Restriction on Purchaser
Purchaser's Group shall not during the Restricted Period induce or seek to induce any senior employee employed in Seller's Group with whom Purchaser had contact in the course of the Transaction to become employed by any member of Purchaser's Group or to leave the employ of Seller's Group, provided that the placing of an advertisement of a post available to a member of the public generally and the recruitment of a person through an employment agency shall not constitute a breach of this Clause 12.2, provided that no member of Purchaser's Group instructs or encourages such agency to approach any such person.
13
CONFIDENTIALITY
13.1
Announcements
No announcement, press release or circular in connection with the existence or the subject matter of this Agreement shall be made or issued by or on behalf of any member of Seller's Group or Purchaser's Group without the prior written approval of both Seller and Purchaser. This shall not affect any announcement or circular required by Law or the rules of any recognized stock exchange on which the shares of either Party are listed, provided that the Party with an obligation to make an announcement or issue a circular shall consult with the other Party insofar as is reasonably practicable before complying with such an obligation.
13.2
Confidentiality undertaking
13.2.1
The Confidentiality Agreement shall cease to have any force or effect from Closing.
13.2.2
For a period commencing on the date of this Agreement and continuing for so long as the applicable Group Confidential Information constitutes confidential information, save as otherwise provided in the IP Agreement, Seller shall and shall cause Seller's Group to treat and hold as confidential all confidential information or data retained by or known to Seller or any member of Seller’s Group and used in the Operations as at Signing or Closing (" Group Confidential Information "). If Seller or any member of Seller’s Group is requested or required (by oral or written request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process or by applicable Law) to disclose any Group Confidential Information, then Seller shall notify Purchaser promptly of the request or requirement so that Purchaser, at its cost and expense, may seek an appropriate protective order or waive compliance with this Clause 13.2. If, in the absence of a protective order or receipt of a waiver hereunder, Seller or any member of Seller’s Group is, on the


 


advice of counsel, compelled to disclose such Group Confidential Information, Seller may so disclose the Group Confidential Information, provided that Seller shall use reasonable commercial efforts to obtain reliable assurance that confidential treatment shall be accorded to such confidential information.
13.2.3
For a period commencing on the date of this Agreement and continuing for so long as the applicable Seller Confidential Information constitutes confidential information, save as otherwise provided in the IP Agreement, Purchaser shall and shall cause Purchaser's Group to treat and hold as confidential all confidential information or data retained by or known to Purchaser or any member of Purchaser's Group (including the Group) and relating to Seller's Group or its operations, excluding Group Confidential Information (" Seller Confidential Information "). If Purchaser or any member of Purchaser's Group (including the Group) is requested or required (by oral or written request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process or by applicable Law) to disclose any Seller Confidential Information, then Purchaser shall notify Seller promptly of the request or requirement so that Seller, at its cost and expense, may seek an appropriate protective order or waive compliance with this Clause 13.2. If, in the absence of a protective order or receipt of a waiver hereunder, Purchaser or any member of Purchaser's Group (including the Group) is, on the advice of counsel, compelled to disclose such Seller Confidential Information, such party may so disclose Seller Confidential Information, provided that Purchaser shall use reasonable commercial efforts to obtain reliable assurance that confidential treatment shall be accorded to such confidential information.
13.2.4
Subject to Clause 13.1 and Clause 13.2, each of the Parties shall treat as strictly confidential and not disclose or use any information contained in or received or obtained as a result of entering into this Agreement (or any agreement entered into pursuant to this Agreement) which relates to:
(a)
the provisions of this Agreement or any agreement entered into pursuant to this Agreement;
(b)
the negotiations relating to this Agreement (or any such other agreement); or


 



(c)
a Party to this Agreement or the business carried on by it or any member of its group of companies (including any Group Confidential Information and Seller Confidential Information).
13.2.5
Clauses 13.2.1 through 13.2.4 shall not prohibit disclosure or use of any information if and to the extent:
(a)
the disclosure or use is required by applicable Law or any applicable stock exchange rules and regulations on which the shares of any Party are listed; provided that prior to disclosure or use of any information pursuant to this Clause 13.2.5(a) , the Party concerned shall promptly notify the other Party of such requirement with a view to providing the other Party with the opportunity to contest such disclosure or use or otherwise agree to the timing and content of such disclosure or use;
(b)
the disclosure or use is required for the purpose of any judicial proceedings arising out of this Agreement or any other agreement entered into under or pursuant to this Agreement or the disclosure is made to a Tax Authority in connection with the Tax affairs of the disclosing Party;
(c)
the disclosure is made to professional Representatives of any Party on terms that such professional Representatives undertake to comply with the provisions of Clause 13.2.4 in respect of such information as if they were a party to this Agreement;
(d)
the information is or becomes publicly available (other than by breach of the Confidentiality Agreement or of this Agreement);
(e)
the other Party has given prior written approval to the disclosure or use; or
(f)
the information is independently developed after Closing without violating any of the obligations set forth in the Confidentiality Agreement during its term or this Agreement.
14
TERMINATION
14.1
This Agreement may be terminated, and the transactions contemplated by this Agreement may be abandoned, at any time prior to the Closing by:
(a)
the mutual written agreement of Seller and Purchaser;
(b)
by Seller if Purchaser fails to perform in any material respect any of its Material Closing Obligations required to be performed by it at Closing and, within 15 (fifteen) Business Days after written notice thereof, such breach shall not have been cured or waived by Seller, provided that Seller shall not have the right to terminate this Agreement pursuant to this Clause 14.1(b) if Seller is then in material breach of any of its obligations under this Agreement;


 


(c)
by Purchaser if Seller fails to perform in any material respect any of its Material Closing Obligations required to be performed by it at Closing and, within 15 (fifteen) Business Days after written notice thereof, such breach shall not have been cured or waived by Purchaser, provided that Purchaser shall not have the right to terminate this Agreement pursuant to this Clause 14.1(c) if Seller is then in material breach of any of its obligations under this Agreement; or
(d)
by Purchaser or Seller if the Closing shall not have been consummated by 31 December 2013 (such date, as it may be extended pursuant to this Clause 14.1(d), the " Outside Date "), provided that each Party’s right to terminate this Agreement under this Clause 14.1(d) shall not be available to such Party if such Party’s action or failure to act has been the cause of or resulted in the failure of the Closing to take place on or before the Outside Date or if such Party is then in material breach of any of its obligations under in this Agreement, and provided further that either Party may extend the Outside Date until no later than 30 June 2014 if the Condition Precedent in Clause 4.1.1 has not been satisfied as of 31 December 2013.
14.2
If this Agreement is validly terminated pursuant to Clause 14.1, this Agreement shall forthwith become null and void, and have no further effect, without any Liability on the part of any Party hereto or its Affiliates, directors, officers or stockholders, other than the provisions of this Clause 14.2 and Clause 15. Notwithstanding the foregoing, nothing contained in this Clause 14.2 shall relieve any Party from Liability for any breach of this Agreement occurring prior to termination, and any such breaching Party shall be fully liable for any and all Losses, including reasonable costs, fees and expenses of attorneys, accountants and other agents or Representatives, incurred or suffered by the other Party as a result of such breach if the other Party is willing and able to satisfy its obligations under this Agreement.
14.3
Save as provided in Clause 14.1, neither Party shall have the right to terminate this Agreement.
14.4
The right of a Party to terminate this Agreement pursuant to Clause 14.1 shall be without prejudice to all other rights or remedies available to such Party, including under Clause 15.19.


 



15
MISCELLANEOUS
15.1
Nomination of other purchasers
15.1.1
Purchaser has nominated certain wholly-owned members of Purchaser's Group to purchase the Shares, as set out in Schedule 2 Part 1 column (4).
15.1.2
Purchaser shall be entitled to nominate, at its own cost and expense, by notice to Seller delivered no later than 5 (five) Business Days prior to the Closing Date, one or more other direct or indirect wholly-owned members of Purchaser's Group as purchasers to purchase the Shares or the Note. Schedule 2 Part 1 shall be deemed to be amended accordingly so as to give effect to any such nomination.
15.2
Singular liability and right to claim
15.2.1
None of the Share Sellers shall have any liability under this Agreement, it being agreed that Seller agrees to be fully liable for any breach by any of the Share Sellers under this Agreement on a dollar-for-dollar basis (subject to the applicable limitations of liability set out in this Agreement). Any obligations of Share Sellers shall for this purpose be deemed obligations of Seller. Purchaser may seek recourse only against Seller for breach by Seller or a Share Seller of its obligations under this Agreement.
15.2.2
None of the Share Purchasers, with the exception of Purchaser, shall have any liability under this Agreement, it being agreed that Purchaser agrees to be fully liable for any breach by any of the Share Purchasers under this Agreement on a dollar-for-dollar basis (subject to the applicable limitations of liability set out in this Agreement). Any obligations of Share Purchasers shall for this purpose be deemed obligations of Purchaser. Seller may seek recourse only against Purchaser for breach by Purchaser or a Share Purchaser of its obligations under this Agreement.
15.2.3
Seller, on behalf of itself and the members of Seller's Group, irrevocably waives any claim it may have against a Group Company or any director, officer or Employee of a Group Company in connection with this Agreement absent fraud.
15.3
Transfer Documents
15.3.1
To the extent that the provisions of a Transfer Document are inconsistent with other provisions of this Agreement (which term, for purposes of this Clause 15.3.1 shall exclude all Transfer Documents):
(a)
the said other provisions of this Agreement shall prevail; and
(b)
Seller and Purchaser shall procure that, so far as permissible under the Laws of the relevant jurisdiction, the provisions of the relevant Transfer Document are adjusted to the extent necessary to give effect to the provisions of this Agreement (or, to the extent this is not permissible, Seller shall indemnify, defend and hold harmless Purchaser against all Losses suffered by any member of Purchaser's Group or, as the case may be, Purchaser shall indemnify, defend and hold harmless Seller against all Losses suffered by


 


any member of Seller's Group, in either case through or arising from the inconsistency between the Transfer Document and the other provisions of this Agreement).
15.3.2
If there is an adjustment to the payment made on account of the Purchase Price under Clause 7 which relates to a part of the Group which is the subject of a Transfer Document, then, if required to implement the adjustment and so far as permissible under the Laws of the relevant jurisdiction, each of Seller's Group and Purchaser's Group shall enter into a supplemental agreement reflecting such adjustment and the allocation of such adjustment.
15.4
Further assurances
Each of the Parties shall from time to time execute such documents and perform such acts and things as the other Party may reasonably require to transfer the Shares to the Share Purchasers and Purchaser, and to give any Party the full benefit of this Agreement and the Ancillary Agreements. The Parties shall cooperate to determine whether any consent or approval of, or notice or filing with, or other action with respect to, any third party is required in connection with the transactions contemplated by this Agreement and the Ancillary Agreements and shall exercise commercially reasonable efforts to obtain such consents and approvals, and make such filings, as applicable. The preceding sentence shall not apply to any matter relating to any Conditions Precedent.
15.5
Whole agreement
15.5.1
This Agreement contains the whole agreement between the Parties relating to the subject matter of this Agreement, to the exclusion of any terms implied by Law which may be excluded by contract, and supersedes any previous written or oral agreement between the Parties in relation to the matters dealt with in this Agreement.
15.5.2
Purchaser acknowledges that it has not been induced to enter this Agreement by any representation, warranty or undertaking not expressly set out in this Agreement.
15.6
No assignment
Except as otherwise expressly provided in this Agreement, neither Party may, unless with the prior written consent of the other Party, assign, grant any security interest over or otherwise transfer, in whole or in part, any of its rights and obligations under this Agreement. Any such assignment, grant of security or transfer purportedly made in violation of the preceding sentence shall be null and void. Notwithstanding the foregoing, to the extent necessary to facilitate a Divestiture under Clause 4.2.2, Purchaser shall be entitled to assign, in whole or in part, any of its rights under this Agreement or any of the Ancillary Agreements to a purchaser of some or all of the assets or other rights acquired under this Agreement or any of the Ancillary Agreements, provided that in the case of any such assignment, PPG Industries, Inc. shall remain jointly and severally liable for the due performance of all of Purchaser's obligations under the Agreement.


 



15.7
Waiver
No waiver of any provision of this Agreement shall be effective unless in writing and signed by or on behalf of the waiving Party.
15.8
Variation/Amendment
No variation or amendment of this Agreement shall be effective unless in writing and signed by or on behalf of each of the Parties.
15.9
Third party rights
15.9.1
Save as expressly provided as such, including as provided in Clause 8.1 and Clause 8.2, this Agreement does not contain a stipulation in favor of a third party and does not create any third party rights.
15.10
Method of payment
15.10.1
Wherever in this Agreement provision is made for a payment to be made or procured by Seller to Purchaser, Seller shall arrange that such payment shall be made by Seller for itself and on behalf of the relevant member of Seller's Group to Purchaser for itself and on behalf of the relevant member of Purchaser's Group.
15.10.2
Wherever in this Agreement provision is made for a payment to be made or procured by Purchaser to Seller, Purchaser shall arrange that such payment shall be made by Purchaser for itself and on behalf of the relevant member of Purchaser's Group to Seller for itself and on behalf of the relevant member of Seller's Group.
15.10.3
Any such payments shall be effected by crediting for same day value the account specified by Seller or Purchaser, as the case may be, on behalf of the Party entitled to the payment (reasonably in advance and in sufficient detail to enable payment by telegraphic or other electronic means to be effected) on or before the due date for payment.
15.10.4
Payment of a sum in accordance with this Clause 15.10 shall be a good discharge to the payer (and those on whose behalf such payment is made) of its obligation to make such payment and the payer (and those on whose behalf such payment is made) shall not be obliged to see to the application of the payment as between those on whose behalf the payment is received.


 



15.11
Costs
Except as otherwise provided herein, all costs and expenses which a Party has incurred or must incur in preparing, concluding, performing or enforcing this Agreement are for its own account. All stamp, transfer, registration, sales and other similar Taxes, duties, fees and charges and all notarial fees payable in connection with the sale, transfer or purchase of the Shares and the Note under this Agreement shall be paid 50% (fifty percent) by Purchaser and 50% (fifty percent) by Seller.
15.12
Interest
If any Party defaults in the payment when due of any sum payable under this Agreement, the liability of that Party shall be increased to include interest on such sum from the date when such payment is due until the date of actual payment (as well after as before judgment) at the Interest Rate.
15.13
Tax Deductions
Any sum payable under or otherwise in connection with this Agreement (including the Purchase Price and Note Purchase Price) shall be paid free and clear of all Tax Deductions, except such Tax Deductions as are required by Law. Any amounts withheld for Tax Deductions required by Law and paid or remitted to the relevant Tax Authority on a timely basis shall be treated for all purposes of this Agreement as having been paid to such Person in respect of which such Tax Deduction was made.
15.14
No set-off
Neither Party shall have the right to set-off except as expressly provided in this Agreement or as the Parties expressly agree in writing.
15.15
Notices
15.15.1
Any notice, request, claim, demand and other communication between the Parties in connection with this Agreement (a " Notice ") shall be in writing and shall be given and shall be deemed to have been duly given if written in the English language and:
(a)
delivered personally or by facsimile (Notice deemed given upon receipt);
(b)
delivered by registered post (Notice deemed given upon confirmation of receipt); or


 



(c)
sent by an internationally recognized overnight courier service (Notice deemed given upon receipt),
in each case with a copy by email, which copy shall not constitute a Notice.
15.15.2
A Notice to a Party shall be sent to such Party at the address set out in Part 2 of Schedule 14 , or such other Person or address as such Party may notify to the other parties from time to time.
15.15.3
Notwithstanding Clause 15.15.2, prior to Closing, Purchaser shall designate one or more representatives (each, a " Purchaser Representative " and collectively, the " Purchaser Representatives ") for purposes of delivery and receipt of all notices, requests and other communications hereunder (including for purposes of Clause 5.2). Purchaser may designate one or more new persons as a Purchaser Representative at any time by delivery of written notice to Seller. All notices, requests and other communications delivered hereunder shall be in writing (including telecopy or similar writing) and shall be delivered to the Purchaser Representatives. Notwithstanding anything to the contrary herein, any request delivered hereunder (including with respect to consent matters pursuant to Clause 5.2 and any waivers by Purchaser hereunder) shall only be authorized and effective if authorized in writing by one or more Purchaser Representatives. The initial Purchaser Representative shall be as listed in Part 2 of Schedule 14 .
15.16
Invalidity
If any provision in this Agreement is held to be illegal, invalid or unenforceable, in whole or in part, under any applicable Law, then:
(a)
such provision or part shall to that extent be deemed not to form part of this Agreement but the legality, validity or enforceability of the remainder of this Agreement shall not be affected; and
(b)
the Parties shall use reasonable efforts to agree a replacement provision that is legal, valid and enforceable to achieve so far as possible the intended effect of the illegal, invalid or unenforceable provision.
15.17
Counterparts
This Agreement may be entered into in any number of counterparts, all of which taken together shall constitute one and the same instrument. The Parties may enter into this Agreement by signing any such counterpart.


 



15.18
Dispute resolution
15.18.1
The Parties irrevocably agree that any and all disputes, controversies and/or claims, arising out of, under or in connection with this Agreement and the documents to be entered into pursuant to it, including disputes concerning the existence, interpretation, performance, termination or validity thereof (the " Dispute "), but excluding Purchase Price Disputes, shall be finally and exclusively settled by binding arbitration (the " Arbitration ") pursuant to the Rules of Arbitration of the International Chamber of Commerce (the " ICC ").
15.18.2
The number of arbitrators shall be 3 (three) (the " Arbitral Tribunal "). Each Party shall nominate one arbitrator, and the third arbitrator (who shall be the chairman) shall be selected by the 2 (two) party-appointed arbitrators, in consultation with the Parties, or, failing agreement, by the ICC in accordance with the ICC Rules of Arbitration and shall be knowledgeable with the laws of the State of New York and fluent in the English language;
15.18.3
The juridical seat of the Arbitration shall be London, United Kingdom, and the proceedings will be conducted there or at such other location upon which the Parties to the Arbitration may agree.
15.18.4
The language to be used in the Arbitration shall be English.
15.18.5
The Arbitral Tribunal shall be required to apply the provisions of this Agreement and the substantive law of the State of New York, United States, in ruling upon any Dispute.
15.18.6
Any decision or arbitral award delivered in the Arbitration (collectively, the " Award ") shall be reasoned and in writing, and shall be final and binding upon the Parties to the Arbitration.
15.18.7
The Parties agree that the Award may be enforced against the Parties to the Arbitration or their assets wherever they may be found, and that a judgment upon the Award may be entered in any court having jurisdiction thereof. The Parties further agree that if any Party to the Arbitration proceeding fails or refuses to voluntarily comply with any arbitral decision or Award within 30 (thirty) days after the date on which it receives notice of the decision or Award, the other Party may immediately proceed to request judicial approval necessary for the execution of such decision or Award, before a competent judge of the domicile of such refusing Party or before any other court of competent jurisdiction. Further, if any prevailing Party is required to retain counsel to enforce the arbitral decision or Award, the Party against whom the decision or award is made shall reimburse the prevailing Party for all reasonable fees and expenses incurred and paid to said counsel for such service.
15.18.8
The procedural rules specified in this Clause 15.18 and the ICC Rules of Arbitration shall be the sole procedures for the resolution of Disputes (excluding Purchase Price Disputes). The Parties agree, however, that the Arbitral Tribunal may apply the IBA Rules on the Taking of Evidence in International Arbitration with regards to the taking


 


of evidence in the Arbitration. Wherever the procedures of this Clause 15.18 and the ICC Rules are in conflict, the procedures of this Clause 15.18 shall govern and apply.
15.18.9
Although the procedural rules specified in this Clause 15.18 and the ICC Rules of Arbitration shall be the sole procedures for the resolution of disputes, any Party may seek a preliminary injunction or other preliminary judicial relief before any court of competent jurisdiction, if in its reasonable, good-faith judgment, such action is necessary to avoid irreparable damage. Despite such action, the Parties shall continue to participate in good-faith in the procedures specified in this Clause 15.18.
15.18.10
The Parties agree and understand that every aspect concerning the process of Arbitration shall be treated with the utmost confidentiality and that the Arbitration procedure itself shall be confidential. Neither the Parties nor the Arbitral Tribunal nor the ICC shall release the contents or results of the Arbitration, including but not limited to any Award or interim Award issued in the Arbitration, to the public, except as required by applicable Law or the rules of any recognized stock exchange on which the shares of either Party are listed. Notwithstanding the foregoing, before making such information public, the interested Party shall notify the other(s) and shall afford them a reasonable opportunity to protect their interests if they deem it necessary.
15.18.11
The Parties agree that notifications of any proceedings, reports, communications, orders, arbitral decisions, arbitral awards, arbitral award enforcement petitions, and any other document shall be sent as set forth in Clause 15.15.
15.18.12
Any disputes as to whether or not a matter qualifies as a Purchase Price Dispute, shall be exclusively resolved by Arbitration in accordance with this Clause 15.18.
15.19
Specific Performance
Subject to any applicable limitations of liability set out in this Agreement, each of the Parties acknowledges and agrees that any breach of or failure by a Party to perform or fulfill any of the covenants or agreements required to be performed by it under this Agreement (including any failing by a Party to take such actions as are required of it in order to consummate the Transaction but excluding any breach of a Seller's Warranty or a Purchaser's Warranty, as applicable) may cause the other Party irreparable injury for which adequate remedy at Law is not available and, accordingly, it is agreed that, in such instance, each of the Parties will be entitled to specific performance, injunction, restraining order or other equitable relief, without the posting of any bond, to prevent any such violation and to enforce specifically the related terms and provisions hereof in any court of competent jurisdiction, in addition to any other remedy to which they may be entitled at Law or equity.


 



15.20
Governing law
This Agreement and the documents to be entered into pursuant to it, save as expressly otherwise provided therein, shall be governed by and construed in accordance with the Laws of the State of New York, U.S.
[ Signatures on following page ]


 



AGREED AND SIGNED:


on December 13, 2012 for and on behalf of Seller:
 
 
 
 
 
Akzo Nobel N.V.
 
 
 
 
 
 
 
 
 
 
 
/s/ A. Büchner
/s/ K. Nichols
 
Name: A. Büchner
Name: K. Nichols
 
Title: CEO
Title: CFO
 
 
 
 


 
 
on December 13, 2012 for and on behalf of Purchaser:
 
 
 
 
PPG Industries, Inc.
 
 
 
 
 
 
 
/s/ Charles E. Bunch
 
Name: Charles E. Bunch
 
Title: Chairman and Chief Executive Officer
 



 


Schedule 1
Definitions and interpretation
1
Definitions
" Accounting Principles " has the meaning set out in Paragraph 3 of Schedule 10 Part 3;
" Accounts " means the audited carve-out financial statements in respect of the Group for the 12 (twelve) month period ended December 31, 2011 and for the 6 (six) month period ended June 30, 2012, as set out in Schedule 13 ( Accounts );
" Acquired Business " has the meaning set out in Clause 12.1.2(c);
" Actuarial Firm " has the meaning set out in Paragraph 3.3 of Schedule 5 ;
" Affiliate " means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such specified Person. For purposes of determining whether a Person is an Affiliate, the term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of securities, contract or otherwise;
" Agreed Form " means, in relation to a document, such document in the terms agreed between Seller and Purchaser and initialed for identification by Seller's Lawyers and Purchaser's Lawyers with such alterations as may be agreed in writing between Seller and Purchaser prior to the Closing;
" Agreement " means this sale and purchase agreement, together with the schedules hereto;
" Ancillary Agreements " means:
(i)
the IP Agreement;
(ii)
the Transitional Services Agreement; and
(iii)
the supply agreements and shared site services agreement referred to in Clause 5.9.1(a), or, to the extent that the second or third sentence of Clause 5.9.1(a) is applicable, the term sheet attached as Schedule 24 ;
" Arbitral Tribunal " has the meaning set out in Clause 15.18.2;
" Arbitration " has the meaning set out in Clause 15.18.1;
" ARC " has the meaning set out in the definition of Competition Clearance Act in Paragraph 1 of Schedule 1 ;



" Award " has the meaning set out in Clause 15.18.6;
" Base Working Capital " has the meaning set out in Paragraph 1 of Schedule 9 Part 2;
" Basket " has the meaning set out in Clause 10.3(a);
" Benefit Arrangements " means employee benefit, welfare, supplemental unemployment benefit, severance, employment, change of control, pension, savings, retirement, supplementary retirement, health or other medical, dental, life, disability or other insurance plans, programs, agreements or arrangements, sponsored, maintained or contributed to or required to be contributed to by any member of Seller's Group or any Group Company for the benefit of current or former employees of any Group Company or the dependents thereof, other than plans established pursuant to any Law. For the avoidance of doubt, " Benefit Arrangements " include benefits or plans established or maintained by any member of Seller's Group or any Group Company to satisfy a requirement of Law, but do not include benefits or plans that are delivered or provided by a Governmental Authority, regardless of whether any member of Seller's Group or any Group Company makes contributions to such arrangements, such as benefits provided by the U.S. Social Security Administration in the United States or payments mandated by a Governmental Authority for which no member of Seller's Group or any Group Company maintains a plan to deliver such payments, such as statutory severance obligations;
" Benefit Warranties " means warranties set forth in Paragraph 8.4 of Schedule 12 Part 1;
" Business Day " means a day which is not a Saturday, a Sunday, or a public holiday in the Netherlands, Pittsburgh, Pennsylvania or New York, New York;
" CAD " means Canadian dollars;
" Canadian DC Pension Plan " has the meaning set out in Paragraph 2.1 of Schedule 5 ;
" Canadian DC Pension Plan Employees " has the meaning set out in Paragraph 2.1 of Schedule 5 ;
" Canadian Hybrid Pension Plan " has the meaning set out in Paragraph 2.5 of Schedule 5 ;
" Canadian Plan " has the meaning set out in Paragraph 3.1 of Schedule 5 ;



" Caribbean " means any of the geographic areas covered by the following countries as of the Signing Date: Bahamas, Turks and Caicos Islands, Hispaniola, Haiti, Dominican Republic, Jamaica, Cayman Islands, U.S. Virgin Islands, British Virgin Islands, Anguilla, Antigua, Barbuda, Saint Martin/Saint Maarten, Saba, Sint Eustatius, Saint Barthélemy, Saint Kitts, Nevis, Montserrat, Guadeloupe, Dominica, Martinique, Saint Lucia, Saint Vincent, the Grenadines, Grenada, Barbados, Trinidad and Tobago, Aruba, Curaçao, and Bonaire;
" Carve-Out Businesses " means:
(a)
the assets, businesses and operations transferred from the Group Companies and their subsidiaries to Seller's Group or any third parties in connection with the Restructuring;
(b)
The Flood Company of Canada; and
(c)
Sico Inc. (liquidated, in process of dissolution);
" Cash Balances " means, in relating to each Group Company, any cash in hand, cash in transit, cash at bank, checks and any current investments held at the Effective Time by or on behalf of the Group Company, as derived from the relevant Net Debt Statement and included in line items under the heading "Cash Balances" in Paragraph 3 of Schedule 10 Part 3;
" Closing " means the performance of the actions set out in Clause 6.2.2;
" Closing Date " means the date on which Closing has taken place;
" Code " means the U.S. Internal Revenue Code of 1986, as amended;
" Commissioner " means the Commissioner of Competition appointed under the Competition Act and any authorized delegate of the Commissioner;
" Companies " means the companies, particulars of which are set out in Paragraph 1 of Schedule 2 Part 2, and " Company " means any one of them or the relevant one of them, as the context requires;
" Company Arrangements " means all Benefit Arrangements that are established or maintained by a Company or any of its Subsidiaries;
" Competition Act " means the Competition Act (Canada) and the regulations promulgated thereunder;
" Competition Act Clearance " means, with respect to the Transaction, that either:
(a)
the Commissioner of Competition has issued an advance ruling certificate to Purchaser pursuant to subsection 102(1) of the Competition Act (an " ARC "); or



