UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): September 28, 2012 (September 27, 2012)

Commission file number 000-04689

 

 

Pentair Ltd.

(Exact name of Registrant as specified in its charter)

 

 

 

Switzerland   98-1050812

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification number)

Freier Platz 10, CH-8200 Schaffhausen, Switzerland

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: 41-52-630-48-00

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


ITEM 1.01 Entry Into a Material Definitive Agreement.

Credit Agreement

The information included in Item 2.01 below under the heading “Financing Matters—Credit Facility” is incorporated by reference herein.

Tax Sharing Agreement

On September 28, 2012, Pentair Ltd. (f/k/a Tyco Flow Control International Ltd., hereinafter, “New Pentair”) entered into a Tax Sharing Agreement (the “Tax Sharing Agreement”) with Tyco International Ltd. (“Tyco”) and The ADT Corporation (“ADT”). A description of the Tax Sharing Agreement is included in Item 2.01 below and is incorporated by reference herein.

Amended and Restated Separation and Distribution Agreement

On September 27, 2012, New Pentair entered into an Amended and Restated Separation and Distribution Agreement (the “Separation Agreement”) with Tyco and ADT. A description of the Separation Agreement is included in Item 2.01 below and is incorporated by reference herein.

 

ITEM 2.01 Completion of Acquisition or Disposition of Assets.

Merger and Spin-off

On September 28, 2012, New Pentair completed the transactions (the “Transactions”) contemplated by the (i) Merger Agreement (the “Merger Agreement”), dated as of March 27, 2012, among Tyco, New Pentair, Panthro Acquisition Co., a wholly-owned subsidiary of New Pentair (“AcquisitionCo”), Panthro Merger Sub, Inc., a wholly-owned subsidiary of AcquisitionCo (“Merger Sub”), and Pentair, Inc. (“Pentair”), as amended by Amendment No. 1 to the Merger Agreement (the “Merger Agreement Amendment”), dated as of July 25, 2012, among Tyco, New Pentair, AcquisitionCo, Merger Sub and Pentair and (ii) the Separation Agreement.

Pursuant to the provisions of the Separation Agreement, Tyco (i) engaged in an internal restructuring whereby it transferred to New Pentair certain assets related to the flow control business of Tyco, and New Pentair assumed from Tyco certain liabilities related to the flow control business of Tyco (the “Separation”) and (ii) on September 28, 2012 prior to the Merger, effected a spin-off of New Pentair to its shareholders through the pro-rata distribution of 100% of the outstanding common shares of New Pentair to Tyco’s shareholders in the form of a special dividend out of Tyco’s qualifying contributed surplus (the “Distribution”). At the time of the Distribution, each Tyco Shareholder received 0.239943 New Pentair shares for each Tyco share held as of the record date of the Distribution.

Immediately following the Distribution, and pursuant to the Merger Agreement, Merger Sub merged with and into Pentair (the “Merger”), with Pentair surviving as a wholly-owned subsidiary of New Pentair. At the effective time of the Merger, each outstanding Pentair common share was converted into the right to receive one New Pentair common share, resulting in former Pentair shareholders owning approximately 47.5% of New Pentair’s common shares and Tyco shareholders owning approximately 52.5% of New Pentair’s common shares, in each case on a fully-diluted basis using the treasury method under United States generally accepted accounting principles (excluding treasury shares). As a result of the Transactions, New Pentair had approximately 210 million shares outstanding immediately after the closing of the Merger.

Prior to the Distribution, New Pentair incurred indebtedness in an amount equal to $435 million such that, at the close of business on September 27, 2012, New Pentair had $275 million net indebtedness outstanding. The Separation Agreement provides for a post-closing adjustment that may result in Tyco or New Pentair making a cash payment to the other based on New Pentair working capital and net indebtedness on the close of business on September 27, 2012.

The Merger Agreement contains representations and warranties that the parties made to each other as of a specific date. The assertions embodied in the representations and warranties in the Merger Agreement were made solely for purposes of the Merger Agreement and the transactions and agreements contemplated thereby among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Merger Agreement. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may apply contractual standards of materiality in a way that is

 

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different from what may be viewed as material by investors or that is different from standards of materiality generally applicable under the United States federal securities laws or may not be intended as statements of fact, but rather as a way of allocating risk among the parties to the Merger Agreement. For the foregoing reasons, the representations and warranties should not be relied upon as statements of factual information.

The foregoing is only a summary of the Transactions and is qualified in its entirety by reference to the Merger Agreement, the Merger Agreement Amendment and the Separation Agreement filed as Exhibits 2.1, 2.2 and 2.3, respectively, to this Current Report on Form 8-K and incorporated by reference herein.

Tax Sharing Agreement

In connection with the completion of the Distribution, New Pentair entered into the Tax Sharing Agreement that governs the respective rights, responsibilities and obligations of Tyco, ADT and New Pentair after the Separation and Distribution with respect to tax liabilities and benefits, tax attributes, tax contests and other tax matters regarding income taxes, other taxes and related tax returns. Because certain New Pentair subsidiaries were members of one of Tyco’s U.S. consolidated groups, it has (and will continue to have) several liability with Tyco to the Internal Revenue Service (“IRS”) for the consolidated U.S. federal income taxes of such consolidated group relating to the taxable periods in which its subsidiaries were part of such consolidated group. The Tax Sharing Agreement provides that New Pentair, Tyco and ADT will share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to New Pentair’s, Tyco’s and ADT’s U.S. income tax returns, and (ii) payments required to be made by Tyco with respect to a separate tax sharing agreement entered into by Tyco, Covidien Ltd. and TE Connectivity Ltd. (the “2007 Tax Sharing Agreement” and the liabilities in clauses (i) and (ii) collectively, “Shared Tax Liabilities”). Tyco is responsible for the first $500 million of Shared Tax Liabilities. New Pentair and ADT will share 42% and 58%, respectively, of the next $225 million of Shared Tax Liabilities. New Pentair, ADT and Tyco will share 20%, 27.5% and 52.5%, respectively, of Shared Tax Liabilities above $725 million.

In the event the Distribution, the pro-rata distribution of 100% of the outstanding common stock of ADT to Tyco’s shareholders in the form of a special dividend out of Tyco’s qualifying contributed surplus (the “ADT Distribution” and, together with the Distribution, the “Distributions”), or certain internal transactions undertaken in connection therewith were determined to be taxable as a result of actions taken after the Distributions by New Pentair, ADT or Tyco, the party responsible for such failure will be responsible for all taxes imposed on New Pentair, ADT or Tyco as a result thereof. Taxes resulting from the determination that the Distribution, the ADT Distribution, or any internal transaction that was intended to be tax-free, is taxable are referred to herein as “Distribution Taxes.” If such failure is not the result of actions taken after the Distributions by New Pentair, ADT or Tyco, then New Pentair, ADT and Tyco would be responsible for any Distribution Taxes imposed on New Pentair, ADT or Tyco as a result of such determination in the same manner and in the same proportions as the parties share Shared Tax Liabilities. ADT will have sole responsibility for any income tax liability arising as a result of Tyco’s acquisition of Brink’s Home Security Holdings, Inc. (“BHS”) in May 2010, including any liability of BHS under the tax sharing agreement between BHS and The Brink’s Company dated October 31, 2008 (collectively, the “BHS Tax Liabilities”). Costs and expenses associated with the management of Shared Tax Liabilities, Distribution Taxes and BHS Tax Liabilities will generally be shared 20% by New Pentair, 27.5% by ADT and 52.5% by Tyco. New Pentair is responsible for all of its own taxes that are not shared pursuant to the Tax Sharing Agreement’s sharing formulae. Tyco and ADT are responsible for their respective tax liabilities that are not subject to the Tax Sharing Agreement’s sharing formulae.

The Tax Sharing Agreement also provides that, if any party were to default in its obligation to another party to pay its share of the Distribution Taxes that arise as a result of no party’s fault, each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, New Pentair could be legally liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, New Pentair may be obligated to pay amounts in excess of its agreed-upon share of its, Tyco’s and ADT’s tax liabilities.

Each of New Pentair, Tyco and ADT have agreed to indemnify the other two parties against any amounts paid by such other parties pursuant to the Tax Sharing Agreement and with respect to which such paying parties are not responsible pursuant to the Tax Sharing Agreement. Though valid as between the parties, the Tax Sharing Agreement will not be binding on the IRS.

 

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Under the Tax Sharing Agreement, there are restrictions on New Pentair’s ability to take actions that could cause the Distribution or certain internal transactions undertaken in anticipation of the Distribution to fail to qualify for favorable treatment under the Internal Revenue Code of 1986, as amended (the “Code”), including entering into, approving or allowing any transaction that results in a change in ownership of more than 35% of its common shares (when combined with any other changes in ownership of its shares), a redemption of equity securities, a sale or other disposition of more than 35% of its assets or engaging in certain internal transactions. These restrictions will apply for the two-year period after the Distribution, unless, for certain transactions, New Pentair obtains the consent of Tyco and ADT or it obtains a private letter ruling from the IRS or an unqualified opinion of a nationally recognized law firm that such action will not cause the Distribution or the internal transactions undertaken in anticipation of the Distribution to fail to qualify for favorable treatment under the Code, and such letter ruling or opinion, as the case may be, is acceptable to Tyco and ADT. Moreover, the Tax Sharing Agreement also provides that New Pentair is responsible for any taxes imposed on Tyco, ADT or any of their affiliates as a result of the failure of the Distribution or the internal transactions to qualify for favorable treatment under the Code if such failure is attributable to certain post-Distribution actions taken by or in respect of it, any of its affiliates or its shareholders, regardless of whether the actions occur more than two years after the Distribution, Tyco and ADT consent to such actions or it obtains a favorable letter ruling or opinion of tax counsel as described above. For example, New Pentair would be responsible for a third party’s acquisition of it at a time and in a manner that would cause such failure. These restrictions may prevent New Pentair from entering into transactions which might be advantageous to it or its shareholders.

The foregoing is only a summary of the Tax Sharing Agreement and is qualified in its entirety by reference to the Tax Sharing Agreement filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated by reference herein.

Financing Matters

Credit Facility

On September 21, 2012, Pentair entered into a new Credit Agreement (the “Credit Agreement”) providing for a revolving credit facility with initial maximum aggregate amount of availability of $1.45 billion. At the closing of the Merger, New Pentair became the guarantor under the Credit Agreement and Tyco Flow Control International S.A., a subsidiary of New Pentair that will be renamed Pentair Finance S.A. (“PFSA”), and certain other subsidiaries of New Pentair became affiliate borrowers under the Credit Agreement. A description of the Credit Agreement is contained in Pentair’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on September 24, 2012 and is incorporated by reference herein. PFSA intends to use borrowings under the Credit Agreement to loan sufficient funds to Pentair to repay borrowings under Pentair’s existing revolving credit facility, repay $60 million of intercompany obligations to Tyco and pay expenses in connection with the Merger and for general corporate purposes.

PFSA Senior Notes

On September 24, 2012, PFSA issued $350 million aggregate principal amount of its 1.875% Senior Notes due 2017 (the “2017 Notes”) and $550 million aggregate principal amount of its 3.150% Senior Notes due 2022 (the “2022 Notes” and, together with the 2017 Notes, the “Notes”) guaranteed by New Pentair. At such time, the net proceeds from the issuance of the Notes were placed into escrow pending the closing of the Transactions. Upon the closing of the Transactions, the net proceeds from the issuance of the Notes were released from escrow to PFSA, which used a portion of the net proceeds to loan sufficient funds to a subsidiary of PFSA to repay a $375 million intercompany note to Tyco.

The Notes are governed by an Indenture (the “Indenture”), dated as of September 24, 2012, among PFSA, as issuer, New Pentair, as guarantor, and Wells Fargo Bank, National Association, as trustee (the “Trustee”), as supplemented by the First and Second Supplemental Indentures, each dated as of September 24, 2012, among PFSA, as issuer, New Pentair, as guarantor, Pentair and the Trustee (together, the “Supplemental Indentures”). New Pentair has unconditionally guaranteed the due and punctual payment of the principal of, premium, if any, and interest and Additional Amounts (as defined in the Indenture), if any, on the Notes. Interest on the Notes will be payable on March 15 and September 15 of each year, commencing on March 15, 2013, to the holders of record at the close of business on the March 1 and September 1 prior to each interest payment date. In certain circumstances, PFSA may be required to pay additional interest.

 

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The Notes are redeemable solely at PFSA’s option at any time in the case of the 2017 Notes and before June 15, 2022 (three months prior to the maturity date of the 2022 Notes) in the case of the 2022 Notes at a redemption price equal to the greater of the principal amount of the Notes and a make-whole price, plus in each case, accrued and unpaid interest. PFSA may also redeem all, but not less than all, of a series of Notes in the event of certain tax changes affecting such notes. The 2022 Notes are redeemable on or after June 15, 2022 at a redemption price equal to the principal amount of the 2022 Notes, plus accrued and unpaid interest.

In connection with the sale of the Notes, PFSA and New Pentair entered into an Exchange and Registration Rights Agreement (the “Registration Rights Agreement”), dated September 24, 2012, with certain initial purchasers of the Notes. Under the Registration Rights Agreement, PFSA and New Pentair agree to: (i) use their commercially reasonable efforts to file with the SEC an exchange offer registration statement with respect to an exchange offer registered under the Securities Act of 1933, as amended, (the “Securities Act”) to exchange the Notes of each series for an issue of another series of notes (the “Exchange Notes”) that are identical in all material respects to the applicable series of Notes (except that the Exchange Notes will not contain transfer restrictions or any increase in annual interest rate) within 180 days after September 24, 2012, (ii) use their commercially reasonable efforts to cause the exchange offer registration statement to be declared effective under the Securities Act within 365 days of September 24, 2012, (iii) commence the exchange offer promptly, but no later than 10 business days after the registration statement has become effective, (iv) hold the exchange offer open for not less than 20 business days and (v) complete the exchange offer no later than 30 business days after the commencement of the exchange offer. If the exchange offer is not consummated, then under certain circumstances and within specified time periods, PFSA and New Pentair are required to file a shelf registration statement covering resales of the Notes, use commercially reasonable efforts to cause a shelf registration statement to be declared effective and to keep the shelf registration statement effective until such time as the Notes cease to be registrable securities. Subject to certain limitations, PFSA will be required to pay the holders of the Notes special interest on the Notes if PFSA fails to register the Notes or consummate the exchange offer within, or to keep such registration statement effective during, specified time periods or if PFSA requires holders to refrain from disposing of their registrable securities for a period exceeding 60 days in the aggregate during any consecutive 12-month period.

The foregoing is only a summary of the terms of the Notes and is qualified in its entirety by reference to the Indenture, Supplemental Indentures and Registration Rights Agreement, which are filed as Exhibits 4.1, 4.2, 4.3 and 4.4, respectively, to this Current Report on Form 8-K and are incorporated by reference herein.

Pentair Senior Notes

Pentair has given notice that it will redeem on October 24, 2012 $400 million of its fixed rate, senior unsecured notes and on October 25, 2012 $100 million of its floating rate, senior unsecured notes. PFSA intends to use a portion of the net proceeds from the Notes to loan sufficient funds to Pentair in order for Pentair to pay the redemption price for the fixed and floating rate notes. Pentair’s existing $500 million aggregate principal amount of 5.000% senior unsecured notes due 2021 remain outstanding.

 

ITEM 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information included Item 2.01 above under the heading “Financing Matters” is incorporated by reference herein.

 

ITEM 3.03 Material Modification to Rights of Security Holders.

As a result of the consummation of the Merger, each outstanding Pentair common share was converted into the right to receive one newly issued New Pentair common share and the rights of the holders of Pentair common shares prior to the Merger were modified. The rights of holders of New Pentair common shares are governed by New Pentair’s Swiss articles of association and Swiss organizational regulations. New Pentair’s articles of association and organizational regulations are attached hereto as Exhibits 3.1 and 3.2, respectively, to this Current Report on Form 8-K and are incorporated by reference herein. A description of the share capital of New Pentair, after giving effect to the Transactions, and the rights of holders of New Pentair common shares, is filed as Exhibit 99.1 to this Current Report on Form 8-K and incorporated by reference herein.

 

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ITEM 5.01 Changes in Control of Registrant

The information included in Item 2.01 above is incorporated by reference herein.

 

ITEM 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Election of Directors

Pursuant to the terms of the Merger Agreement, effective upon consummation of the Merger, the board of directors of Pentair prior to the Merger were elected as New Pentair’s board of directors, along with one designee selected by Tyco. T. Michael Glenn, David H. Y. Ho and Ronald L. Merriman have been elected as Class I directors, whose terms expire at the 2013 annual general meeting of shareholders; Leslie Abi-Karam , Glynis A. Bryan, Charles A. Haggerty and William T. Monahan have been elected as Class II directors, whose terms expire at the 2014 annual general meeting of shareholders; and Jerry W. Burris, Carol Anthony (John) Davidson, Randall J. Hogan and David A. Jones have been elected as Class III directors, whose terms expire at the 2015 annual general meeting of shareholders. Effective with his election to the board of directors, Mr. Hogan will serve as chairman of the board. The following is a biographical summary for each of the directors of New Pentair following the Merger (ages are as of March 31, 2012).

Terms Expiring at the 2013 Annual Meeting of Shareholders

T. Michael Glenn , director of Pentair since 2007, age 56. Since 1998, Mr. Glenn has been the Executive Vice President—Market Development and Corporate Communications of FedEx Corporation, a global provider of supply chain, transportation, business and related information services. From 1994 to 1998, Mr. Glenn was Senior Vice President—Marketing and Corporate Communications of FedEx Express. Mr. Glenn is also a director of Renasant Corporation, and was formerly a director of Deluxe Corporation from 2004 to 2006.

David H. Y. Ho , director of Pentair since 2007, age 52. Mr. Ho has been a private investor since he retired in 2008, but has significant executive experience with global technology companies. From 2007 to 2008, he served as the Chairman of the Greater China Region for Nokia Siemens Network, a joint venture between Finland-based Nokia Corporation, a multinational telecommunications company, and Germany-based Siemens AG. Prior thereto, Mr. Ho held numerous executive positions with Nokia subsidiaries, including Nokia China Investment Limited, the Chinese operating subsidiary of Nokia Corporation, where he served as President between 2004 and 2007 and Senior Vice President, Networks—Greater China, between 2001 and 2004. Between 1983 and 2001, Mr. Ho held various senior positions with Nortel Networks and Motorola Inc. in Canada and China. Mr. Ho is also a director of Owens-Illinois Inc. (since 2008), Triquint Semiconductor (since 2010), and Dong Fang Electric Corporation, a Chinese State Owned Enterprise (since 2009), and was a director of 3Com Corporation from December 2008 through April 2010.

Ronald L. Merriman , director of Pentair since 2004, age 67. Mr. Merriman serves as the Chair of the Audit Committee. He is the retired Vice Chair of KPMG, a global accounting and consulting firm, where he served from 1967 to 1997 in various positions, including as a member of the Executive Management Committee. He also served as Executive Vice President of Ambassador International, Inc., a publicly-traded travel services business, from 1997 to 1999; Executive Vice President of Carlson Wagonlit Travel, a global travel management firm, from 1999 to 2000; Managing Director of O’Melveny & Myers LLP, a global law firm, from 2000 to 2003; and Managing Director of Merriman Partners, a management advisory firm, from 2004 to 2010. He is also a director of Aircastle Limited, Realty Income Corporation and Haemonetics Corporation. Mr. Merriman also served as a director of Cardio Dynamics International from July 2003 to July 2005 and as a director of Corautus Genetics Inc. from April 2004 to May 2005.

Terms Expiring at the 2014 Annual Meeting of Shareholders

Leslie Abi-Karam , director of Pentair since 2008, age 53. Since 2008, Ms. Abi-Karam has been the Executive Vice President and President, Mailing Solutions Management of Pitney Bowes Inc., a global mailstream technology company. Between 2002 and 2008, Ms. Abi-Karam was the Executive Vice President and President, Document Messaging Technologies (DMT) of Pitney Bowes Inc. She is also responsible for all engineering, global supply chain and direct procurement operations, supplying products and sourcing for all commodity/spend management within Pitney Bowes worldwide. Between 2000 and 2002, Ms. Abi-Karam was President, Global Mail Creation and Mail Finishing, of Pitney Bowes Inc. She has been with Pitney Bowes since 1984 and has held various roles of increasing responsibility.

 

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Glynis A. Bryan , director of Pentair since 2003, age 53. Ms. Bryan serves as the Chair of Pentair’s Governance Committee. Since 2007, Ms. Bryan has been the Chief Financial Officer of Insight Enterprises, Inc., a leading provider of information technology products and solutions to clients in North America, Europe, the Middle East and the Asia-Pacific region. Between 2005 and 2007, Ms. Bryan was the Executive Vice President and Chief Financial Officer of Swift Transportation Co., a holding company which operates the largest fleet of truckload carrier equipment in the United States. Between 2001 and 2005, Ms. Bryan was the Chief Financial Officer of APL Logistics, the supply-chain management arm of Singapore-based NOL Group, a logistics and global transportation business. Prior to joining APL, Ms. Bryan spent 16 years with Ryder System, Inc., a truck leasing company, where she held a series of progressively responsible positions in finance. In her last assignment, Ms. Bryan was Senior Vice President of Ryder Capital Services, where she led the development of the firm’s capital services business. In 1999 and 2000, Ms. Bryan served as Senior Vice President and Chief Financial Officer of Ryder Transportation Services.

Charles A. Haggerty , director of Pentair since 1994, age 70. Mr. Haggerty is currently Chief Executive Officer of LeConte Associates, LLC, a consulting and investment firm. Mr. Haggerty joined Western Digital Corporation, a maker of hard disc drives, in 1992, where he served as Chief Operating Officer until 1993, and as Chief Executive Officer and Chairman of the board from 1993 until he retired in 2000. From 1964 to 1992, Mr. Haggerty served in various positions at International Business Machines Corporation. Mr. Haggerty is also a director of Imation Corp., Deluxe Corporation and LSI Corp, and formerly served as a director at Beckman Coulter, Inc. until 2011.

William T. Monahan , director of Pentair since 2001, age 64. Mr. Monahan serves as Pentair’s Lead Director. In 2006, Mr. Monahan served as a director and the Interim Chief Executive Officer of Novelis, Inc., a global leader in aluminum rolled products and aluminum can recycling. From 1995 to 2004, Mr. Monahan was Chairman of the board of directors and Chief Executive Officer of Imation Corp., a manufacturer of magnetic and optical data storage media. Mr. Monahan is also a director of Hutchinson Technology, Inc., The Mosaic Company and Solutia Inc. and was a director of Novelis, Inc. from 2005 to 2007.

Terms Expiring at the 2015 Annual Meeting of Shareholders

Jerry W. Burris , director of Pentair since 2007, age 48. Mr. Burris has been President and Chief Executive Officer of Associated Materials, LLC, a manufacturer of professionally installed exterior building products, since September 2011. Between 2008 and 2011, he was President, Precision Components of Barnes Group Inc. From 2006 until 2008, Mr. Burris was the President of Barnes Industrial, a global precision components business within Barnes Group. Prior to joining Barnes Group, Mr. Burris worked at General Electric Company, a multinational technology and services conglomerate, where he served as president and chief executive officer of Advanced Materials Quartz and Ceramics in 2006. From 2003 to 2006, Mr. Burris was the general manager of global services for GE Healthcare. From 2001 to 2003, he led the integration of global supply chain sourcing for the Honeywell integration and served as the general manager of global sourcing for GE Industrial Systems. Mr. Burris first joined General Electric Company in 1986 in the GE Corporate Technical Sales and Marketing Program.

Carol Anthony (John) Davidson , age 56. From January 2004 until the Merger, Mr. Davidson was Senior Vice President, Controller and Chief Accounting Officer of Tyco International Ltd., a provider of diversified industrial products and services. Between November 1997 to January 2004, Mr. Davidson held a variety of leadership roles at Dell Inc., a computer and technology services company, including the positions of Vice President, Audit, Risk and Compliance, and Vice President, Corporate Controller. From April 1981 to November 1997, Mr. Davidson held a variety of accounting and financial leadership roles at Eastman Kodak Company, a provider of imaging technology products and services. Since December 2010, Mr. Davidson has also been a director of DaVita, Inc., a provider of kidney dialysis services. Mr. Davidson is a member of the Board of Trustees of the Financial Accounting Foundation which oversees financial accounting and reporting standards setting processes for the United States, including oversight of the Financial Accounting Standards Board (FASB). Mr. Davidson is a CPA with more than 30 years of leadership experience across multiple industries and brings a strong track record of building and leading global teams and implementing governance and controls processes.

 

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Randall J. Hogan , director of Pentair since 1999, age 56. Since January 1, 2001, Mr. Hogan has been Pentair’s Chief Executive Officer. Mr. Hogan became Chairman of Pentair’s board of directors on May 1, 2002. From December 1999 through December 2000, Mr. Hogan was Pentair’s President and Chief Operating Officer. From March 1998 to December 1999, he was Executive Vice President and President of Pentair’s Electrical and Electronic Enclosures Group. From 1995 to 1997, he was President of the Carrier Transicold Division of United Technologies Corporation. From 1994 until 1995, he was Vice President and General Manager of Pratt & Whitney Industrial Turbines. From 1988 until 1994, he held various executive positions at General Electric Company. From 1981 until 1987, he was a consultant at McKinsey & Company. Mr. Hogan is also a director of Covidien plc. Mr. Hogan also served as a director of Unisys Corporation from 2004 to 2006.

David A. Jones , director of Pentair since 2003, age 62. Mr. Jones serves as the Chair of Pentair’s Compensation Committee. Since 2008, Mr. Jones has been Senior Advisor to Oak Hill Capital Partners, a private equity firm. In April 2010, Mr. Jones was appointed to the board of directors of Dave & Buster’s Holdings, Inc., an owner and operator of high-volume restaurant/entertainment venues, and to the board of directors as the lead director of The Hillman Group, Inc., a distributor of fasteners, key duplication systems, engraved tags and related hardware items and in 2012, Mr. Jones was appointed to the Board of Directors of Earth Force, Inc., one of the largest natural food retailers in the U.S., all of which are privately owned by Oak Hill Capital Partners. Between 1996 and 2007, Mr. Jones was Chairman and Chief Executive Officer of Spectrum Brands, Inc. (formerly Rayovac Corporation), a global consumer products company with major businesses in batteries, lighting, shaving/grooming, personal care, lawn and garden, household insecticide and pet supply product categories. From 1996 to April 1998, he also served Rayovac as President. After Mr. Jones was no longer an executive officer of Spectrum Brands, it filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in March 2009 and exited from bankruptcy proceedings in August 2009. From 1995 to 1996, Mr. Jones was Chief Operating Officer, Chief Executive Officer, and Chairman of the board of directors of Thermoscan, Inc. From 1989 to 1994, he served as President and Chief Executive Officer of The Regina Company. Mr. Jones also served as a director of Simmons Bedding Company from 2000 to 2010, as a director of Spectrum Brands from 1996 to 2007, and as a director of Tyson Foods, Inc. from 1999 to 2005.

The compensation committee of the board of directors is comprised of Mr. Jones, as chair, Ms. Bryan, Mr. Glenn and Mr. Monahan; the audit and finance committee of the board of directors is comprised of Mr. Merriman, as chair, Ms. Abi-Karam, Mr. Burris, Mr. Davidson, Mr. Haggerty and Mr. Ho; and the governance committee of the board of directors is comprised of Ms. Bryan as chair, Mr. Glenn, Mr. Jones and Mr. Monahan.

Appointment of Officers

Pursuant to the terms of the Merger Agreement, effective upon consummation of the Merger, the executive officers of Pentair prior to the Merger were appointed as the executive officers of New Pentair immediately following the Merger. The following is a biographical summary for each of the executive officers of New Pentair following the Merger (all ages are as of March 31, 2012).

Randall J. Hogan —Mr. Hogan, age 56, will serve as New Pentair’s Chief Executive Officer and will serve as Chairman of the board of directors of New Pentair. Mr. Hogan currently serves as the Chief Executive Officer of Pentair and Chairman of Pentair’s board of directors, positions he has held since January 2001 and May 1, 2002, respectively. From December 1999 to December 2000, Mr. Hogan was President and Chief Operating Officer of Pentair and from March 1998 to December 1999 he served as Executive Vice President and President of Pentair’s Electrical and Electronic Enclosures Group. Prior to joining Pentair, Mr. Hogan was President of United Technologies Carrier Transicold from 1995 to 1997; Vice President and General Manager of Pratt & Whitney Industrial Turbines from 1994 to 1995; he held various executive positions at General Electric from 1988 to 1994; and was a consultant for McKinsey & Company from 1981 to 1987.

Michael V. Schrock —Mr. Schrock, age 59, will serve as New Pentair’s President and Chief Operating Officer. Mr. Schrock currently serves as President and Chief Operating Officer of Pentair, a position he has held since September 2006. Mr. Schrock also served as President and Chief Operating Officer of Filtration and Technical Products from October 2005 to September 2006; President and Chief Operating Officer of Enclosures, from October 2001 to September 2005; President, Pentair Water Technologies—Americas from January 2001 to October 2001; President, Pentair Pump and Pool Group, from August 2000 to January 2001; President, Pentair Pump Group from January 1999 to August 2000; and Vice President and General Manager, Aurora, Fairbanks Morse and Pentair Pump Group International from March 1998 to December 1998. Prior to joining Pentair, Mr. Schrock served as Divisional Vice President and General Manager of Honeywell Inc. from 1994 to 1998.

 

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John L. Stauch— Mr. Stauch, age 47, will serve as New Pentair’s Executive Vice President and Chief Financial Officer. Mr. Stauch currently serves as Executive Vice President and Chief Financial Officer of Pentair, a position he has held since February 2007. Prior to joining Pentair, Mr. Stauch served as Chief Financial Officer of the Automation and Control Systems unit of Honeywell International Inc. from July 2005 to February 2007; Vice President, Finance and Chief Financial Officer of the Sensing and Controls unit of Honeywell International Inc. from January 2004 to July 2005; Vice President, Finance and Chief Financial Officer of the Automation & Control Products unit of Honeywell International Inc. from July 2002 to January 2004; Chief Financial Officer and IT Director of PerkinElmer Optoelectronics, a unit of PerkinElmer, Inc. from April 2000 to April 2002; and held various executive, investor relations and managerial finance positions with Honeywell International Inc. and its predecessor AlliedSignal Inc. from 1994 to 2000.