(b)
(i) the applicable waiting period under subsection 123(1) of the Competition Act has expired or has been waived under subsection 123(2) of the Competition Act, or the obligation to notify has been waived under paragraph 113(c) of the Competition Act and (ii) the Commissioner of Competition has issued a "no action letter" to Purchaser confirming that the Commissioner does not, at that time, intend to make an application for an order under section 92 of the Competition Act (a " NAL ");
" Competition Laws " means all statutes, rules, regulations, orders, decrees, administrative guidance and judicial doctrines and other Laws that are designed or intended to regulate mergers or other business combinations (requiring pre-closing or post-closing authorizations, consents or judgments) or that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade;
" Conditions Precedent " means the conditions set out in Clause 4.1, and " Condition Precedent " means any one of them or the relevant one of them, as the context requires;
" Confidentiality Agreement " means the non-disclosure agreement dated July 4, 2012 between Seller and Purchaser, as supplemented by the Clean Team Confidentiality Agreement dated September 20, 2012;
" Continuing Group Guaranty " has the meaning set out in Clause 8.3.2;
" Continuing Seller Guaranty " has the meaning set out in Clause 8.3.1;
" Contracts " means all contracts, undertakings, arrangements and agreements entered into at or prior to Closing, and " Contract " means any of them or the relevant one of them, as the context requires;
" Current Use " has the meaning set out in Paragraph 1.1 of Schedule 19 ;
" Data Room " means the virtual data room existing as of the end of the day (New York time) on December 7, 2012, containing documents and information listed in Appendix 1 to the Disclosure Letter relating to the Group, the contents of which are filed on the USB storage device delivered on behalf of Seller to Purchaser prior to Signing;
" De Minimis Threshold " has the meaning set out in Clause 10.2;
" Devoe Carve-out " means the carve-out of the Marine & Protective Coatings Business Unit activities within Akzo Nobel Paints LLC (Devoe paint USA manufacture and distribution) and Akzo Nobel Canada Inc. (Devoe paint Canada distribution) to International Paint LLC and Akzo Nobel Coatings Ltd., respectively, in accordance with item 1 in Schedule 15 , provided that such carve-out shall, in relation to Intellectual Property, be in accordance with the principles set out in Schedule 25 ;



" Devoe Employees " means all employees under management control of Seller’s Marine & Protective Coatings Business Unit who were within Akzo Nobel Paints LLC (Devoe paint USA manufacture and distribution) or Akzo Nobel Canada Inc. (Devoe paint Canada distribution) as of December 1, 2012, and whose employment shall be transferred to Seller or another of its affiliates (other than the Group Companies) pursuant to the Restructuring;
" Devoe Heavy Duty Replacement Products " has the meaning set out in Paragraph 1 of Schedule 23 ;
" DHDRP Sales " has the meaning set out in Paragraph 1 of Schedule 23 ;
" Disclosure Letter " means the letter from Seller to Purchaser, attached as Schedule 12 Part 2;
" Dispute " has the meaning set out in Clause 15.18.1;
" Disputed Line Items " has the meaning set out in Clause 7.1.3(a);
" Divestiture " has the meaning set out in Clause 4.2.2(h)(i);
" Effective Time " means the end of the day (New York time) immediately preceding the Closing Date;
" Employees " means all those persons who are immediately prior to Closing employed by a Group Company;
" Employment Costs " and " Employment Liabilities " have the meanings set out in Paragraph 1 of Schedule 4 ;
" Encumbrance " means any claim, charge, pledge, mortgage, lien, option, power of sale, hypothecation, usufruct, retention of title, right of pre-emption, restrictions on transfer, right of first refusal or other similar third party rights or security interest of any kind or an agreement to create any of the foregoing;
" Environment ", " Environmental Authority ", " Environmental Law " and " Environmental Permit " have the meanings set out in Paragraph 10.1 of Schedule 12 Part 1;
" Environmental Claim " and " Environmental Costs " have the meanings set out in Paragraph 1.1 of Schedule 19 ;
" Environmental Indemnity " means the indemnity set out in Paragraph 3 of Schedule 19 ;
" ERISA " means the United States Employee Retirement Income Security Act of 1974, as amended;



" ERISA Affiliate" means any trade or business, whether or not incorporated, that together with Seller, any Company or any of their Subsidiaries would be deemed a single employer for purposes of Section 4001 of ERISA or Section 414 of the Code;
" Estimated Base Working Capital " means Seller's good faith estimate of the Base Working Capital, as set out in the Estimated Working Capital Statement;
" Estimated Cash Balances " means, in relation to each relevant Group Company, Seller's reasonable estimate of the aggregate of the Cash Balances of said Group Company, as set out in the Estimated Net Debt Statement;
" Estimated Closing Statement " has the meaning set out in Clause 5.7.1;
" Estimated Intra-Group Indebtedness " means, in relation to each relevant Group Company, the aggregate of the Estimated Intra-Group Payables less the Estimated Intra-Group Receivables of said Group Company;
" Estimated Intra-Group Payables " means, in relation to each relevant Group Company, Seller's good faith estimate of the Intra-Group Payables of said Group Company, as set out in the Estimated Net Debt Statement;
" Estimated Intra-Group Receivables " means, in relation to each relevant Group Company, Seller's good faith estimate of the Intra-Group Receivables of said Group Company, as set out in the Estimated Net Debt Statement;
" Estimated Net Debt " means the aggregate (which may be a positive or a negative number) of Seller's good faith estimates of the following:
(a)
Estimated Intra-Group Indebtedness; plus
(b)
Estimated Third Party Indebtedness; less
(c)
Estimated Cash Balances;
" Estimated Net Debt Statement " means, in relation to each relevant Group Company, a statement of the Estimated Net Debt of such Group Company, to be prepared in accordance with Clause 5.7;
" Estimated Pensions Adjustment Amount " has the meaning set out in Paragraph 3.1 of Schedule 5 ;
" Estimated Purchase Price " has the meaning set out in Clause 3.2.1;
" Estimated Termination Liability " has the meaning set out in Paragraph 3.1 of Schedule 5 ;



" Estimated Third Party Indebtedness " means, in relation to each relevant Group Company, Seller's good faith estimate of the Third Party Indebtedness of said Group Company, as set out in the Estimated Net Debt Statement;
" Estimated Working Capital " means Seller's good faith estimate of the Working Capital, as set out in the Estimated Working Capital Statement;
" Estimated Working Capital Adjustment " means the amount by which the Estimated Working Capital is greater than the Estimated Base Working Capital (in which case such amount shall be expressed as a positive figure) or by which it is less than the Estimated Base Working Capital (in which case such amount shall be expressed as a negative figure);
" Estimated Working Capital Statement " means a statement of the Estimated Working Capital of the Group Companies, to be prepared in accordance with Clause 5.7;
" Event " means any transaction, act, omission or event of whatsoever nature;
" Excluded Losses " means (a) any punitive damages, or (b) with respect to any breach by the Indemnifying Party of a representation and warranty or covenant contained in this Agreement, consequential damages or indirect damages to the extent such damages are not reasonably foreseeable, except in each case to the extent such damages are payable to a third party;
" Excluded Other Products " means:
(a)
Heavy Duty Protective Coatings;
(b)
light industrial coatings of the type sold by Seller's Group's International Paint's business as at Signing under the sub-brand names Intercryl, Interlac and Interprime; and
(c)
sealants and adhesives of the type that are sold in the Restricted Territory by the Performance Coatings and Specialty Chemicals Business Areas of Seller's Group at Signing, other than in outlets that carry and/or sell (i) architectural or decorative paints or (ii) direct to end users in the residential, or commercial construction or maintenance segments;
" Existing Environmental Reports " has the meaning set out in Paragraph 1.1 of Schedule 19 ;
" Fairly Disclosed " means, in relation to the relevant matter, such matter to the extent that it is disclosed (which may include by means of cross-reference to other facts, matters or information Fairly Disclosed) on the face of a document in such detail as to enable a reasonable purchaser (active in the same industry as the Operations) with the assistance of professional advisors to identify the nature and the scope of the matters disclosed;



" FCPA " means the Foreign Corrupt Practices Act of 1977, as amended;
" Final Closing Statement " has the meaning set out in Clause 7.1.3(d);
" Final Net Debt Statements " has the meaning set out in Clause 7.1.3(d);
" Final Working Capital Statement " has the meaning set out in Clause 7.1.3(d);
" First Quarterly Period " has the meaning set out in Paragraph 1 of Schedule 23 ;
" Former Facilities " has the meaning set out in Paragraph 1.1 of Schedule 19 ;
" Fourth Quarterly Period " has the meaning set out in Paragraph 1 of Schedule 23 ;
" Fundamental Warranties " means, collectively and as the context requires, Seller's Warranties contained in Paragraphs 1 (Incorporation, authority, corporate action, existence), 1.1 (Corporate information) and 19 (No broker) of Schedule 12 Part 1 and Purchaser's Warranties contained in Paragraph 1 (Authority and capacity) of Schedule 12 Part 4, and " Fundamental Warranty " means any one of them or the relevant one of them, as the context requires;
" Funded Canadian Plan " has the meaning set out in Paragraph 3.1 of Schedule 5 ;
" Governmental Authority " means, to the extent it has jurisdiction, any supranational governmental commission, council, directorate, court, trade agency, regulatory body or other authority, or any national government, any legislature, any political subdivision of a national government or of any state, county, province or local jurisdiction therein, or any agency or instrumentality of any such government or political subdivision;
" Granted Group Intellectual Property " means any Intellectual Property that is contemplated to be licensed or sublicensed to Purchaser’s Group (including the Group Companies after Closing) in connection with the IP Agreement or Schedule 25 , including the Retained Intellectual Property;
" Group " means the Group Companies, taken as a whole;
" Group Companies " means the Companies and the Subsidiaries, and " Group Company " means any one of them or the relevant one of them, as the context requires;
" Group Confidential Information " has the meaning set out in Clause 13.2.2;



" Group Guarantees " has the meaning set out in Clause 8.3.2;
" Group Intellectual Property " means all rights and interests held by any Group Company in Intellectual Property, including Licensed Group Intellectual Property, Granted Group Intellectual Property, Owned Group Intellectual Property and Transferred Group Intellectual Property;
" Group Liabilities " means (a) all Liabilities of any member of Seller's Group, suffered or incurred after Closing, to the extent relating to the Operations (including the assets used therein) as conducted at any time prior to Closing, and (b) Liabilities relating to or arising out of the Operations of the Group Companies as conducted by Purchaser's Group after the Closing, to the extent (and only to the extent) relating to or arising out of facts, circumstances or conditions first existing, initiated or occurring after Closing; provided, however, that Group Liabilities shall not include Liabilities relating to the Carve-Out Business or the business subject to the Devoe Carve-Out or the Huron Carve-Out, or Liabilities relating to the Non-Operating Facilities or the Former Facilities;
" Guarantee " means any guarantee, indemnity, surety, letter of comfort or other assurance, security, right of set-off, obligation to contribute or undertaking, given by a Person to secure or support the obligations (actual or contingent) of any other Person, whether given directly, by way of counter-indemnity or otherwise;
" Hazardous Substances " has the meaning set out in Paragraph 10.1 of Schedule 12 Part 1;
" Heavy Duty Protective Coatings " means all protective coatings, other than architectural or decorative protective coatings and excluding Light Duty Protective Coatings;
" HSR Act " means the Hart-Scott-Rodino Antitrust Improvement Act of 1976 , as amended, and the rules and regulations promulgated thereunder;
" HSR Act Clearance " means the expiration or termination of any waiting period under the HSR Act, and any extension thereof, applicable to the Transaction;
" Huron Carve-out " means the carve-out of the Packaging Coating facilities at the Huron site, in accordance with item 3 in Schedule 15 ;
" ICC " has the meaning set out in Clause 15.18.1;
" IFRS " means International Financial Reporting Standards, as adopted by the European Union and as amended from time to time;



" Indebtedness " means, with respect to any Person:
(a)
indebtedness created, issued or incurred by such Person for borrowed money (whether by loan or the issuance and sale of debt securities);
(b)
obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable and accrued expenses;
(c)
indebtedness of others secured by an Encumbrance (other than a Permitted Encumbrance) on the property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person;
(d)
amounts owed in respect of obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of any other Person;
(e)
capital lease obligations or finance lease obligations of such Person; and
(f)
amounts owed in respect of indebtedness of others guaranteed by such Person;
" Indemnified Party " means any Person claiming indemnification under this Agreement, including any provision of Clause 8.1 or Clause 8.2;
" Indemnifying Party " means any Person against whom a claim for indemnification is being asserted under this Agreement, including any provision of Clause 8.1 or Clause 8.2;
" Initial Closing Statement " has the meaning set out in Clause 7.1.1;
" Insurance Policies " means all insurance policies, whether occurrence based or claims made policies, in effect at, or at any time prior to, the Effective Time in which a Group Company or one of its predecessors in interest is or was an insured party;
" Intellectual Property " means (a) trademarks, service marks, trade names, corporate names, and other source or business identifiers, domain names, social media names, trade dress and logos (whether registered or unregistered), and all goodwill associated therewith, (b) patents, patent applications and statutory invention registrations and inventions (whether or not patented or patentable), (c) industrial designs and design rights, (d) copyrights (whether registered or unregistered), and all other works of authorship, including websites (including content) and software, moral and economic rights of authors and inventors, semi-conductor topography rights, and database rights, (e) Know-how, and (f) all other similar rights in any part of the world;



" Interest Rate " means 4% (four percent) per annum;
" International Trade Laws and Regulations " means all applicable Laws concerning the importation of merchandise, the export or re-export of products, services or technology, the terms and conduct of international transactions, making or receiving international payments and the authorization to hold an ownership interest in a business located in a country other than the United States, including United States Code, Title 13, Chapter 9 Collection and Publication of Foreign Commerce and Trade Statistics administered by the United States Census Bureau, the Tariff Act of 1930, as amended, and other laws administered by the United States Customs and Border Protection, regulations issued or enforced by the United States Customs and Border Protection, the Export Administration Act of 1979, as amended, the Export Administration Regulations, the ITAR, the Arms Export Control Act, any other export controls administered by an agency of the U.S. Government, Executive Orders of the President regarding embargoes and restrictions on trade with designated countries and Persons, the embargoes and restrictions administered by the United States Office of Foreign Assets Control, the FCPA, the antiboycott regulations administered by the United States Department of Commerce, the antiboycott regulations administered by the United States Department of the Treasury, legislation and regulations of the United States and other countries implementing the North American Free Trade Agreement, antidumping and countervailing duty laws and regulations, laws and regulations by other countries concerning the ability of U.S. persons to own businesses and conduct business in those countries, laws and regulations by other countries implementing the OECD Convention on Combating Bribery of Foreign Officials, restrictions by other countries on holding foreign currency and repatriating funds, and other laws and regulations adopted by the governments or agencies of other countries relating to the same subject matter as the United States statutes and regulations described above;
" Intra-Group Indebtedness " means, in relation to each relevant Group Company, the aggregate amount of the Intra-Group Payables minus the aggregate amount of the Intra-Group Receivables of said Group Company;
" Intra-Group Payables " means, in relation to each relevant Group Company, all amounts owed by said Group Company to a member of Seller's Group (other than the Group Companies) in respect of loans and other Indebtedness (including, for the avoidance of doubt, the Note), including dividends declared but not paid, Intra-Group Service Fees and amounts due in respect of Taxation paid by another member of Seller's Group on its behalf (together in each case with accrued interest thereon), at the Effective Time, but excluding any trading debt and any item to be included in calculating the Cash Balances of said Group Company or the Third Party Indebtedness of said Group Company, as included on the relevant Net Debt Statement in the line items under the heading "Intra-Group Payables" in Paragraph 3 of Schedule 10 Part 3;



" Intra-Group Receivables " means, in relation to each relevant Group Company, all amounts owed by a member of Seller's Group (other than the Group Companies) to said Group Company in respect of loans and other Indebtedness, including Intra-Group Service Fees, at the Effective Time, but excluding any trading debt and any item to be included in calculating the Cash Balances of said Group Company or the Third Party Indebtedness of said Group Company, as derived from the relevant Net Debt Statement and included in line items under the heading "Intra-Group Receivables" in Paragraph 3 of Schedule 10 Part 3;
" Intra-Group Retained Agreements " means the agreements listed in Schedule 3 ;
" Intra-Group Service Fees " means, in relation to each relevant Group Company, any amount owed by or to any member of Seller's Group in respect of royalties, management services and research (including, in each case, such part of such amount as relates to VAT);
" Investment Canada Act " means the Investment Canada Act (Canada) and the regulations promulgated thereunder;
" Investment Canada Act Clearance " means approval or deemed approval of the Transaction by the applicable Minister under the Investment Canada Act;
" IP Agreement " means the agreement relating to Intellectual Property matters attached in Schedule 16 ;
" ITAR " means the International Traffic in Arms Regulations, 22 C.F.R. §§ 120-130, as amended;
" Know-how " means trade secrets and confidential and proprietary industrial and commercial information and techniques in any form including drawings, formulae, test results, reports, project reports and testing procedures, instruction and training manuals, tables of operating conditions, market forecasts, lists and particulars of customers and suppliers;
" Labor and Employment Laws " has the meaning set out in Paragraph 8.1.4 of Schedule 12 Part 1;
" Law " means any applicable statute, law, ordinance, rule, regulation, code, common law ruling, or decree, injunction, judgment or order, of any Governmental Authority;
" Liabilities " means all liabilities, duties and obligations of every description, whether deriving from contract, common law, statute or otherwise, actual or contingent, ascertained or unascertained or disputed and whether owed or incurred severally or jointly or as principal or surety, and " Liability " means any one of them or the relevant one of them, as the context requires;



" Licensed Group Intellectual Property " means any Intellectual Property that is owned by a third party and licensed or sublicensed to a Group Company, excluding any Intellectual Property forming part of the Devoe Carve-out;
" Light Duty Protective Coatings " means protective coatings of the type sold by Seller's Group under the brand names Bloxfil, Devbond, Devflex, Devguard, Devshield, Speedenamel, and Unigrip;
" Losses " means all damages, losses, costs and expenses (including reasonable legal costs and reasonable experts' and consultants' fees), charges and fines;
" Material Closing Obligations " means the obligations set out in Clauses 6.2.1, 6.2.2(a) and 6.2.2(c);
" Merger Condition " means the Condition Precedent set out in Clause 4.1.1;
" Moveable Assets " means all tangible property, including inventory, plant and machinery, vehicles, testing and other equipment, and spare parts for any such machinery and equipment, and furniture;
" Multiemployer Plan " has the meaning set out in Paragraph 8.4.4 of Schedule 12 Part 1;
" NAL " has the meaning set out in the definition of Competition Act Clearance in Paragraph 1 of Schedule 1 ;
" Net Debt " means the aggregate (which may be a positive or a negative number) of the following:
(a)
Intra-Group Indebtedness; plus
(b)
Third Party Indebtedness; less
(c)
Cash Balances;
" Net Debt Statement " means, in relation to each Group Company, a statement of the Net Debt of such Group Company, prepared and determined in accordance with Clause 7.1;
" NFA " has the meaning set out in Paragraph 3.5 of Schedule 19 ;
" Non-CIT Tax Liability " has the meaning set out in Paragraph 1 of Schedule 11 ;
" Non-Operating Facilities " has the meaning set out in 0 ;



" Note " means the 8% promissory note in the principal amount of CAD 190,000,000 owed by Akzo Nobel Canada Inc. to the Note Seller dated May 30, 2006 and maturing May 30, 2016;
" Note Purchase Price " has the meaning set out in Clause 3.1.2;
" Note Seller " means Akzo Nobel Coatings International B.V.;
" Notice " has the meaning set out in Clause 15.15.1;
" Notice of Disagreement " has the meaning set out in Clause 7.1.3(a);
" Notification " means a notification under Part IX of the Competition Act;
" Off-Site Location " has the meaning set out in Paragraph 1.1 of Schedule 19 ;
" Offer Value " means, in aggregate, USD 1,050,000,000 (one billion, fifty million U.S. dollars) and, in relation to the Shares of each Company, the amount specified in Schedule 9 Part 1 in respect of such Company;
" OPEB " has the meaning set out in Paragraph 1.5 of Schedule 5 ;
" Operating Facilities " has the meaning set out in Paragraph 1.1 of Schedule 19 ;
" Operations " means the business activities of the Group, comprising, among other things, the research and development into and production, marketing, sale, licensing and distribution of interior and exterior decorative paints or sealants, wood finishes or wood care coatings, Light Duty Protective Coatings and construction adhesives, excluding any business activities forming part of the Devoe Carve-out;
" Organizational Documents " means, with respect to any corporation, limited liability company or other business entity, the charter, certificate or articles of incorporation, certificate or articles of formation or other formation and constitutional documents, and the bylaws, operating agreement or other governance documents of such entity;
" Other Anti-trust Approvals " has the meaning set out in Clause 4.2.2(c);
" Other Party " has the meaning set out in Paragraph 3.9 of Schedule 19 ;
" Outside Date " has the meaning set out in Clause 14.1(d);
" Owned Group Intellectual Property " means any Intellectual Property that is owned by any Group Company, excluding any Intellectual Property forming part of the Devoe Carve-out;
" Parties " means Seller and Purchaser, and " Party " means any one of them or the relevant one of them, as the context requires;



" PBGC " means the Pension Benefit Guaranty Corporation;
" Pensions Adjustment Amount " has the meaning set out in Paragraph 3.1 of Schedule 5 ;
" Performing Party " has the meaning set out in Paragraph 3.9 of Schedule 19 ;
" Permitted Encumbrances " means:
(a)
security interests arising by operation of Law;
(b)
security interests arising under sales contracts with title retention provisions and equipment leases with third parties and entered into in the ordinary course of business;
(c)
security interests for Taxes and other governmental charges which are not due and payable or which may be paid without penalty;
(d)
construction, mechanics’, carriers’, workers’, repairers’, storers’ or other similar liens (inchoate or otherwise) if in the aggregate they (i) are not material, (ii) arose or were incurred in the ordinary course of business, (iii) have not been filed, recorded or registered in accordance with applicable Law; (iv) notice of them has not been given to any Group Company, and (v) the Indebtedness secured by them is not in arrears;
(e)
minor title defects or irregularities, minor unregistered easements or rights of way, restrictions in the original grant from the Crown (in the case of real property located in Canada) and other minor unregistered restrictions affecting the use of the Properties if such title defects, irregularities or restrictions are materially complied with and do not, individually or in the aggregate, materially adversely affect the Operations of the Group Companies or the continued use of the Property to which they relate after Closing on substantially the same basis as the Operations are currently being operated and such Property is being used as at Signing;
(f)
easements, covenants, rights of way and other restrictions if registered provided that they are materially complied with and do not, individually or in the aggregate, materially adversely affect the Operations of the Group Companies or the continued use of the Property to which they relate after Closing on substantially the same basis as the Operations are currently being operated and such Property is being used as at Signing; and



(g)
registered agreements with municipalities or public utilities if they (i) have been materially complied with or adequate security has been furnished to secure compliance, and (ii) do not, in the aggregate, materially adversely affect the Operations of the Group Companies or the continued use of the Property to which they relate after Closing on substantially the same basis as the Operations are currently being operated and such Property is being used as at Signing;
" Person " means any person or entity, whether an individual, trustee, corporation (including any non-profit corporation), limited liability company, general partnership, limited partnership, limited liability partnership, trust, unincorporated organization, business association, firm, joint venture, Governmental Authority (or any department or agency thereof), labor union or any similar entity;
" Pre-Closing Environmental Condition " has the meaning set out in Paragraph 1.1 of Schedule 19 ;
" Pre-Closing FLSA Liabilities " means Liabilities of any of the Group Companies in respect of the failure, prior to Closing, of a Person to comply with the U.S. Fair Labor Standards Act or any comparable state or local Law to the extent relating to the Operations at any time prior to Closing;
" Pre-Closing Home Center Customer Claims " means Liabilities of any of the Group Companies to the extent relating to or arising out of the failure, prior to Closing, by a Group Company to perform its obligations under the relevant customer Contract with Home Depot, WalMart Stores, Rona or any of their Affiliates;
" Pre-Closing Liabilities " means all Liabilities, existing at Closing, of any of the Group Companies to the extent relating to the Operations (including the assets used therein) as conducted at any time prior to Closing, by any past or present member of Seller's Group or their predecessors, excluding (a) performance obligations that are not due prior to the Effective Time but have been incurred in the ordinary course of business, (b) Tax Liabilities, (c) Liabilities indemnified under the Environmental Indemnity, (d) Unrelated Liabilities, (e) Employment Costs and Employment Liabilities, (f) any Liability taken into account in the determination of the Net Debt Statements or Working Capital Statement, (g) Pre-Closing Product Liabilities, (h) Pre-Closing Toxic Tort Liabilities, (i) Pre-Closing FLSA Liabilities, and (j) Pre-Closing Home Center Customer Claims;
" Pre-Closing Liabilities Indemnity " has the meaning set out in Clause 8.2.1(d);



" Pre-Closing Product Liabilities " means Liabilities of any of the Group Companies arising out of or relating to recalls of products or the labeling of products or product warranties, or product liability claims of third parties in respect of any products sold by a member of Seller's Group at any time prior to Closing;
" Pre-Closing Toxic Tort Liabilities " means Liabilities of any of the Group Companies in respect of claims relating to personal injuries caused by exposure to a toxic substance (including asbestos and benzene) to the extent such exposure occurred in a product sold by or in a premises occupied by any member of Seller’s Group or any of its predecessors at any time prior to Closing;
" PRIDCO " has the meaning set out in the definition of PRIDCO Incentives in Paragraph 1 of Schedule 1 ;
" PRIDCO Incentives " means the Tax incentives awarded to Akzo Nobel Paints (Puerto Rico) Inc. by the Puerto Rico Industrial Development Company (" PRIDCO ") as set forth in the PRIDCO incentive grant dated November 1, 2010 under the heading "Incentives Proposal";
"Puerto Rico Tax Exemption Grant" means that certain industrial tax exemption decree issued under Case No. 08-73-I-45 pursuant to the provisions of Act No. 73 of May 28, 2008, as amended;
" Purchase Price " has the meaning set out in Clause 3.1.1;
" Purchase Price Dispute " means any dispute with regard to (a) the determination of the Working Capital Statement or the Net Debt Statements pursuant to Clause 7.1 which are to be negotiated and resolved as set out in Clause 7.1.3, or (b) the allocation of the (Estimated) Purchase Price pursuant to Paragraph 1 of Schedule 9 which shall be resolved as set out in Paragraph 3 of Schedule 9 ;
" Purchaser " has the meaning set out in the preamble of this Agreement;
" Purchaser 401(k) Plan " has the meaning set out in Paragraph 1.2 of Schedule 5 ;
" Purchaser Indemnified Parties " has the meaning set out in Clause 8.2;
" Purchaser Representative " and " Purchaser Representatives " have the meanings set out in Clause 15.15.3;
" Purchaser's Group " means Purchaser and its subsidiaries from time to time, including, after Closing, the Group Companies;
" Purchaser's Lawyers " means Hogan Lovells US LLP at 555 13 th Street NW, Washington, D.C. 20004, United States;



" Purchaser’s Objection " has the meaning set out in Paragraph 3.3 of Schedule 5 ;
" Purchaser's Warranties " has the meaning set out in Clause 9.4.1, and " Purchaser’s Warranty " means any one of them or the relevant one of them, as the context requires;
" Reading Collective Bargaining Agreement " has the meaning set out in Paragraph 1.1 of Schedule 5 ;
" Registered Group Intellectual Property " has the meaning set out in Paragraph 6.1.1 of Schedule 12 Part 1;
" Regulatory Authority " has the meaning set out in Paragraph 1.1 of Schedule 19 ;
" Release " has the meaning set out in Paragraph 10.1 of Schedule 12 Part 1;
" Relief " means any allowance (including amortization or depreciation), credit, deduction, exemption or set-off in respect of any Tax or relevant to the computation of any income, profits or gains for the purposes of any Tax, or any right to repayment of or saving of Tax, and any reference to the use or set-off of Relief shall be construed accordingly;
" Remediation " has the meaning set out in Paragraph 10.1 of Schedule 12 Part 1;
" Reporting Accountants " means PricewaterhouseCoopers or, if they refuse or are unable to act or the Parties otherwise agree in writing, another firm of accountants of international repute, with offices in the Netherlands, Canada and the United States, to be agreed by Parties within 5 (five) Business Days of a notice by Seller to Purchaser, or vice versa, requiring such agreement or, failing such agreement, to be nominated, on the application of Seller or Purchaser, by or on behalf of American Institute of Certified Public Accountants;
" Representative " means any manager, officer, employee, legal, financial or other professional advisor, accountant or other agent, of the Party concerned;