Frederick S. Koury —Mr. Koury, age 51, will serve as New Pentair’s Senior Vice President, Human Resources. Mr. Koury currently serves as Senior Vice President, Human Resources of Pentair, a position he has held since August 2003. Prior to joining Pentair, Mr. Koury served as Vice President of Human Resources at Limited Brands from September 2000 to August 2003 and held various executive positions at PepsiCo, Inc. from June 1985 to September 2000.

Angela D. Lageson— Ms. Lageson, age 43, will serve as New Pentair’s Senior Vice President, General Counsel and Secretary. Ms. Lageson currently serves as Senior Vice President, General Counsel and Secretary of Pentair, a position she has held since February 2010. From November 2002 to February 2010, Ms. Lageson served as Assistant General Counsel of Pentair. Prior to joining Pentair, Ms. Lageson was a Shareholder and Officer of the law firm of Henson & Efron, P.A. from January 2000 to 2002 and was an Associate Attorney in the law firm of Henson & Efron, P.A. from October 1996 to January 2000 and in the law firm of Felhaber Larson Fenlon & Vogt, P.A. from 1992 to 1996.

Michael G. Meyer— Mr. Meyer, age 53, will serve as New Pentair’s Vice President, Treasurer. Mr. Meyer currently serves as Vice President of Treasury and Tax for Pentair, a position he has held since April 2004. At Pentair, Mr. Meyer also served as Treasurer from January 2002 to March 2004 and Assistant Treasurer from September 1994 to December 2001. Prior to joining Pentair, Mr. Meyer held various executive positions with Federal-Hoffman, Inc. (a former subsidiary of Pentair) from August 1985 to August 1994.

Mark C. Borin— Mr. Borin, age 45, will serve as New Pentair’s Corporate Controller and Chief Accounting Officer. Mr. Borin currently serves as Corporate Controller and Chief Accounting Officer of Pentair, a position he has held since March 2008. Prior to joining Pentair, Mr. Borin was a Partner in the audit practice of the public accounting firm KPMG LLP from June 2000 to March 2008 and held various positions in the audit practice of KPMG LLP from September 1989 to June 2000.

Resignation of Officers

Pursuant to the terms of the Merger Agreement, each officer of New Pentair prior to the Merger resigned his or her respective office effective upon consummation of the Merger.

Compensation of New Pentair Executive Officers

Information concerning the compensation of the New Pentair executive officers can be found in Pentair’s proxy statement for its 2012 annual meeting of shareholders filed with the SEC on March 9, 2012 under the caption “Executive Compensation” and Pentair’s definitive proxy statement/prospectus for its special meeting of shareholders relating to the Merger filed with the SEC on August 3, 2012 under the caption “Interest of Certain Persons in the Merger” and is incorporated by reference herein. New Pentair will file a Current Report on Form 8-K by October 4, 2012 disclosing additional information regarding New Pentair executive compensation arrangements and plans.

 

9


ITEM 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

New Pentair Organizational Documents

The information included in Item 3.03 above is incorporated by reference herein.

 

ITEM 8.01 Other Events.

Successor Issuer

In connection with the Merger and by operation of Rule 12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), New Pentair is the successor issuer to Pentair and has succeeded to the attributes of Pentair as the registrant, including Pentair’s commission file number. New Pentair common shares are deemed to be registered under Section 12(b) of the Exchange Act, and New Pentair is subject to the informational requirements of the Exchange Act, and the rules and regulations promulgated thereunder, and will hereafter file reports and other information with the SEC using Pentair’s commission file number (000-04689). New Pentair hereby reports this succession in accordance with Rule 12g-3(f) under the Exchange Act.

New Pentair’s common shares are listed on New York Stock Exchange and trade under the symbol “PNR”

Share Repurchase Plan

Prior to the consummation of the Transactions, the board of directors of New Pentair, and Tyco as the sole shareholder, authorized the repurchase of New Pentair common shares with a maximum aggregate value of $400 million following the consummation of the Transactions. New Pentair will effect the share repurchases pursuant to a share repurchase plan established in accordance with Rule 10b5-1 of the Exchange Act. A Rule 10b5-1 plan allows a company to repurchase its shares at times when it otherwise might be unable to do so because it was aware of material nonpublic information regarding the company. The repurchased shares may either be held as treasury shares for any future use as the board of directors of New Pentair may deem appropriate or be cancelled.

Dividends

Prior to the consummation of the Transactions, the board of directors of New Pentair proposed, and Tyco as the sole shareholder authorized, New Pentair to pay quarterly cash dividends through the first annual general meeting of New Pentair shareholders in 2013, at which time New Pentair intends to submit to its shareholders for approval a proposal concerning the payment of future dividends. The authorization provides that a dividend of $0.68 per share will be made out of New Pentair’s “contributed surplus” equity position in its statutory accounts to its shareholders in three quarterly installments of $0.22 on November 9, 2012 to shareholders of record on October 26, 2012, $0.23 on February 8, 2013 to shareholders of record on January 25, 2013, and $0.23 on May 10, 2013 to shareholders of record on April 26, 2013. The deduction to New Pentair’s contributed surplus in its statutory accounts, which is required to be made in Swiss Francs, will be determined based on the aggregate amount of the dividend and will be calculated based on the U.S. Dollar/Swiss Franc exchange rate in effect on September 14, 2012. The U.S. Dollar amount of the dividend will be capped at an amount such that the aggregate reduction to New Pentair’s contributed surplus will not exceed 240 million Swiss Francs. To the extent that a dividend payment would exceed the cap, the U.S. Dollar per share amount of the current or future dividends will be reduced on a pro rata basis so that the aggregate amount of all dividends paid does not exceed the cap. In addition, the aggregate reduction in contributed surplus will be increased for any shares issued, and decreased for any shares acquired, after September 14, 2012 and before the record date for the applicable dividend payment. No dividends will be paid on New Pentair treasury shares.

Section 16 Reporting

As previously disclosed, at the effective time of the Merger, each Pentair common share was automatically converted into and became the right to receive one New Pentair common share. As a result, each director and officer (for purposes of Section 16 of the Exchange Act) of New Pentair is required to file a Form 4 evidencing the disposition of Pentair common shares, a Form 3 evidencing his or her status as a new director or officer of New Pentair and a Form 4 evidencing his or her acquisition of the same number of New Pentair common shares. No shares were sold into or purchased from the market in connection with the dispositions and acquisitions reflected on these Form 4s.

 

10


ITEM 9.01 Financial Statements and Exhibits.

 

(a) Financial Statements of Business Acquired

The following financial statements are included as Exhibit 99.2 to this Current Report on Form 8-K and are incorporated by reference herein:

 

   

audited Combined Financial Statements of Tyco Flow Control International Ltd. and the flow control business of Tyco International Ltd. for the fiscal years ended September 30, 2011, September 24, 2010 and September 25, 2009 and the independent registered public accounting firm’s report related thereto;

 

   

unaudited Combined Financial Statements of Tyco Flow Control International Ltd. and the flow control business of Tyco International Ltd. for the nine months ended June 29, 2012 and June 24, 2011;

 

   

audited Consolidated Financial Statements of Pentair, Inc. and Subsidiaries for the fiscal years ended December 31, 2011, December 31, 2010 and December 31, 2009 and the independent registered public accounting firm’s report related thereto; and

 

   

unaudited Condensed Consolidated Financial Statements of Pentair, Inc. and Subsidiaries for the three and six months ended June 30, 2012 and July 2, 2011.

Effective September 14, 2012, Tyco Flow Control International Ltd. changed its corporate name to Pentair Ltd. Such change, however, is not reflected in the notes to the financial statements filed as Exhibit 99.2 to this Current Report on Form 8-K and incorporated by reference herein.

 

(b) Pro Forma Financial Information

The unaudited pro forma financial statements required by Section 9.01(b) of Form 8-K and Article 11 of Regulation S-X are included as Exhibit 99.3 to this Current Report on Form 8-K and are incorporated herein by reference.

 

(c) Shell Company Transactions

Not applicable.

 

(d) Exhibits

The exhibits listed in the accompanying Exhibit Index are being filed herewith.

 

11


SIGNATURE

Pursuant to the requirements 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 September 28, 2012.

 

PENTAIR LTD.

Registrant

By:  

/s/    Angela D. Lageson

 

Angela D. Lageson

Senior Vice President, General Counsel and Secretary


PENTAIR LTD.

Exhibit Index to Current Report on Form 8-K

Dated September 28, 2012

 

Exhibit

Number

  

Description

  2.1    Merger Agreement, dated as of March 27, 2012, among Tyco International Ltd., Pentair Ltd. (formerly Tyco Flow Control International Ltd.), Panthro Acquisition Co., Panthro Merger Sub, Inc. and Pentair, Inc. (incorporated herein by reference to Exhibit 2.1 in the Current Report on Form 8-K (File No. 000-04689) of Pentair, Inc. filed with the Commission on March 30, 2012)
  2.2    Amendment No. 1, dated as of July 25, 2012, to the Merger Agreement, dated as of March 27, 2012, among Tyco International Ltd., Pentair Ltd. (formerly Tyco Flow Control International Ltd.), Panthro Acquisition Co., Panthro Merger Sub, Inc. and Pentair, Inc. (incorporated herein by reference to Exhibit 2.1 in the Current Report on Form 8-K (File No. 000-04689) of Pentair, Inc. filed with the Commission on July 31, 2012)
  2.3    Amended and Restated Separation and Distribution Agreement, dated September 27, 2012 among Tyco International Ltd., Pentair Ltd. and The ADT Corporation
  3.1    Amended and Restated Articles of Association of Pentair Ltd.
  3.2    Organizational Regulations of Pentair Ltd.
  4.1    Indenture, dated as of September 24, 2012, among Tyco Flow Control International Finance S.A. (as Issuer), Pentair Ltd. (as Guarantor) and Wells Fargo Bank, National Association (as Trustee)
  4.2    First Supplemental Indenture, dated as of September 24, 2012, among Tyco Flow Control International Finance S.A. (as Issuer), Pentair Ltd. (as Guarantor), Pentair, Inc. and Wells Fargo Bank, National Association (as Trustee)
  4.3    Second Supplemental Indenture, dated as of September 24, 2012, among Tyco Flow Control International Finance S.A. (as Issuer), Pentair Ltd. (as Guarantor), Pentair, Inc. and Wells Fargo Bank, National Association (as Trustee)
  4.4    Exchange and Registration Rights Agreement, among Tyco Flow Control International Finance S.A., Pentair Ltd., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and U.S. Bancorp Investments, Inc. (as representatives of the several Purchasers), dated as of September 24, 2012.
10.1    Tax Sharing Agreement, dated September 28, 2012 by and among Pentair Ltd., Tyco International Ltd. and The ADT Corporation
99.1    Description of Pentair Ltd. Capital Stock
99.2    Audited Combined Financial Statements of Tyco Flow Control International Ltd. and the flow control business of Tyco International Ltd. for the fiscal years ended September 30, 2011, September 24, 2010 and September 25, 2009 and the independent registered public accounting firm’s report related thereto; unaudited Combined Financial Statements of Tyco Flow Control International Ltd. and the flow control business of Tyco International Ltd. for the nine months ended June 29, 2012 and June 24, 2011; audited Consolidated Financial Statements of Pentair, Inc. and Subsidiaries for the fiscal years ended December 31, 2011, December 31, 2010 and December 31, 2009 and the independent registered public accounting firm’s report related thereto; and unaudited Condensed Consolidated Financial Statements of Pentair, Inc. and Subsidiaries for the three and six months ended June 30, 2012 and July 2, 2011
99.3    Unaudited Pro Forma Condensed Combined Financial Statements

Exhibit 2.3

EXECUTION VERSION

AMENDED AND RESTATED

SEPARATION AND DISTRIBUTION AGREEMENT

by and among

TYCO INTERNATIONAL LTD.,

PENTAIR LTD.,

and

THE ADT CORPORATION

Dated as of September 27, 2012


TABLE OF CONTENTS

 

         Page  

ARTICLE I DEFINITIONS AND INTERPRETATION

     2   

Section 1.1.

 

General

     2   

Section 1.2.

 

References; Interpretation

     28   
ARTICLE II THE SEPARATION      28   

Section 2.1.

 

General

     28   

Section 2.2.

 

Transfer of Assets

     29   

Section 2.3.

 

Assumption and Satisfaction of Liabilities

     30   

Section 2.4.

 

Intercompany Accounts

     31   

Section 2.5.

 

Limitation of Liability

     31   

Section 2.6.

 

Transfers Not Effected On or Prior to the Effective Time; Transfers Deemed Effective as of the Effective Time

     32   

Section 2.7.

 

Conveyancing and Assumption Instruments

     34   

Section 2.8.

 

Further Assurances

     34   

Section 2.9.

 

Novation of Liabilities

     35   

Section 2.10.

 

Guarantees

     36   

Section 2.11.

 

Pre-Closing Actions

     37   

Section 2.12.

 

Disclaimer of Representations and Warranties

     37   
ARTICLE III CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTIONS      38   

Section 3.1.

 

Organizational Documents

     38   

Section 3.2.

 

Directors

     38   

Section 3.3.

 

Resignations

     38   

Section 3.4.

 

Certain Debt; Cash

     38   

Section 3.5.

 

Post-Closing Working Capital Adjustment

     39   

Section 3.6.

 

Ancillary Agreements

     41   

Section 3.7.

 

Fountain Recapitalization

     42   
ARTICLE IV THE DISTRIBUTION      42   

Section 4.1.

 

Stock Dividend to Trident Shareholders

     42   

Section 4.2.

 

Fractional Shares

     42   

Section 4.3.

 

Actions in Connection with the Distribution

     43   

Section 4.4.

 

Conditions to Distribution

     43   
ARTICLE V CERTAIN COVENANTS      43   

Section 5.1.

 

No Solicit; No Hire

     43   

 

i


Section 5.2.

 

Agreement Not To Compete

     44   

Section 5.3.

 

Financial Statements and Accounting

     45   

Section 5.4.

 

Certain Securities

     47   

Section 5.5.

 

Removal of Trident Designations

     47   

Section 5.6.

 

Asbestos Agreements

     47   

ARTICLE VI EMPLOYEE MATTERS

     48   

Section 6.1.

 

Stock Options

     48   

Section 6.2.

 

Restricted Stock Units, Performance Share Units and Deferred Stock Units

     51   

Section 6.3.

 

Nonqualified Deferred Compensation Plans

     54   

Section 6.4.

 

Pension Plans

     55   

Section 6.5.

 

Retirement Savings Plans

     58   

Section 6.6.

 

Retiree Medical Benefits

     60   

Section 6.7.

 

Health, Welfare and Fringe Benefit Plans

     60   

Section 6.8.

 

Cooperation and Administrative Provisions

     64   

Section 6.9.

 

Approval of Plans; Terms of Participation by Employees in Plans

     68   

Section 6.10.

 

Tax Consequences

     69   

Section 6.11.

 

International Regulatory Compliance

     69   

Section 6.12.

 

Alternate Procedure

     69   

Section 6.13.

 

Employee Transfer; Liabilities

     69   

ARTICLE VII ASSUMED TRIDENT CONTINGENT LIABILITIES

     70   

Section 7.1.

 

Assumed Trident Contingent Liabilities

     70   

Section 7.2.

 

Management of Assumed Trident Contingent Liabilities

     71   

Section 7.3.

 

Access to Information; Certain Services; Expenses

     71   

Section 7.4.

 

Notice Relating to Assumed Trident Contingent Liabilities; Disputes

     72   

Section 7.5.

 

Cooperation with Governmental Entity

     72   

Section 7.6.

 

Default

     73   

ARTICLE VIII INDEMNIFICATION

     73   

Section 8.1.

 

Release of Pre-Distribution Claims

     73   

Section 8.2.

 

Indemnification by Trident

     75   

Section 8.3.

 

Indemnification by Fountain

     75   

Section 8.4.

 

Indemnification with Respect to Athens NA

     76   

Section 8.5.

 

Procedures for Indemnification

     76   

Section 8.6.

 

Cooperation in Defense and Settlement

     78   

Section 8.7.

 

Indemnification Payments

     79   

 

ii


Section 8.8.

 

Contribution

     79   

Section 8.9.

 

Indemnification Obligations Net of Insurance Proceeds and Other Amounts

     79   

Section 8.10.

 

Additional Matters; Survival of Indemnities

     80   

ARTICLE IX CONFIDENTIALITY; ACCESS TO INFORMATION

     81   

Section 9.1.

 

Provision of Corporate Records

     81   

Section 9.2.

 

Access to Information

     82   

Section 9.3.

 

Witness Services

     82   

Section 9.4.

 

Reimbursement; Other Matters

     82   

Section 9.5.

 

Confidentiality

     83   

Section 9.6.

 

Privileged Matters

     83   

Section 9.7.

 

Ownership of Information

     86   

Section 9.8.

 

Other Agreements

     86   

ARTICLE X INSURANCE

     86   

Section 10.1.

 

Policies and Rights Included Within Assets

     86   

Section 10.2.

 

Claims Made Tail Policies

     86   

Section 10.3.

 

Occurrence Based Policies

     88   

Section 10.4.

 

Administration; Other Matters

     88   

Section 10.5.

 

Agreement for Waiver of Conflict and Shared Defense

     90   

Section 10.6.

 

Cooperation

     90   

Section 10.7.

 

Certain Matters Relating to Trident’s Organizational Documents

     90   

ARTICLE XI MISCELLANEOUS

     91   

Section 11.1.

 

Complete Agreement; Construction

     91   

Section 11.2.

 

Ancillary Agreements; Merger Agreement

     91   

Section 11.3.

 

Counterparts

     91   

Section 11.4.

 

Survival of Agreements

     92   

Section 11.5.

 

Expenses

     92   

Section 11.6.

 

Notices

     92   

Section 11.7.

 

Waivers and Consents

     93   

Section 11.8.

 

Amendments

     94   

Section 11.9.

 

Assignment

     94   

Section 11.10.

 

Successors and Assigns

     94   

Section 11.11.

 

Certain Termination and Amendment Rights

     94   

Section 11.12.

 

Payment Terms

     94   

Section 11.13.

 

No Circumvention

     94   

 

iii


Section 11.14.

 

Subsidiaries

     95   

Section 11.15.

 

Third Party Beneficiaries

     95   

Section 11.16.

 

Title and Headings

     95   

Section 11.17.

 

Exhibits and Schedules

     95   

Section 11.18.

 

Governing Law

     95   

Section 11.19.

 

Consent to Jurisdiction

     95   

Section 11.20.

 

Specific Performance

     96   

Section 11.21.

 

Waiver of Jury Trial

     96   

Section 11.22.

 

Severability

     97   

Section 11.23.

 

Force Majeure

     97   

Section 11.24.

 

Interpretation

     97   

Section 11.25.

 

No Duplication; No Double Recovery

     97   

 

iv


List of Schedules

Schedule 1.01(j)(i)

  

Expenses

Schedule 1.01(j)(ii)

  

Certain Obligations and Awards

Schedule 1.1(28)

  

Assumed Trident Contingent Liabilities

Schedule 1.1(48)

  

Continuing Arrangements

Schedule 1.1(51)

  

Exclusions to Current Assets

Schedule 1.1(52)

  

Exclusions to Current Liabilities

Schedule 1.1(66)

  

Former Fountain Employees

Schedule 1.1(67)

  

Trident Corporate Employees to be Treated as Former Employees

Schedule 1.1(69)(vi)

  

Fountain Assets

Schedule 1.1(73)(v)

  

Fountain Contracts

Schedule 1.1(80)

  

Fountain Group

Schedule 1.1(82)(i)

  

Fountain Liabilities

Schedule 1.1(82)(iii)(x)

  

Fountain Assumed Divested Business Liabilities

Schedule 1.1(82)(iii)(y)

  

Fountain Assumed Divested Business Liabilities Contracts

Schedule 1.1(82)(vi)

  

Fountain Indebtedness

Schedule 1.1(95)(A)

  

Fountain Tier I Specified Employees

Schedule 1.1(95)(B)

  

Fountain Tier II Specified Employees

Schedule 1.1(123)

  

License Agreements

Schedule 1.1(179)

  

Transition Services Agreement

Schedule 1.1(186)

  

Trident Equity Plans

Schedule 1.1(187)

  

Trident Group

Schedule 1.1(193)(vi)

  

Trident Retained Assets

Schedule 1.1(195)(v)

  

Trident Retained Contracts

Schedule 1.1(196)(i)

  

Trident Retained Liabilities

Schedule 1.1(196)(iii)(x)

  

Trident Retained Divested Business Liabilities

 

v


Schedule 1.1(196)(iii)(y)

  

Trident Retained Divested Business Liabilities Contracts

Schedule 2.2(a)

  

Step Plan

Schedule 2.2(b)

  

Shared Contracts

Schedule 2.3(b)

  

Contracts or Arrangements to be Entered Into by Fountain

Schedule 2.10(a)(i)

  

Trident Removal of Guarantees

Schedule 2.10(a)(ii)

  

Fountain Removal of Guarantees

Schedule 2.10(a)(ii)(B)

  

Certain Guarantees

Schedule 5.6(a)

  

Asbestos-Related Agreements

Schedule 5.6(b)

  

Asbestos-Related Actions

Schedule 6.1

  

Option Treatment

Schedule 6.1(c)

  

Trident Corporate Employees

Schedule 6.2

  

Restricted Stock Units

Schedule 6.3(a)

  

Fountain Nonqualified Deferred Compensation Plans

Schedule 6.3(b)

  

Trident Nonqualified Deferred Compensation Plans

Schedule 6.4(a)

  

Fountain Pension Plans

Schedule 6.4(b)

  

Trident Retained Pension Plans

Schedule 6.5(a)

  

Fountain Savings Plans

Schedule 6.5(b)

  

Trident Retained Savings Plans

Schedule 6.6(a)

  

Trident Retiree Medical Plans

Schedule 6.6(b)

  

Fountain Retiree Medical Plans

Schedule 6.8(c)

  

Employees on International Assignment

Schedule 6.8(d)

  

Fountain Retention Letters

Schedule 6.8(d)(i)

  

Integration Incentive Bonus Agreements

Schedule 6.9(c)

  

Service Credit Under Employee Benefit Plans

Schedule 6.13(a)

  

Employees Transferred to Trident

Schedule 6.13(b)(1)

  

Fountain Liability to Fountain Specified Employees

 

vi


Schedule 6.13(b)(2)

  

Trident Liability to Fountain Specified Employees

Schedule 8.10(c)

  

Retention of Records

 

List of Exhibits

  

Exhibit A

  

Tax Sharing Agreement

 

vii


AMENDED AND RESTATED

SEPARATION AND DISTRIBUTION AGREEMENT

AMENDED AND RESTATED SEPARATION AND DISTRIBUTION AGREEMENT (this “ Agreement ”), dated as of September 27, 2012, by and among TYCO INTERNATIONAL LTD., a corporation limited by shares ( Aktiengesellschaft ) organized under the laws of Switzerland (“ Trident ”), PENTAIR LTD. (formerly known as Tyco Flow Control International Ltd.), a corporation limited by shares ( Aktiengesellschaft ) organized under the laws of Switzerland (“ Fountain ”) and, solely for the purposes of the Specified Sections of this Agreement, THE ADT CORPORATION, a Delaware corporation (“ Athens NA ”).

W I T N E S S E T H:

WHEREAS, Trident, acting through its direct and indirect Subsidiaries, currently conducts a number of businesses, including the Fountain Business (as defined herein);

WHEREAS, the Board of Directors of Trident (the “ Board ”) has determined that it is appropriate, desirable and in the best interests of Trident and its stockholders to separate the Fountain Business from Trident (the “ Fountain Separation ”) and to divest the Fountain Business in the manner contemplated by this Agreement and the Merger Agreement, dated as of March 27, 2012 (as the same may be amended, restated or otherwise modified from time to time in accordance with its terms, the “ Merger Agreement ”), among Trident, Fountain, Panthro Acquisition Co., a Delaware corporation (“ AcquisitionCo ”), Panthro Merger Sub, Inc., a Minnesota corporation (“ Merger Sub ”) and Pentair, Inc., a Minnesota corporation (“ Patriot ”);

WHEREAS, in addition to the above, the Board had previously determined that it is appropriate, desirable and in the best interests of Trident and its stockholders to separate from Trident the Athens North American R/SB Business, which shall be owned and conducted, directly or indirectly, by Athens NA (the “ Athens NA Separation ”) pursuant to, among others, a separation agreement between Trident and Athens NA (as the same may be amended, restated or otherwise modified from time to time in accordance with its terms, the “ Athens NA Agreement ”);

WHEREAS, in order to effect the Fountain Separation, the Board has determined that it is appropriate, desirable and in the best interests of Trident and its stockholders (i) to enter into a series of transactions whereby Fountain and/or one or more members of the Fountain Group will, collectively, own all of the Fountain Assets and assume (or retain) all of the Fountain Liabilities and (ii) for Trident to distribute to the holders of Trident Common Stock on a pro rata basis (without consideration being paid by such stockholders) all of the outstanding shares of common stock, par value CHF 0.50 per share, of Fountain (the “ Fountain Common Stock ”) (such transactions as they may be amended or modified from time to time, collectively, the “ Fountain Plan of Separation ”);

WHEREAS, each of Trident and Fountain has determined that it is necessary and desirable, on or prior to the Effective Time (as defined herein), (i) to allocate and transfer to the applicable Party or its Subsidiaries those Assets, and to allocate and assign to the applicable Party or its Subsidiaries responsibility for those Liabilities, in respect of the activities of the


applicable Businesses of such entities and (ii) to allocate, transfer and/or assign, as applicable, to the applicable Party or its Subsidiaries those Assets and Liabilities in respect of other current and former businesses and activities of Trident and its current and former Subsidiaries;

WHEREAS, the Parties contemplate that, pursuant to the Merger Agreement, after the Fountain Distribution, Merger Sub will be merged with and into Patriot, with Patriot surviving the Merger as an indirect wholly owned subsidiary of Fountain, and the outstanding common stock of Patriot shall be converted into the right to receive shares of Fountain on the terms and subject to the conditions set forth in the Merger Agreement;

WHEREAS, it is the intention of the Parties that the contribution of Assets to, and the assumption of Liabilities by, Fountain, together with the corresponding distribution of the Fountain Common Stock, qualifies as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (the “ Code ”) and that this Agreement is, and is hereby adopted as, a “plan of reorganization” under Section 368 of the Code;

WHEREAS, it is the intention of the Parties that the distribution of the Fountain Common Stock to the stockholders of Trident will qualify as tax-free under Section 355(a) of the Code to such stockholders, and as tax-free to Trident under Section 361(c) of the Code;

WHEREAS, in contemplation of the foregoing on March 27, 2012, the Parties entered into a Separation and Distribution Agreement which was subsequently amended on July 25, 2012 (the “ Original Agreement ”); and

WHEREAS, the Parties desire to amend and restate the Original Agreement to modify certain of the terms thereof.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, provisions and covenants contained in this Agreement, the Parties hereby agree to amend and restate the Original Agreement as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.1. General .

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

(1) “ Acceptable Forms ” shall have the meaning set forth in Section 2.7.

(2) “ Acceptable Terms ” shall have the meaning set forth in the Merger Agreement.

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

 

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(4) “ Action ” shall mean any demand, action, claim, suit, countersuit, arbitration, inquiry, subpoena, case, litigation, proceeding or investigation (whether civil, criminal, administrative or investigative) by or before any court or grand jury, any Governmental Entity or any arbitration or mediation tribunal.

(5) “ AcquisitionCo ” shall have the meaning set forth in the recitals.

(6) “ Adjusted Fountain Exercise Price ” shall have the meaning set forth in Section 6.01(a)(iii) .

(7) “ Adjusted Trident Exercise Price ” shall have the meaning set forth in Section 6.01(b)(iii) .

(8) “ Allocable portion of Insurance Proceeds ” shall have the meaning set forth in Section 10.4(c) .

(9) “ Allocable share of the deductible ” shall have the meaning set forth in Section 10.4(d) .

(10) “ Athens NA ” shall have the meaning set forth in the preamble.

(11) “ Athens NA Agreement ” shall have the meaning set forth in the recitals.

(12) “ Athens NA Common Stock ” shall mean the common stock, par value $.0.01 per share of Athens NA.

(13) “ Athens NA Distribution ” shall mean the distribution on the Athens NA Distribution Date to holders of record of shares of Trident Common Stock as of the Athens NA Distribution Record Date of the Athens NA Common Stock owned by Trident pursuant to the Athens NA Agreement.

(14) “ Athens NA Distribution Date ” shall mean the date on which Trident distributes all of the issued and outstanding shares of Athens NA Common Stock to the holders of Trident Common Stock.

(15) “ Athens NA Distribution Record Date ” shall mean such date as may be determined by the Board as the record date for the Athens NA Distribution.

(16) “ Athens NA Separation ” shall have the meaning set forth in the recitals.

(17) “ Athens North American R/SB Business ” shall mean the residential and small business security business of Trident in the United States, Canada, Puerto Rico and the U.S. Virgin Islands.

 

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(18) “ Athens North American R/SB Group ” shall mean (i) Athens NA and (ii) each Person that is a direct or indirect Subsidiary of Athens NA immediately after the Athens NA Distribution Date.

(19) “ Athens North American R/SB Indemnitees ” shall mean each member of the Athens North American R/SB Group and their respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing.

(20) “ Affiliate ” shall mean, when used with respect to a specified Person, a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such specified Person. For the purposes of this definition, “control”, when used with respect to any specified Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by Contract or otherwise. It is expressly agreed that no Party or member of any Group shall be deemed to be an Affiliate of another Party or member of such other Party’s Group by reason of having one or more directors in common.

(21) “ Ancillary Agreements ” shall mean the Conveyancing and Assumption Instruments, the Tax Sharing Agreement, the License Agreements, and the Transition Services Agreement.

(22) “ Annual Reports ” shall have the meaning set forth in Section 5.3(d) .