" Restricted Activity " means any production, manufacturing, marketing, sale, licensing or distribution of any of the following:
(a)
interior or exterior architectural or decorative paints or sealants,
(b)
interior or exterior wood finishes or wood-care coatings applied outside a factory setting,
(c)
residential or commercial construction adhesives, including for repair or maintenance applications, or
(d)
Light Duty Protective Coatings as used in residential, industrial or commercial construction applications , including for repair or maintenance applications,
as undertaken by the Group during the period from January 1, 2011 to the Closing, but excluding any production, manufacturing, marketing, sale, licensing or distribution of Excluded Other Products;
" Restricted Employee " means any Employee who is (i) employed by Purchaser's Group after Closing and who has access to trade secrets or other confidential information of the Group, or (ii) a Senior Employee;
" Restricted Period " means with respect to the provisions of Clause 12.1.1(a), 4 (four) years following the Closing Date, or with respect to any jurisdiction where 4 (four) years would not be recognized by applicable Law as being binding on Seller, such shorter period of time recognized by applicable Law in such jurisdiction as being binding on Seller, and, with respect to the provisions of Clauses 12.1.1(b) and 12.2, 2 (two) years following the Closing Date;
" Restricted Territory " means the United States, Canada, Puerto Rico, Central America (Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama) and the Caribbean;
" Restructuring " means the actions set out in Schedule 15 ;
" Retained Insurance Policies " has the meaning set out in Clause 8.7.2(a);
" Retained Intellectual Property " means any Intellectual Property that is owned by a Group Company that is contemplated to be transferred from a Group Company to Seller's Group (other than the Group Companies) under Schedule 25 ;
" Retained Non-Operating Facility " has the meaning set out in Paragraph 2 of 0 ;
" Retirement Benefits " has the meaning set out in Schedule 5 ;



" Second Quarterly Period " has the meaning set out in Paragraph 1 of Schedule 23 ;
" Seller " has the meaning set out in the preamble of this Agreement;
" Seller 401(k) Plan " has the meaning set out in Paragraph 1.3 of Schedule 5 ;
" Seller Confidential Information " has the meaning set out in Clause 13.2.3;
" Seller Guarantees " has the meaning set out in 8.3.1;
" Seller Indemnified Parties " has the meaning set out in Clause 8.1;
" Seller Replacement Pension Plan " has the meaning set out in Paragraph 2.5 of Schedule 5 ;
" Seller Retirement Plan " has the meaning set out in Paragraph 1.1 of Schedule 5 ;
" Seller's Group " means Seller and its subsidiaries and Affiliates from time to time, excluding after Closing the Group Companies;
" Seller's Lawyers " means De Brauw Blackstone Westbroek N.V. at Claude Debussylaan 80, 1082 MD Amsterdam, the Netherlands;
" Seller's U.S. Lawyers " means Sullivan & Cromwell LLP at 125 Broad Street, New York, NY 10004-2498, United States;
" Seller's Warranties " has the meaning set out in Clause 9.1.1, and " Seller's Warranty " means any one of them or the relevant one of them, as the context requires;
" Senior Employee " means any Employee with an annual salary as at Closing (on the basis of full-time employment) in excess of USD 100,000 (one hundred thousand U.S. dollars) or its local equivalent;
" SERPs " has the meaning set out in Paragraph 1.6 of Schedule 5 ;
" Share Purchaser " means, in relation to each Company referred to in Schedule 2 Part 1:
(a)
the person or company whose name is set out in column (4) opposite that Company, as the case may be; or
(b)
any person or company nominated in accordance with Clause 15.1 to purchase the Shares in that Company, as the case may be;
and " Share Purchasers " means all such persons and companies;



" Share Seller " means, in relation to each of the Companies referred to in Schedule 2 Part 1 column (2), the person or company whose name is set out opposite that Company in column (1), and " Share Sellers " means all such persons and companies;
" Shares " means, in relation to the Companies, the shares or membership interests, as applicable, specified in Schedule 2 Part 1 column (3);
" Signing " means the signing of this Agreement by the Parties;
" Signing Date " means the day on which the last Party signing this Agreement has signed this Agreement;
" Special Pre-Closing Indemnities " means the indemnities set forth in Clause 8.2 for Pre-Closing Toxic Tort Liabilities, Pre-Closing Product Liabilities, Pre-Closing FLSA Liabilities and Pre-Closing Home Center Customer Claims;
" Straddle Tax Period " has the meaning set out in Paragraph 1 of Schedule 11 ;
" Subsidiaries " means the companies identified in Paragraph 2 of Schedule 2 Part 2, and " Subsidiary " means any one of them or the relevant one of them, as the context requires;
" Suspensory Other Anti-trust Approvals " means the Other Anti-trust Approvals listed in Paragraph 1 of Schedule 1 ;
" Taxation " or " Tax " means all forms of taxation whether direct or indirect (including income, capital, excise, severance, stamp, occupation, premium, environmental, customs duties, equity, franchise, real property, personal property, registration, alternative or add-on minimum, capital stock, escheat, production or other tax of any kind whatsoever) and whether levied by reference to income, net income, profits, windfall profits, gains, net wealth, net worth, equity, unclaimed property, asset values, turnover, gross receipts, added value or other reference, and any statutory, governmental, federal, state, provincial, local or foreign governmental or municipal impositions, taxes, customs, duties, contributions, rates and levies or other assessments of a similar nature (including sales, use or transfer taxes, charges, fees, social security contributions and any other payroll, disability, employment or unemployment taxes), whenever and wherever imposed (whether imposed by way of a withholding or deduction for or on account of tax or otherwise) and in respect of any Person, and all fines, penalties, charges, costs, additions, and interest relating thereto imposed by a Tax Authority;
" Tax Audit " has the meaning set out in Paragraph 1 of Schedule 11 ;



" Tax Authority " means any taxing or other Governmental Authority competent to impose any liability in respect of Taxation or responsible for the administration and/or collection of Taxation or enforcement of any Law in relation to Taxation;
" Tax Deduction " means any deduction or withholding for or on account of Tax;
" Tax Indemnity " means the indemnities and covenants relating to Taxation set out in Paragraph 2 of Schedule 11 ;
" Tax Liability " has the meaning set out in Paragraph 1 of Schedule 11 ;
" Tax Refund " has the meaning set out in Paragraph 1 of Schedule 11 ;
" Tax Return " has the meaning set out in Paragraph 1 of Schedule 11 ;
" Tax Warranties " means the warranties set forth in Paragraph 15 of Schedule 12 Part 1, and " Tax Warranty " means any one of them or the relevant one of them, as the context requires;
" Termination Liability " has the meaning set out in Paragraph 3.1 of Schedule 5 ;
" Third Party Indebtedness " means, in relation to each Group Company, the aggregate amount, at the Effective Time, of all Indebtedness, together in each case with accrued interest and fees payable thereon (a) owed by any Group Company to any third party or (b) owed by any third party to any Group Company (in which case the Indebtedness shall be expressed as a negative figure), as derived from the relevant Final Net Debt Statement and included in line items under the heading "Third-Party Indebtedness" in Paragraph 3.1 of Schedule 10 Part 3, provided that for the purposes of this definition, third party shall exclude any member of Seller's Group;
" Third Quarterly Period " has the meaning set out in Paragraph 1 of Schedule 23 ;
" Transaction " means the acquisition of the Shares and the Note by Purchaser (and relevant other member(s) of Purchaser's Group) pursuant to this Agreement;
" Transaction Bonus " has the meaning set out in Clause 8.8;
" Transfer Documents " means the agreements, deeds, transfers, conveyances and other documents to implement the sale and transfer, at Closing, of the Shares and the Note, said documents to be substantially in the form of the Agreed Form documents as set out in Schedule 7 ;



" Transferred Group Intellectual Property " means any Intellectual Property that is contemplated to be transferred to Purchaser's Group (including the Group Companies after Closing) in connection with the IP Agreement or Schedule 25 ;
" Transitional Services Agreement " means the transitional services agreement attached hereto in Agreed Form as Schedule 8 ;
" Unfunded Canadian Plan " has the meaning set out in Paragraph 3.1 of Schedule 5 ;
" Unrelated Liabilities " means all Liabilities of any member of Purchaser's Group suffered or incurred after Closing, to the extent such Liabilities relate to (i) any pre-Closing activities of a Group Company where such activities did not form part of the Operations (including the assets used therein) as conducted at any time prior to Closing, (ii) the Restructuring or the Carve-Out Businesses, or (iii) the Non-Operating Facilities or the Former Facilities, excluding (a) Tax Liabilities, (b) Liabilities indemnified under the Environmental Indemnity, (c) Pre-Closing Liabilities, (d) Pre-Closing Product Liabilities, (e) Pre-Closing Toxic Tort Liabilities, (f) Pre-Closing FLSA Liabilities, (g) Pre-Closing Home Center Customer Claims and (h) Employment Costs and Employment Liabilities;
" Unrelated Liabilities Indemnity " has the meaning set out in Clause 8.2.1(c);
" USD " means U.S. dollars;
" U.S. Company " means Akzo Nobel Paints LLC, a Delaware limited liability company;
" U.S. Employees " has the meaning set out in Paragraph 1.2 of Schedule 5 ;
" U.S. Interests " means all of the outstanding membership interests of the U.S. Company;
" United States " or " U.S. " means, collectively, the 50 (fifty) states and commonwealths of the United States of America and the District of Columbia;
" WARN Act " means the Worker Adjustment and Retraining Notification Act of 1988, as amended.
" Windfall " has the meaning set out in Paragraph 1 of Schedule 11 ;
" Working Capital " means the aggregate of Working Capital Inventory, plus Working Capital Receivables, less Working Capital Payables, but excluding, for the avoidance of doubt, all amounts in respect of (i) Cash Balances, (ii) Intra-Group Receivables, (iii) Intra-Group Payables, and (iv) Third Party Indebtedness;



" Working Capital Adjustment " means the amount by which the Working Capital is greater than the Base Working Capital (in which case such amount shall be expressed as a positive figure) or by which the Working Capital is less than the Base Working Capital (in which case such amount shall be expressed as a negative figure);
" Working Capital Inventory " means all raw materials, consumables, work in progress, part-processed stocks, finished goods, goods for resale and stock in transit, wherever located, of the Group Companies as at the Effective Time, as derived from the relevant Working Capital Statement and included in line items under the heading "Working capital – Inventory" in Paragraph 3.1 of Schedule 10 Part 3;
" Working Capital Payables " means the aggregate of all amounts owing, accrued or deferred by the Group Companies, in respect of trading creditors, as at the Effective Time, as derived from the Working Capital Statement and included in line items under the heading "Working capital – Payables" in Paragraph 3.1 of Schedule 10 Part 3;
" Working Capital Receivables " means the aggregate of all amounts receivable, accrued or prepaid by or owed to the Group Companies in respect of trading debtors as at the Effective Time, excluding (a) any item to be treated as part of the Cash Balances, and (b) debts owed to the Group Companies which are not included in any Working Capital Statement, as derived from the Working Capital Statement and included in line items under the heading "Working capital – Receivables" in Paragraph 3.1 of Schedule 10 Part 3; and
" Working Capital Statement " means a statement of (i) Base Working Capital, and (ii) Working Capital, as prepared and determined in accordance with Schedule 10 .
2
References to persons and companies
References to:
(c)
a person include any individual, company, or unincorporated association (whether or not having separate legal personality); and
(d)
a company includes any company, corporation, limited liability company, partnership, limited liability partnership or any other legal entity, wherever incorporated or organized.
3
Headings and references to Clauses, Schedules, Parts and Paragraphs
3.1
Headings have been inserted for convenience of reference only and do not affect the interpretation of any of the provisions of this Agreement.
3.2
A reference in this Agreement to a Clause or Schedule is to the relevant Clause of or Schedule to this Agreement; to a Part is to the relevant Part of



the relevant Schedule; and to a Paragraph is to the relevant Paragraph of the relevant Schedule or the relevant Part.
4
Seller's Group, Share Sellers, Purchaser's Group, Share Purchasers
4.1
Any reference in this Agreement to the term " Seller's Group shall ", shall be interpreted as meaning that Seller shall, and/or shall cause the relevant other members of Seller's Group to, perform the relevant obligation.
4.2
Any reference in this Agreement to a liability or obligation of a Share Seller shall be deemed to include an obligation on the part of Seller to cause the relevant liability be discharged or obligation be performed, on and subject to the terms and conditions set out in this Agreement.
4.3
Any reference in this Agreement to the term " Purchaser's Group shall ", shall be interpreted as meaning that Purchaser shall, and/or shall cause the relevant other members of Purchaser's Group to, perform the relevant obligation.
4.4
Any reference in this Agreement to a liability or obligation of a Share Purchaser shall be deemed to include an obligation on the part of Purchaser to cause the relevant liability be discharged or obligation be performed, on and subject to the terms and conditions set out in this Agreement.
5
Other references
5.1
Whenever used in this Agreement, the words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation".
5.2
Any reference in this Agreement to any gender shall include all genders, and words importing the singular shall include the plural and vice versa.
5.3
If any action is to be taken by any party hereto pursuant to this Agreement on a day that is not a Business Day, such action shall be taken on the next Business Day following such day.
5.4
The use of "or" is not intended to be exclusive unless expressly indicated otherwise.
6
Information
References to books, records or other information include books, records or other information in any form or media, including paper, electronically stored data, magnetic media, film and microfilm.



7
Negotiation
7.1
This Agreement is the product of negotiation by the Parties having the assistance of counsel and other advisors. It is the intention of the Parties that neither Party shall be considered the drafter of this Agreement or of any particular provision of this Agreement, and that this Agreement not be construed more strictly with regard to one Party than to the other Party.




Schedule 4     Employees
1
Definitions
In this Schedule 4 :
“ Employment Costs ” means, relating to any Employee or former employee:
(a)
the amounts payable or paid to or in respect of the Employee or former employee’s employment (including salary, wages, Tax and social security contributions, employer’s pension contributions, bonus, incentives, insurance and other health and welfare benefit premiums, payments or allowances or any other consideration and benefit arrangements or fringe benefits in respect of employment); and
(b)
the costs of providing any non-cash benefits to the relevant Employee or former employee, which the employer is required to provide, by Law or contract or customarily provides in connection with such employment (including other employee compensation or benefit provisions);
“ Employment Liabilities ” means, in relation to any Employee or former employee, any and all Losses, excluding Employment Costs, directly arising out of or directly connected with employment or the employment relationship, or the initiation or the termination of employment, or of the employment relationship (including all Losses in connection with any claim, award, judgment or agreement for redundancy pay, severance or damages or compensation for unfair or wrongful dismissal or breach of contract or discrimination).
2
Provisions regarding Group Company Employees
2.1
The Employees employed by the Group Companies will remain employed by the Group Companies immediately following the transfer of the Shares in terms of Clause 6.2.2.
2.2
Subject to Closing and except as otherwise required by applicable Law, Purchaser shall procure that after Closing the terms and conditions (including compensation and employee benefits terms and conditions) under which the Employees in the U.S. shall be employed are, when considered overall, no less favorable than the terms and conditions under which similarly situated employees of Purchaser are employed. In addition, Purchaser shall cause any employee benefit plans, programs and arrangements of Purchaser and its affiliates (including the Group Companies) that the Employees are eligible to participate in following the Closing Date to take into account for purposes of eligibility and vesting thereunder and for purposes of calculating the level of employer contributions for each eligible



Employee under Purchaser’s Defined Contribution Retirement Plan, service by Employees for Seller and any of its affiliates (including the Group Companies) prior to the Closing Date as if such service were with Purchaser and its affiliates, provided that with respect to Employees in the U.S. (including Puerto Rico) no service credit will be given for purposes of eligibility to participate in any defined benefit pension plan (other than the defined benefit pension plan referenced in Paragraph 1.1 of Schedule 5 ) or retiree welfare benefit program. Purchaser shall further cause that any employee benefit plans, programs and arrangements of Purchaser and its affiliates (including the Group Companies) that Employees are eligible to participate in following the Closing Date to waive any pre-existing conditions and waiting periods to the extent such conditions and periods were satisfied under a comparable Seller plan, program or arrangement.
2.3
Seller and Purchaser shall, to the extent required by Law, inform and consult with employees, trade unions, works councils or other employee representatives regarding the Transaction and shall fulfill any obligations to notify any Governmental Authority about the Transaction. Purchaser hereby agrees to recognize each applicable union and hereby assumes all applicable collective bargaining agreements, and all rights, duties and obligations thereunder to the extent relating to any Employee.
2.4
Subject to Closing, Purchaser shall be responsible for and shall fully indemnify and keep indemnified Seller and, as an irrevocable third party stipulation, the relevant members of Seller’s Group from and against any and all Employment Costs incurred, and Employment Liabilities arising, in respect of any Employee after Closing. Subject to Closing, Seller shall retain all liabilities with respect to the Devoe Employees and be responsible for, and shall fully indemnify and keep indemnified Purchaser, and, as an irrevocable third party stipulation, the relevant members of Purchaser’s Group from and against any and all liabilities, including Devoe Employee employment costs (being costs of the type referenced in the definition of Employment Costs in Paragraph 1 of this Schedule 4 ) and employment liabilities (being liabilities of the type referenced in the definition of Employment Liabilities in Paragraph 1 of this Schedule 4 ), arising in respect of any of the Devoe Employees after Closing.
2.5
Subject to Closing and the provisions of Schedule 5 , Seller shall be responsible for and shall fully indemnify and keep indemnified Purchaser and, as an irrevocable third party stipulation, the relevant members of Purchaser’s Group from and against any and all Employment Costs incurred, and Employment Liabilities arising, in respect of any Employee prior to Closing and any Devoe Employee employment costs (being costs of the type referenced in the definition of Employment Costs in Paragraph 1 of this Schedule 4 ) incurred, and Devoe Employee employment liabilities (being liabilities of the type referenced in the definition of Employment Liabilities in Paragraph 1 of this Schedule 4 ) arising, in respect of any Devoe Employee prior to Closing, including any pre-Closing actions or notifications relating to any employee necessitated by the Closing.



Schedule 5     Benefit Arrangements
In this Schedule 5 :
" Canadian Hybrid Pension Plan " has the meaning set out in Paragraph 2.5;

" Canadian DC Pension Plan " has the meaning set out in Paragraph 2.1;

" OPEB " has the meaning set out in Paragraph 1.5;

" Purchaser 401(k) Plan " has the meaning set out in Paragraph 1.2;

" Seller 401(k) Plan " has the meaning set out in Paragraph 1.3;

" Seller Replacement Pension Plan " has the meaning set out in Paragraph 2.5;

" U.S. Employees " has the meaning set out in Paragraph 1.2.

1
Provisions Regarding U.S. and Puerto Rican Retirement Benefit and OPEB Arrangements
1.1
Prior to the Closing Date, Seller shall take all action necessary to retain and be solely responsible for maintaining and for satisfying all Liabilities related to the AkzoNobel Retirement Plan (the " Seller Retirement Plan "). Subject to the provisions of Schedule 4 , with respect to Employees who are covered by the agreement between Akzo Nobel Paints LLC and the International Union of Painters and Allied Trades AFL-CIO, District Council 21, Local No. 1269 (the " Reading Collective Bargaining Agreement ") and who are actively accruing benefits in the Seller Retirement Plan as of the Closing Date in accordance with the terms of the Reading Collective Bargaining Agreement, Purchaser shall establish a defined benefit pension plan that mirrors the benefits such employees were accruing under the Seller Retirement Plan as of the Closing Date and which provide accruals of benefits for periods occurring after the Closing Date in accordance with the terms of the Reading Collective Bargaining Agreement, as it may be amended from time to time. The Seller Retirement Plan shall retain all Liabilities for benefits accrued by such employees prior to the Closing Date.
1.2
Effective as of the Closing Date, Purchaser shall provide or establish a tax-qualified defined contribution plan (the " Purchaser 401(k) Plan ") for the benefit of the Employees located in the U.S. (the " U.S. Employees "). Each U.S. Employee shall be eligible to become a participant in the Purchaser 401(k) Plan on the Closing Date, it being agreed that there shall be no gap in participation in a tax-qualified defined contribution plan.
1.3
Prior to the Closing Date and thereafter (as applicable), Seller and Purchaser shall take any and all action as may be required, including amendments to



the Akzo Nobel Retirement Savings Plan and the Akzo Nobel Hourly Savings Plan (the " Seller 401(k) Plan ") and the Purchaser 401(k) Plan to permit each U.S. Employee to make rollover contributions to the Purchaser 401(k) Plan of "eligible rollover distributions" (within the meaning of Section 401(a)(31) of the Code) in the form of cash, in an amount equal to the full account balance distributed to such U.S. Employee from the Seller 401(k) Plan.
1.4
For the avoidance of doubt, the Akzo Nobel Retirement Savings Plan for Employees in Puerto Rico will continue to be sponsored, provided, maintained or operated by the relevant Group Company following the Closing Date and all obligations with respect to such plan shall continue to be obligations of the relevant Group Company from and after the Closing Date.
1.5
For the avoidance of doubt, Seller shall retain and shall honor the pension and other post-employment benefit (including special death benefits) (" OPEB ") obligations that are accrued through the Effective Time with respect to the Employees and former employees of the Group Companies who are located in the U.S. and Puerto Rico (and their beneficiaries) and who do not continue to be employed by the Group Companies following the Closing Date under any health and welfare plan, program or arrangement of Seller or any of its affiliates. Effective prior to the Closing Date, Seller shall amend its OPEB programs to provide that any such Employees who continue employment with a Group Company following the Closing Date shall not be eligible to receive OPEB benefits under any health and welfare plan, program or arrangement of Seller or any of its affiliates.
1.6
Prior to the Closing Date, Seller shall take all action necessary to assume, and retain all obligations to provide, all supplemental retirement and other non-qualified deferred compensation obligations that are accrued through the Closing Date with respect to the Employees and former Employees of the Group Companies that are located in the U.S. and Puerto Rico (and their beneficiaries) under any supplemental retirement or other non-qualified deferred compensation plan, program or arrangement of Seller or any of its affiliates, including, without limitation, the Paints Excess Benefit Plan, the Executive Retirement Plan for Key Employees of the ICI Group for Pre-2005 Deferrals, the Executive Retirement Plan for Key Employees of the ICI Group for Post-2004 Deferrals, the AkzoNobel Non-Qualified Retirement Savings Plan (collectively, the " SERPs "). Seller shall take all action necessary to assume any SERPS sponsored by the Group Companies and Purchaser shall be under no obligation to replicate any such SERP benefits after the Closing Date.
1.7
Effective immediately prior to the Closing Date, Seller shall transfer the employment of any Employee in the U.S. or Puerto Rico who is on long-term or short-term disability from the applicable Group Company to Seller or another of its affiliates (other than the Group Companies) and Seller shall continue to provide each such Employee with long-term or short-term disability benefits, in each case, in accordance with the terms of the



applicable plan. In the event that any such Employee is cleared to return to work within the 6-month period immediately following the Closing Date, Seller shall notify Purchaser that such Employee has been cleared to return to work and Purchaser shall promptly offer such Employee employment with a Group Company in accordance with the terms of Schedule 4 provided that there is a position available for such Employee at the facility at which he worked prior to his disability leave and for which he is qualified and provided, further, that to the extent no such position is available and Seller terminates the employment of such Employee promptly thereafter, Purchaser shall reimburse Seller for the cost of providing severance benefits to such Employee under Seller’s Severance Pay Plan, provided the terms of such severance benefits are no more favorable than the Severance Pay Plan in existence as of the date of this Agreement.
1.8
As of the Closing Date, Employees in the U.S. shall cease participating in and accruing benefits under any Benefit Arrangement that is not a Company Arrangement and shall be eligible to participate in the employee benefit plans of Purchaser or its Affiliates pursuant to the terms of such plans, subject to the provisions set forth in Schedule 4 and this Schedule 5 . Seller and its Affiliates (other than the Group Companies and its Subsidiaries) shall at all times be solely responsible for any and all Liabilities and obligations arising under, in connection with or in respect of the Benefit Arrangements that are not Company Arrangements, regardless of when the event giving rise to the payment or benefit occurred and neither Purchaser nor any of its Affiliates (including the Group Companies and its Subsidiaries) shall have any responsibility or obligation in respect of any such plan. In addition, Seller shall be responsible for the administration and financial obligation of all worker’s compensation claims of Employees in the U.S. (including Puerto Rico) and former Employees in the U.S. (including Puerto Rico) arising out of or relating to occurrences on or before the Closing Date, and Purchaser shall be responsible for the administration and financial obligation of all worker’s compensation claims arising out of or relating to occurrences after the Closing Date.




1.9
Seller shall retain all obligations, liabilities and commitments in respect of health insurance continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA) for "qualifying events" incurred by U.S. Employees and former U.S. Employees and their dependents on or prior to the Closing Date.
2
Provisions Regarding Canadian Retirement Benefit Arrangements
2.1
In connection with the Devoe Carve-out and prior to the Closing Date, Seller will cause Akzo Nobel Canada Inc. to take the necessary steps, including applying to the applicable Governmental Authorities, for a division of the Retirement Income Plan for Canadian Employees of Akzo Nobel (the " Canadian DC Pension Plan ") in accordance with applicable Law, between (a) in respect of the Devoe Employees, an affiliate of Seller designated by Seller that is not a Group Company, and (b) in respect of all other members, former members and beneficiaries, Akzo Nobel Canada Inc. Such division will be effective as of the effective date of the Devoe Carve-out. Commencing on the effective date of the Devoe Carve-out, Devoe Employees shall accrue benefits only under the portion of the Canadian DC Pension Plan referenced in (a) and all other members, former members and beneficiaries shall accrue benefits only under the portion of the Canadian DC Pension Plan referenced in (b). Effective prior to the Closing Date, in respect of any other employees in Seller’s Group (excluding the Group Companies) that have any defined contribution entitlements in the Canadian DC Pension Plan, their entitlements shall be treated mutatis mutandis in accordance with the foregoing provisions of this Paragraph 2.1 such that they shall accrue benefits only under the portion of the Canadian DC Pension Plan referenced in (a). Seller shall use commercially reasonable efforts to effect the steps necessary to carry out this Paragraph 2.1 prior to the Closing Date.
2.2
If any approval requested under Paragraph 2.1 which is required for the division under Paragraph 2.1 is not granted and all appeals therefrom are exhausted or abandoned without obtaining the required approval, the Parties shall, in good faith, negotiate alternative arrangements.
2.3
In connection with the Devoe Carve-out and effective prior to the Closing Date, all Liabilities under any Unfunded Canadian Plan (as defined in Paragraph 3.1), which relate to the Devoe Employees will be transferred to an affiliate of Seller designated by Seller that is not a Group Company.
2.4
For the avoidance of doubt, save as expressly otherwise provided in Paragraphs 2 and 3 of this Schedule 5 , all Company Arrangements sponsored, and maintained by Akzo Nobel Canada Inc. prior to the Closing Date will continue to be so sponsored and maintained immediately following the Closing Date and all Liabilities with respect to such Company Arrangements shall continue to be Liabilities of Akzo Nobel Canada Inc. from and after the Closing Date. Such Company Arrangements include the



Funded Canadian Plans and the Unfunded Canadian Plans (each as defined below) and certain capital accumulation plans.
2.5
As of the effective date of the Devoe Carve-out: (i) all Devoe Employees who participate in The Pension Plan for Employees of ICI Paints (Canada) Inc. and Participating Companies (the " Canadian Hybrid Pension Plan ") will cease participating in and accruing benefits in the Canadian Hybrid Pension Plan and shall begin to participate in a registered pension plan designated by Seller that is sponsored by an entity that is not a Group Company (the " Seller Replacement Pension Plan "); (ii) the Seller Replacement Pension Plan shall recognize for all purposes hereunder the service of such employees which was recognized under the Canadian Hybrid Pension Plan; (iii) the benefits accrued to such employees under the Canadian Hybrid Pension Plan will be dealt with in accordance with applicable Law; and (iv) Purchaser shall ensure that the aforesaid Devoe Employees are provided with grow-in benefits (as provided in the Ontario Pension Benefits Act) irrespective of their province of employment and their age and service. Effective prior to the Closing Date, in respect of any other employees in Seller's Group (excluding the Group Companies) that have any defined benefit and/or defined contribution entitlements under the Canadian Hybrid Pension Plan, their entitlements shall be treated mutatis mutandis in accordance with the foregoing provisions of this Paragraph 2.5. Seller shall use commercially reasonable efforts to effect the steps necessary to carry out this Paragraph 2.5 prior to the Closing Date. To the extent that any approvals from applicable Governmental Authorities are required to give effect to the provisions of this Paragraph 2.5 and such approvals are not granted, and all appeals therefrom are exhausted or abandoned without obtaining the required approval, the Parties shall, in good faith, negotiate alternative arrangements.
3
Price Adjustment for Canadian Benefit Arrangements
3.1
Definitions
The following definitions shall apply throughout this Paragraph 3:

" Actuarial Firm " has the meaning set out in Paragraph 3.3;

" Canadian Plan " means a Funded Canadian Plan or an Unfunded Canadian Plan;

" Estimated Pensions Adjustment Amount " means the amount, determined as at the Effective Time, equal to $27 million CAD plus (A) minus (B), where:

(A)
equals the aggregate Estimated Termination Liability for all of the Canadian Plans, expressed as a positive number; and




(B)
equals the value of assets as at the Effective Time, based on the market value of assets as of the last day of the month that is at least 10 (ten) Business Days prior to the Effective Time, projected using expected cash flows and expected return on assets to the Effective Time and excluding the value of non-qualifying annuity contracts, for all of the Funded Canadian Plans;

" Estimated Termination Liability " means:

(A)
for a Funded Canadian Plan, the estimated windup liability at the Effective Time, determined by Seller’s actuary by projecting, using the solvency incremental cost disclosed in the most recently filed valuation report, the windup liability (as determined in accordance with the requirements of the applicable pension legislation, without exclusion of any benefits except the value of any non-qualifying annuity contracts and without smoothing), from the effective date of the most recently filed funding valuation report to the Effective Time, adjusted to take into account any legislative changes or changes in plan terms as well as to reflect the prescribed windup assumptions (including discount rates) applicable as at the last day of the calendar month immediately preceding the Effective Time and to reflect any significant membership changes (including any changes to retiree spouse data) between the effective date of the most recently filed funding valuation report and the Effective Time; and

(B)
for an Unfunded Canadian Plan, the defined benefit obligation at the Effective Time determined by Seller’s actuary by projecting the defined benefit obligation calculated in accordance with IAS 19, based on Seller’s IAS 19 assumptions as applied in respect of Seller’s audited financial statements for the fiscal year ended December 31, 2012, from December 31, 2012 to the Effective Time, adjusted for the IAS19 discount rates applicable at the last day of the month preceding the Effective Time (as determined by Seller’s actuary), provided that for an Unfunded Canadian Plan that covers one or more Devoe Employees, the Estimated Termination Liability will be reduced by the Estimated Termination Liability related to such Devoe Employee(s), as determined by Seller’s actuary;

provided that the windup liability disclosed in any new funding valuation report or windup report filed prior to the last day of the month preceding the Effective Time shall be taken into account in the calculation of the Estimated Termination Liability. For greater certainty, the Estimated Termination Liability for a Funded Canadian Plan includes all liabilities provided for in Paragraph 2.5.

" Funded Canadian Plan " means (i) Régime de rentes des employés de Sico Inc. et ses filiales, (ii) Régime supplémentaire de rentes des employés syndiqués (CSN) de Beauport et Longueuil de Sico Inc., (iii) the Canadian



Hybrid Pension Plan, (iv) Pension Plan for the Employees of ICI Canada Inc. and Participating Associated Companies, (v) Pension Plan for Senior Managers of ICI Canada Inc.

" Pensions Adjustment Amount " means the amount, determined as at the Effective Time, equal to CAD 27 million plus (A) minus (B), where:

(A)
equals the aggregate Termination Liability for all of the Canadian Plans, expressed as a positive number; and

(B)
equals the market value of assets as at the Effective Time, adjusted for any monthly-in transit contributions that have been remitted prior to the Effective Time by Akzo Nobel Canada Inc. but that have not been received by the applicable pension fund as of the Effective Time and excluding the value of non-qualifying annuity contracts, for all of the Funded Canadian Plans;

" Purchaser’s Objection " has the meaning set out in Paragraph 3.3;

" Termination Liability " means:

(A)
for a Funded Canadian Plan, the estimated windup liability at the Effective Time, determined by Seller’s actuary by projecting, using the solvency incremental cost disclosed in the most recently filed valuation report, the windup liability (as determined in accordance with the requirements of the applicable pension legislation, without exclusion of any benefits except the value of any non-qualifying annuity contracts and without smoothing), from the effective date of the most recently filed funding valuation report to the Effective Time, adjusted to take into account any legislative changes or changes in plan terms as well as to reflect the prescribed windup assumptions (including discount rates) applicable as at the Effective Time and to reflect any significant membership changes (including any changes to retiree spouse data) between the effective date of the most recently filed funding valuation report and the Effective Time; and

(B)
for an Unfunded Canadian Plan, the defined benefit obligation at the Effective Time determined by Seller’s actuary by projecting the defined benefit obligation calculated in accordance with IAS 19, based on Seller’s IAS 19 assumptions as applied in respect of Seller’s audited financial statements for the fiscal year ended December 31, 2012, from December 31, 2012 to the Effective Time, adjusted for the IAS19 discount rates applicable at the Effective Time (as determined by Seller’s actuary), provided that for an Unfunded Canadian Plan that covers one or more Devoe Employees, the Termination Liability will be reduced by the Termination Liability related to such Devoe Employee(s), as determined by Seller’s actuary;




provided that the windup liability disclosed in any funding valuation report or windup report filed prior to the last day of the month preceding the Effective Time shall be taken into account in the calculation of the Termination Liability. For greater certainty, the Termination Liability for a Funded Canadian Plan includes all liabilities provided for in Paragraph 2.5.

" Unfunded Canadian Plan " means (i) Politique de revenu de retraite des cadres supérieurs de Sico Inc., (ii) Unfunded Pension Plan for Employees of ICI Paints (Canada) Inc. and Participating Companies, (iii) OPRB Plan for Employees of ICI Paints (Canada) Inc., (iv) OPRB Plan for Employees of Sico Inc., (v) Other Long-Term Employee Benefit Plan for Employees of Sico Inc., (vi) Unfunded Pension Plan for the Employees of ICI Canada Inc. and Participating Associated Companies, (vii) Unfunded Pension Plan for Senior Managers of ICI Canada Inc., and (viii) OPRB Plan for Employees of ICI Canada Inc.

" Unresolved Items " has the meaning set out in Paragraph 3.3.

3.2
To the extent that the Pensions Adjustment Amount exceeds the Estimated Pensions Adjustment Amount, Seller shall pay to Purchaser an amount equal to such excess. To the extent that the Pensions Adjustment Amount is less than the Estimated Pensions Adjustment Amount, Purchaser shall pay to Seller an amount equal to such difference. Any payment to be made in accordance with this Paragraph 3.2 shall include interest thereon calculated from the Closing Date to the day of payment, both days inclusive, at the Interest Rate. Such payment shall be made in CAD by wire transfer of immediately available funds to an account designated in writing by Seller or by Purchaser, as the case may be, and shall be due 10 (ten) Business Days after the final determination of the Pensions Adjustment Amount under this Schedule 5 , including Paragraph 3.3.
3.3
As soon as reasonably practicable but in no event later than 90 (ninety) days after the Closing Date, Seller shall prepare, or cause to be prepared, and deliver to Purchaser, Seller’s calculation of the Pensions Adjustment Amount. Purchaser shall have 60 (sixty) days after the receipt of such calculation (and the underlying data in reasonable detail) to review Seller’s calculation of the Pensions Adjustment Amount. In the event that Purchaser determines that Seller’s calculation of such Pensions Adjustment Amount has not been prepared on the basis set forth in this Paragraph 3, Purchaser shall, on or before the last day of such 60 (sixty) day period, so inform Seller in writing (the " Purchaser’s Objection "), setting forth a specific description of the basis of Purchaser’s determination and the corresponding adjustments to the Pensions Adjustment Amount that Purchaser believes should be made. If no Purchaser’s Objection is received by Seller on or before the last day of such 60 (sixty) day period, then the Pensions Adjustment Amount set forth in Seller’s calculations thereof shall be deemed final for all purposes under this Agreement. If Purchaser's Objection is received by Seller on or before the last day of such 60 (sixty) day period,



Seller shall have 30 (thirty) days from its receipt of Purchaser's Objection to review and respond to Purchaser's Objection. Purchaser and Seller shall use commercially reasonable efforts to resolve any disagreements with respect to the proposed adjustments set forth in Purchaser's Objection. If Purchaser and Seller are unable to resolve such disagreements within 30 (thirty) days following the completion of Seller’s review of Purchaser's Objection, they shall refer any remaining disagreements (the " Unresolved Items ") to an actuarial firm mutually agreeable to Seller and Purchaser (the " Actuarial Firm "), which, acting as experts and not as arbitrators, shall determine, on the basis set forth in this Paragraph 3, and only with respect to the Unresolved Items, whether and to what extent, if any, the Pensions Adjustment Amount requires adjustment. Seller and Purchaser shall instruct the Actuarial Firm to deliver its written determination to Seller and Purchaser no later than 30 (thirty) days after such disagreements are referred to the Actuarial Firm. The Actuarial Firm’s determination shall be final and binding upon Seller and Purchaser and their respective affiliates and successors and for all purposes under this Agreement. Seller and Purchaser shall each bear fifty percent (50%) of the fees and disbursements of the Actuarial Firm. Purchaser and Seller shall make readily available to the Actuarial Firm all relevant books and records and any work papers (including those of the parties’ respective accountants, to the extent permitted by such accountants) relating to the Pensions Adjustment Amount and to Purchaser's Objection and all other items reasonably requested by the Actuarial Firm in connection with its review.
3.4
Purchaser and its actuaries shall have reasonable access to all information used by Seller in preparing, and employees of Seller and its affiliates involved in the preparation of, the Pensions Adjustment Amount, including, in each case, the work papers of Seller’s actuaries, in each case during regular business hours and upon reasonable advance notice. Each party shall have reasonable access to all information used by the Actuarial Firm in reaching its determination hereunder.




Schedule 6     Closing
Part 1
Closing obligations
1
General Obligations
1.1
Seller's obligations
At the Closing, Seller shall deliver or make available to Purchaser evidence that Seller is authorized to sign this Agreement and, in respect of each Transfer Document, that the relevant Share Seller is authorized to sign the Transfer Document.
1.2
Purchaser's obligations
At the Closing, Purchaser shall deliver or make available to Seller:
(i)
evidence of the due satisfaction of the Conditions Precedent; and
(ii)
evidence that Purchaser is authorized to sign this Agreement and, in respect of each Transfer Document, that the relevant Share Purchaser is authorized to sign the Transfer Document.
2
Transfer of the Shares
At the Closing, Seller shall procure that the Share Sellers, and Purchaser shall procure that the Share Purchasers, shall execute and/or deliver and/or make available the Transfer Documents and take such other steps as are required to transfer the Shares.
3
Further obligations in addition to transfer
3.1
Seller shall deliver, and shall cause the relevant Share Sellers, as the case may be, to make the deliveries or make available to Purchaser or the relevant Share Purchasers, as the case may be, the following:  
(a)
the written resignations in Agreed Form of each of the persons named in Schedule 6 ( Closing ) Part 2 ( Resignations ) from the office or position specified in Schedule 6 ( Closing ) Part 2 ( Resignations ) to take effect on Closing;
(b)
duly executed and delivered original signatures of Seller's Group to all of the Transfer Documents, as applicable;
(c)
for Seller and each Share Seller, a certificate, dated the Closing Date and duly executed by the secretary or a managing director of Seller or such Share Seller, as applicable, certifying as to (A) true and complete copies of its current Organizational Documents, (B)



in the case of Akzo Nobel Coatings Inc., a certificate of incumbency of its officers executing this Agreement and the Transfer Documents and (C) in case of Seller, Akzo Nobel Coatings International B.V. and ICI Omicron B.V., an extract from the trade register of the chamber of commerce;
(d)
for each Company and each Subsidiary, a certificate, dated the Closing Date and duly executed by the secretary of such Company or Subsidiary, as applicable, certifying as to (A) true and complete copies of and no amendments to its Organizational Documents, (B) its good standing or status, as applicable, in its respective jurisdiction of organization, (C) true and complete copies of the resolutions of its board of directors and stockholders approving this Agreement and the transactions contemplated hereby, and (D) a certificate of incumbency of its officers executing this Agreement and the Transfer Documents;
(e)
the organizational record books, minute books and corporate seal, if any, of each Company and each Subsidiary, to the extent not in the possession of such Company or Subsidiary;
(f)
to the extent requested by Purchaser, for each Person currently an authorized signatory to or otherwise authorized to deal in the funds of any bank account of any of the Companies or the Subsidiaries, termination of such authorization to be effective as of the Effective Time;
(g)
a duly executed affidavit of non-foreign status of Akzo Nobel Coatings Inc. substantially in the form set forth on Schedule 18 ;
(h)
evidence reasonably satisfactory to Purchaser that all persons referred to in Paragraph 3.1(a) above holding share(s) in any Group Company under a nominee-type arrangement or any arrangement having a similar effect have transferred such share(s) to such other persons as Purchaser may specify, to take effect on Closing;
(i)
evidence reasonably satisfactory to Purchaser as to the acceptance by shareholders or the directors of each of the relevant Group Companies of the resignations referred to in Paragraph 3.1(a) and of the appointment of such persons to take effect on Closing (within the maximum number permitted by the Organizational Documents of the Group Company concerned) as Purchaser may nominate as directors and (if relevant) secretary, Purchaser to notify Seller of such nomination by no later than 15 (fifteen) Business Days before the Closing Date; and
(j)
evidence reasonably satisfactory to Purchaser as to the approval by the Share Seller's shareholders or the directors of the transfer of the Shares to the relevant Share Purchaser, where such



acceptance or approval is required by Law or under the Organizational Documents of the Group Company concerned.
3.2
Purchaser shall, and shall cause the relevant Share Purchasers, as the case may be, to make the deliveries or make available to Seller or the relevant Share Sellers, as the case may be, the following:  
(a)
duly executed and delivered original signatures of Purchaser's Group to all of the Transfer Documents, as applicable; and
(b)
a certificate, dated the Closing Date and duly executed by the secretary of Purchaser, certifying as to (A) true and complete copies of and no amendments to its Organizational Documents, (B) its good standing in its respective jurisdiction of organization, (C) true and complete copies of the resolutions of its board of directors approving this Agreement and the transactions contemplated hereby, and (D) a certificate of incumbency of its officers executing this Agreement and the Transfer Documents.




Schedule 10     Closing statements and Reporting Accountants
Part 1
Form of (Estimated) Working Capital Statement

The (Estimated) Working Capital Statement shall be drawn up in the form set out below:
4
Group
Base Working Capital
Amount (USD '000)
Sales Target
 
multiplied by  Target Percentage
14.4%
Base Working Capital
 

5
Group Companies
(Estimated) Working Capital:
Item
Amount (USD '000)
Working Capital Inventory
 
plus  Working Capital Receivables
 
less  Working Capital Payables
 
Total
 




Part 2
Form of (Estimated) Net Debt Statements

Each (Estimated) Net Debt Statement shall be drawn up in the form set out below:
Group Company :
Counter Party
Intra-Group Indebtedness
 
Third Party Indebtedness
 
Cash Balances
 
Intra-Group Payables
 
Intra-Group Receivables
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Part 3
Requirements for Working Capital / Net Debt Statements
6
Preparation of Closing statements
The Working Capital and the Net Debt shall be calculated, and the Initial Closing Statement and Final Closing Statement (and each Working Capital Statement and Net Debt Statement) shall be prepared:
(k)
in accordance with the Accounting Principles;
(l)
subject to Paragraphs 3.2 and 3.3, using the same accounting principles and policies that were used in the preparation of the Accounts for June 30, 2012 and, so long as consistent with the Accounting Principles, the practices, methodology and categorizations used in the preparation of such Accounts;
(m)
to the extent not covered by Paragraph 1(a) or Paragraph 1(b), in accordance with generally accepted accounting principles and IFRS in force at June 30, 2012;
(n)
in USD (U.S. dollars), and amounts in other currencies shall be translated into USD at the spot rate of exchange (closing mid-point) on the Business Day immediately prior to the date of Closing, as such spot rate is published in the U.S. edition of the Financial Times first published thereafter.
7
Post-Closing Events
The Working Capital and the Net Debt shall be calculated, and the Initial Closing Statement and Final Closing Statement (and each Working Capital Statement and Net Debt Statement) shall be prepared as at the Effective Time. Accordingly, transactions occurring and the impact of management decisions after the Effective Time shall not be taken into account.
8
Accounting Principles
"Accounting Principles" means, collectively, the provisions, policies and principles set forth in Paragraphs 3.1, 3.2 and 3.3 below.
8.1
Line Items
The aggregate value of the items booked under the following line items and corresponding Hyperion bookkeeping codes, calculated as the sum of the items includes under the headings Working Capital – Inventory, plus Working Capital – Receivables, less Working Capital – Payables, shall constitute the Working Capital:



Working capital items
Hyperion bookkeeping code
 
 
Working capital – Inventory
 
Raw materials
AC4100
Finished goods
AC4100
Stock provisions
AC4100
Semi-finished goods
AC4100
Goods delivered not invoiced
AC4111
 
 
Working capital - Receivables
 
Third Party trade receivables
AC4111
Rebates/bonuses payable to customers
AC5016
Credit Balances trade receivables
AC5016
Intercompany Trade receivables
AC4120
Other short term receivables
AC4141
Prepaid expenses
AC4150
 
 
Working capital – Payables †
 
Third party payables
AC5011
Commissions receivable from supplier
AC4116
Debit balances supplies
AC4116
Intercompany Trade payables
AC5020
Other current liabilities
AC5071
† For the avoidance of doubt, Working Capital shall exclude debt (including any lines of credit).



The items booked under the following line items and corresponding Hyperion bookkeeping subcodes shall constitute the Other current liabilities item of Working Capital:
Items
Hyperion bookkeeping sub-code
 
 
Other current liabilities
AC5071
Credit balances trade receivables
5071.885
Amounts payable to employees
5071.890
Prepayments from customers
5071.895
Comp. absences/vacation days Netherlands
5071.900
Comp. absences/vacation days Other
5071.905
Bonuses and discounts customers
5071.910
Royalties and licenses
5071.915
Non-income taxes and social charges
5071.920
Invoices to be received from suppliers
5071.935
Insurances
5071.945
Energy
5071.950
Services
5071.955
Commissions to agents
5071.960
Others
5071.965
Invoices to rec fr suppliers (No
5071.990




The aggregate value of the items booked under the following line items and corresponding Hyperion bookkeeping codes, calculated as the sum of the items included under the headings Intra-Group Indebtedness (Intra-Group Receivables / Payables) and Third Party Indebtedness, less Cash Balances shall constitute the Net Debt:
Net debt items
Hyperion bookkeeping code
 
 
Intra-Group Indebtedness (Intra-Group Receivables / Payables) and Third Party Indebtedness
 
Debenture loans
AC5400
Loans from/to consolidated companies †
AC5440
Inhouse bank
AC4230
Cash pools
AC4240
Financial Lease liabilities
AC5435
Accrued interest loans cons companies
AC5462
Other long-term debt
AC5430
Bank overdrafts
AC5510
ST Debenture loans
AC5525
ST Portion long term debt
AC5525
 
 
Cash Balances
 
Short-term investments
AC4210
Cash and banks
AC4220
† For the avoidance of doubt, Loans from/to consolidated companies includes the Note.
8.2
Other principles
Notwithstanding Paragraph 3.1:
(o)
no item shall be included more than once in any calculation of Working Capital or Net Debt or in the Working Capital Statement and Net Debt Statements or any of them;
(p)
neither the Working Capital nor the Net Debt, and neither the Net Debt Statement nor the Working Capital Statement, in respect of the Group Companies shall include any asset or Liability of any Carve-Out Business or any asset or Liability that is not an asset or Liability of the Group Companies; and
(q)
no calculation of Working Capital or Net Debt, and no Working Capital Statement or Net Debt Statement, shall take into account:
(iii)
fixed assets, goodwill or any other intangible asset (excluding debtors and creditors relating to any such items);



(iv)
pension assets or liabilities, unfunded retirement benefits or post-retirement benefits;
(v)
environmental matters;
(vi)
provisions, other than provisions in respect of damaged or obsolete stock or inventory and bad debts or overdue receivables;
(vii)
Transaction Bonuses;
(viii)
contingent liabilities; and
(ix)
items in respect of any corporate income Tax or any other Tax imposed on net income or net profits,
so long as the working capital statements used in the determination of the Target Percentage, attached hereto as Schedule 10 Part 5, similarly excluded all such items.
8.3
Procedures
Subject to Paragraph 3.2, the following procedures shall apply:
(r)
a stock count shall be performed by local personnel in the presence of such third parties as each of Seller and Purchaser may require (provided such third parties are bound to customary confidentiality undertakings) in relation to the Working Capital Inventory at each relevant site, in each case in accordance with the normal year end procedures, as at the Effective Time (or at such other date (and with such other adjustments) as Seller and Purchaser may agree in writing);
(s)
Working Capital, including the Working Capital Inventory, shall be determined using the Group Companies’ accounting principles and policies as set forth in the Data Room under items number 02.08.01, 02.08.02, 02.08.03, 02.08.04 and 02.08.05; and
(t)
the cash in hand shall be counted by the relevant site manager as at the Effective Time and confirmed as appropriate in accordance with normal year-end procedures.



Part 4
Reporting Accountants
9
Engagement 
The Reporting Accountants shall be engaged jointly by Seller and Purchaser on a timely basis and on the terms set out in this Paragraph 1 and otherwise on such terms as shall be agreed, provided that neither Seller nor Purchaser shall unreasonably (having regard, inter alia, to the provisions of this Part 4) refuse their agreement to terms of engagement proposed by the Reporting Accountants or by Purchaser or Seller, as the case may be. If the terms of engagement of the Reporting Accountants have not been settled within 20 (twenty) Business Days of their identity having been determined (or such longer period as Seller and Purchaser may agree in writing) then, unless Seller or Purchaser unreasonably refuse agreement to those terms, those accountants shall be deemed never to have become the Reporting Accountants and new Reporting Accountants shall be selected in accordance with the provisions of this Agreement.
10
Procedure for determination
10.1
Purchaser and Seller each shall make a written submission to the Reporting Accountants within 20 (twenty) Business Days after the date the Reporting Accountants accept their engagement in writing, which submission shall contain a computation of the disagreed items remaining open pursuant to Clause 7.1.3(c)(ii) of the Agreement, and information, arguments, and support for such computation. Each of Seller and Purchaser thereafter shall be entitled to submit a written rebuttal to the other's submission, which rebuttals shall be submitted within 15 (fifteen) Business Days of the delivery of the last of the initial submissions. The Reporting Accountants shall review such submissions and rebuttals and base its determination solely on such written submissions and rebuttals (without an independent review).
10.2
In resolving such disagreement, the Reporting Accountants will (i) consider only those items and amounts with respect to the Initial Closing Statement that remain in dispute pursuant to Clause 7.1.3(c)(ii) of the Agreement and (ii) determine the disputed items in accordance with the principles set forth in Paragraph 1 of Schedule 10 Part 3 and their respective definitions set forth in this Agreement, without importing or taking into account other extrinsic factors. The determination of the Reporting Accountants in respect of each item in disagreement shall not be outside of the range of the respective computations included in the written submissions referred to in Paragraph 2.1. The Reporting Accountants’ determination shall apply the provisions of Schedule 10 Part 3 and be reflected in the Final Closing Statement.
10.3
The Reporting Accountants shall make their determination pursuant to this Paragraph 2 as soon as is reasonably practicable.
10.4
For the avoidance of doubt, the Reporting Accountants shall not be entitled to determine the scope of their own jurisdiction.



11
Determination; Binding Advice
The Reporting Accountants shall act as experts and not arbitrators and the determination of the Reporting Accountants as to any disputed amount and the Final Closing Statement reflecting such determination shall be conclusive and binding upon all parties as of the date that notice of such determination is first delivered to Seller and Purchaser (except in the event of a manifest error in which case the relevant part of the Reporting Accountants’ determination shall be void and the matter shall be remitted to the Reporting Accountants for correction) and the Working Capital and Net Debt set forth therein shall be deemed the Working Capital and Net Debt for all purposes hereunder.
12
Expenses
The fees and expenses (including VAT) of the Reporting Accountants shall be borne as they shall direct at the time they make any determination taking into account the relative success of each Party or, failing such direction, equally between Seller and Purchaser. 
13
Cooperation
Seller and Purchaser shall cooperate with the Reporting Accountants and comply with their reasonable requests made in connection with the carrying out of their duties under this Agreement. In particular, without limitation, Purchaser shall keep up-to-date and, subject to reasonable notice, make available to Seller's Representatives, Seller's accountants and the Reporting Accountants all books and records relating to the Group during normal office hours during the period from the appointment of the Reporting Accountants to the making of the relevant determination.
14
Confidentiality
Each Party shall, and shall procure that its accountants and the other advisors and the Reporting Accountants shall, keep all information and documents provided to them pursuant to this Part 4 confidential and shall not use the same for any purpose, except for disclosure or use in connection with the determination of the Final Closing Statement, the proceedings of the Reporting Accountants or another matter arising out of this Agreement, or in defending any claim or argument or alleged claim or argument relating to this Agreement or its subject matter.





Schedule 11     Tax Indemnity
1
Definitions:
The following capitalized terms used in this Schedule 11 shall have the following meaning:
" Non-CIT Tax Liability " means any Tax Liability in respect of any Tax other than (i) a Tax payable pursuant to the Income Tax Act (Canada), or any comparable state, territorial, or provincial Law imposing an income tax, (ii) a U.S. federal, state, or local corporate income Tax, (iii) any corporate income tax levied by or on behalf of a Tax Authority of Puerto Rico, (iv) a Tax for escheatment of unclaimed property, and (v) Taxes arising as a result of the Restructuring or in relation to the Carve-Out Businesses (whether transferred out or not) or the Retained Non-Operating Facilities;
" Straddle Tax Period " shall mean any accounting period for tax purposes which begins at or prior to the Effective Time and ends after the Effective Time;
" Tax Audit " means any audit, investigation, visit, inspection, assessment, discovery, access order, court proceeding, or other proceedings from or against any Tax Authority with respect to any Tax matter of the Group;
" Tax Liability " means a Tax or increase in Tax of or with respect to any of the Group Companies (for the avoidance of doubt, Tax Liability includes a Tax or increase in Tax which does not give rise to an actual Tax payment because a Group Company utilizes, reduces or carries back a Tax attribute accrued on or after the Effective Time);
" Tax Refund " means any credit against, offset, refund or repayment of Tax;
" Tax Return " means any return, declaration, report, information return, statement, claim for refund, or other document (including any schedule or other attachment thereto) filed, or required to be filed, in connection with the assessment or collection of any Taxes or as otherwise required by any Tax Authority in connection with a Tax Audit, and including any amendment thereof or supplement thereto (including any schedule or other attachment thereto). For the sake of clarity, IRS Forms 5471, 8858, 8865, 926 and 8938, and Form TD F 90-22-1 (Report of Foreign Financial and Bank Accounts) are Tax Returns; and
" Windfall " means such amount in respect of any income, profits, gains or turnover relating to a period ending on or before the Effective Time as was neither actually received before the Effective Time nor reflected in the Working Capital Statement but which, had it been actually received before the Effective Time or reflected in the Working Capital Statement, would have resulted in an increase in the Purchase Price.