(23) “ Applicable Fountain Percentage ” shall mean forty percent (40%).

(24) “ Applicable Percentage ” shall mean (i) as to Trident, the Applicable Trident Percentage and (ii) as to Fountain, the Applicable Fountain Percentage.

(25) “ Applicable Trident Percentage ” shall mean sixty percent (60%).

(26) “ Assets ” shall mean assets, properties, claims and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the Records or financial statements of any Person, including the following:

(i) all accounting and other legal and business books, records, ledgers and files whether printed, electronic or written;

(ii) all apparatuses, computer hardware and other electronic data processing and communications equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks, aircraft and other transportation equipment, special and general tools, test devices, molds, tooling, dies, prototypes and models and other tangible personal property;

 

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(iii) all inventories of products, goods, materials, parts, raw materials and supplies;

(iv) all interests in and rights with respect to real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee or otherwise;

(v) all interests in any capital stock or other equity interests of any Subsidiary or any other Person, all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person, all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person and all other investments in securities of any Person;

(vi) all licenses, Contracts, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other Contracts or commitments;

(vii) all deposits, letters of credit and performance and surety bonds;

(viii) all written (including in electronic form) technical information, data, specifications, research and development information, engineering drawings and specifications, operating and maintenance manuals, and materials and analyses prepared by consultants and other third parties;

(ix) all Intellectual Property;

(x) all Software;

(xi) all Information;

(xii) all prepaid expenses, trade accounts and other accounts and notes receivables;

(xiii) all rights under Contracts, all claims or rights against any Person, causes in action or similar rights, whether accrued or contingent;

(xiv) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution;

(xv) all licenses, permits, approvals and authorizations which have been issued by any Governmental Entity;

(xvi) all cash or cash equivalents, bank accounts, lock boxes and other third-party deposit arrangements; and

(xvii) all interest rate, currency, commodity or other swap, collar, cap or other hedging or similar Contracts or arrangements.

 

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(27) “ Assume ” shall have the meaning set forth in Section 2.3 ; and the terms “ Assumed ” and “ Assumption ” shall have their correlative meanings.

(28) “ Assumed Trident Contingent Liabilities ” shall mean any of the Liabilities set forth on Schedule 1.1(28) .

(29) “ Audited Party ” shall have the meaning set forth in Section 5.3(b) .

(30) “ Board ” shall have the meaning set forth in the preamble.

(31) “ Bridge Note ” shall have the meaning set forth in the Merger Agreement.

(32) “ Business ” shall mean the Trident Retained Business or the Fountain Business, as applicable.

(33) “ Business Day ” means any day that is not a Saturday, a Sunday or any other day on which banks are required or authorized by Law to be closed in The City of New York, Minneapolis, Minnesota or Schaffhausen, Switzerland.

(34) “ Business Entity ” shall mean any corporation, partnership, limited liability company, joint venture or other entity which may legally hold title to Assets.

(35) “ Claims Administration ” shall mean the processing of claims made under the Shared Policies, including the reporting of losses or claims to insurance carriers, management and defense of claims and providing for appropriate releases upon settlement of claims.

(36) “ Closing ” shall have the meaning set forth in the Merger Agreement.

(37) “ Closing Amount ” shall have the meaning set forth in Section 3.5(c)(iii) .

(38) “ Closing Date ” shall have the meaning set forth in the Merger Agreement.

(39) “ Closing Net Indebtedness ” shall have the meaning set forth in Section 3.5(a) .

(40) “ Closing Trident Stock Price ” shall have the meaning set forth in Section 6.1(a)(ii) .

(41) “ Closing Working Capital ” shall have the meaning set forth in Section 3.5(a) .

(42) “ COBRA ” means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

(43) “ Code ” shall have the meaning set forth in the preamble.

 

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(44) “ Commission ” shall mean the United States Securities and Exchange Commission.

(45) “ Competitive Activities ” shall have the meaning set forth in Section 5.2(a) .

(46) “ Confidential Information ” shall mean all non-public, confidential or proprietary Information concerning a Party and/or its Subsidiaries or their past, current or future activities, businesses or operations, or that was provided to a Party by a third party in confidence, except for any Information that (i) is publicly available through no fault of the receiving Party or its Subsidiaries, (ii) is lawfully acquired by such Party or its Subsidiaries from other sources, (iii) is independently developed by the receiving Party, (iv) is necessary for a Party to enforce its rights under this Agreement or an Ancillary Agreement or (v) is required to be disclosed pursuant to applicable Law (including in connection with financial statements or Tax Returns), stock exchange rule, subpoena or legal process, provided that the receiving Party promptly notifies the disclosing Party of any such requirement, discloses no more Information than is so required and cooperates at the disclosing Party’s expense in any attempt to obtain a protective order or similar treatment.

(47) “ Consents ” shall mean any consents, waivers or approvals from, or notification requirements to, any Person other than a Governmental Entity.

(48) “ Continuing Arrangements ” shall mean those arrangements set forth on Schedule 1.1(48) .

(49) “ Contract ” shall mean any agreement, contract, subcontract, obligation, binding understanding, note, indenture, instrument, option, lease, promise, arrangement, release, warranty, license, sublicense, insurance policy, benefit plan, purchase order or legally binding commitment or undertaking of any nature (whether written or oral and whether express or implied).

(50) “ Conveyancing and Assumption Instruments ” shall mean, collectively, the various Contracts and other documents heretofore entered into and to be entered into to effect the Transfer of Assets and the Assumption of Liabilities in the manner contemplated by this Agreement and the Fountain Plan of Separation, or otherwise relating to, arising out of or resulting from the transactions contemplated by this Agreement in such form or forms as Trident, Fountain and Patriot reasonably agree and are consistent with the requirements of Section 2.7 .

(51) “ Current Assets ” shall mean the current assets of the Fountain Business determined in accordance with GAAP on a basis consistent with the preparation of the audited combined balance sheet included in the Audited Financial Statements (as defined in the Merger Agreement), including Intercompany Trade Receivables; provided that “Current Assets” shall not include (i) cash and cash equivalents, (ii) marketable securities, (iii) Other Intercompany Receivables or (iv) any items set forth on Schedule 1.1(51) .

(52) “ Current Liabilities ” shall mean the current liabilities of the Fountain Business determined in accordance with GAAP on a basis consistent with the preparation of the

 

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audited combined balance sheet included in the Audited Financial Statements (as defined in the Merger Agreement), including Intercompany Trade Payables; provided that “Current Liabilities” shall not include (i) any item included in the calculation of Closing Net Indebtedness (including the current portion of any indebtedness for borrowed money), (ii) Other Intercompany Payables and Loans, (iii) any amounts payable to Fountain Employees in respect of severance or with respect to retention bonus or similar payments (A) to the extent such amounts are to be reimbursed by the Trident Group or the Trident Group is otherwise obligated to make such payments, in either case, pursuant to this Agreement or otherwise or (B) with respect to Fountain Tier I Employees in an amount up to $6,700,000, or (iv) any items set forth on Schedule 1.1(52) .

(53) “ D&O Tail Policies ” shall have the meaning set forth in Section 10.2(a) .

(54) “ Default Interest Rate ” shall mean a rate of LIBOR plus 500 basis points calculated on the basis of a year of three-hundred sixty (360) days.

(55) “ Deferred Stock Unit ” shall mean a unit granted by Trident pursuant to one of the Trident Equity Plans representing a general unsecured promise by Trident to deliver a share of Trident Common Stock.

(56) “ Disability Plan ” (i) when immediately preceded by “Trident,” shall mean any short-term disability program and long-term disability program sponsored by Trident and (ii) when immediately preceded by “Fountain,” shall mean the short-term disability program and long-term disability program to be established by Fountain under Section 6.7(d) .

(57) “ Distribution Agent ” shall mean the distribution agent selected by Trident in connection with the Fountain Separation.

(58) “ Distribution Ratio ” means the quotient of (i) the product of (x) the number of shares of Patriot Common Stock outstanding (determined on a fully-diluted basis calculated in accordance with the treasury method under GAAP without taking into account tax consequences to any party or any applicable vesting provisions) immediately prior to the Effective Time, multiplied by (y) 1.10526316 divided by (ii) the number of shares of Trident Common Stock outstanding (determined on a fully-diluted basis calculated in accordance with the treasury method under GAAP without taking into account tax consequences to any party or any applicable vesting provisions and treating any unvested equity award that (i) is scheduled to be cancelled on or after the Effective Time and (ii) is held by (A) an employee who will be terminated as of the Fountain Distribution Date or (B) an employee listed on Schedule 1.1(66) or 1.1(67) , as being cancelled immediately prior to the Effective Time) immediately prior to the Effective Time.

(59) “ DOJ ” means the United States Department of Justice.

(60) “ Effective Time ” shall mean 12:01 a.m., Eastern Daylight Time, on the Fountain Distribution Date.

(61) “ EPL Tail Policies ” shall have the meaning set forth in Section 10.2(c) .

 

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

(63) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time that reference is made thereto.

(64) “ Fiduciary Tail Policies ” shall have the meaning set forth in Section 10.2(b) .

(65) “ Force Majeure ” shall mean, with respect to a Party, an event beyond the control of such Party (or any Person acting on its behalf), which by its nature could not have been foreseen by such Party (or such Person), or, if it could have been foreseen, was unavoidable, and includes, without limitation, acts of God, storms, floods, riots, labor unrest, pandemics, nuclear incidents, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) or armed hostilities or other national or international calamity or one or more acts of terrorism or failure of energy sources or distribution facilities. Notwithstanding the foregoing, the receipt by a Party of a hostile takeover offer, even if unforeseen or unavoidable, and such Party’s response thereto shall not be deemed an event of Force Majeure.

(66) “ Former Fountain Employee ” shall mean any former employee who terminated employment with all members of the Trident controlled group of corporations on or before the Fountain Distribution Date and who was last employed by a member of the Fountain Group; provided , that , notwithstanding any other provision of this Agreement and solely for purposes of Sections 6.1 and 6.2 , any person listed on Schedule 1.1(66) shall be treated as a Former Fountain Employee regardless of the actual date of termination of employment);

(67) “ Former Trident Employee ” shall mean any former employee who terminated employment with all members of the Trident controlled group of corporations on or before the Fountain Distribution Date and who is not a Former Fountain Employee; provided , that , notwithstanding any other provision of this Agreement and solely for purposes of Sections 6.1 and 6.2 , any person listed on Schedule 1.1(67) shall be treated as a Former Trident Employee regardless of the actual date of termination of employment.

(68) “ Fountain ” shall have the meaning set forth in the preamble.

(69) “ Fountain Assets ” shall mean:

(i) the ownership interests in those Business Entities that are members of the Fountain Group;

(ii) all Fountain Contracts, any rights or claims arising thereunder, and any other rights or claims or contingent rights or claims primarily relating to or arising from any Fountain Asset or the Fountain Business;

(iii) any and all Assets reflected on the Fountain Balance Sheet and any Assets acquired by or for Fountain or any member of the Fountain Group subsequent to the date

 

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of such balance sheet which, had they been so acquired on or before such date and owned as of such date, would have been reflected on such balance sheet if prepared on a consistent basis, subject to any dispositions of any of such Assets subsequent to the date of such balance sheet not made in violation of the Merger Agreement;

(iv) subject to Article X, any and all rights of any member of the Fountain Group under any Policies, including any rights thereunder arising after the Fountain Distribution Date in respect of any Policies that are occurrence policies;

(v) any and all Assets owned or held immediately prior to the Effective Time by Trident or any of its Subsidiaries that primarily relate to or are primarily used in the Fountain Business;

(vi) the Assets set forth on Schedule 1.1(69)(vi) and any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement as Assets that have been or that are to be Transferred to Fountain or any other member of the Fountain Group; and

(vii) any and all furnishings and office equipment located at a physical site to the extent the ownership or leasehold interest with respect to such physical site is being Transferred to or retained by Fountain; provided that personal computers shall be Transferred to Fountain if, following the Effective Time, the Fountain Group employs the applicable employee who, prior to the Effective Time, used such personal computer.

Notwithstanding the foregoing, the Fountain Assets shall not include (x) any Assets to the extent they are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by or Transferred to any member of the Trident Group or (y) cash or cash equivalents held as of or prior to the Effective Time except to the extent taken into account in determining the amount of Net Indebtedness pursuant to Section 3.4 or Closing Net Indebtedness pursuant to Section 3.5 .

In the event of any inconsistency or conflict that may arise in the application or interpretation of this definition or the definition of “Trident Retained Assets”, for purposes of determining what is and is not a Fountain Asset: (1) the explicit inclusion of an item on a Schedule referred to in this definition shall take priority over any textual provision of this definition that would otherwise operate to exclude such Asset from the definition of “Fountain Assets” and (2) Assets referred to in clause (iii) of this definition shall take priority over Assets otherwise referred to in clause (v) of Section 1.1(193) .

(70) “ Fountain Balance Sheet ” shall mean the audited combined balance sheet of the Fountain Group, including the notes thereto, as of September 30, 2011, made available to Patriot pursuant to Section 2.05(c) of the Merger Agreement.

(71) “ Fountain Business ” shall mean the business and operations of the Fountain segment of Trident as each is described in the Fountain Draft Form 10 and (ii) any businesses or operations acquired or established by or for Fountain or any of its Subsidiaries after the date of this Agreement.

 

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(72) “ Fountain Common Stock ” shall have the meaning set forth in the recitals hereto.

(73) “ Fountain Contracts ” shall mean the following Contracts (or parts thereof) to which Trident or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or any of their respective Assets is bound, whether or not in writing, except for any such Contract (or part thereof) that is expressly contemplated to be Transferred to, or to remain with, a member of the Trident Group, pursuant to any provision of this Agreement or any Ancillary Agreement:

(i) any Contract entered into in the name of, or expressly on behalf of, any division, business unit or member of the Fountain Group;

(ii) any Contract that primarily relates to the Fountain Business;

(iii) any Contract representing capital or operating equipment lease obligations reflected on the Fountain Balance Sheet;

(iv) any Contract (or part thereof), that is otherwise expressly contemplated pursuant to this Agreement (including pursuant to Section 2.2(b) ) or any of the Ancillary Agreements to be assigned to any member of the Fountain Group;

(v) any Contract set forth on Schedule 1.1(73)(v) ; and

(vi) to the extent the same is given with respect to, or in favor of, any member of the Fountain Group, any guarantee, indemnity, representation or warranty.

(74) “ Fountain Deferred Compensation Liabilities ” shall have the meaning set forth in Section 6.3(a)(i) .

(75) “ Fountain Distribution ” shall mean the distribution on the Fountain Distribution Date to holders of record of shares of Trident Common Stock as of the Fountain Distribution Record Date of the Fountain Common Stock owned by Trident as set forth in Section 4.1 .

(76) “ Fountain Distribution Date ” shall mean the date on which Trident distributes all of the issued and outstanding shares of Fountain Common Stock to the holders of Trident Common Stock, which shall be on the Closing Date or a date that is no more than one Business Day before the Closing Date, or on such other date that is mutually agreed between Trident and Patriot.

(77) “ Fountain Distribution Record Date ” shall mean such date as may be determined by the Board as the record date for the Fountain Distribution.