2
Seller's indemnity
2.1
Subject to any applicable limitations of liability set out in this Schedule 11 , Seller shall indemnify Purchaser against:
(a)
any Tax Liability (including by reason of any successor or transferee Liability), and any Loss suffered as a consequence of such Tax Liability, in respect of any Event occurring and attributable to the period before, or in respect of any income, profits, receipts, gains or turnover earned, accrued or received before, the Effective Time;
(b)
any Loss arising as a result of a breach of any Tax Warranty; or
(c)
any Tax Liability of a Group Company in respect of any taxable period arising solely as a result of the ownership or disposition, after the Effective Time, of any Retained Non-Operating Facility.
2.2
Tax Liabilities of a Straddle Tax Period shall be allocated as follows:
(a)
in the case of Taxes imposed on a periodic basis (such as real or personal property Taxes or Taxes determined on an arrears basis), (i) the amount of the Tax Liability allocable to the period ending at the Effective Time shall be the amount of such Tax Liability for the entire period multiplied by a fraction, the numerator of which is the number of calendar days in the Straddle Tax Period ending on and including the date of the Effective Time and the denominator of which is the number of calendar days in the entire relevant Straddle Tax Period; and (ii) the remainder of such Tax Liability shall be allocable to the period beginning after the Effective Time; and
(b)
in the case of Taxes not described in (a) above (such as franchise Taxes not determined on an arrears basis, Taxes that are based upon or related to income or receipts, based upon occupancy or imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible)), (i) the amount of the Tax Liability allocable to the period ending at the Effective Time shall be the amount of any such Tax Liability as determined by closing the books as if such taxable period ended as of the Effective Time, and (ii) the remainder of such Tax Liability shall be allocable to the period beginning after the Effective Time.
2.3
Notwithstanding any other provision of this Agreement other than Paragraph 2.5 below, Seller shall only be liable in respect of any individual claim with respect to Non‑CIT Tax Liability, or a series of Non-CIT Tax Liability claims arising from the same facts, to the extent that the Non-CIT Tax Liability agreed or determined in respect of any such claim or series of claims exceeds USD 100,000 (one hundred thousand U.S. dollars).



2.4
Notwithstanding any other provision of this Agreement other than Paragraph 2.5 below, Seller shall not be liable under this Agreement in respect of any Non‑CIT Tax Liability claim unless and until the aggregate amount of all claims in respect of Non‑CIT Tax Liabilities for which Seller would otherwise be liable under this Schedule 11 , exceeds USD 1,000,000 (one million U.S. dollars).
2.5
Notwithstanding any other provision of this Agreement, Seller shall be responsible for all Tax Liabilities of any member of Seller's Group or any member of an affiliated, consolidated, combined or unitary group of which Akzo Nobel Coatings Inc. is a part with respect to any period (including any portion of any Straddle Tax Period) ending at or prior to the Effective Time pursuant to Treasury Regulation § 1.1502-6 (or analogous provision of non-U.S., or U.S. state or local Law).
3
Exclusions
3.1
The indemnity contained in Paragraph 2 shall not cover any Tax Liability to the extent that:
(a)
an adequate provision or reserve in respect of that Tax Liability has been made, or that Tax Liability was adequately accrued or reduced the value of an asset or was reflected in a Working Capital Statement or a Net Debt Statement; or
(b)
the Tax Liability arises, or is increased, as a result of a Windfall actually received and retained by a Group Company after the Effective Time; or
(c)
the Tax Liability arises, or is increased, as a result of any change in rates or the passing of or any change in Law or generally accepted accounting practice, a change in the administrative practice of any Tax Authority or any withdrawal of any extra-statutory concession by a Tax Authority, on or after Signing; or
(d)
the Tax Liability would not have arisen but for, or is increased by, a transaction, action or omission (other than any transaction, action or omission related to the Restructuring, the Retained Non-Operating Facilities, or the Carve-out Businesses) carried out or effected by any member of Purchaser's Group (including a Group Company), or any other Person connected with any of them, including Representatives or successors in title, at any time after the Closing except for any transaction, action or omission which affects the ability of any member of Purchaser’s Group (including a Group Company), or any other person affiliated with any such member, including a Representative or successor in title, to carry back losses or any other Tax attribute to any time before Closing; or



(e)
the Tax Liability would not have arisen but for, or is increased by, a failure or omission by any member of Purchaser's Group (including a Group Company) to make any claim for Relief (which arose to a Group Company in respect of a period ending at or before the Effective Time), election, surrender, or disclaimer or give any notice or consent or take any other action after Closing within 10 (ten) Business Days of receiving written notice from Seller which notice shall confirm that Seller will bear any costs or expenses reasonably incurred by Purchaser (or a designated member of Purchaser’s Group) in making such claim for Relief, election, surrender, or disclaimer or giving such notice or consent;
(f)
the Tax Liability has been discharged prior to the Effective Time; or
(g)
the Tax Liability has been reduced by a Relief which arose to a Group Company in respect of a period ending at or before the Effective Time; or
(h)
the Tax Liability has been or is satisfied by the surrender or other transfer to the relevant Group Company of any Relief by Seller or a member of Seller's Group (other than a Group Company); or
(i)
notice of a claim in respect of the Tax Liability is delivered to Seller after 60 (sixty) days following the expiry of the statutory limitation period for appealing the imposition of the Tax Liability applicable in the relevant jurisdiction for the Tax matter giving rise to such claim; or
(j)
the Tax Liability arises, or is increased, as a result of a change (other than a change required by applicable law) after the Effective Time in the length of any accounting period for Tax purposes of any Group Company, or a change after the Effective Time in any accounting policy or practice, including the treatment of timing differences and the basis on which assets are valued, or Tax reporting practice of any Group Company; or
(k)
the Tax Liability arises, or is increased, after the Effective Time, as a result of any Group Company failing to submit the Tax Returns and computations required to be made by it or not submitting such Tax Returns and computations within the appropriate time limits or submitting such Tax Returns and computations otherwise than on a proper basis, or as a result of any Group Company failing to take other action which could have minimized or reduced such Tax Liability, in each case after the Effective Time and other than as a result of any default or failure of Seller carrying out or failing to carry out Seller's obligations under this Schedule 11 ; or
(l)
the Tax Liability arises, or is increased, as a result of the failure of Purchaser or any member of Purchaser's Group to comply with its



obligations under the Agreement or any ancillary agreements related thereto; or
(m)
the Tax Liability arises, or is increased, by reason of a disclaimer by any Group Company after the Effective Time of any Relief to which it is entitled or by reason of the revocation by any Group Company after the Effective Time of any claim for Relief made by it (whether provisionally or otherwise) before the Effective Time; or
(n)
the Tax Liability arises, or is increased, as a result of an Event (other than the Restructuring or Events related to the Carve-out Businesses or the retention of the Retained Non-Operating Facilities) occurring at the request or with the approval of Purchaser, including Events contemplated in the Agreement; or
(o)
to the extent the Event that creates the Tax Liability creates Relief for Purchaser or any member of Purchaser's Group; or
(p)
to the extent that recovery in respect of the Tax Liability has been made by Purchaser or another member of Purchaser's Group (including the Group Companies) under an insurance policy, or Purchaser or another member of Purchaser's Group (including the Group Companies) has been or has the right to be compensated otherwise for the Tax Liability.
3.2
Notwithstanding anything in the Agreement to the contrary, no breach of Tax Warranties (except for a breach of the Tax Warranty set out in Paragraph 15.18 of Schedule 12 Part 1) shall give rise to a claim for Losses other than with respect to or in connection with a claim for a Tax Liability imposed solely with respect to a taxable year or period (or portion thereof) ending on or prior to the Effective Time.
3.3
Seller shall not be liable under this Schedule 11 in respect of any Excluded Losses.
4
Purchaser's indemnity
4.1
Purchaser shall indemnify Seller against
(a)
any Tax Liability, and any Loss suffered as a consequence of such Tax Liability, arising in respect of any Event occurring and attributable to the period beginning on, or in respect of any income, profits, or gains earned or accrued on or after the Effective Time, for which Seller, a Representative of Seller, or any other member of Seller's Group (excluding the Group Companies) is liable after the Effective Time (other than any Tax Liability assessed against Akzo Nobel Paints LLC pursuant to Treasury Regulation § 1.1502-6 (or analogous provision of non-U.S., or U.S. state or local Law)).



(b)
all Tax Liabilities of any member of Purchaser's Group or any member of an affiliated, consolidated, combined or unitary group that includes any of the Companies with respect to any period (including any portion of any Straddle Tax Period) beginning after the Closing Date, provided that such amount is not otherwise subject to indemnification by Seller pursuant to this Schedule 11 .
4.2
The indemnity contained in Paragraph 4.1 shall not cover any Tax Liability to the extent that:
(a)
the Tax Liability would not have arisen, or have been increased, but for a transaction, failure or omission carried out or effected by Seller or any member of Seller's Group (including a Group Company), or any other Person connected with any of them, including Representatives or successors in title, at any time; or
(b)
the Tax Liability would not have arisen, or have been increased but for a failure or omission after Closing by any member of Seller’s Group (including a Group Company) to make any claim for Relief, election, surrender or disclaimer or give any notice or consent or take any other action before Closing within 10 (ten) Business Days of receiving written notice from Purchaser which notice shall confirm that Purchaser will bear any costs or expenses reasonably incurred by Seller (or a designated member of Seller’s Group) in making such claim for Relief, election, surrender, or disclaimer or giving such notice or consent;
(c)
the Tax Liability has been or is satisfied by the surrender or other transfer to the relevant Group Company of any Relief by Purchaser or a member of Purchaser's Group (other than a Group Company); or
(d)
the Tax Liability arises, or is increased, as a result of the failure of Seller or any member of Seller's Group to comply with its obligations under this Agreement or any ancillary agreements related thereto; or
(e)
the Tax Liability arises, or is increased, by reason of a breach of Seller's Warranties insofar as they relate to Tax; or
(f)
the Event that creates the Tax Liability creates Relief for Seller or any member of Seller's Group; or
(g)
recovery in respect of the Tax Liability has been made by Seller or another member of Seller's Group under an insurance policy, or Seller or another member of Seller's Group has been or has the right to be compensated otherwise for the Tax Liability.



4.3
Purchaser shall not be liable under this Schedule 11 in respect of any Excluded Losses.
5
Mitigation 
5.1
Each Party shall procure that the Group Companies (and each member of Purchaser's Group or Seller's Group, as applicable) takes all such steps as may reasonably be required to:
(a)
subject to Paragraph 5.2, use any Relief available to a Group Company (excluding any Relief arising to any member of Purchaser's Group other than a Group Company) to reduce or eliminate any Tax Liability in respect of which Purchaser would have been able to make a claim against Seller under to Paragraph 2;
(b)
make all such claims and elections specified by Seller in respect of any period ending on or before the Effective Time having the effect of reducing or eliminating any Tax Liability referred to under Paragraph 2, provided that such claims or elections do not have the effect of increasing the Tax Liability of Purchaser or any Group Company for periods following the Effective Time;
(c)
allow Seller to reduce or eliminate any liability by surrendering, or procuring the surrender by any member of Seller’s Group other than a Group Company, of any Relief to any Group Company, to the extent permitted by Law; and
(d)
make all such claims and elections specified by Seller, acting reasonably, in respect of any period ending on or before the Effective Time that may result in a Group Company obtaining or realizing a Tax Refund, provided that such claims or elections do not have the effect of increasing the Tax Liability of Purchaser or any Group Company for periods following the Effective Time.
5.2
Notwithstanding Paragraph 5.1, Purchaser is not required to use any Relief arising in or attributable to periods beginning after the Effective Time but will consider in good faith any request by Seller to do so provided that, to the extent that Seller’s obligation to indemnify Purchaser for any Tax Liability is reduced pursuant to Paragraph 5.1(a) as a result of the use of any Relief of any Group Company attributable to periods beginning after the Effective Time (a) Purchaser and Seller shall agree in good faith, based upon reasonable assumptions, the value of such Relief and (a) Seller shall pay Purchaser an amount equal to such value.
6
Tax Refund
If a Group Company has a right to, has received or receives, a Tax Refund on or after Closing from any Tax Authority in respect of any period up to the



Effective Time, where such Tax Refund has not been included in a Working Capital Statement or a Net Debt Statement, then: 
(a)
Purchaser will promptly notify Seller and will take, or will procure that a member of Purchaser's Group or a Group Company takes, all necessary action to obtain such Tax Refund; and
(b)
Purchaser shall pay to Seller (as an adjustment to Purchase Price) the amount of such Tax Refund, reduced by the reasonable costs incurred by Purchaser in connection with obtaining such Tax Refund, within 5 (five) Business Days of the receipt or realization of the Tax Refund.
7
Notification of Tax claims; Conduct of Tax disputes
7.1
Purchaser shall promptly notify Seller, or as the case may be, Seller shall promptly notify Purchaser, in writing and within 10 (ten) Business Days upon receipt of a notice after the Effective Time, of any pending or threatened Tax Audit of a Group Company in respect of any accounting period for Tax purposes ending at or prior to the Effective Time or in respect of any Straddle Tax Period.
7.2
With respect to such Tax Audit as mentioned in Paragraph 7.1, Purchaser shall control the conduct of such Tax Audit and shall diligently conduct the Tax Audit through to its completion, provided that Seller shall be entitled, on notice to Purchaser, to participate in, and to assume the defense of such Tax Audit, and, with the consent of Purchaser (not to be unreasonably withheld, conditioned or delayed), to settle and compromise any such Tax Audit and any Tax Liability in respect thereof. In any such case, Purchaser shall cooperate fully to facilitate such participation by Seller.
7.3
With respect to Tax Audits of the Group Companies for which Seller has issued a notice in accordance with Paragraph 7.2, Seller shall not be liable for expenses subsequently incurred by Purchaser or any other member of Purchaser's Group in connection with the defense of such audit or proceeding. Purchaser shall have the right, at its cost and expense, to employ counsel to represent it if, in its reasonable judgment, it is advisable for Purchaser to be represented by separate counsel.
7.4
With respect to Tax Audits as mentioned in Paragraph 7.1, in the event that Seller elects not to take over the conduct thereof, Purchaser shall have the right to employ counsel reasonably satisfactory to Seller and to settle and compromise any such Tax Audit or any Tax Liability in respect thereof, provided, however, that:
(a)
Purchaser shall, and shall procure that the relevant Group Company shall, provide Seller with copies of all correspondence entered into and details of any conversations or meetings with any Tax Authority



to the extent that such correspondence, conversations or meetings relate to the Tax Audit in question; and
(b)
Purchaser shall advise Seller periodically of developments in the Tax Audit and obtain Seller's prior written approval (such approval not to be unreasonably withheld or delayed) on material decisions (including settlement or compromise) and on all written communication to any Tax Authority or competent court in relation to the Tax Audit.
7.5
Seller and Purchaser shall provide each other such information and render such assistance as may reasonably be requested in order to ensure the proper and adequate defense of any audit or other proceeding as mentioned in Paragraph 7.1, including the granting of powers of attorney and the provision of information as reasonably required by Seller.
7.6
Notwithstanding Clause 8.6 of the Agreement, Seller and Purchaser agree to retain all books and records as may be required for the conduct of Tax Audits including records in such electronic format as may be required by Law or as either Party may require until the expiration of applicable statutes of limitation, and to provide each other access to all books and records relating to the Group Companies for such purposes. Purchaser agrees to make available the services of the employees of the Group Companies to assist Seller in the performance of Seller's obligations and duties, and exercise by Seller of its rights, under this Schedule 11 .
8
Due date for payment in relation to Tax
The due date for payment under Paragraph 2 and Paragraph 4.1 and shall be the date falling 10 (ten) Business Days prior to the latest date for the actual payment of the relevant Taxes in order to avoid interest and penalties arising in respect thereof, provided that such date is after the date of any claim in respect thereof made under this schedule by Purchaser against Seller, or vice versa, as the case may be, provided that, where permitted by applicable Law, the party obliged to make such payment may instead provide security for the amount of such payment in such form as is acceptable to the relevant Tax Authority.
9
Preparation of Tax Returns
9.1
At Seller’s cost and expense, Seller shall cause each Group Company to (i) fully and timely pay (or cause to be so paid on its behalf) all income and other Taxes due and payable by it at or prior to the Effective Time, and (ii) in a manner and on a basis consistent with past practice, duly and timely file (or cause to be filed) with each relevant Tax Authority, all Tax Returns in respect of the Group Companies and Seller's Group to the extent that same are required to be filed in respect of any accounting period for Tax purposes ending at or prior to the Effective Time. From and after the Closing, Purchaser shall provide Seller such information and render Seller such assistance as



may reasonably be requested in order to ensure the proper and timely completion and filing of such Tax Returns. As of Closing, upon receipt of a completed Tax Return of a Group Company from Seller, Purchaser shall procure that the relevant Group Company promptly sign such Tax Returns, pay any Tax shown owing thereon and file these Tax Returns or return such Tax Returns to Seller for filing..
9.2
Purchaser shall, at its own cost and expense, prepare (or procure the preparation of), in a manner and on a basis consistent with Seller's past practice, and timely and properly file or procure to be filed with each relevant Tax Authority, all Tax Returns in respect of the Group Companies to the extent that same are required to be filed in respect of any accounting period for Tax purposes ending after the Effective Time. To the extent that any such Tax Return relates to a Straddle Tax Period, Seller shall have the right to review such Tax Return at least 20 (twenty) days prior to the due date for filing thereof. Purchaser shall accept all reasonable comments of Seller with respect to Straddle Tax Period Tax Returns.
9.3
Seller shall cancel any existing authority held by any Representative to Seller to sign Tax Returns on behalf of any Group Company with effect from the Closing Date.
9.4
Unless reasonably required by Law or accounting rules, Seller shall not amend, refile or otherwise modify any Tax election or Tax Return with respect to a Group Company for any period before the Effective Time without the prior written consent of Purchaser.
9.5
Unless reasonably required by Law or accounting rules, Purchaser shall cause the members of Purchaser's Group (including the Group Companies) not to amend, refile or otherwise modify any Tax election or Tax Return with respect to a Group Company for any period before the Effective Time without the prior written consent of Seller.
10
Governing procedure for Tax claims
This Schedule 11 governs the procedure for all Tax Indemnity and Tax Warranty claims. In the event Purchaser shall be entitled to indemnification under more than one provision of Paragraph 2.1 of this Schedule 11 , Purchaser shall specify the provision under which an indemnification claim is made.




Schedule 12     Representations, Warranties and Disclosure
Part 1
Seller's Warranties
1
Incorporation, authority, corporate action, existence
1.1
Seller and each Share Seller is validly existing and is a company duly incorporated and in good standing under the Laws of its jurisdiction of incorporation.
1.2
Seller has the full power and authority to enter into, execute, deliver and perform this Agreement and any other documents to be executed by Seller pursuant to or in connection with this Agreement and to consummate (and cause each Share Seller to consummate) the transactions contemplated hereunder and thereunder. This Agreement and any other documents to be executed by Seller pursuant to or in connection with this Agreement, when executed, will constitute valid and binding obligations of Seller enforceable against Seller in accordance with their respective terms.
1.3
Each Share Seller has taken or will have taken by Closing all corporate action required by it to authorize it to perform its obligations in accordance with this Agreement and any other documents to be executed pursuant to or in connection with this Agreement and no other proceedings on the part of any Share Seller are necessary to authorize this Agreement or any other documents to be executed by any Share Seller pursuant to or in connection with this Agreement or to consummate the transactions contemplated hereunder and thereunder. Any document to be executed by a Share Seller pursuant to or in connection with this Agreement, when executed, will constitute valid and binding obligations of such Share Seller enforceable against such Share Seller in accordance with their respective terms.
1.4
Each Group Company is validly existing and is a legal entity duly incorporated or organized, as the case may be, and in good standing and subsisting under the Laws of its jurisdiction of incorporation or organization, as the case may be. Each Group Company has the power and authority to own or lease the assets it purports to own or lease and to carry on its business in the manner currently conducted.
1.5
There are no proceedings in relation to any compromise or arrangement with creditors or any winding up, bankruptcy or other insolvency proceedings concerning any Share Seller or Group Company. No resolution has been proposed or passed for the dissolution of any Share Seller or Group Company and no meeting has been convened nor any written resolution circulated concerning the dissolution of any Share Seller or Group Company. No receiver has been appointed in relation to any properties, assets or undertakings of any Group Company and no Group Company is insolvent.



2
Corporate information
2.6
The Shares and the Group Companies
2.6.1
The relevant Share Seller specified in Schedule 2 Part 1 is the sole legal and beneficial owner of the Shares sold by it in terms of this Agreement and has valid title to, the right to exercise all voting and other rights over, and the right to transfer to Purchaser, all of such Shares, free and clear of any Encumbrances. There are no Encumbrances on any of the Shares. There are no Encumbrances on any of the shares of the Subsidiaries.
2.6.2
In respect of each Company, the Shares specified in respect of the Company in column (3) of Schedule 2 Part 1 comprise the whole of the issued share capital of the Company and have been properly and validly issued and are each fully paid and non-assessable.
2.6.3
In respect of each Subsidiary, the shareholders specified in respect of the Subsidiary in the relevant sub-Paragraph of Paragraph 2 of Schedule 2 Part 1 are the sole legal and beneficial owners of the shares in the Subsidiary and have the right to exercise all voting and other rights over such shares.
2.6.4
In respect of each Subsidiary, the shares specified in respect of the Subsidiary in the relevant sub-Paragraph of Paragraph 2 of Schedule 2 Part 1 comprise the whole of the issued share capital of the Subsidiary, have been properly and validly issued and each are fully paid and non-assessable.
2.6.5
No Person has the right, or has claimed to have the right, (whether exercisable now or in the future and whether contingent or not) to call for the conversion, issue, exchange, redemption, registration, sale or transfer, amortization or repayment of any share capital or any other security giving rise to a right over, or an interest in, the capital of any Group Company under any option, warrant, Contract or other arrangement (including conversion rights and rights of pre-emption). There are no outstanding or authorized stock appreciation or phantom stock, stock plans, or similar rights, with respect to any Group Company. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any of the Shares or shares of the Subsidiaries, and there are no dividends which have accrued or been declared but are unpaid on the Shares or shares of the Subsidiaries.
2.6.6
None of the Shares or the shares of the Subsidiaries have been issued in violation of (i) any provision of applicable Law, (ii) any of the Organizational Documents of any of the Share Sellers or any Group Company, or (iii) any judgment, decree or order of any Governmental Authority.
2.6.7
As of the Closing, no Group Company will have any direct or indirect subsidiaries or interests in any other Person, save the Subsidiaries indicated in Paragraph 2 of Schedule 2 Part 1, and no Group Company, directly or indirectly, will own or have the right or obligation to acquire any equity securities in any other Person.



2.7
Organizational documents, corporate registers and minute books
2.7.1
All of the Organizational Documents of each Group Company have been made available in the Data Room and all such Organizational Documents are true and accurate copies of the Organizational Documents of the Group Companies. There have not been and are not any breaches or violations by any Group Company of its Organizational Documents.
2.7.2
The registers and minute books required to be maintained by each Group Company under the Law of the jurisdiction of its incorporation, (i) are up-to-date, (ii) have been maintained in accordance with such Law and, (iii) contain proper records of all matters required to be dealt with in such books and records, in each case in all material respects.
2.7.3
All such registers and minute books are in the possession, or under the control, of the relevant Group Company or will be delivered to the Share Purchaser or Purchaser at Closing.
3
Accounts
3.1
The Accounts have been prepared in all material respects in accordance with IFRS and the notes ("notes to the special purpose financial statements") thereto. On that basis (i) the Accounts present fairly, in all material respects, the assets and liabilities of the Group as of June 30, 2012 and December 31, 2011, and the results of its operating activities and its identifiable cash flows for the six months ended June 30, 2012 and the year ended December 31, 2011, and (ii) for the relevant account periods none of the Group Companies has any Pre-Closing Liabilities that are not reflected or provided for in the Accounts. True and correct copies of the Accounts are set forth in Schedule 13 .
3.2
The Group Companies maintain books and records reflecting their assets and liabilities and a system of internal accounting controls sufficient to allow for the preparation of financial statements in conformity with IFRS.
3.3
There are no agreements or arrangements between any Group Company, on one hand, and any member of Seller's Group (other than a Group Company), on the other hand, with respect to cost sharing, cost transfer, cost subsidies or other arrangements whereby costs, expenses or charges of any Group Company are borne or subsidized by any member of Seller's Group (other than a Group Company) and which costs, expenses or charges have been reflected in the Accounts.
4
Guarantees
Other than in the ordinary course of business, there is no outstanding Guarantee given by any Group Company or for the benefit of any Group Company.



5
Assets
5.1
Qualification
Each Group Company is qualified, licensed and registered, as required, to transact business in each jurisdiction in which the nature or conduct of its business or location of its property requires such qualification, license or registration, other than where the failure to be so qualified, licensed, registered or in good standing would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on such Group Company.
5.2
Properties
5.2.1
In respect of each Group Company, the Data Room contains true, correct and complete lists of all Operating Facilities.
5.2.2
In respect of the owned Operating Facilities, the Group Company named as the owner is the legal and beneficial owner of such owned Operating Facilities and has good, valid and marketable title to such Operating Facilities. The owned Operating Facilities are registered in the competent real estate register for the benefit of the relevant Group Company where the relevant jurisdiction requires the registration of ownership regarding real estate. Each lease under which a Group Company leases any Operating Facility is valid, binding and enforceable and is in full force and effect. No Group Company has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any of its rights or interest in any leased Operating Facility.
5.2.3
No Operating Facility is subject to any Encumbrance other than Permitted Encumbrances. No Operating Facility is subject to any leases, subleases, or rights of occupancy, except the Operating Facility leases.
5.2.4
So far as Seller is aware, there is no outstanding written notice or dispute involving the relevant Group Company and any bona fide third party (including the lessor of any leased Operating Facility) as to the ownership, occupation or use of any Operating Facility which, if implemented or enforced, will have a material adverse effect on the Operations as at Signing.
5.2.5
So far as Seller is aware, there is no outstanding written notice or dispute as to any contravention of the relevant planning legislation or regulations in relation to each Operating Facility which will, if implemented or enforced, have a material adverse effect on the Operations as at Signing. So far as Seller is aware, there does not exist any actual or threatened or contemplated condemnation or eminent domain proceedings that affect any Operating Facility or any part thereof, and so far as Seller is aware Seller has not received any written notice of the intention of any Governmental Authority or other Person to take or use all or any part thereof.