(78) “ Fountain Draft Form 10 ” shall mean the draft registration statement on Form 10 as set forth in Section 2.05(b) of the Trident Disclosure Letter (as such term is defined in the Merger Agreement).

 

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(79) “ Fountain Employee ” shall mean an active employee or an employee on vacation or on approved leave of absence (including maternity, paternity, parental, family, short-term or long-term sick leave, qualified military service and other approved leaves) who immediately following the Fountain Distribution Date is employed by Fountain or any member of the Fountain Group. Fountain Employee shall also include any employee of an entity in the Fountain Group who, as of the Fountain Distribution Date, is receiving short-term or long-term disability benefits or workers’ compensation benefits.

(80) “ Fountain Group ” shall mean (i) Fountain, (ii) each of the entities set forth on Schedule 1.1(80) and (iii) any Person not set forth on Schedule 1.1(80) but that is as direct or indirect Subsidiary of Fountain immediately following the Effective Time as described in Schedule 4.01(b) of the Trident Disclosure Letter (as defined in the Merger Agreement).

(81) “ Fountain Indemnitees ” shall mean each member of the Fountain Group (including Patriot and its Subsidiaries from and after the Closing) and their respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing.

(82) “ Fountain Liabilities ” shall mean:

(i) any and all Liabilities that are (a) expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) to be Assumed by any member of the Fountain Group, (b) expressly Assumed by any member of the Fountain Group under this Agreement or any Ancillary Agreements or (c) set forth on Schedule 1.1(82)(i) ;

(ii) any and all Liabilities primarily relating to, arising out of or resulting from:

(a) the operation or conduct of the Fountain Business, as conducted at any time prior to, on or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority));

(b) the operation or conduct of any business conducted by any member of the Fountain Group at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority)); or

(c) any Fountain Assets, whether arising before, on or after the Effective Time;

(iii) any Liabilities (x) to the extent relating to, arising out of or resulting from any terminated or divested Business Entity, business or operation (A) formerly and primarily owned or managed by or primarily associated with any member of the Fountain Group or the Fountain Business or (B) set forth on Schedule 1.1(82)(iii)(x) or (y) to the extent arising from any of the Contracts set forth in Schedule 1.1(82)(iii)(y) ;

 

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(iv) the Applicable Fountain Percentage of any Assumed Trident Contingent Liability;

(v) any Liabilities relating to any Fountain Employee or Former Fountain Employee in respect of the period prior to, on or after the Effective Time;

(vi) any Liabilities relating to, arising out of or resulting from (x) any Indebtedness (including debt securities and asset-backed debt) of any member of the Fountain Group or Indebtedness (regardless of the issuer of such Indebtedness) incurred after the Effective Time and exclusively relating to the Fountain Business, (y) any Indebtedness (regardless of the issuer of such Indebtedness) incurred after the Effective Time and secured exclusively by any of the Fountain Assets (including any Liabilities relating to, arising out of or resulting from a claim by a holder of any such Indebtedness, in its capacity as such) or (z) any Indebtedness arising from the Financing (as defined in the Merger Agreement) or set forth on Schedule 1.1(82)(vi) ; and

(vii) all Liabilities reflected as liabilities or obligations on the Fountain Balance Sheet, and all Liabilities arising or Assumed after the date of such balance sheet which, had they arisen or been Assumed on or before such date and been retained as of such date, would have been reflected on such balance sheet if prepared on a consistent basis, subject to any discharge of such Liabilities subsequent to the date of the Fountain Balance Sheet.

Notwithstanding anything to the contrary herein, the Fountain Liabilities shall not include:

(v) any Liabilities of Yarway whether or not such Liability also was a Liability of the Fountain Group whether as a result of (A) the limited liability of Yarway being disregarded, (B) the transfer of Assets from Yarway or (C) otherwise;

(w) any Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be retained or Assumed by any member of the Trident Group;

(x) any Contracts expressly Assumed or expressly contemplated to be assumed by any member of the Trident Group under this Agreement or any Ancillary Agreements;

(y) any Liabilities expressly discharged pursuant to Section 2.4 of this Agreement; and

(z) any indebtedness for borrowed money or Other Intercompany Payables and Loans (other than obligations under capital leases) outstanding as of the Effective Time except to the extent taken into account in determining the amount of Net Indebtedness pursuant to Section 3.4 or Closing Net Indebtedness pursuant to Section 3.5 .

 

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In the event of any inconsistency or conflict that may arise in the application or interpretation of this definition or the definition of “Trident Retained Liabilities”, for the purpose of determining what is and is not a Fountain Liability: (1) the explicit inclusion of an item on a Schedule referred to in this definition shall take priority over any textual provision of this definition that would otherwise operate to exclude such Liability from the definition of “Fountain Liability” and (2) Liabilities referred to in clause (vii) of this definition shall take priority over Liabilities otherwise referred to in clause (ii) of Section 1.1(196) .

(83) “ Fountain Master Trust ” shall have the meaning set forth in Section 6.4(a)(ii)(A) .

(84) “ Fountain Nonqualified Deferred Compensation Plans ” shall mean the nonqualified deferred compensation plans listed in Schedule 6.3(a) and any plans established prior to the Fountain Distribution Date the purposes of which are to assume the Fountain Deferred Compensation Liabilities in accordance with Section 6.3(a) .

(85) “ Fountain Option ” shall have the meaning set forth in Section 6.1(a)(i) .

(86) “ Fountain Pension Plans ” shall have the meaning set forth in Section 6.4(a)(i) .

(87) “ Fountain Plan of Separation ” shall have the meaning set forth in the preamble.

(88) “ Fountain Plans ” shall mean the employee benefit plans, policies, programs, payroll practices, and arrangements established or assumed by the Fountain Group under this Agreement for the benefit of Fountain Employees and where applicable, Former Fountain Employees.

(89) “ Fountain Policies ” shall mean all Policies, current or past, which are owned or maintained by or on behalf of Trident or any Subsidiary of Trident, which relate exclusively to the Fountain Business and which Policies are either maintained by Fountain or a member of the Fountain Group or assignable to Fountain or a member of the Fountain Group.

(90) “ Fountain Retiree Medical Plans ” shall have the meaning set forth in Section 6.6 .

(91) “ Fountain RSIP ” shall have the meaning set forth in Section 6.5(a)(i) .

(92) “ Fountain Savings Plans ” shall mean the Fountain RSIP and any defined contribution retirement plans listed in Schedule 6.5(a) .

 

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(93) “ Fountain Separation ” shall have the meaning set forth in the preamble.

(94) “ Fountain Shared Policies ” shall mean all Policies, current or past, which are owned or maintained by or on behalf of Trident or any Subsidiary of Trident which relate to the Fountain Business, other than Fountain Policies.

(95) “ Fountain Specified Employees” means tho se individuals listed in Schedule 1.1(95)(A) (the “Fountain Tier I Specified Employees”) and thos e individuals listed on Schedule 1.1(95)(B) (the “Fountain Tier II Specified Employees”), and any other individuals mutually agreed by Trident and Patriot prior to the Fountain Distribution.

(96) “ Fountain Treasury Shares ” shall have the meaning set forth in Section 3.7 .

(97) “ Fountain US Pension Plans ” shall have the meaning set forth in Section 6.4(a)(ii) .

(98) “ GAAP ” means the generally accepted accounting principles in the United States.

(99) “ Governmental Approvals ” shall mean any notices or reports to be submitted to, or other filings to be made with, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Entity.

(100) “ Governmental Entity ” shall mean any nation or government, any state, municipality or other political subdivision thereof and any entity, body, agency, commission, department, board, bureau or court, whether domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any executive official thereof.

(101) “ Group ” shall mean (i) with respect to Trident, the Trident Group, (ii) with respect to Athens NA, the Athens North American R/SB Group and (iii) with respect to Fountain, the Fountain Group.

(102) “ Group Insurance Plans ” when immediately preceded by “Trident,” shall mean any basic life insurance, dependent life insurance, optional life insurance, accidental death and dismemberment insurance, business travel accident insurance, long term care insurance and executive group universal life insurance programs sponsored by Trident and (ii) when immediately preceded by “Fountain,” shall mean the basic life insurance, dependent life insurance, optional life insurance, accidental death and dismemberment insurance, business travel accident insurance, long term care insurance and executive group universal life insurance program to be established by Fountain under Section 6.7(e) .

(103) “ Guaranty Release ” shall have the meaning set forth in Section 2.10(b) .

 

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(104) “ Health Plans ” when immediately preceded by “Trident,” shall mean the Trident International employee health benefit plans, any other medical, HMO, prescription drugs, vision, and dental plans and any similar or successor plans and (ii) when immediately preceded by “Fountain,” shall mean employee health benefit plans, any other medical, HMO, prescription drugs, vision, and dental plans and any similar or successor plans program to be established by Fountain under Section 6.7(a) .

(105) “ HIPAA ” shall have the meaning set forth in Section 6.8(e) .

(106) “ Income Taxes ” shall have the meaning set forth in the Tax Sharing Agreement.

(107) “ Indebtedness ” of any Person means, without duplication, (i) the principal of and accreted value and accrued and unpaid interest in respect of (A) indebtedness of such Person for money borrowed and (B) obligations evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement or capital lease (but excluding trade accounts payable and other accrued expenses incurred in the ordinary course of business); (iii) all obligations, contingent or otherwise, of such Person under letters of credit; (iv) all obligations, contingent or otherwise, of such Person under any interest rate, currency or other hedging agreements; and (v) all obligations of the type referred to in clauses (i) through (iv) of any Persons the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise.

(108) “ Indemnifiable Loss ” and “ Indemnifiable Losses ” shall mean any and all damages, losses, deficiencies, Liabilities, obligations, penalties, judgments, settlements, claims, payments, fines, interest, costs and expenses (including the costs and expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and the reasonable costs and expenses of attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder), excluding special, consequential, indirect and punitive damages (other than special, consequential, indirect and/or punitive damages awarded to any third party against an Indemnitee) and Taxes and any other amounts payable pursuant to the Tax Sharing Agreement.

(109) “ Indemnifying Party ” shall have the meaning set forth in Section 8.5(b) .

(110) “ Indemnitee ” shall have the meaning set forth in Section 8.5(b) .

(111) “ Indemnity Payment ” shall have the meaning set forth in Section 8.9(a) .

(112) “ Information ” shall mean information, content and data in written, oral, electronic, computerized, digital or other tangible or intangible media, including studies, reports, records, books, contracts, instruments, surveys, lists, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks,

 

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diskettes, tapes, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), communications and other materials otherwise related to or made or prepared in connection with or in preparation for any legal proceeding, and other technical, financial, employee or business information or data, documents, correspondence, materials, product literature, files, policies, procedures and manuals.

(113) “ Insurance Administration ” shall mean, with respect to each Shared Policy, the accounting for premiums, retrospectively-rated premiums, defense costs, indemnity payments, deductibles and retentions, as appropriate, under the terms and conditions of each of the Shared Policies; and the reporting to excess insurance carriers of any losses or claims which may cause the per-occurrence, per claim or aggregate limits of any Shared Policy to be exceeded, and the distribution of Insurance Proceeds as contemplated by this Agreement.

(114) “ Insurance Proceeds ” shall mean those monies (i) received by an insured from an insurance carrier, including due to premium adjustments, whether or not retrospectively rated, or (ii) paid by an insurance carrier on behalf of an insured, in either case net of any applicable premium deductible or self insured retention. For the avoidance of doubt, “Insurance Proceeds” shall not include any costs or expenses incurred by a Party in pursuing insurance coverage.

(115) “ Insured Claims ” shall mean those Liabilities that, individually or in the aggregate, are covered within the terms and conditions of any of the Shared Policies, whether or not subject to deductibles, co-insurance, self-insured retentions, or uncollectibility due to insurer insolvency.

(116) “ Intellectual Property ” shall mean all worldwide intellectual property, proprietary and industrial property rights of any kind or nature, including all U.S. and foreign (i) patents, patent applications, inventions and invention disclosures and utility models, (ii) Trademarks, (iii) copyrights and copyrightable subject matter, including Software, (iv) rights of publicity, (v) moral rights and rights of attribution and integrity, (vi) technology, trade secrets, know-how, processes, formulae, models, methodologies, discoveries, ideas, concepts, techniques, designs, specifications, drawings, blueprints, diagrams, models and prototypes and all other Confidential Information, (vii) rights of privacy and rights to personal information, (viii) vanity telephone numbers, (ix) all applications, registrations, continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions and extensions thereof for any of the foregoing and (x) all rights and remedies against infringement, misappropriation or other violation of the foregoing prior to the Effective Time.

(117) “ Intercompany Trade Payables ” shall mean all intercompany trade payables between any member of the Trident Group, on the one hand, and any member of the Fountain Group, on the other hand, which exist and are reflected in the accounting records of the Parties as of the close of business on the day prior to the Fountain Distribution Date.

(118) “ Intercompany Trade Receivables ” shall mean all intercompany trade receivables between any member of the Trident Group, on the one hand, and any member of the Fountain Group, on the other hand, which exist and are reflected in the accounting records of the Parties as of the close of business on the day prior to the Fountain Distribution Date.

 

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(119) “ Law ” shall mean any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, income tax treaty, order, requirement or rule of law (including common law) or other binding directives of any Governmental Entity.

(120) “ Liabilities ” shall mean any and all debts, liabilities, costs, expenses, interest and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, reserved or unreserved, determined or determinable, and including those arising under any Law, claim, demand, Action, whether asserted or unasserted, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Entity and those arising under any Contract or any fines, damages or equitable relief which may be imposed and including all costs and expenses related thereto regardless of (i) when or where they arose or arise, (ii) whether the facts upon which they are based occurred prior to, on or subsequent to the Effective Time or (iii) where or against whom they are asserted or determined.

(121) “ Liable Party ” shall have the meaning set forth in Section 2.9(b) .

(122) “ LIBOR ” shall mean an interest rate per annum equal to the applicable three-month London Interbank Offered Rate for deposits in United States dollars published in the Wall Street Journal .

(123) “ License Agreements ” shall mean the license agreements to be negotiated in good faith between Trident, Fountain and Patriot after the date hereof and prior to the Fountain Distribution Date, and having the terms set forth on Schedule 1.1(123) and such other terms as reasonably agreed among the parties thereto.

(124) “ Management Agreement ” shall have the meaning set forth in Section 2.5(c) .

(125) “ Managing Party ” shall have the meaning set forth in 7.2(a) .

(126) “ Merger Agreement ” shall have the meaning set forth in the recitals.

(127) “ Merger Sub ” shall have the meaning set forth in the preamble.

(128) “ Net Indebtedness ” shall mean, as of any date, (i) any outstanding indebtedness for borrowed money or Other Intercompany Payables and Loans (including the Bridge Note but excluding any amounts canceled or otherwise terminated prior to the Effective Time) (which, for the avoidance of doubt, shall not include obligations under capital leases) plus (ii) Separation Expenses incurred prior to the Fountain Distribution Date and not paid by Trident pursuant to Section 11.5 as of the close of business on the day prior to the Fountain Distribution Date, provided that, in the case of Separation Expenses that are Taxes arising from any action or event set forth in the Step Plan, the amount of Separation Expenses shall be net of any refund actually received in respect of such Taxes prior to the date on which the adjustments pursuant to Section 3.5 have been made, minus (iii) all cash and cash equivalents and marketable securities; provided that “Net Indebtedness” shall not include any item to the extent included in the calculation of Current Liabilities.