5.2.6
With respect to any leased Operating Facility:
(a)
the relevant Group Company has a good, valid and existing leasehold interest in such Operating Facility pursuant to an enforceable lease or other agreements or contractual obligations to occupy and use the applicable Operating Facility; and
(b)
(i) so far as Seller is aware, there is no subsisting breach of any covenant, condition or agreement contained in the lease under which the Group Company holds its interest in the Operating Facility and (ii) no Group Company has received any written notice of default, termination or non-renewal under any such lease, except where such breach or default would not reasonably be expected to have a material adverse effect on the Operations as at Signing.
5.2.7
The Operating Facilities constitute all of the real property utilized by the Group Companies in the Operations. The current use and operation of the Operating Facility by the applicable Group Company, is (i) in compliance with in all material respects with all Laws, deeds, easements, restrictions, licenses, permits, leases (in the case of the leased Operating Facilities) and (ii) permitted by the terms of the leases (in the case of the leased Operating Facility). The zoning for each owned Operating Facility permits the presently existing improvements and the business presently being conducted thereon as a conforming use. So far as Seller is aware, neither Seller nor any Group Company has received any notice of any violation of any applicable zoning ordinance or other Law relating to the operation of any of the Operating Facilities. All of the Operating Facilities have legal access to public roads and are served by all utilities necessary for the lawful conduct of the Operations presently conducted thereon in all material respects.
5.2.8
All of the fixtures and improvements located at the Operating Facilities are in good operating condition having regard to the age thereof (ordinary wear and tear excepted) without structural defects, and all mechanical and other systems located thereon are in good operating condition having regard to the age thereof (ordinary wear and tear excepted) and, so far as Seller is aware, no condition exists requiring material repairs, alterations or corrections.
5.2.9
Each Operating Facility has legal and reasonably adequate access to storm and sanitary septic facilities, telephone, gas and electrical connections, fire protection, drainage and other public utilities, in each case as is necessary for the carrying on of the Operations as currently conducted.
5.3
Ownership of assets
Each of those Moveable Assets which are used by the Group Companies and are material to the business of the Group Companies, other than Moveable Assets disposed of in the ordinary course of business:



(a)
is legally and beneficially owned by the relevant Group Company, except for assets which are subject to hire purchase or lease arrangements where the hire purchase or lease payments do not exceed USD 250,000 (two hundred and fifty thousand U.S. dollars) per year;
(b)
is, where capable of possession, in the possession or under the control of the relevant Group Company; and
(c)
is free from Encumbrances except for Permitted Encumbrances.
5.3.1
With respect to each of those Moveable Assets that are subject to lease arrangements, the relevant Group Company has a valid and binding leasehold or license interest in, such Moveable Assets.
5.4
Plant and machinery and other fixed assets
The plant and machinery, vehicles and other equipment and other assets owned, leased or used by Group Companies and material to the Operations are in satisfactory working order and repair having regard to their age and use.
5.5
Sufficiency of assets
The assets owned by, leased by, licensed to or otherwise used by the Group Companies comprise all the assets necessary for the carrying on of the Operations substantially in the manner in, and to the extent to which, such Operations are conducted as of Signing.
6
Intellectual Property and information technology
6.1
Ownership, authorized use
6.1.1
The Data Room contains a list of material Owned Group Intellectual Property that is the subject of a registration, or application for registration with any Governmental Authority (the " Registered Group Intellectual Property "). The Disclosure Letter provides a general description of material unregistered trademarks, service marks, trade names, corporate names and other source or business identifiers, trade dress and logos included within the Owned Group Intellectual Property. All registration, renewal and other maintenance fees in respect of the Registered Group Intellectual Property due prior to the Closing Date have been paid in full.
6.1.2
A Group Company has a right or license to use all Licensed Group Intellectual Property and, so far as Seller is aware, such rights and licenses are valid and enforceable. Seller's Group owns and possesses a right, title and/or interest in and to the Granted Group Intellectual Property free and clear of all Encumbrances other than Permitted Encumbrances. Upon consummation of the Transaction and, to the extent relating to Intellectual



Property, the Restructuring and the other transactions contemplated by this Agreement, a Group Company will have a valid right or license to use all Granted Group Intellectual Property. A Group Company owns and possesses all right, title and interest in and to the Owned Group Intellectual Property free and clear of all Encumbrances other than Permitted Encumbrances. Seller's Group owns and possesses all right, title and interest in and to the Transferred Group Intellectual Property free and clear of all Encumbrances other than Permitted Encumbrances, and upon consummation of the Transaction and, to the extent relating to Intellectual Property, the Restructuring and the other transactions contemplated by this Agreement, a Group Company will own and possess all the right, title and interest in and to the Transferred Group Intellectual Property free and clear of all Encumbrances other than Permitted Encumbrances.
6.1.3
The Group Intellectual Property (excluding the Licensed Group Intellectual Property) is:
(a)
so far as Seller is aware, valid and subsisting and not being infringed, misappropriated or opposed by any person; and
(b)
not licensed to a third party except (i) pursuant to a Permitted Encumbrance, (ii) under those licenses identified in the Disclosure Letter, (iii) in respect of Granted Group Intellectual Property that is contemplated to be non-exclusively licensed to Purchaser's Group (including the Group Companies after Closing) in connection with the IP Agreement or Schedule 25 , (iv) in respect of Granted Group Intellectual Property that is contemplated to be exclusively licensed to Purchaser's Group (including the Group Companies after Closing) in connection with the IP Agreement or Schedule 25 to the extent that such third party licenses do not, and will not after Closing, significantly limit, hinder or adversely affect the Operations as conducted prior to the Closing Date.
6.1.4
So far as Seller is aware, the processes employed, the products manufactured or sold in the Operations and the Group Intellectual Property do not infringe or misappropriate any rights in Intellectual Property of any third party.
6.1.5
So far as Seller is aware, within the past 3 (three) years, neither Seller's Group nor any Group Company has been a party to any claim, nor is any claim threatened as of the Signing Date or pending against Seller's Group nor any Group Company: (a) based upon, or challenging or seeking to deny or restrict, the use or exploitation of any Group Intellectual Property, or (b) alleging that the use or exploitation of any of the Group Intellectual Property, the Operations, or products manufactured or sold by a Group Company do or may conflict with, misappropriate, infringe or otherwise violate any Intellectual Property right of any third party.



6.1.6
Except as provided in this Agreement, the consummation of the Transaction, the Restructuring and the other transactions contemplated by this Agreement shall not alter, impair or extinguish any rights of the Group Companies or Seller's Group in the Group Intellectual Property.
6.1.7
The Licensed Group Intellectual Property and the Owned Group Intellectual Property, in combination with the Intellectual Property provided in the Transitional Services Agreement and the IP Agreement contains all of the Intellectual Property reasonably necessary for the carrying on of the Operations substantially in the manner in, and to the extent to which such Operations are conducted as of Signing.
6.2
Information technology
The computer information technology and data processing systems used by the Group Companies in the ordinary conduct of the Operations, including all software, systems, hardware, networks, interfaces, platforms and related systems are in good working condition, are of sufficient quality, capacity and processing power and are sufficiently protected to perform all computing, information technology and data processing operations necessary for the conduct of the business of the Group Companies. There have been no material failures or breakdowns or material security breaches in the 12 (twelve) months preceding the Signing Date with respect to information and data contained within, any computer hardware or software, or other computer or communication systems, used or licensed in relation to the Operations.
7
Contracts
7.1
Contracts
No Group Company is a party to or subject to any material Contract or obligation which is not in the ordinary course of business or is not on an arm's length basis.
7.2
Joint ventures and other cooperation arrangements
No Group Company is, or has agreed to become, a member of any joint venture, consortium, partnership, profit sharing or other association (other than a recognized trade association in relation to which the Group Company has no liability or obligation except for the payment of annual subscription or membership fees).
7.3
Agreements with connected parties
7.3.1
There are no existing Contracts between, on the one hand, any Group Company and, on the other hand, any member of Seller's Group (excluding the Group Companies) other than on normal commercial terms in the ordinary course of business.



7.3.2
No Group Company is party to any Contract with any current or former employee, director or officer of any such Group Company or any Person connected (as defined by applicable Law in the relevant jurisdiction) with any of such Persons, or in which any such Person is interested (whether directly or indirectly), other than on normal commercial terms in the ordinary course of business.
7.4
Compliance with agreements
7.4.1
All the Contracts that are material to the Operations conducted at Closing (excluding any customer contract material to the Operations) to which any of the Group Companies is a party are valid and binding obligations of the parties thereto, enforceable against the applicable Group Company and, so far as Seller is aware, all other parties thereto in accordance with their respective terms, and the applicable Group Company is not in default under any of them nor, so far as Seller is aware, is any other party to any such material Contract (excluding any customer contract material to the Operations) in default thereunder.
7.4.2
So far as Seller is aware, no written notice of termination has been received as at Signing by any Group Company in respect of any material Contract (excluding any customer contract material to the Operations).
7.5
Effect of Transaction
So far as Seller is aware, the Transaction will not result in a breach of, or give any third party a right to terminate, or result in any Encumbrance under, any Contract to which any Group Company is a party and which is material to the Operations (excluding any customer contract material to the Operations) and is not otherwise terminable or will not otherwise terminate within six months after Signing.
8
Employees and employee benefits
8.1
Employees and terms of employment
8.1.1
The information disclosed in the Data Room contains details, in relation to each Group Company, of:
(a)
the total number of persons employed therein as per August 31, 2012 (with no changes outside the ordinary course of business having been made since that date);
(b)
all collective agreements affecting the terms of employment of any Employee; and
(c)
each share incentive or option arrangement, bonus scheme and profit sharing plan affecting any current or former employees,



directors, independent contractors or consultants of any Group Company.
8.1.2
No Group Company is a party to any written or employment, service or consulting Contract relating to any Senior Employee, except for written employment Contracts which are of indefinite term terminable by the applicable Group Company as provided under applicable Law and without any special arrangements or commitments with respect to the continuation of employment or payment of any particular amount payable upon termination of employment.
8.1.3
Except as disclosed in the Data Room, no Group Company is subject to any collective agreement with any labor union or employee association or has made any written commitment to or conducted negotiations with any labor union or employee association with respect to any future collective bargaining agreement. There is no certification or pending certification of any such union with regard to a bargaining unit.
8.1.4
The Group Companies operate and have operated for the 3 (three) years immediately prior to the date of this Agreement in material compliance with all labor and employment Laws applicable to the Group Companies, including but not limited to those Laws which relate to the terms and conditions of employment, applications for employment, salary, pay equity, overtime, minimum wages, compensation, hours of work, meal periods and rest breaks, equal employment opportunities, discrimination, harassment, retaliation, employee classifications, workers’ compensation, disability and unemployment insurance, immigration, cessation or termination of employment, the WARN Act and similar state and local Laws, collective bargaining, privacy, health and safety, and leaves of absence (collectively, " Labor and Employment Laws ").
8.1.5
In the 3 (three) years immediately prior to the date of this Agreement, the Group Companies have properly classified all U.S. service providers as contractors and all U.S. Employees as exempt or non-exempt under the Fair Labor Standards Act, as amended, and under other applicable federal, state, tax, and other Laws. There has been no "mass layoff" or "plant closing" (as defined by the WARN Act and similar state and local Laws) with respect to any of the Group Companies within the 3 (three) years prior to Closing.
8.2
Termination of employment
8.2.1
As at Signing, no member of Seller's Group has received any written notice of resignation from any Senior Employee.
8.2.2
Save as provided for in the Accounts and so far as Seller is aware, no material liability which remains to be discharged has been incurred by any Group Company for:
(a)
breach of any Contract of employment with any Employee; or



(b)
breach of any statutory employment right or applicable employment and labor Laws.
8.2.3
Save as provided for in the Accounts, in the last 12 (twelve) months no Group Company has made or agreed to make any material payment or agreed to provide any material benefit to any Employee or former employee employed by the relevant Group Company or to any dependent of such Employee or former employee, in connection with the actual or proposed termination or suspension of employment of any such Employee or former employee.
8.3
Employment and Industrial disputes
8.3.1
So far as Seller is aware, no claim with respect to any Labor and Employment Law is now pending or has been asserted or threatened by any person or governmental entity, with respect to current or former employees of the Group Companies, except as disclosed in the Data Room.
8.3.2
As of the date hereof: (a) no Group Company is involved in any strike or industrial or trade dispute or any dispute or negotiation regarding a claim with any trade union or other body representing employees or former employees of any Group Company; (b) there is no labor strike, lockout, picket, slowdown, stoppage or other labor dispute pending against or, to the knowledge of Seller, threatened against any of the Group Companies; (c) as far as Seller is aware there is no activity or proceeding of any labor union to organize any employees of any of the Group Companies pending against or, to the knowledge of Seller, threatened against any of the Group Companies; and (d) there are no unfair labor practice charges or complaints pending against any of the Group Companies before the National Labor Relations Board or any other governmental entity.
8.4
Benefit Arrangements
8.4.1
The documents disclosed in the Data Room contain certain details of all material Benefit Arrangements related to retirement, except for Benefit Arrangements related to retirement to which any of the Group Companies contribute and which were established pursuant to any Law, and separately identifies those Benefit Arrangements that are Company Arrangements.
8.4.2
With respect to each material Benefit Arrangement, Seller has delivered or made available in the Data Room to Purchaser true and correct copies of (i) each written plan document or agreement and all amendments thereto (or a written description of any material Benefit Arrangement that is not set forth in a written document), (ii) all related trust or funding documents, (iii) the most recent summary plan description together with the most recent summary of material modifications thereto, if any, (iv) the most recent annual report (Form 5500, AIRs, AISs and all schedules and financial statements attached thereto), if any, (v) the most recent actuarial reports for any Benefit Arrangement that is a defined benefit pension plan, (vi) the most recent ASC



715 reports, if any, and (vii) all material correspondence to or from any Governmental Authority received in the last year.
8.4.3
The Benefit Arrangements are in substantial compliance with, and have been managed in accordance with, their terms, and collective bargaining agreements and with the Law and government Taxation or funding requirements in all material respects. Each Benefit Arrangement that is intended to be qualified under Section 401(a) of the Code or Section 401(k) of the Code has timely received a favorable determination letter from the IRS covering all of the provisions applicable to the Benefit Arrangement for which determination letters are currently available, and to the knowledge of Seller, no fact or event has occurred since the date of such determination letter or letters from the IRS that would reasonably be expected to adversely affect the qualified status of any such plan or the exempt status of any such trust. There are no governmental audits or investigations pending or, to the knowledge of Seller, threatened in connection with any Benefit Arrangement.
8.4.4
None of the Benefit Arrangements are subject to Title IV of ERISA or are a "multiemployer plan" as defined in Section 3(37) of ERISA (a " Multiemployer Plan ") or a "multiemployer pension plan" or a registered pension plan under applicable Canadian or provincial Law and, within the last six years, neither Seller, the Group Companies nor any of their ERISA Affiliates has sponsored, maintained or contributed to such Title IV plan or Multiemployer Plan. No Benefit Arrangement that is subject to Title IV of ERISA has failed to satisfy the "minimum funding standard" (as defined in Section 412 of the Code) applicable to such Benefit Arrangement and Seller and the Company have paid all premiums (and interest charges and penalties for late payments, if applicable) due the PBGC with respect to each Plan subject to Title IV of ERISA for which such premiums are required and has made all required filings with the PBGC for each such Plan.
8.4.5
With respect to any Multiemployer Plan or Canadian registered pension plan, all contributions have been made as required by the terms of the plans, the terms of any collective bargaining agreements and applicable Law and none of Seller or the Group Companies or any of their Subsidiaries, nor any of their ERISA Affiliates, has received notice of any outstanding claim or demand for withdrawal liability or material partial withdrawal liability, notice of a requirement to make increased material contributions or notice that any such plan is, or is expected to be, insolvent, in reorganization or in endangered or critical status, within the meaning of Title IV or Section 305 of ERISA or any Canadian Governmental Authority.
8.4.6
So far as Seller is aware, there have been no improper withdrawals, applications or transfers of assets from any Benefit Arrangement or the trusts or other funding media relating thereto that remain outstanding and unremedied, and none of Seller, or to the knowledge of Seller, any Group Company nor any of their respective agents has been in breach of any fiduciary obligation with respect to the funding or administration of the Benefit Arrangements.



8.4.7
No insurance policy or any other Contract or agreement affecting any Benefit Arrangement sponsored or maintained by any of the Group Companies requires or permits a retroactive increase in premiums or payments due thereunder, or requires additional premiums or payments on termination of the Benefit Arrangement or any insurance policy, Contract or agreement relating thereto.
8.4.8
So far as Seller is aware, no step has been taken, no event has occurred and no condition or circumstance exists that has resulted in or could be reasonably expected to result in any Benefit Arrangements having its registration under applicable Laws refused or revoked, or being placed under the administration of any trustee or receiver or Governmental Authority or being required to pay any material amount of Tax or penalties under applicable Laws. Where any Benefit Arrangements have been partially or fully terminated or wound-up, all assets, including any surplus, attributable to such partial or full termination or wind-up has been fully distributed in accordance with all applicable Laws or where such distribution of assets is pending, the amount of any surplus attributable to such partial or full termination or wind-up together with the date as of which such amount is determined is disclosed in the Disclosure Letter. So far as Seller is aware, no transactions requiring Governmental Authority approvals are pending in relation to the Benefit Arrangements.
8.4.9
Neither the negotiation, execution and delivery of this Agreement, nor the consummation of the Transaction will, either alone or in combination with another event (A) result in any material payment becoming due to any employee or former employee or group of Employees or former employees of any Group Company or any Subsidiary; (B) increase any benefits otherwise payable to any Employee or former employee of any Group Company under any Benefit Arrangement; (C) result in the acceleration of the time of payment or vesting of any such rights or benefits; or (D) otherwise result in the payment of any "excess parachute payment" within the meaning of Section 280G of the Code with respect to a current or former employee of any Group Company or any Subsidiary.
8.4.10
Except as set forth in the Data Room, neither Seller, the Group Companies nor any of their Subsidiaries sponsors or has sponsored any Benefit Arrangement that provides for any post-employment or post-retirement health or medical or life insurance benefits for retired, former or current employees of the Group Companies or any of their Subsidiaries, except as required by Section 4980B of the Code or other Law.
8.4.11
So far as Seller is aware, there are no material actions, suits, claims (other than routine claims for payment of benefits in the ordinary course), trials, demands, investigations, grievances, arbitrations or other proceedings pending or threatened in respect of any of the Benefit Arrangements or their assets and there exists no state of facts which after notice or lapse of time or both could reasonably be expected to give rise to any legal action, suit, trial, investigation, legal grievance, arbitration or other proceedings.



9
Legal compliance
9.1
Licenses and consents
All licenses, permits, consents, authorizations, certificates and registrations material to the Operations as at Signing, excluding Environmental Permits (in respect of which Paragraph 10 applies) have been obtained, are in full force and effect and are being complied with in all material respects. No material violations are or have been recorded in respect of any such permit and no material proceeding is pending or, so far as seller is aware, threatened to suspend or revoke any permit.
9.2
Compliance with Law
9.2.1
Each Group Company is (and has been at all times during the past 3 (three) years) conducting the business of the Group in all material respects in compliance with applicable Law.
9.2.2
There is not any charge, investigation, inquiry or disciplinary proceeding with respect to a violation of applicable Law, or any order, decree, decision or judgment of any court, tribunal, arbitrator or Governmental Authority outstanding against any Group Company or any Person for whose acts or defaults it may be vicariously liable, except as would not reasonably be expected to have a material adverse effect on the Operations as at Signing.
9.2.3
No Group Company has received any written notice during the past 12 (twelve) months from any Governmental Authority with respect to a violation and/or failure to comply with any applicable Law or requiring it to take or omit any action, except as would not reasonably be expected to have a material adverse effect on the Operations.
9.2.4
In the last 3 (three) years, no Group Company nor any of its directors, officers, employees or agents has (i) made or offered any payment or given anything of value to any officials or employees of any Governmental Authority or any political party or candidate for political office or to any other Person, (A) while knowing or having reason to know that money or something of value may be offered, given or promised, directly or indirectly, for the purpose of influencing any action or decision, inducing a Person to use his or its influence with any Governmental Authority to affect or influence any act or decision, securing any improper advantage, (B) in violation of any applicable Law, or (C) where such payment would constitute a bribe, kickback or illegal or improper payment to assist any Group Company in obtaining or retaining business for, or with, or directing business to, any Person, (ii) made or offered any payment or given anything of value to customers, distributors or dealers for the sharing of fees or to customers, distributors, dealers or suppliers for rebating of charges, or (iii) engaged in any reciprocal practices, or paid any consideration to purchasing agents or other Representatives of customers in respect of sales made or to be made by any Group Company in violation of any applicable Law. To the extent required by law, the Group Companies



have made all payments to customers, consultants and similar Persons and entities by check delivered or mailed to such third parties’ principal place of business or by wire transfer to a bank account of each such Person.
10
Environment
10.1
For the purposes of this Paragraph 10:
" Environment " means any or all of the following media (alone or in combination): air; water (including water under or within land); soil, sediment and land and any ecological systems and living organisms supported by these media;
" Environmental Authority " means any Governmental Authority having jurisdiction to determine or enforce any matter arising under Environmental Law;
" Environmental Law " means all Law of any relevant jurisdiction in force at or before Signing whose purpose is to protect or prevent pollution of the Environment, to impose liability for the cost of any Remediation of the Environment or to compensate for any injury to the Environment, or to regulate Releases of Hazardous Substances into the Environment, or to regulate or impose liability with respect to the use, generation, manufacture, treatment, storage, burial, disposal, distribution, transport or handling of or exposure of any individual to or to protect human health and safety with respect to Hazardous Substances;
" Environmental Permit " means any license, permit, consent, authorization, certificate, registration, identification number, and exemption which is issued, granted or required under Environmental Law;
" Hazardous Substances " means any chemicals, materials, radiation, wastes, pollutants, contaminants and any other natural or artificial substance (whether in the form of a solid, liquid, gas or vapor) which is regulated, listed or defined under any Environmental Law or capable of causing harm or damage to the Environment;
" Release " means any presence, emission, spill, seepage, leak, escape, leaching, discharge, injection, pumping, pouring, emptying, dumping, disposal, migration, or release of Hazardous Substances from any source into or upon the Environment;
" Relevant Period " means the 3 (three) year period immediately before the Effective Time;
" Remediation " means any investigation, clean-up, removal action, remedial action, restoration, repair, abatement, response action, corrective action, monitoring, sampling and analysis, installation, reclamation, closure, or post-closure in connection with the actual or suspected Release of Hazardous Substances.



10.2
Each Group Company is conducting and has conducted during the Relevant Period its business and Operations in material compliance with Environmental Law, except with respect to matters that are fully and finally resolved without any further Liability to any Group Company.
10.3
Each Group Company has obtained and maintains all Environmental Permits required to operate the business of such Group Company as currently operated, and all such Environmental Permits are in force and have been complied with in all material respects except with respect to matters that have been fully and finally resolved without any future Liability to any Group Company, (b) none of the Environmental Permits require consent to remain in full force and effect following consummation of the transactions contemplated hereby.
10.4
Except for notices received more than 3 (three) years before the Effective Time or that address matters that have been fully and finally resolved without further Liability to the Group Company, no Group Company has, at Signing, received any written notice of any civil, criminal, regulatory or administrative action, claim, investigation or other proceeding or suit concerning a contravention of or Liability under Environmental Law or Environmental Permits, and, as far as Seller is aware, no such notice has been threatened.
10.5
Except for notices received more than 3 (three) years before the Effective Time or that address matters that have been fully and finally resolved without further Liability to the Group Company, neither Seller nor any Group Company has received written notice (i) during the Relevant Period (A) prior to the Signing Date, that an Environmental Authority has threatened or is intending to revoke or suspend any Environmental Permits or (B) between Signing and Closing, that an Environmental Authority is intending to revoke or suspend any Environmental Permits as a result of a contravention of Environmental Law or (ii) during the Relevant Period (A) prior to the Signing Date, that any material amendment to any Environmental Permit is required to enable the operations of the Group to continue as currently operated or (B) between the Signing and the Closing, that as a result of a contravention of Environmental Law or Environmental Permits, any material amendment to any Environmental Permit is required to enable the Operations of the Group to continue as currently operated.
10.6
Seller has made available to Purchaser in the Data Room copies of all material third party environmental reports in the possession or control of Seller or any Group Company that relate to any Group Company’s compliance with Environmental Laws during the last 3 (three) years or the environmental condition of any of the Operating Facilities.
10.7
So far as Seller is aware, none of the Operating Facilities and no property to which Hazardous Substances originating on or from such properties or the businesses or assets of any Group Company has been sent for treatment or disposal, is listed or proposed to be listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability



Information System or on any other governmental database or list of properties that may or do require Remediation under Environmental Laws and as far as Seller is aware no Group Company has arranged, by contract, agreement, or otherwise, for the transportation, disposal or treatment of Hazardous Substances at any location such that it is or could be subject to material Liability for Remediation of such location.
11
Anti-competitive agreements and practices
11.1
So far as Seller is aware, no Group Company is a party to any agreement which is material to the Operations and which is the subject of written notice received by any member of Seller's Group from any relevant regulatory authority that it (i) is unenforceable or void or (ii) renders the Group Company that is party thereto liable to civil, criminal or administrative proceedings, in either case by virtue of any anti-trust or similar legislation in any jurisdiction in which any Group Company carries on business.
11.2
So far as Seller is aware, no Group Company is a party to any agreement, practice or arrangement which in whole or in part contravenes the Sherman Act or any other Competition Laws.
12
Litigation
12.1
No Group Company is involved whether as claimant or defendant or other party in any judicial, administrative or arbitration suit, claim, proceeding, litigation, prosecution, investigation or enquiry (other than as claimant in the collection of debts arising in the ordinary course of its business) which involves claims in excess of USD 1,000,000 (one million U.S. dollars). None of such suits, claims, proceedings, litigations, prosecutions, investigations, or enquiries, if determined adversely to the relevant Group Company, reasonably would be expected, individually or in the aggregate to have a material adverse effect on the Operations.
12.2
So far as Seller is aware, no such judicial, administrative or arbitration suit, claim, proceeding, litigation, prosecution, investigation, enquiry or arbitration of material importance to the Operations is threatened against any Group Company.
12.3
So far as Seller is aware, there are no outstanding orders, judgments, injunctions, awards or decrees of any court, Governmental Authority or arbitration tribunal against or involving any Group Company, and no Group Company is or has been in default with respect to any decree, injunction or other order of any Governmental Authority or arbitration tribunal.
13
Insurance
13.1
The insurances of the Group Companies material to the Operations as at Signing have been disclosed in the Data Room.



13.2
In respect of the insurances referred to in Paragraph 13.1, all such policies and binders are in full force and effect and insure against risks and liabilities to the extent and in the manner deemed appropriate and sufficient by Seller and Seller has not received any written notification that such insurances are not valid or enforceable. So far as Seller is aware, (i) no Group Company has received or given a notice of cancellation or non-renewal with respect to any such policy and (ii) no insurer under any such policy has generally disclaimed liability thereunder or indicated any intent to cancel or not renew any such policy or generally disclaim liability thereunder.
13.3
Details of all outstanding insurance claims in excess of USD 500,000 (five hundred thousand U.S. dollars) and or EUR 500,000 (five hundred thousand Euro) and of all insurance claims in excess of USD 500,000 (five hundred thousand U.S. dollars) and or EUR 500,000 (five hundred thousand Euro) made during the past 3 (three) years preceding the Signing Date have been disclosed in the Data Room. So far as Seller is aware, there is no claim pending under any such policy as to which coverage has been questioned, denied or disputed by the underwriters of such policy with respect to any of such claims.
13.4
So far as Seller is aware, no Group Company is in default with respect to any provision contained in any such policy or binder and has not failed to give any material notice or present any material claim under any such policy in due and timely fashion.
14
Products
14.1
During the 12 (twelve) month period prior to the Signing Date, no individual claims of more than USD 500,000 (five hundred thousand U.S. dollars) have been made against any Group Company in respect of any products which have been manufactured or sold by any Group Company.
14.2
So far as Seller is aware, during the past 3 (three) year period prior to the Signing Date, no product manufactured or sold by any Group Company or their affiliates has been the subject of any recall or similar action instituted by any Governmental Authority or as a result of any requirement of applicable Law or undertaken by any Group Company or their affiliates on a voluntary basis or upon a customer request.
15
Tax
15.1
All income Tax Returns and all other material Tax Returns required to be filed with any Tax Authority on or before the Effective Time by, or with respect to, any Group Company or its assets have been duly and timely filed on or before the Effective Time. To the knowledge of Seller, the Group Companies have fully and timely paid all material Taxes (whether or not shown on such Tax Returns) due and payable (including all installments and prepayments of Tax as required by applicable law), or, where Taxes are not yet due, have made adequate provision for such material Taxes in the relevant financial



statements in accordance with IFRS. To the knowledge of Seller, the Group Companies have not waived any statute of limitations in respect of any Taxes. Tax Returns that have been filed are true, correct and complete in all material respects.
15.2
The income Tax liability of or with respect to each Group Company has been assessed by the appropriate Tax Authorities for all taxable years ending on or prior to December 31, 2011 and, to the knowledge of Seller, there are no agreements, waivers or other arrangements providing for an extension of time with respect to the filing of any Tax Return or the payment of any Taxes by or with respect to any Group Company or the examination of any Tax Return or the levying of any assessment by any jurisdiction or Tax Authority with which any Tax Return of or with respect to any Group Company has been filed. No Person has been granted any power of attorney that is currently in force with respect to any income Tax matter of any Group Company or Subsidiary.
15.3
The Group Companies have made (or have had made on their behalf) all required Tax Deductions or Tax collections in connection with amounts paid to or by any Person, employee, independent contractor, creditor or other third party and have paid or remitted the same to the proper Tax Authority or other receiving authority on a timely basis as required by Law.
15.4
No deficiency for any material amount of Tax has been asserted or assessed by any Tax Authority in writing against or with respect to any Group Company, except for deficiencies which have been satisfied by payment, settled or been withdrawn, and except for Taxes being contested in good faith and for which adequate reserves have been established in accordance with IFRS. To the knowledge of Seller, there are no actions, suits, proceedings, investigations or claims pending or threatened against any Group Company or any member of Seller's Group in respect of Taxes or Tax Liability of or with respect to any Group Company. To the knowledge of Seller, no material item of income, gain, loss, deduction or credit of a Group Company is under current examination by any Tax Authority. To the knowledge of Seller, no audit or other proceeding by any Tax Authority is pending or threatened in writing with respect to any material amounts of Taxes due from or with respect to any Group Company. No jurisdiction or Tax Authority in or with which any Group Company does not file a Tax Return has alleged that such Group Company is required to file such a Tax Return. The terms and conditions of the Note reflect market rates that would have been available on an arms-length basis to Akzo Nobel Canada Inc. as borrower on May 30, 2006. As far as Seller is aware, no Tax Authority has required, made, or attempted to make, any adjustment for Tax purposes in relation to the Note.
15.5
To Seller's knowledge, there are no Encumbrances other than Permitted Encumbrances for any Taxes against any interest in or any asset of a Group Company.