 

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(129) “ Net Indebtedness Adjustment ” shall have the meaning set forth in Section 3.5(c)(ii) .

(130) “ Notice of Disagreement ” shall have the meaning set forth in Section 3.5(b) .

(131) “ NYSE ” shall mean the New York Stock Exchange.

(132) “ Option ” (i) when immediately preceded by “Trident,” shall mean an option to purchase shares of Trident Common Stock granted pursuant to one of the Trident Equity Plans or (ii) when immediately preceded by “Fountain,” shall mean an option to purchase shares of Fountain Common Stock as of the Fountain Distribution, which Option shall be granted pursuant to the 2012 Fountain Stock and Incentive Plan (as hereinafter defined) as part of the adjustment to Trident Options in connection with the Fountain Distribution.

(133) “ Original Agreement ” shall have the meaning set forth in the recitals.

(134) “ Other Intercompany Payables and Loans ” shall have the meaning set forth in Section 2.4(a) .

(135) “ Other Intercompany Receivables ” shall have the meaning set forth in Section 2.4(a) .

(136) “ Other Parties’ Auditors ” shall have the meaning set forth in Section 5.3(c) .

(137) “ Other Party ” shall have the meaning set forth in Section 2.9(a) .

(138) “ Party ” shall mean each of Trident and Fountain; provided , however , for purposes of the Specified Sections of this Agreement only, “Party” shall also mean Athens NA.

(139) “ Pension Plans ” (i) when immediately preceded by “Trident,” shall mean the pension plans sponsored by Trident described in Section 6.4(c) and (ii) when immediately preceded by “Fountain,” shall mean the pension plans established by Fountain under Section 6.4(b) .

(140) “ Permitted Acquiree ” shall have the meaning set forth in Section 5.2(c) .

(141) “ Patriot ” shall have the meaning set forth in the recitals.

(142) “ Performance Share Unit ” shall mean a unit granted by Trident pursuant to one of the Trident Equity Plans representing a general unsecured promise by Trident to deliver a share of Trident Common Stock and which is subject to certain performance measures.

 

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(143) “ Person ” shall mean any natural person, firm, individual, corporation, business trust, joint venture, association, company, limited liability company, partnership or other organization or entity, whether incorporated or unincorporated, or any Governmental Entity.

(144) “ PHI ” shall have the meaning set forth in Section 6.8(e) .

(145) “ Policies ” shall mean insurance policies and insurance Contracts of any kind (other than life and benefits policies or Contracts), including primary, excess and umbrella policies, comprehensive general liability policies, director and officer liability, fiduciary liability, automobile, aircraft, marine, property and casualty, workers’ compensation and employee dishonesty insurance policies, bonds and self-insurance and captive insurance company arrangements, together with the rights, benefits and privileges thereunder, including the insurance policies written by White Mountain Insurance Company.

(146) “ Pre-Distribution Athens NA Stock Price ” shall have the meaning set forth in Section 6.01(c)(ii) .

(147) “ Pre-Distribution Fountain Stock Price ” shall have the meaning set forth in Section 6.1(a)(ii) .

(148) “ Pre-Distribution Trust ” shall have the meaning set forth in Section 6.8(k) .

(149) “ Pre-Distribution Trident Stock Price ” shall have the meaning set forth in Section 6.1(b)(ii) .

(150) “ Provider ” shall have the meaning set forth in Section 2.5(c) .

(151) “ Recipient ” shall have the meaning set forth in Section 2.5(c) .

(152) “ Records ” shall mean any Contracts, documents, books, records or files.

(153) “ Restricted Person ” shall have the meaning set forth in Section 5.1(a) .

(154) “ Restricted Stock Unit ” (i) when immediately preceded by “Trident,” shall mean a unit granted by Trident pursuant to one of the Trident Equity Plans representing a general unsecured promise by Trident to deliver a share of Trident Common Stock and (ii) when immediately preceded by “Fountain” shall mean a unit granted by Fountain representing a general unsecured promise by Fountain to deliver a share of Fountain Common Stock, which unit is granted pursuant to the 2012 Fountain Stock and Incentive Plan as part of the adjustment to Trident Restricted Stock Units in connection with the Fountain Distribution.

 

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(155) “ Retained Fountain Specified Employee ” shall have the meaning set forth in Section 6.13(a) .

(156) “ Retention Letters ” shall have the meaning set forth in Section 6.8(d) .

(157) “ Section 125 Plan ” shall mean the flexible spending accounts or flexible benefit plan qualified under Section 125 of the Internal Revenue Code sponsored by Fountain as described in Section 6.7(b) .

(158) “ Securities Act ” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time that reference is made thereto.

(159) “ Security Interest ” shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, right of first refusal, deed of trust, voting or other restriction, right-of-way, covenant, condition, easement, servitude, encroachment, permit restriction, restriction on transfer, restrictions or limitations on use of real personal property or any other encumbrance of any nature whatsoever, excluding, however, restrictions on transfer under securities Laws.

(160) “ Separation Expenses ” shall have the meaning set forth in Section 11.5 .

(161) “ Severance Plan ” (i) when immediately preceded by “Trident,” shall mean any severance program sponsored by Trident and (ii) when immediately preceded by “Fountain,” shall mean the severance program to be established by Fountain under Section 6.7(c) .

(162) “ Share Premium Redemption ” shall mean the obligation of Tyco Flow Control International Finance S.A. to pay an amount equal to $60 million to Tyco International Finance S.A. in satisfaction of a distribution out of capital surplus declared by Tyco Flow Control International Finance S.A. on September 25, 2012.

(163) “ Shared Contract ” shall have the meaning set forth in Section 2.2(b)(i) .

(164) “ Shared Policies ” shall mean all Policies, current or past, which are owned or maintained by or on behalf of Trident or any of its Subsidiaries which relate to one or more of the Trident Retained Business, the Athens North American R/SB Business or the Fountain Business.

(165) “ Shareholder Approval ” shall mean the approval by Trident shareholders of the Fountain Distribution and certain related matters necessary to declare and make the Fountain Distribution.

(166) “ Software ” shall mean all computer programs (whether in source code, object code, or other form), algorithms, databases, compilations and data, and technology

 

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supporting the foregoing, and all documentation, including flowcharts and other logic and design diagrams, technical, functional and other specifications, and user and training materials and other tangible embodiments related to any of the foregoing.

(167) “ Specified Sections of this Agreement ” shall mean Section 5.1 , Section 5.2 , Section 5.3 , Section 5.5 , Section 5.7 , Section 7.3 , Section 8.4 , Section 8.5 , Section 8.6 , Section 8.7 , Section 8.8 , Section 8.9 , Section 8.10 , Section 9.1 , Section 9.2 , Section 9.5 , Section 9.6 , and Article XI of this Agreement.

(168) “ Statement ” shall have the meaning set forth in Section 3.5(a) .

(169) “ Step Plan ” shall mean the reorganization plan set forth in Schedule 2.2(a) (as such Schedule may be modified from time to time in accordance with Section 5.19(c) of the Merger Agreement); provided that any step or action not directly related to the separation of the Fountain Business from the Trident Retained Business shall not be construed as a prerequisite of any subsequent step or action which is directly related to the separation of the Fountain Business from the Trident Retained Business and the failure to occur of any prior step or action not directly related to the separation of the Fountain Business from the Trident Retained Business shall have no effect on any Parties obligation to undertake any subsequent step or action which is directly related to the separation of the Fountain Business from the Trident Retained Business.

(170) “ Subsidiary ” shall mean with respect to any Person (i) a corporation, fifty percent (50%) or more of the voting or capital stock of which is, as of the time in question, directly or indirectly owned by such Person and (ii) any other partnership, joint venture, association, joint stock company, trust, unincorporated organization or other entity in which such Person, directly or indirectly, owns fifty percent (50%) or more of the equity economic interest thereof or has the power to elect or direct the election of fifty percent (50%) or more of the members of the governing body of such entity or otherwise has control over such entity ( e.g. , as the managing partner of a partnership).

(171) “ Tax ” shall have the meaning set forth in the Tax Sharing Agreement.

(172) “ Tax Contest ” shall have the meaning of the definition of “Audit” as set forth in the Tax Sharing Agreement.

(173) “ Tax Return ” shall have the meaning set forth in the Tax Sharing Agreement.

(174) “ Tax Sharing Agreement ” shall mean the Tax Sharing Agreement by and among Trident, Athens NA and Fountain, in the form attached hereto as Exhibit A .

(175) “ Third Party Claim ” shall have the meaning set forth in Section 8.5(b) .

(176) “ Third Party Proceeds ” shall have the meaning set forth in Section 8.9(a) .

 

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(177) “ Trademarks ” shall mean all U.S. and foreign trademarks, service marks, corporate names, trade names, domain names, logos, slogans, designs, trade dress and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing.

(178) “ Transfer ” shall have the meaning set forth in Section 2.2(a)(i) ; and the term “Transferred” shall have its correlative meaning.

(179) “ Transition Services Agreement ” shall mean the Transition Services Agreement to be negotiated in good faith between Trident, Fountain and Patriot after the date hereof and prior to the Fountain Distribution Date, and having the terms set forth on Schedule 1.1(179) and such other terms as reasonably agreed among the parties thereto.

(180) “ Trident ” shall have the meaning set forth in the preamble.

(181) “ Trident Balance Sheet ” shall mean the balance sheet of the Trident Group prepared pursuant to Section 5.03(b) of the Merger Agreement.

(182) “ Trident Common Stock ” shall mean the issued and outstanding shares of Trident common stock of Trident International Ltd.

(183) “ Trident Deferred Compensation Liabilities ” shall have the meaning set forth in Section 6.3(b)(i) .

(184) “ Trident Directors ” shall have the meaning set forth in Section 6.1(c)(i) .

(185) “ Trident Employee ” shall mean an active employee or an employee on vacation or on approved leave of absence (including maternity, paternity, parental, family, short-term or long-term sick leave, qualified military service and other approved leaves) who, immediately following the Fountain Distribution Date is employed by Trident or any member of the Trident Group. Trident Employee shall also include any employee of an entity in the Trident Group who, as of the Fountain Distribution Date, is receiving short-term or long-term disability benefits or workers’ compensation benefits.

(186) “ Trident Equity Plans ” shall mean, collectively, the equity-based plans set forth on Schedule 1.1(186) .

(187) “ Trident Group ” shall mean Trident and each Person (other than any member of the Fountain Group) that is a direct or indirect Subsidiary of Trident as of the date hereof and, except as provided in the definition of Fountain Group, each Subsidiary to be formed after the date hereof and prior to the Effective Time, which shall include the Athens North American R/SB Group and those entities identified as such on Schedule 1.1(187) .

(188) “ Trident Indemnitees ” shall mean Trident, each member of the Trident Group, each of their respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing, except the Athens North American R/SB Indemnitees and the Fountain Indemnitees.

 

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(189) “ Trident International Management Company Defined Contribution Plans Master Trust ” shall mean the trust created by an agreement between the plan sponsor and trustees of the Trident International Retirement Savings and Investment Plans for purposes of holding assets under such plan.

(190) “ Trident International Master Retirement Trust ” means the trust created by Trident for purposes of holding assets under Trident’s U.S. pension plans.

(191) “ Trident Nonqualified Deferred Compensation Plans ” shall mean the nonqualified deferred compensation plans set forth in Schedule 6.3(b) and any other legacy nonqualified deferred compensation plan sponsored by members of the Trident Group.

(192) “ Trident Regulatory Approvals ” shall have the meaning set forth in the Merger Agreement.

(193) “ Trident Retained Assets ” shall mean:

(i) the ownership interests in those Business Entities that are members of the Trident Group;

(ii) all Trident Retained Contracts, any rights or claims arising thereunder, and any other rights or claims or contingent rights or claims primarily relating to or arising from any Trident Retained Asset or the Trident Retained Business;

(iii) any and all Assets reflected on the Trident Balance Sheet and any Assets acquired by or for Trident or any member of the Trident Group subsequent to the date of such balance sheet which, had they been so acquired on or before such date and owned as of such date, would have been reflected on such balance sheet if prepared on a consistent basis, subject to any dispositions of any of such Assets subsequent to the date of such balance sheet;

(iv) subject to Article X, any and all rights of any member of the Trident Group under any Policies;

(v) any and all Assets owned or held immediately prior to the Effective Time by Trident or any of its Subsidiaries that primarily relate to or are primarily used in the Trident Retained Business;

(vi) the Assets set forth on Schedule 1.1(193)(vi) and any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement as Assets that have been or that are to be Transferred to Trident or any other member of the Trident Group; and

(vii) any and all furnishings and office equipment located at a physical site to the extent the ownership or leasehold interest with respect to such physical site is being Transferred to or retained by Trident; provided , that personal computers shall be Transferred to Trident if, following the Effective Time, a Trident Group member employs the applicable employee who, prior to the Effective Time, used such personal computer.

 

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Notwithstanding the foregoing, the Trident Retained Assets shall not include any Assets to the extent they are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by or Transferred to any member of the Fountain Group.

In the event of any inconsistency or conflict that may arise in the application or interpretation of this definition or the definition of “Fountain Assets”, for purposes of determining what is and is not a Trident Retained Asset: (1) the explicit inclusion of an item on a Schedule referred to in this definition shall take priority over any textual provision of this definition that would otherwise operate to exclude such Asset from the definition of “Trident Retained Assets” and (2) Assets referred to in clause (iii) of this definition shall take priority over Assets otherwise referred to in clause (v) of Section 1.1(69) .

(194) “ Trident Retained Business ” shall mean (i) the business and operations of Trident and the Trident Group other than the Fountain Business, (ii) Trident’s ownership of equity in Atkore International Group Inc. and (iii) any businesses or operations acquired or established by or for Trident or any of its Subsidiaries in connection with the operation of the Trident Retained Business after the date of this Agreement.

(195) “ Trident Retained Contracts ” shall mean the following Contracts (or parts thereof) to which Trident or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or any of their respective Assets is bound, whether or not in writing, except for any such Contract (or part thereof) that is expressly contemplated to be Transferred to, or to remain with, a member of the Fountain Group, pursuant to any provision of this Agreement or any Ancillary Agreement:

(i) any Contract entered into in the name of, or expressly on behalf of, any division, business unit or member of the Trident Group;

(ii) any Contract that primarily relates to the Trident Retained Business;

(iii) any Contract representing capital or operating equipment lease obligations reflected on the Trident Balance Sheet;

(iv) any Contract (or part thereof), that is otherwise expressly contemplated pursuant to this Agreement (including pursuant to Section 2.2(b) ) or any of the Ancillary Agreements to be assigned to any member of the Trident Group;

(v) any Contract set forth on Schedule 1.1(195)(v) ; and

(vi) to the extent the same is given with respect to, or in favor of, any member of the Trident Group, any guarantee, indemnity, representation or warranty.