15.6
No Group Company is a party to any agreement or arrangement (whether written or otherwise) relating to the apportionment, sharing, indemnification, assignment, assumption, or allocation of any Taxes to which it will have any obligation to make any payment on or after the Closing Date.
15.7
To the knowledge of Seller, there is no request pending with respect to a private letter ruling or technical advice memorandum (or any similar request) from any Tax Authority with respect to any Group Company.
15.8
Akzo Nobel Coatings Inc. is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code.
15.9
Akzo Nobel Paints LLC shall be treated as a disregarded entity for U.S. federal income Tax purposes (and not, for the sake of clarity, as an association taxable as a corporation for U.S. federal income tax purposes) at all times through and including the Effective Time.
15.10
No Canadian Group Company has ever participated in any transaction that is a "reportable transaction" (as defined for purposes of draft section 237.3 of the Tax Act) or that is subject to the provisions of any similar federal, provincial or foreign Tax Law (including for greater certainty, the provisions regarding aggressive tax planning described in the sections 1079.8.5 or 1079.8.6 of the Taxation Act (Quebec)).
15.11
Each Group Company has made (or there has been made on their behalf) all required current estimated Tax payments sufficient to avoid any underpayment penalties.
15.12
Each Group Company has provided to Purchaser in the Data Room a true copy of all income Tax Returns filed by the Group Company (or any subsidiary thereof) in respect of their fiscal years ended December 31, 2010 and 2011.
15.13
No facts, circumstances or events exist or have existed that have resulted or may result in the application of any debt forgiveness, debt parking or property seizure provisions to any Group Company under any applicable Tax Law.
15.14
No Canadian Group Company has made in the four years preceding the Signing Date an election for deferral of Taxes in circumstances where the amount elected as the transferor's proceeds of disposition and the acquiror's cost of disposition for purposes of federal Tax is different from the amount elected for purposes of provincial or territorial Tax.
15.15
No Canadian Group Company has an interest in any partnership or in a joint venture in respect of which it has reported income and loss on the basis that the joint venture had its own fiscal period.
15.16
No Canadian Group Company has made an election to report its Canadian tax results in a currency other than the currency of Canada.



15.17
As at Signing, Akzo Nobel Paints (Puerto Rico) Inc. is an eligible beneficiary of, and enjoys a Puerto Rico Tax Exemption Grant and the PRIDCO Incentives.
15.18
None of the Shares is "taxable Canadian property" within the meaning of the Income Tax Act (Canada). None of the Shares derives, and none of them has at any time within the past 60 months derived, more than 50% of its fair market value directly or indirectly from or from any combination of (i) real or immovable property situated in Canada, (ii) Canadian resource properties (as defined in the Income Tax Act (Canada)), (iii) timber resource properties (as defined in the Income Tax Act (Canada)), and (iv) options in respect of, or interests in, or for civil law, a right in, property described in any of (i) to (iii), whether or not the property exists.
15.19
So far as Seller is aware, no Group Company will be required to include any material amounts in income, or exclude any material items of deduction, in a taxable period beginning after the Effective Time as a result of (i) a change in method of accounting occurring prior to the Closing Date, (ii) an installment sale or open transaction arising in a taxable period (or portion thereof) ending on or before the Closing Date, (iii) a prepaid amount received, or paid, prior to the Closing Date, (iv) deferred gains arising prior to the Closing Date or (v) a "closing agreement" as described in Section 7121 of the Code or any corresponding or similar provision of state, local or foreign income Tax law executed on or prior to the Closing Date.
15.20
No Group Company has (i) participated in any "tax shelter" within the meaning of Section 6662 of the Code (or any U.S. state or local analogue); (ii) at any time, engaged in or entered into a " reportable transaction" within the meaning of Treasury Regulation Section 1.6011-4(b) (or any U.S. state or local analogue); (iii) been required to file IRS Form 8275 or 8275-R or any predecessor or successor thereof (or any U.S. state or local analogue); or (iv) been a "material advisor" as defined in Section 6111(b) of the Code (or any U.S. state or local analogue).
16
Events since June 30, 2012
16.1
Between June 30, 2012 and Signing there has been no (i) material adverse change in the financial position of the Group, other than a change affecting or likely to affect all companies carrying on similar business in the countries in which the Group carries on business or (ii) action taken as described in Schedule 20 under (a) through (n), (q) through (u), (v)(i) and (w) through (z) of this Agreement which, had such action occurred after the date of this Agreement, without the consent of Purchaser, would be in violation of such Paragraph 5.2 of this Agreement.
16.2
Between June 30, 2012 and Signing the business of the Group has been carried on as a going concern in the ordinary course without any material interruption or material alteration in its nature, scope or manner.



16.3
Since June 30, 2012 no Group Company has declared, made or paid any dividend or other distribution to its members or shareholders, as applicable.
17
Customer Relations
As of Signing, so far as Seller is aware, (i) no customer (or former customer) material to the Operations has during the last 12 months prior to Signing cancelled or terminated its relationship with the Group or materially decreased its usage or supply of products or services of the Group Companies, and (ii) the Group Companies have not received from any customer material to the Operations written notice that such customer intends to terminate its relationship with the Group
18
International Trade Laws and Regulations
18.1
(i) Each Group Company and its Representatives are currently, and have been, in material compliance with all applicable International Trade Laws and Regulations and (ii) there have not been and are no written claims, investigations or proceedings pending (or to Seller's knowledge threatened) between a Group Company and any Governmental Authority under any of the International Trade Laws and Regulations.
18.2
So far as Seller is aware, each Group Company is in material compliance with all applicable Laws relating to export control and trade embargoes.
19
No broker
No broker, finder, agent or similar intermediary has acted for or on behalf of Seller or the Group Companies in connection with this Agreement or the transactions contemplated hereby, and no broker, finder, agent or similar intermediary is entitled to any broker’s, finder’s or similar fee or other commission in connection therewith based on any agreement, arrangement or understanding with Seller or the Group Companies or any action taken by Seller or the Group Companies.
20
Disclosure of information
The following information has been collated by Seller in good faith, and Seller has not knowingly included any matter which is untrue or knowingly omitted any matter the omission of which would make the contents untrue or inaccurate in any material respects:
(a)
all disclosures made pursuant to Paragraph 2 of the Disclosure Letter;
(b)
all information made available in the Data Room; and
(c)
all information provided during the management presentations on September 11-12, 2012 and November 1, 2012, and the site visits on September 11-13, 2012 and September 19, 2012.



For the avoidance of doubt, the foregoing statements in no way limit, restrict or otherwise qualify the representations and warranties made in this Schedule 12 .




Part 4    Warranties of Purchaser
1
Authority and capacity
1.1
Purchaser and each Share Purchaser is validly existing and is a company duly incorporated and in good standing under the Laws of its jurisdiction of incorporation.
1.2
Purchaser has the full power and authority to enter into, execute, deliver and perform this Agreement and any other documents to be executed by Purchaser pursuant to or in connection with this Agreement and to consummate (and cause each Share Purchaser to consummate) the transactions contemplated hereunder and thereunder. This Agreement and any other documents to be executed by Purchaser pursuant to or in connection with this Agreement, when executed, will constitute valid and binding obligations of Purchaser enforceable against Purchaser in accordance with their respective terms.
1.3
Each Share Purchaser has taken or will have taken by Closing all corporate action required by it to authorize it to perform its obligations in accordance with this Agreement and any other documents to be executed pursuant to or in connection with this Agreement and no other proceedings on the part of Purchaser are necessary to authorize this Agreement or any other documents to be executed by Purchaser pursuant to or in connection with this Agreement or to consummate the transactions contemplated hereunder and thereunder. Any document to be executed by a Share Purchaser pursuant to or in connection with this Agreement, when executed, will constitute valid and binding obligations of such Share Purchaser enforceable against such Share Purchaser in accordance with their respective terms.
1.4
There are no proceedings in relation to any compromise or arrangement with creditors or any winding up, bankruptcy or other insolvency proceedings concerning any Share Purchaser. No resolution has been proposed or passed for the dissolution of any Share Purchaser and no meeting has been convened nor any written resolution circulated concerning the dissolution of any Share Purchaser. No receiver has been appointed in relation to any properties, assets or undertakings of any Share Purchaser and no Share Purchaser is insolvent.
1.5
Each of Purchaser and Share Purchaser of Akzo Nobel Canada Inc. is an accredited investor, within the meaning of National Instrument 45-106 (Canada) .
2
Certainty of funds
Purchaser will be readily able to pay the Estimated Purchase Price and the Note Purchase Price at Closing in accordance with Clause 6.2.1 of the Agreement.




3
Consents
Except for the Competition Act Clearance, the Investment Canada Act Clearance, the HSR Act Clearance and the Other Anti-trust Approvals, no consent, approval, waiver or authorization is required to be obtained by Purchaser, from, and no notice or filing is required to be given by Purchaser to or made by Purchaser with, any Governmental Authority in connection with the execution and performance by Purchaser of this Agreement, other than in all cases where the failure to obtain such consent, approval, waiver or authorization, or to give or make such notice of filing would not, individually or in the aggregate, be reasonably expected to materially impair or delay Purchaser's ability to perform its obligations hereunder.
4
Non-contravention
The execution and performance by Purchaser of this Agreement and the completion of the Transaction do not and will not (i) violate any provision of the charter, articles of association or other Organizational Documents of Purchaser and (ii) violate or result in a breach of or constitute a default under any Law to which Purchaser is subject.
5
No broker
No broker, finder, agent or similar intermediary has acted for or on behalf of Purchaser in connection with this Agreement or the transactions contemplated hereby, and no broker, finder, agent or similar intermediary is entitled to any broker’s, finder’s or similar fee or other commission in connection therewith based on any agreement, arrangement or understanding with Purchaser or any action taken by Purchaser.




Schedule 19     Environmental Indemnity
1
Definitions
1.1
For the purposes of this Schedule 19 :
" Current Use " means, with respect to each Operating Facility, the current use of such Operating Facility at Closing;
" Environmental Claim " means (a) any written claim, demand, legal action, complaint, order, directive, legal proceeding, or governmental notice of potential responsibility, issued or made by any Regulatory Authority (including enforcement notices or proceedings or governmental information requests) or by any third party against the Group Companies or Purchaser with respect to Environmental Laws or Release of Hazardous Substances, including any contamination of soils, sediments, ground water, or surface water (which, for the avoidance of doubt, includes any migration of a Release of Hazardous Substances or contamination, and any breakdown products originating from such Release or contamination or any subsequent migration thereof), in connection with any Non-Operating Facility, Former Facility or any Off-Site Location (except to the extent arising from a Group Company’s use of the Off-Site Location after the Closing), or any Pre-Closing Environmental Condition in relation to any Operating Facility, and (b) any Losses with respect thereto, including Losses incurred in defending, disputing, litigating, settling or otherwise resolving any of the foregoing.
" Environmental Costs " means costs (including reasonable legal costs and reasonable experts' and consultants' fees) incurred in undertaking cost-effective measures: reasonably required (i) under Environmental Laws; (ii) as a response to a reasonably anticipated risk of off-site migration: or (iii) to address an imminent and substantial threat to human health or the environment, (together: the " Remediation Triggers ") to respond to, address, mitigate or resolve a Pre-Closing Environmental Condition, including (a) the costs of conducting Remediation (which may include the use of risk assessments, institutional controls and deed restrictions where commercially reasonable), (b) preventing or limiting enforcement actions, third party claims or penalties and (c) Losses sustained by Purchaser or a Group Company with respect to a Pre-Closing Environmental Condition. Environmental Costs also include any costs related to a Pre-Closing Environmental Condition approved in writing by Seller. Environmental Costs shall not include any (i) Remediation costs to the extent not incurred to achieve cleanup standards applicable to the Current Use of the property (except to the extent such standards are modified by appropriate risk assessments or institutional controls), (ii) Purchaser's internal costs, (iii) any costs to the extent arising out of Purchaser's own negligence or willful misconduct, and (iv) any damages to the extent arising out of Purchaser's actions that exacerbate environmental conditions disclosed in writing by Seller to Purchaser or which are otherwise actually known by Purchaser at the time Purchaser undertakes such actions.
" Existing Environmental Reports " means all environmental assessments, reports, audits and other material documents in the possession or under the control of Seller or the Group Companies to the extent that they relate to the prior or current uses at or environmental condition of any Operating Facilities, Non-Operating Facilities or to the any Group Companies’ compliance with Environmental Laws.

" Former Facilities" means any facilities or real properties previously but not currently owned, operated or leased by any Group Company or any predecessor of a Group Company.



"NFA" shall have the meaning set forth in Paragraph 3.3(b) of this Schedule 19 .
" Off-Site Location " means any off-site location to which Hazardous Substances created by any Group Company or for the benefit any Group Company were shipped for handling, treatment, storage and disposal prior to the Closing Date.
" Operating Facilities " means the facilities owned, operated or leased by any of the Group Companies at Closing, excluding the Non-Operating Facilities.
" Regulatory Authority " means any agency of a national, federal, state or local government, its subdivisions or a supranational authority.
" Pre-Closing Environmental Condition " means any Release of Hazardous Substances, and any contamination of soils, sediments, ground water, or surface water, existing, initiated or occurring prior to Closing, which, for the avoidance of doubt, includes any pre- or post-Closing migration of a pre-Closing Release of Hazardous Substances or contamination, and any breakdown products originating from such pre-Closing Release or contamination or any subsequent migration thereof.
2
Existing Environmental Reports
Within 30 (thirty) calendar days of Signing and prior to the Closing Date, Seller shall provide Purchaser with complete copies of any of the Existing Environmental Reports that are not included in the Data Room.

3
Environmental Indemnity
3.1
Subject to Clause 10.4 of this Agreement and the other provisions of this Schedule 19 , Seller shall indemnify, defend, release and hold harmless the Purchaser Indemnified Parties from and against any and all Environmental Costs and Environmental Claims, except to the extent that:
(a)
the Environmental Costs arose out of: (i) the excavation of soil, demolition of buildings or other actions (including, for the avoidance of doubt, voluntary remediation) carried out by or on behalf of Purchaser or the Group Companies after the Closing, (ii) any closure, decommissioning or cessation of activities of or at the Operating Facilities after the Closing, or (iii) any action by Purchaser or any of the Group Companies after the Closing that has the effect of triggering an Environmental Claim, except to the extent that any of the foregoing (i) and (iii) are undertaken: (A) as a reasonably required response to a reasonably anticipated risk of off-site migration; or (B) as a commercially reasonable response to (w) a bona fide third party claim or a judgment rendered in favor of a third party against Purchaser or the Group Companies; (x) the requirements of any Law or the order or decree of, or an enforcement action brought by, a Governmental Authority; (y) an unsolicited demand or requirement by a Governmental Authority; or (z) an imminent and substantial threat to human health or the environment; and
(b)
the relevant Environmental Cost or Environmental Claim, as applicable, is the result of a change from the Current Use of the relevant premises or a change in Environmental Law, in each case after Closing.

        
             
          
   
 


3.2
Subject to Clause 10.4 of this Agreement and the other provisions of this Schedule 19 , Seller's liability pursuant to Paragraph 3.1 shall be limited to the following percentage of the related Losses for the relevant Environmental Claim or Environmental Cost:
(a)
with respect to Non-Operating Facilities, Former Facilities, or Offsite Locations, 100%
(b)
with respect to Pre-Closing Environmental Conditions, Environmental Costs or Environmental Claims disclosed in the Data Room, in the Disclosure Letter or pursuant to Paragraph 2 of this Schedule 19 , 100%; and
(c)
with respect to Operating Facilities, a percentage determined, based upon the date of receipt by Seller of Purchaser's notice setting out its claim under Paragraph 3.1 in sufficient detail, in accordance with the following schedule:
(i)
Claims noticed in years 1 through 3 after Closing: 90%
(ii)
Claims noticed in year 4 through 10 after Closing: 75%
It is acknowledged and agreed by the Parties that the applicable percentage shall remain constant until the matter is finally resolved.
3.3
With respect to indemnification for Environmental Claims and Environmental Costs:
(a)
Upon the 10 th (tenth) anniversary of Closing, Seller’s obligations under this Schedule 19 shall terminate and cease other than for claims noticed under Paragraph 3.1 prior thereto.
(b)
Upon completion of the Remediation with respect to any Pre-Closing Environmental Condition as evidenced by (i) a "no further action letter" or similar approval by a Regulatory Authority ( "NFA" ) (which completion includes any Remediation required by the NFA) in jurisdictions where such NFAs are customarily issued; or (ii) in Ontario, Canada, the filing of a Record of Site Condition or in Quebec, Canada, an expert’s certification that work necessary for the implementation of a Rehabilitation Plan approved by the Regulatory Authority has been carried out or remediation has been completed in accordance with Environmental Laws; or (iii) in jurisdictions or circumstances where NFAs are not customarily issued, a certification by the environmental consultants conducting the Remediation, in form and substance reasonably acceptable to Purchaser, that the Remediation has been completed as reasonably required by Environmental Laws or to achieve cleanup standards applicable to the Current Use of the property (unless such standards are modified by appropriate risk assessments or institutional controls), Seller shall have no further responsibility for Remediation of such Pre-Closing Environmental Condition, including any new or additional costs, damages or penalties arising from any change in any Environmental Law, changes in plant configuration or new information with respect to the Pre-Closing Environmental Condition. For the avoidance of doubt, nothing in this Paragraph 3.3(b) shall in any way limit Seller’s obligations to Purchaser or the Group Companies with respect to (x) Environmental Costs incurred prior to the issuance of the NFA, or (y) Environmental Claims arising from the Pre-Closing Environmental Condition that was the subject of the NFA (e.g., tort claims or cost recovery claims by

        
             
          
   
 


neighbors, claims for natural resource damages) made within the survival period referenced in Paragraph 3.5.

3.4
     For the avoidance of doubt, any and all Environmental Costs paid by Seller pursuant to this Schedule 19 shall be credited against the amount of Seller's maximum liability as envisaged in Clause 10.4 of this Agreement.
3.5
The right of the Purchaser Indemnified Parties to make claims under the Environmental Indemnity shall survive the Closing until the 10 th (tenth) anniversary of the Closing Date; provided that if the foregoing time limitation exceeds the relevant statutory period which would otherwise apply, such aforesaid time limitation shall continue to apply, without regard to any statute of limitations or claims or defenses of laches, estoppel or any other defense concerning the timeliness of a civil action, which Seller hereby waives.
3.6
Seller shall have the right, but not the obligation, to assume control of the defense of any third party claim relating to any Environmental Claim or Environmental Cost in accordance with and subject to the terms, conditions and procedures set forth in Clause 11.4.
3.7
Without limiting the provisions of Paragraph 3.6, Seller shall have the right, but not the obligation, to assume control of the management of any Remediation with respect to any Environmental Claim or Environmental Cost subject to indemnification hereunder, subject to the provisions of this Paragraph 3.7. Seller shall consult in good faith with Purchaser and the Group Companies (including by providing an opportunity to comment in advance upon any submissions to Regulatory Authorities and keeping Purchaser and the Group Companies reasonably apprised of the progress of the applicable Remediation) and provide copies of all relevant documentation generated in connection with the management of the Remediation. Seller shall promptly initiate and diligently pursue to completion final resolution of any matter for which it assumes control or management. With respect to any Remediation performed in connection therewith, such Remediation shall be consistent with the Current Use of the affected property and Seller shall obtain an NFA from the applicable Regulatory Authority, or other applicable closure document described in Paragraph 3.3(b) and shall have completed any Remediation required thereunder. Purchaser shall cooperate and provide to Seller and its designated experts and consultants reasonable access to the relevant premises and documentation for management of any such Remediation in accordance with the terms of a site access agreement to be mutually agreed upon by Seller and Purchaser, which shall include customary provisions, including, but not limited to, provisions setting forth requirements for contractor insurance, restoration of any real property impacted by any Remediation performed by or on behalf of Seller, and Seller’s compliance with applicable Law and site safety rules.
3.8
The defense or management of any Environmental Claim or Remediation undertaken by Seller pursuant to this section shall not materially interfere with the operations of Purchaser or the Group Companies.
3.9
Without prejudice to the foregoing, the party that maintains control over the defense, management or resolution of any Environmental Claim or Environmental Cost ( "Performing Party" ) shall provide to the other Party ( "Other Party" ) upon request verifiable evidence of all Environmental Costs and Environmental Claims claimed or incurred under the Agreement. Either Party is entitled to have such costs audited or otherwise verified by its own authorized

        
             
          
   
 


agent or by an expert who, on request, shall be allowed access to the relevant premises and to inspect business and other documents in sufficient depth for the purposes of such audit or verification.
3.10
Save to the extent inconsistent with the foregoing provisions of this Schedule 19 , the provisions of Clause 11 of this Agreement shall apply to any claim under this Schedule 19 .
3.11
Seller shall not be liable under this Schedule 19 in respect of any Excluded Losses.

        
             
          
   
 




Schedule 20     Consent Matters
(a)
incur any borrowings or incur any other Indebtedness in each case in excess of USD 1,000,000 (one million U.S. dollars) other than in the ordinary course of business;
(b)
enter into any agreement or incur any commitment involving any capital expenditure in excess of USD 100,000 (one hundred thousand U.S. dollars), except for any capital expenditure contemplated in the capital expenditure budget provided to Purchaser in the Data Room;
(c)
cancel, terminate, materially modify or knowingly allow to lapse any insurance policy providing coverage for events, occurrences or accidents occurring prior to the Closing Date to the extent that such insurance policy relates to any of the Group Companies;
(d)
take any action to make any significant change in any Group Company's method of accounting or audit practices, except as required by a change in Law or IFRS;
(e)
create, allot, issue, or sell or allow to be created, allotted, issued or sold, any share capital of any Group Company or issue any instruments, rights or securities to a Person other than a member of the Group that are convertible into, exchangeable for or otherwise give rise to the right of the holder to obtain, shares or other equity interests in the relevant Group Company;
(f)
split, combine, repay, redeem or repurchase, or allow to be split, combined, repaid, redeemed or repurchased, any share capital of any Group Company to a Person other than a member of the Group;
(g)
take any action to amend the certificate of incorporation, articles, bylaws, limited liability company operating agreement, or similar constitutional or governance documents of any Group Company or to procure a reorganization, consolidation, legal merger, legal demerger, insolvency, bankruptcy, dissolution, liquidation or similar transaction with respect to a Group Company;
(h)
create any subsidiary or acquire or agree to acquire any share(s) or other interest in any company, joint-venture, partnership or other Person;
(i)
commence or settle any litigation, arbitration or other legal proceedings (i) that restricts the future operations of the business of the Group Companies, (ii) that requires any payment by any of the Group Companies after the Closing, or (iii) representing an amount of more than USD 750,000 (seven hundred fifty thousand U.S. dollars) other than to the extent that such litigation, arbitration or other legal proceedings relate to the collection of debts owed to a Group Company in the ordinary course of business;
(j)
collect its debts or pay its creditors other than in the ordinary course of business, consistent with past practice;

        
             
          
   
 


(k)
sell, lease, transfer or dispose of any of its assets or purchase or acquire any assets from any third party, except in the ordinary course of business;
(l)
sell, transfer, close or otherwise dispose of any Store;
(m)
pay, declare or make any dividend or distribution to any member of Seller's Group, other than cash dividends actually paid at least 1 (one) Business Day prior to the Closing Date;
(n)
grant any Encumbrance over any assets of any Group Company other than a Permitted Encumbrance;
(o)
enter into any Contract with an annual Contract value in excess of USD 1,000,000 (one million five hundred thousand U.S. dollars) which cannot be terminated subject to a notice of not more 30 (thirty) days;
(p)
extend, amend, modify, or enter into any new real property lease, or renew any real property lease for a period in excess of 1 (one) year;
(q)
amend, modify or terminate any material contract, Permit or Environmental Permit if the amended or modified terms and conditions of such contract, Permit or Environmental Permit would be materially less favorable to any Group Company than the terms and conditions thereof as in effect on the Signing Date or would otherwise materially adversely affect such Group Company, or voluntarily take any action constituting a default under or material breach of a material contract, a Permit or an Environmental Permit ;
(r)
enter into or amend any Contract or agreement between a member of Seller's Group (excluding the Group Companies) and any Group Company;
(s)
(i) sell, transfer, abandon, fail to maintain or otherwise dispose of any Granted Group Intellectual Property, Owned Group Intellectual Property or Transferred Group Intellectual Property other than in the ordinary course of business or the Restructuring, (ii) grant any licenses or other rights to use any Granted Group Intellectual Property, Owned Group Intellectual Property or Transferred Group Intellectual Property, other than non-exclusive licenses granted to dealers, distributors or customers for use in connection with the resale of products and otherwise in the ordinary course of business or the Restructuring, (iii) place any new Encumbrances other than Permitted Encumbrances over the Granted Group Intellectual Property, Owned Group Intellectual Property or Transferred Group Intellectual Property, or (iv) amend, modify, terminate, cancel or request any modification or amendment to, any agreement relating to Licensed Group Intellectual Property other than in the ordinary course of business or the Restructuring;
(t)
except to the extent required by this Agreement or in connection with promotions in the ordinary course of business consistent with past practice , enter into, adopt, amend or terminate any Benefit Arrangement, materially increase the compensation or benefits of any officer, employee or consultant, or pay or otherwise grant any benefit not required by any Benefit Arrangement , enter into or amend any employment, bonus, severance, change of control or retirement Contract with any person, or enter into any Contract to do any of the foregoing, except to the extent required by applicable Law;

        
             
          
   
 


(u)
make any loan or advance to directors, officers or employees, except advances for reasonable, business-related travel and other normal business expenses;
(v)
except to the extent required by Law, IFRS or this Agreement, or in the ordinary course of business, (i) make or change any Tax election adverse to Purchaser, or make any change to a method of Tax accounting; (ii) enter into, or commence negotiations regarding, any closing, settlement, or other agreement with any Tax Authority which could have an effect on Taxes; (iii) agree to extend or waive any period of adjustment, assessment, or collection of Taxes, or issue a power of attorney with respect to Taxes; (iv) apply for or otherwise request or seek any ruling from or agreement with a Tax Authority relating to Taxes; (v) take any action that would cause the Akzo Nobel Paints LLC to fail to be treated as a disregarded entity for U.S. federal income tax purposes at any time including in the ordinary course of business; (vi) file any Tax Return except in a manner consistent with past practice and Law; or (vii) take any action that would cause Akzo Nobel Paints (Puerto Rico) Inc. to become ineligible for, or no longer a beneficiary of, the Puerto Rico Tax Exemption Grant or PRIDCO Incentives ;
(w)
take any action to, enter into, or offer to enter into or amend, terminate or, except in the ordinary course of business, waive any right under any collective bargaining agreement;
(x)
(i) enter into, offer to enter into, or amend or terminate any contract with any employee or independent contractor, except in the ordinary course of business, (ii) terminate the services of any employee or independent contractor other than in the ordinary course of business, or (iii) hire or promote any employees or independent contractors, other than hires or promotions of non-executive employees in the ordinary course of business to fill vacancies;
(y)
issue any Guarantee in relation to any of the Liabilities of the Group Companies to any third party other than in the ordinary course of business consistent with past practice and issue any Guarantee in relation to any Person other than a Group Company; or
authorize or enter into any agreement or commitment with respect to any of the actions requiring consent pursuant to (a) through (y) above.

        
             
          
   
 
Exhibit 10.4


CHANGE IN CONTROL
EMPLOYMENT AGREEMENT

AGREEMENT by and between PPG Industries, Inc., a Pennsylvania corporation (the “Company”), and ___________________ (the “Executive”), dated as of ____________________.

The Board of Directors of the Company (the “Board”), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon a Change in Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Certain Definitions . (a) The “Effective Date” shall mean the first date during the Change in Control Period (as defined in Section l(b)) while the Executive is an employee of the Company on which a Change in Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change in Control occurs, and if it is reasonably demonstrated by the

1

Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination of employment.

(b) The “Change in Control Period” shall mean the period commencing on the date hereof and ending on the earlier of (i) the Executive's date of Retirement, or (ii) the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), unless previously terminated, the Change in Control Period shall be automatically extended so as to terminate the earlier of (i) the Executive's date of Retirement, or (ii) three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change in Control Period shall not be so extended.

(c) “Retirement” shall mean the Executive's termination of employment on or after (i) with respect to a participant in the PPG Industries, Inc. Retirement Income Plan, an Executive's “normal retirement date” as defined in the PPG Industries, Inc. Retirement Income Plan, provided such termination is voluntary, (ii) with respect to any Executive that the Company may subject to compulsory retirement under the Age Discrimination in Employment Act (29 U.S.C. § 621 et. seq.) (ADEA) as a “bona fide executive or a high policy maker”, such Executive's “normal retirement date”, (iii) with respect to a participant in the PPG Industries Defined Contribution Retirement Plan, the Executive's Social Security normal retirement date, provided that such termination is voluntary, or, (iv) with respect to a participant in which the provisions in (i) through (iii) are not applicable, the Executive's attainment of age sixty-five (65), provided the termination is voluntary.

2



(d) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(e) The “Compensation Multiplier” shall mean: (i) if the Executive is subject to compulsory retirement, then the number of years and fractions of years remaining (such fractions to be expressed as the number of whole months and any partial month, divided by 12) from the Executive's Date of Termination (as defined in Section 5(e)) to his normal retirement date, not to exceed three, or, (ii) if the Executive is not subject to compulsory retirement, then the multiplier shall be three.

(f) “Specified Employee” shall mean a key employee (as defined in Section 416(i) of the Code without regard to Section 416(i)(5) of the Code) of the Company, determined in accordance with Section 409A of the Code and any regulations or other guidance thereunder.

2. Change in Control . For the purpose of this Agreement, a “Change in Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d‑3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained

3

by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or

(b) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and

4

Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination;

(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; or

(e) A majority of the Board otherwise determines that a Change in Control shall have occurred.

3. Employment Period . The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the earlier of (i) the Executive's date of Retirement and (ii) the third anniversary of the Effective Date, (the “Employment Period”).

4. Terms of Employment . (a) Position and Duties . (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120‑day period immediately preceding the Effective

5

Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company.

(b) Compensation . (i) Base Salary . During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve‑month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and

6

thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

(ii) Annual Bonus . In addition to Annual Base Salary during the Employment Period, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the Executive's target bonus under the Company's Incentive Compensation Plan for Key Employees, Omnibus Incentive Plan, or any comparable bonus under any predecessor or successor plan, for the fiscal year in which the Effective Date occurs. Each such Annual Bonus shall be paid no later than the fifteenth day of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus.

(iii) Incentive, Savings and Retirement Plans . During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120‑day period immediately preceding the Effective Date or if more favorable to the Executive, those

7

provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(iv) Welfare Benefit Plans . During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies.

(v) Expenses . During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(vi) Fringe Benefits . During the Employment Period, the Executive shall retain any fringe benefits applicable to the Executive such as payment of club dues, and use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated

8

companies in effect for the Executive at any time during the 120‑day period immediately preceding the Effective Date.

(vii) Office and Support Staff . During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

(viii) Vacation . During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies.

5. Termination of Employment . (a) Death or Disability . The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 90th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 90 days after such receipt, the Executive shall not have returned to full‑time performance of the Executive's duties. For purposes of this

9

Agreement, “Disability” shall mean disability which, after the expiration of more than 52 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement to acceptability not to be withheld unreasonably).

(b) Cause . The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), including a failure to follow any applicable Company policies or directives, after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or

(ii) the engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.

For purposes of (i) of this Section 5(b), no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the

10

Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three‑quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.

(c) Good Reason . The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason” shall mean:

(i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof;

11

 

(iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or

(v) any failure by the Company to comply with and satisfy Section 12(c) of this Agreement.

In order to qualify as a termination for “Good Reason” all of the following conditions must occur: (1) the Executive must terminate employment with the Company within a period of two (2) years following the initial existence of circumstances constituting “Good Reason” under (i) through (v) above, (2) the Executive must give notice of the circumstances constituting “Good Reason” under (i) through (v) above within ninety (90) days of the initial existence of such circumstances, and (3) the Company must have a period of thirty (30) days following receipt of the Executive's notice to remedy such circumstances.

(d) Notice of Termination . Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company,

12

respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder.

(e) Date of Termination . “Date of Termination” means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.

6. Obligations of the Company upon Termination . (a) Good Reason; Other Than for Cause; Disability . If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason:

(i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the Executive's Annual Bonus and (II) the Executive's target bonus under the Company's Incentive Compensation for Key Employees, Omnibus Incentive Plan, or any comparable bonus under any predecessor or successor plan, for the fiscal year in which the Date of Termination occurs (such higher amount being referred to as the “Highest Target Bonus”) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the

13

denominator of which is 365 and (3) any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

B. the amount equal to the product of (1) the Executive's Compensation Multiplier and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Target Bonus. And

C. to the extent permitted under applicable law, the sum of:

(1) in respect of retirement benefits provided to the Executive in the form of a defined benefit plan, program or arrangement (if any), an amount equal to the difference between (x) the actuarial equivalent of all benefits under the Company's defined benefit retirement plans and arrangements (whether qualified or non-qualified and whether funded or unfunded) (the “DB Retirement Plans”) in which the Executive participates (utilizing actuarial assumptions no less favourable to the Executive than those in effect immediately prior to the Effective Date) which the Executive would receive or accrue if the Executive's employment continued for a number of years (including fractional parts, if any) equal to the Executive's Compensation Multiplier after the Date of Termination, assuming for this purpose that all accrued benefits are fully vested, but not taking into account any amount of deemed compensation in such years, and (y) the actuarial equivalent of the Executive's actual benefits (paid or payable), if any, under the DB Retirement Plans as of the Date of Termination, and

(2) in respect of retirement benefits provided to the Executive in the form of a defined contribution retirement plan, program or arrangement (if

14

any), an amount equal to the present value of any employer contributions the Executive would have received or accrued under the Company's defined contribution retirement plans and arrangements (whether qualified or non-qualified) in which the Executive participates if the Executive's employment continued for a number of years (including fractional parts, if any) equal to the Executive's Compensation Multiplier after the Date of Termination, but excluding for this purpose any salary or pay deferral contributions to such plans or arrangements that are deemed to be employer contributions under applicable law;
 
(ii) for a number of years (including fractional parts, if any) equal to the Executive's Compensation Multiplier after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the Company's life insurance, medical and dental plans if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, and the Executive shall pay any portion of such cost as is required to be borne by peer executives of the Company generally with respect to such benefits, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive life insurance, medical or dental benefits under another employer provided plan, the life insurance, medical and dental benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. The Company's provision of any in-kind benefits to, or reimbursement of expenses incurred by, the Executive with respect to the benefits to be provided under this Section 6(a)(ii) shall be available only to the extent that (1) neither the provision of in-kind benefits nor the reimbursement of any expense incurred in one taxable year shall affect the amount available in another taxable year; (2) any such

15

reimbursable expenses are actually incurred during the applicable covered period and reasonably substantiated; (3) any reimbursement shall be made no later than the end of the calendar year following the year in which such expense is incurred; and (4) the right to any in-kind benefits or reimbursement is not subject to liquidation or exchange for another benefit. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed for the number of years (including fractional parts, if any) after the Date of Termination equal to the Executive's Compensation Multiplier and to have retired on the last day of such period; and

(iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies in accordance with the terms and conditions of such applicable plan, program, policy or practice or contract or agreement (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(b) Death . If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and

16

beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries.

(c) Disability . If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120‑day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families.

(d) Cause; Other than for Good Reason . If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each

17

case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

(e) Compliance with Section 409A . Notwithstanding the foregoing, and solely to the extent required by Section 409A of the Code and not otherwise eligible for exclusion from the requirements of Section 409A, if the Executive is deemed to be a Specified Employee as of the date of the Executive's “separation from service” (within the meaning of Section 409A of the Code and the regulations ) from the Company, no payment or other distribution required to be made to the Executive hereunder (including any payment of cash, any transfer of property and any provision of taxable benefits) as a result of the Executive's separation from service shall be made earlier than the date that is six (6) months and one day following the date on which the Employee separates from service with the Company. This Agreement is intended to comply with Section 409A of the Code, where applicable, and will be interpreted and applied in a manner consistent with that intention.

7. Non‑exclusivity of Rights . Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 13(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance

18

with such plan, policy, practice or program or contract or agreement except as explicitly modified by this agreement.

8. Full Settlement . The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set‑off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others.

9. Limitations Applicable to Certain Change in Control Payments .

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties would be incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the value of any such Payments payable under this Agreement which constitute “parachute payments,” as determined by the Accounting Firm (as hereinafter defined), shall be reduced by such amount (the “Payment Reduction”) so that the present value of all Payments (calculated in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code and the regulations thereunder), in the aggregate, equals three (3) times the Executive's “base amount” (within the meaning of Section 280G(b)(3) of the Code), minus one dollar ($1.00); provided, however, that no Payment Reduction shall be applied under this provision if the Accounting Firm determines that, on a net after-tax basis (including all applicable state and local taxes), the Executive would retain a greater amount of the Payments following payment of any applicable Excise Tax on the unreduced amount of such Payments than the amount of the Payments retained following reduction of the Payments as provided above.

19



(b) All determinations required to be made under this Section 9, including whether and when any Payments would be subject to the Excise Tax, the amount of any Payments subject to the Excise Tax, whether Payments should be reduced and the amount of the Payment Reduction pursuant to the provisions of Section 9(a), and the assumptions to be utilized in arriving at such determinations, shall be made by Deloitte & Touche LLP or such other certified public accounting firm as may be designated by the Executive with the approval of the Company (which approval shall not be unreasonably withheld) (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Payments shall be subject to the Excise Tax as a result of any reduction in Payments as provided under Section 9(a), it shall furnish the Company with an opinion that the Company's tax deduction with respect to any Payment or any portion of a Payment shall not be disallowed under Section 280G of the Code. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. The Executive shall be given an opportunity to advise as to the order in which any Payment Reduction shall be applied to Payments under this Agreement, provided that the Accounting Firm shall retain discretion to make all final determinations with respect to the order of any such reductions.

(c) If, as a result of any uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm under Section 9(a), the Accounting Firm subsequently determines that (i) a Payment Reduction should have

20

been made and was not, or a larger Payment Reduction should have been made in accordance with Section 9(a) (an “Overpayment”), any such Overpayment, to the extent actually paid or provided to the Executive, shall be repaid by the Executive to the Company in full, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code, within thirty (30) days after the Executive receives notice of the Accounting Firm's determination; provided, however, that the amount of the Overpayment to be repaid by the Executive to the Company shall be reduced to the extent that the Accounting Firm determines that such portion of the Overpayment to be repaid will not be offset by a corresponding reduction in any applicable Excise Tax by reason of such repayment of the Overpayment, or (ii) a Payment Reduction was made and should not have been made, or a smaller Payment Reduction should have been made in accordance with Section 9(a) (an “Underpayment”), any such Underpayment shall be due and payable by the Company to the Executive, together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code, within thirty (30) days after the Company receives notice of the Accounting Firm's determination.

(d) Where a determination is made that no Payments would be subject to the Excise Tax, either based on the unreduced amount of the Payments or the amount of any Payments following application of the Payment Reduction, in the event of a claim by the Internal Revenue Service that, if successful, would result in any Payment being subject to the Excise Tax, the Executive and the Company agree to cooperate reasonably and in good faith in order effectively to contest any such claim.

10. Other Employment . (a) The Executive shall have no obligation to seek or accept other employment after termination of employment with the Company in mitigation of the amount of payment received from the Company pursuant to this Agreement. However, in the event that the Executive does accept other employment, he shall be required to return to the Company such part (if any) of the payment received

21

from the Company pursuant to this Agreement as may be required by the provisions of Section 10(b).

(b) If the Executive obtains employment with another employer within the period of time after his Termination Date that is equal in years (and fractions thereof, if any) to such Executive's Compensation Multiplier (the “Mitigation Period”), then the Executive shall remit to the Company such portion of the Executive's lump sum payment from the Company (without interest) which is equal to the cash value of any salary and bonus payments received (or earned but deferred) from his new employer during the Mitigation Period.

11. Confidential Information . The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement.

12. Successors . (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.

22


(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

13. Miscellaneous . (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive :

_________________
_________________
_________________

23




If to the Company :

PPG Industries, Inc.
One PPG Place
Pittsburgh, Pennsylvania 15272
Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)‑(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is “at will” and, prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall

24

have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof and any such other agreement shall be null and void in its entirety and of no effect.

25


IN WITNESS WHEREOF and intending to be legally bound hereby, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the date first written above.

__________________________
        


PPG INDUSTRIES, INC.


By:     
Name: ______________________
Title: _______________________

26
Exhibit 12

PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(Dollars in millions)

 
Year ended December 31
 
2012
 
2011
 
2010
 
2009
 
2008
Earnings:
 
 
 
 
 
 
 
 
 
Earnings before income taxes and net earnings in equity affiliates
$
1,366

 
$
1,539

 
$
1,247

 
$
620

 
$
904

Plus:
 
 
 
 
 
 
 
 
 
Fixed charges exclusive of capitalized interest
287

 
292

 
266

 
273

 
343

Amortization of capitalized interest
7

 
7

 
7

 
7

 
7

Adjustments for equity affiliates
12

 
19

 
6

 
11

 
18

Total
$
1,672

 
$
1,857

 
$
1,525

 
$
911

 
$
1,271

 
 
 
 
 
 
 
 
 
 
Fixed Charges:
 
 
 
 
 
 
 
 
 
Interest expense incl amortization of debt discount/premium and debt expense
$
210

 
$
210

 
$
189

 
$
193

 
$
254

Rentals - portion representative of interest
77

 
82

 
77

 
80

 
89

Fixed charges exclusive of capitalized interest
287

 
292

 
266

 
273

 
343

Capitalized interest
8

 
9

 
7

 
9

 
8

Total
$
295

 
$
301

 
$
273

 
$
282

 
$
351

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges
5.7

 
6.2

 
5.6

 
3.2

 
3.6





Exhibit 13.1
PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Market Information, Dividends and Holders of Common Stock
For the Year Ended December 31, 2012

Market Information
Stock Exchange Listings
PPG common stock is traded on the New York Stock Exchange (symbol:PPG).

Quarterly Stock Market Price
 
2012
 
2011
Quarter Ended
High
 
Low
 
High
 
Low
March 31
$
96.40

 
$
83.27

 
$
96.56

 
$
78.75

June 30
107.95

 
91.85

 
97.81

 
82.76

September 30
119.86

 
99.12

 
93.85

 
68.27

December 31
136.79

 
113.39

 
90.00

 
66.43


Dividends
 
2012
 
2011
Month of Payment
Amount (Millions)
 
Per Share
 
Amount (Millions)
 
Per Share
March
$
87

 
$
0.57

 
$
89

 
$
0.55

June
90

 
0.59

 
89

 
0.57

September
90

 
0.59

 
90

 
0.57

December
91

 
0.59

 
87

 
0.57

Total
$
358

 
$
2.34

 
$
355

 
$
2.26


PPG has paid uninterrupted annual dividends since 1899. The latest quarterly dividend of 59 cents per share was approved by the board of directors on January 17, 2013, payable March 12, 2013 to shareholders of record February 22, 2013.
Holders of Common Stock
The number of holders of record of PPG common stock as of January 31, 2013 was 17,348, as shown on the records of the Company’s transfer agent.



Exhibit 13.2
PPG INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
Selected Financial Data
(Millions, except per share amounts)


 
 
Year Ended December 31
 
 
2012
 
2011
 
2010
 
2009
 
2008 (1)
Net Sales
 
$
15,200

 
$
14,885

 
13,423

 
$
12,239

 
$
15,849

Net income (attributable to PPG)
 
$
941

 
$
1,095

 
769

 
$
336

 
$
538

Earnings per common share:
 
 
 
 
 
 
 
 
 
 
Net Income
 
$
6.13

 
$
6.96

 
$
4.67

 
$
2.04

 
$
3.27

Earnings per common share - assuming dilution:
 
 
 
 
 
 
 
 
 
 
Net Income
 
$
6.06

 
$
6.87

 
$
4.63

 
$
2.03

 
$
3.25

Dividends per share
 
$
2.34

 
$
2.26

 
$
2.18

 
$
2.13

 
$
2.09

Total assets
 
$
15,878

 
$
14,382

 
$
14,975

 
$
14,240

 
$
14,698

Long-term debt
 
$
3,368

 
$
3,574

 
$
4,043

 
$
3,074

 
$
3,009

(1) The financial information presented includes the results of the automotive glass and services business through September 30, 2008.


Exhibit 21
PPG Industries, Inc.
And Consolidated Subsidiaries

Subsidiaries of the Registrant
December 31, 2012


Significant subsidiaries included in the 2012 consolidated financial statements of the Company are:
United States:
Percentage of Voting Power
 
Pinetree Stockholding Corporation - Delaware
100

 
PPG Architectural Finishes, Inc. - Delaware
100

 
PPG Capital LLC - Delaware
100

 
PPG Industries Fiber Glass Products, Inc. - Delaware
100

 
PPG Industries International, Inc. - Delaware
100

 
PPG Industries Ohio, Inc. - Delaware
100

 
PPG Industries Securities, Inc. - Delaware
100

 
PPG Kansai Automotive Finishes U.S., LLC - Delaware
60

 
PRC-DeSoto International, Inc. - California
100

 
Sierracin Corporation - Delaware
100

 
Sierracin/Sylmar Corporation - California
100

 
The CEI Group, Inc. - Pennsylvania
75

 
Transitions Optical, Inc. - Delaware
51

 
 
 
Other Americas:
 
 
American Finishes Inversiones S.A. - Chile
100

 
PPG ALESCO Automotive Finishes Mexico, S. de R.L. de C.V. - Mexico
60

 
PPG Canada Inc. - Canada
100

 
PPG Industrial do Brasil - Tintas E. Vernizes - Ltda. - Brazil
100

 
PPG Industries Argentina S.R.L. - Argentina
100

 
PPG Industries Chile S.A. - Chile
100

 
PPG Industries Colombia Ltda. - Colombia
100

 
PPG Industries de Mexico, S.A. de C.V. - Mexico
100

 
PPG Kansai Automotive Finishes Canada, LP - Canada
60

 
Transitions Optical do Brasil Limitada - Brazil
51

 
Varossieau Suriname NV - Suriname
51.01

 
 
 
EMEA:
 
 
Brown Brothers Distribution Limited - United Kingdom
100

 
Compagnie Equatoriale des Peintures - Cameroon
51.44

 
Dyrup A/S - Denmark
100

 
Dyrup SAS - France
100

 
Dyrup SP. Z O.O. - Poland
100

 
EPIC Insurance Co. Ltd. - British Virgin Islands.
100

 
Gabonaise de Peintures et Laques - Gabon
51.01

 
Intercast Europe S.r.l. - Italy
100

 
Johnstone's Paints Limited - United Kingdom
100

 
Kalon Investment Company Limited- United Kingdom
100

 
Kalon South Africa Proprietary Limited - South Africa
100

 
La Seigneurie Caraibes - Guadeloupe
100



 
La Seigneurie Ocean Indien - La Reunion
51

 
Peinture de Paris SAS - France
99.95

 
PPG (Austria) Handels GmbH - Austria
100

 
PPG AC - France SA - France
99.95

 
PPG Architectural Coatings UK Limited - United Kingdom
100

 
PPG Auto Refinish AG - Switzerland
100

 
PPG Coatings B.V. - The Netherlands
100

 
PPG Coatings Belux N.V. - Belgium
100

 
PPG Coatings BVBA/SPRL - Belgium
100

 
PPG Coatings Danmark AS - Denmark
100

 
PPG Coatings Deutschland GmbH - Germany
100

 
PPG Coatings Europe B.V. - The Netherlands
100

 
PPG Coatings Nederland BV - The Netherlands
100

 
PPG Coatings S.A. - France
99.9

 
PPG Coatings South Africa (Pty) Ltd. - South Africa.
100

 
PPG Deco Czech a.s. - Czech Republic
100

 
PPG Deco Polska sp. z.o.o. - Poland
100

 
PPG Deco Slovakia, s.r.o. - Slovakia
100

 
PPG Deutschland Business Suport GmbH - Germany
100

 
PPG Deutschland Sales & Services GmbH - Germany
100

 
PPG Distribution S.A.S. - France
99.95

 
PPG Dr. Schoch AG - Switzerland
100

 
PPG Europe B.V. - The Netherlands
100

 
PPG Finance B.V. - The Netherlands
100

 
PPG France Business Support S.A.S. - France
100

 
PPG France Manufacturing S.A.S. - France
100

 
PPG Holdco SAS - France
100

 
PPG Holdings (U.K.) Limited - United Kingdom
100

 
PPG Ibérica, S.A. - Spain
100

 
PPG Ibérica Sales & Services, S.L. - Spain.
100

 
PPG Industrial Coatings B.V. - The Netherlands
100

 
PPG Industries (UK) Ltd - United Kingdom
100

 
PPG Industries Belgium B.V.B.A. - Belgium
100

 
PPG Industries Chemicals B.V. - The Netherlands
100

 
PPG Industries Europe Sàrl - Switzerland
100

 
PPG Industries Fiber Glass B.V. - The Netherlands
100

 
PPG Industries France S.A.S. - France
100

 
PPG Industries Italia S.p.A. - Italy
100

 
PPG Industries Kimya a Sanayi VE Ticaret AS - Turkey
100

 
PPG Industries Lackfabrik GmbH - Germany
100

 
PPG Industries Netherlands B.V. - The Netherlands
100

 
PPG Industries Poland Sp. Z.o.o. - Poland
100

 
PPG Italia Business Support S.r.l - Italy
100



 
PPG Italia Sales & Service S.r.l. - Italy.
100

 
PPG Luxembourg Finance S.àR.L. - Luxembourg
100

 
PPG Luxembourg Holdings S.àR.L. - Luxembourg
100

 
PPG Polifarb Cieszyn S.A. - Poland
100

 
PPG Retail Europe - France
99.95

 
PPG Service Sud S.r.l. - Italy
100

 
PPG-Helios Limited (d.o.o.) - Slovenia
60

 
Prominent Paints Proprietary Limited - South Africa
100

 
Sigma Marine & Protective Coatings Holding B.V. - The Netherlands
100

 
SigmaKalon (BC) UK Limited - United Kingdom
100

 
SigmaKalon UK Holding Limited - United Kingdom
100

 
Societe des Anciens Etablissements Peppler - France
99.95

 
Tintas DYRUP, S.A. - Portugal
100

 
Transitions Optical Holdings B.V. - The Netherlands
51

 
Transitions Optical Limited - Ireland
51

 
Trilak Festékgyartó Korlatolt Felelösségü Tarsasag - Hungary
100

 
 
 
Asia:
 
 
Foshan Bairun Chemicals Co., Ltd. - China.
100

 
PPG Aerospace Materials (Suzhou) Co. Ltd. - China
100

 
PPG Asian Paints Private Ltd. - India
50

 
PPG Coatings (Hong Kong) Co., Limited - Hong Kong
100

 
PPG Coatings (Kunshan) Co., Ltd. - China
100

 
PPG Coatings (Malaysia) Sdn. Bhd. - Malaysia
100

 
PPG Coatings (Shanghai) Co., Ltd. - China
100

 
PPG COATINGS (SINGAPORE) PTE. LTD - Singapore
100

 
PPG Coatings (Suzhou) Company Ltd. - China
100

 
PPG Coatings (Thailand) Co., Ltd. - Thailand
100

 
PPG Coatings (Tianjin) Co., Ltd. - China
100

 
PPG Coatings (Wuhu) Company, Ltd. - China
100

 
PPG Coatings (Zhangjiagang) Co., Ltd. - China
100

 
PPG Industries (Korea) Ltd. - South Korea
100

 
PPG Industries (Singapore) Pte., Ltd. - Singapore
100

 
PPG Industries Australia PTY Limited - Australia
100

 
PPG Industries New Zealand Limited - New Zealand
100

 
PPG Japan Ltd.- Japan
100

 
PPG Packaging Coatings (Suzhou) Co., Ltd. - China
100

 
PPG Paints Trading (Shanghai) Co., Ltd. - China
100

 
PPG PERFORMANCE COATINGS (HONG KONG) LIMITED - Hong Kong
100

 
PPG Performance Coatings (Malaysia) Sdn. Bhd. - Malaysia
100

 
PPG PMC Japan Co., Ltd. - Japan
95

 
PPG SSC Co., Ltd. - South Korea
60

 
PRC-Desoto Australia Pty Ltd. - Australia
100



 
Protec Pty Ltd. A.C.N. 007 857 392 - Australia
100

 
PT. PPG Coatings Indonesia - Indonesia
100

 
Sikar (Shanghai) Trading Co. Ltd. - China
100

 
Solarlens Co., Ltd. - Thailand
100

 
Taiwan Chlorine Industries Ltd. - Taiwan
60

 
Transitions Optical (S) Pte. Ltd - Singapore
51

 
Transitions Optical (Thailand) Ltd. - Thailand
51

 
Transitions Optical Philippines, Inc. - Philippines
51

 
Transitions Optical PTY Ltd. A.C.N. 067 278 139 - Australia
51


Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-145063 and 333-168310 on Form S-3 and in Registration Statement Nos. 33-53235, 33-58909, 33-64077, 333-13605, 333-118207,
333-124537, 333- 140559, 333-140561, 333-140562, 333-173656, 333- 173657, 333-173658 and 333-
176852 on Form S-8 of our reports dated February 21, 2013, relating to the financial statements and financial statement schedule of PPG Industries, Inc., and the effectiveness of PPG Industries, Inc.'s internal control over financial reporting, appearing in this Annual Report on Form 10-K of PPG Industries, Inc. for the year ended December 31, 2012.
/s/ DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 21, 2013




Exhibit 24
PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Stephen F. Angel, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ STEPHEN F. ANGEL
Stephen F. Angel





PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, James G. Berges, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ JAMES G. BERGES
James G. Berges




PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, John V. Faraci, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ JOHN V. FARACI
John V. Faraci







PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Hugh Grant, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ HUGH GRANT
Hugh Grant






PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Victoria F. Haynes, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ VICTORIA F. HAYNES
Victoria F. Haynes






PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Michele J. Hooper, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ MICHELE J. HOOPER
Michele J. Hooper






PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Robert Mehrabian, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ ROBERT MEHRABIAN
Robert Mehrabian





PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Martin H. Richenhagen, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ MARTIN H. RICHENHAGEN
Martin H. Richenhagen






PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Robert Ripp, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ ROBERT RIPP
Robert Ripp





PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, Thomas J. Usher, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ THOMAS J. USHER
Thomas J. Usher





PPG INDUSTRIES, INC.
POWER OF ATTORNEY
(10-K)
I, David R. Whitwam, a Director of PPG Industries, Inc. (the “Corporation”), a Pennsylvania corporation, hereby constitute and appoint Charles E. Bunch, Glenn E. Bost II and David B. Navikas, or any of them, my true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation, to sign, in my name and on my behalf as a Director of the Corporation, the Corporation’s Form 10-K for the fiscal year ended December 31, 2012, to be filed with the Securities and Exchange Commission, Washington, DC.
WITNESS my hand this 21st day of February, 2013.
 
 
/s/ DAVID R. WHITWAM
David R. Whitwam




Exhibit 31.1
PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

I, Charles E. Bunch, certify that:
1.
I have reviewed this annual report on Form 10-K of PPG Industries, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Charles E. Bunch
 
Charles E. Bunch
 
Chairman and Chief Executive Officer
 
February 21, 2013
 



Exhibit 31.2
PRINCIPAL FINANCIAL OFFICER CERTIFICATION

I, David B. Navikas, certify that:
1.
I have reviewed this annual report on Form 10-K of PPG Industries, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ David B. Navikas
 
David B. Navikas
 
Senior Vice President, Finance and Chief Financial Officer
 
(Principal Financial and Accounting Officer)
 
February 21, 2013
 



Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 10-K of PPG Industries, Inc. for the period ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles E. Bunch, Chairman and Chief Executive Officer of PPG Industries, Inc., certify to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPG Industries, Inc.

/s/ Charles E. Bunch
 
Charles E. Bunch
 
Chairman and Chief Executive Officer
 
February 21, 2013
 



Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 10-K of PPG Industries, Inc. for the period ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David B. Navikas, Senior Vice President, Finance and Chief Financial Officer of PPG Industries, Inc., certify to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PPG Industries, Inc.

/s/ David B. Navikas
 
David B. Navikas
 
Senior Vice President, Finance and Chief Financial Officer
 
(Principal Financial and Accounting Officer)
 
February 21, 2013