(196) “ Trident Retained Liabilities ” shall mean:

(i) any and all Liabilities that are (a) expressly contemplated by this Agreement or any Ancillary Agreement to be Assumed by any member of the Trident Group, (b) expressly Assumed by any member of the Trident Group under this Agreement or any Ancillary Agreement or (c) set forth on Schedule 1.1(196)(i) ;

 

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(ii) any and all Liabilities primarily relating to, arising out of or resulting from:

(A) the operation or conduct of the Trident Retained Business, as conducted at any time prior to, on or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority));

(B) the operation or conduct of any business conducted by any member of the Trident Group at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority)); or

(C) any Trident Retained Assets, whether arising before, on or after the Effective Time;

(iii) any Liabilities (x) to the extent relating to, arising out of or resulting from any terminated or divested Business Entity, business or operation (A) formerly and primarily owned or managed by or primarily associated with any member of the Trident Group or the Trident Retained Business, (B) set forth on Schedule 1.1(196)(iii)(x) or (y) to the extent arising from any of the Contracts set forth in Schedule 1.1(196)(iii)(y) ;

(iv) any Liabilities relating to any Trident Employee or Former Trident Employee that does not become a Fountain Employee or Former Fountain Employee, in each case, immediately following the Effective Time;

(v) any Liabilities relating to, arising out of or resulting from (A) any Indebtedness (including debt securities and asset-backed debt) of any member of the Trident Group or Indebtedness (regardless of the issuer of such Indebtedness) exclusively relating to the Trident Retained Business or (B) any Indebtedness (regardless of the issuer of such Indebtedness) secured exclusively by any of the Trident Retained Assets (including any Liabilities relating to, arising out of or resulting from a claim by a holder of any such Indebtedness, in its capacity as such);

(vi) all Liabilities reflected as Liabilities or obligations on the Trident Balance Sheet and all Liabilities arising or Assumed after the date of such balance sheet which, had they arisen or been Assumed on or before such date and been retained as of such date, would have been reflected on such balance sheet if prepared on a consistent basis, subject to any discharge of such Liabilities subsequent to the date of the Trident Balance Sheet; and

 

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(vii) any Liabilities of Yarway whether or not such Liability also was a Liability of the Fountain Group whether as a result of (A) the limited liability of Yarway being disregarded, (B) the transfer of Assets from Yarway or (C) otherwise.

Notwithstanding anything to the contrary herein, the Trident Retained Liabilities shall not include:

(x) any Liabilities that are expressly contemplated by this Agreement, or any Ancillary Agreement as Liabilities to be retained or Assumed by any member of the Fountain Group;

(y) any Contracts expressly Assumed by any member of the Fountain Group under this Agreement or any Ancillary Agreement; and

(z) any Liabilities expressly discharged pursuant to Section 2.4 of this Agreement.

In the event of any inconsistency or conflict that may arise in the application or interpretation of this definition or the definition of “Fountain Liabilities”, for the purpose of determining what is and is not a Trident Retained Liability: (1) the explicit inclusion of an item on a Schedule referred to in this definition shall take priority over any textual provision of this definition that would otherwise operate to exclude such Liability from the definition of “Trident Retained Liability” and (2) Liabilities referred to in clause (vi) of this definition shall take priority over Liabilities otherwise referred to in clause (ii) of Section 1.1(82) and (3) any other Liabilities that are not Fountain Liabilities shall be Trident Retained Liabilities.

(197) “ Trident Retained Pension Plans ” shall have the meaning set forth in Section 6.4(b)(i) .

(198) “ Trident Retained Plans ” shall mean the employee benefit plans, policies, programs, payroll practices, and arrangements retained by the Trident Group under this Agreement for the benefit of Trident Employees and, where applicable, Former Trident Employees.

(199) “ Trident Retained Savings Plans ” means the savings plans sponsored by Trident described in Section 6.5(b) .

(200) “ Trident Retiree Medical Plans ” shall have the meaning set forth in Section 6.6.

(201) “ Working Capital Adjustment ” shall have the meaning set forth in Section 3.5(c)(i) .

(202) “ Working Capital Target ” shall mean $798,000,000.

(203) “ Yarway ” shall mean Yarway Corporation and Gimpel Corporation.

 

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(204) “ 2012 Fountain Stock and Incentive Plan ” shall have the meaning set forth in Section 6.1(a)(iv) .

Section 1.2. References; Interpretation . References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. Unless the context otherwise requires, the words “include”, “includes” and “including” when used in this Agreement shall be deemed to be followed by the phrase “without limitation”. Unless the context otherwise requires, references in this Agreement to Articles, Sections, Annexes, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement. The word “or” shall not be exclusive. The word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and such phrase does not simply mean “if”. Reference to any agreement, document or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof. Unless the context otherwise requires, the words “hereof”, “hereby” and “herein” and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. All references to any period of days shall be to the relevant number of calendar days unless otherwise specified. All references to dollars or $ shall be references to United States dollars. All accounting terms shall have their respective meanings under GAAP.

ARTICLE II

THE SEPARATION

Section 2.1. General . Subject to the terms and conditions set forth in this Agreement and the Merger Agreement, each of Trident and Fountain shall use its reasonable best efforts to cause the Fountain Separation and the Fountain Distribution to occur as promptly as practicable on the terms contemplated hereby, including using its reasonable best efforts to obtain all consents, permits, authorizations and approvals of, and to make all filings, notifications or registrations with, all Governmental Entities and other Persons and to execute and deliver, and to cause their respective Group members to execute and deliver such instruments of transfer, in each case, which are necessary for the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements; provided that, the foregoing notwithstanding but subject to the requirements of Section 5.01 of the Merger Agreement in respect of the obligations of the Parties to obtain the Trident Regulatory Approvals under the Merger Agreement, no Party shall be required to make any payment (except to the extent advanced, Assumed or agreed in advance to be reimbursed by any member of the other Group) other than for fees and disbursements of outside counsel and any other advisors, commit to any third party on behalf of itself or any member of its Group to assume any material obligations or offer or grant any material concession to obtain any such consent, permit, authorization or approval. Notwithstanding anything herein to the contrary, except as mutually agreed by the Parties hereto and Patriot, (x) the Parties intend that the Fountain Distribution Date shall be on September 28, 2012 and (y) the Parties agree that the Fountain Distribution Date and the Closing Date shall be no earlier than September 28, 2012 absent the prior written consent of each of Trident, Fountain and Patriot.

 

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Section 2.2. Transfer of Assets .

(a) Prior to the Effective Time and to the extent not already completed (it being understood that some of such Transfers may occur following the Effective Time in accordance with Section 2.6) , pursuant to the Conveyancing and Assumption Instruments and in accordance with the Step Plan:

(i) Trident shall, on behalf of itself and its Subsidiaries, as applicable, transfer, contribute, assign and convey or cause to be transferred, contributed, assigned and conveyed (“ Transfer ”) to Fountain or another member of the Fountain Group effective no later than the Effective Time, all of its and its Subsidiaries’ right, title and interest in and to the Fountain Assets;

(ii) Fountain shall, on behalf of itself and any other member of the Fountain Group, as applicable, Transfer, effective no later than the Effective Time, to Trident or another member of the Trident Group all of its and its Subsidiaries’ right, title and interest in and to the Trident Retained Assets.

(b) Treatment of Shared Contracts . Without limiting the generality of the obligations set forth in Section 2.2(a) :

(i) Any Contract that is listed on Schedule 2.2(b) (each, a “ Shared Contract ”) shall be assigned in part to the applicable member(s) of the applicable Group, if so assignable, or appropriately amended prior to the Effective Time so that each of Trident or Fountain or the members of their respective Groups as of the Effective Time shall be entitled to the rights and benefits, and shall Assume the related portion of any Liabilities, inuring to their respective Businesses; provided , however , that (x) in no event shall any member of any Group be required to assign (or amend) any Shared Contract in its entirety which is not assignable (or cannot be amended) by its terms (including any terms imposing consents or conditions on an assignment where such consents or conditions have not been obtained or fulfilled, subject to Section 2.2(c) ) and (y) if any Shared Contract cannot be so partially assigned by its terms or otherwise, or cannot be amended or if such assignment or amendment would impair the benefit the parties thereto derive from such Shared Contract, the Parties shall, and shall cause each of their respective Subsidiaries to, take such other reasonable and permissible actions to cause a member of the Fountain Group or the Trident Group, as the case may be, to receive the benefit of that portion of each Shared Contract that relates to the Fountain Business or the Trident Retained Business, as the case may be (in each case, to the extent so related) as if such Shared Contract had been assigned to (or amended to allow) a member of the applicable Group pursuant to this Section 2.2(b) and to bear the burden of the corresponding Liabilities (including any Liabilities that may arise by reason of such arrangement) as if such Liabilities had been Assumed by a member of the applicable Group pursuant to this Section 2.2(b) .

(ii) Each of Trident and Fountain shall, and shall cause the members of its Group to, (A) treat for all Income Tax purposes the portion of each Shared Contract inuring to its respective Businesses as Assets owned by, and/or Liabilities of, as

 

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applicable, such Group not later than the Effective Time and (B) neither report nor take any Income Tax position (on a Tax Return or otherwise) inconsistent with such treatment (unless required by a change in applicable Tax Law or good faith resolution of a Tax Contest relating to Income Taxes).

(iii) Neither Party will amend, renew, extend or otherwise modify any Shared Contract without the consent of the other Party to the extent such amendment, renewal, extension or modification would adversely affect such other Party. Notwithstanding anything to the contrary contained in Section 2.2(b)(i) , upon 90 days’ advance request of Patriot, Trident shall use its reasonable best efforts to terminate, cancel or otherwise render inapplicable to the Fountain Business any portion of any Shared Contract inuring to the Fountain Business; provided that Trident shall not be required to, and shall not be required to cause any member of its Group to, so terminate or cancel such Shared Contract prior to the 12 month anniversary of the Fountain Distribution Date or to make any payments (except to the extent advanced, Assumed or agreed in advance to be reimbursed by Fountain) other than for fees and disbursements of outside counsel and any other advisors, commit to any third party on behalf of itself or any member of its Group to assume any material obligations or offer or grant any material concession to obtain any such termination or cancellation.

(c) Consents . The Parties shall use their reasonable best efforts prior to the Effective Time to obtain the Consents required to Transfer any Assets, Contracts, licenses, permits and authorizations issued by any Governmental Entity or parts thereof as contemplated by this Agreement; provided that (x) neither Party shall be required to, and shall be required to cause any member of its Group to, make any payments (except to the extent advanced, Assumed or agreed in advance to be reimbursed by any member of the other Group) other than for fees and disbursements of outside counsel and any other advisors, commit to any third party on behalf of itself or any member of its Group to assume any material obligations or offer or grant any material concession to obtain any such Consents and (y) Trident shall not, and shall not permit any member of the Trident Group to, commit to any third party on behalf of Fountain or any member of the Fountain Group to assume any material payments, incur any material obligations or offer or grant any material concession to any third party to obtain any such Consents that would be a Fountain Liability, without Fountain’s prior express written consent. For the avoidance of doubt, the required efforts and responsibilities of the Parties to seek the Trident Regulatory Approvals shall be governed by the Merger Agreement.

Section 2.3. Assumption and Satisfaction of Liabilities .

(a) Except as otherwise specifically set forth in any Ancillary Agreement, from and after the Effective Time (i) Trident shall, or shall cause a member of the Trident Group to, accept, assume (or, as applicable, retain) and perform, discharge and fulfill, in accordance with their respective terms (“ Assume ”), all of the Trident Retained Liabilities and (ii) Fountain shall, or shall cause a member of the Fountain Group to, Assume all of the Fountain Liabilities.

(b) Fountain shall, or, where applicable, cause one or more members of the Fountain Group to, enter into and/or abide by the terms and conditions of each of those Contracts and arrangements set forth in Schedule 2.3(b) .

 

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Section 2.4. Intercompany Accounts .

(a) All intercompany receivables other than Intercompany Trade Receivables (the “ Other Intercompany Receivables ”) and all intercompany payables and loans other than Intercompany Trade Payables and other than intercompany loans within a Group (the “ Other Intercompany Payables and Loans ”) shall be satisfied and/or settled in full in cash and/or otherwise canceled and terminated or extinguished (in each case with no further liability or obligation) prior to the Effective Time or treated as specifically provided for under this Agreement, under any Ancillary Agreement or under any Continuing Arrangements as set forth on Schedule 1.1(48) , as applicable, including, where applicable, continuing to be outstanding as an obligation of the relevant Party (or the relevant member of such Party’s Group).

(b) As between the Parties (and the members of their respective Groups) all payments and reimbursements received after the Effective Time by a Party (or member of its Group) that relate to a Business, Asset or Liability of the other Party (or member of its Group), shall be held by such Party in trust for the use and benefit of the Party entitled thereto (provided that the Party entitled thereto shall reimburse the Party holding such payment or reimbursement in trust for all out-of-pocket expenses related thereto other than for fees and disbursements of outside counsel and any other advisors) and, promptly upon receipt by such Party of any such payment or reimbursement, such Party shall pay or shall cause the applicable member of its Group to pay over to the applicable Party the amount of such payment or reimbursement without right of set-off.

Section 2.5. Limitation of Liability .

(a) Except in the case of any knowing violation of Law, fraud or misrepresentation, no Party shall have any Liability to any other Party in the event that any Information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate.

(b) No Party or any Subsidiary thereof shall be liable to any other Party or any Subsidiary of any other Party based upon, arising out of or resulting from any Contract, arrangement, course of dealing or understanding existing on or prior to the Effective Time (other than trade payables and receivables, this Agreement, any Ancillary Agreement, any Continuing Arrangements, any Contract entered into in connection herewith or in order to consummate the transactions contemplated hereby or thereby or by the Fountain Plan of Separation) and each Party hereby terminates any and all Contracts, arrangements, courses of dealing or understandings between or among it or a member of such Party’s Group, on the one hand, and the other Party or a member or such other Party’s Group, on the other hand, effective as of the Effective Time (other than trade payables and receivables, this Agreement, any Ancillary Agreement, any Continuing Arrangements, any Contract entered into in connection herewith or in order to consummate the transactions contemplated hereby or thereby or by the Fountain Plan of Separation).

(c) Certain Payments Under Management Agreement . Certain members of the Fountain Group are parties to a management services agreement (the “ Management Agreement ”) pursuant to which Trident International Management Company, LLC (the “ Provider ”) provides

 

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various management services to certain U.S. subsidiaries of Trident within the Fountain Group (individually, a “ Recipient ” and, collectively, the “ Recipients ”). Prior to the Fountain Distribution Date, Trident shall determine in good faith an estimate of the amounts payable (if any) by the Recipients to Provider for the period up to the Fountain Distribution Date pursuant to the Management Agreement (or any right of the Recipients to a refund of previous payments made under the Management Agreement). Prior to the Fountain Distribution Date, each Recipient owing additional amounts shall pay the Provider any amounts due or, as the case may be, the Provider shall refund any overpaid amounts to each Recipient that overpaid the Provider, in each case, based on the estimates determined by Trident pursuant to the foregoing sentence, which payment or refund shall constitute settlement in full of all amounts owed or owing under the Management Agreement. Prior to the Fountain Distribution Date, Trident shall cause the Provider and the Recipients to terminate the Management Agreement.

Section 2.6. Transfers Not Effected On or Prior to the Effective Time; Transfers Deemed Effective as of the Effective Time .

(a) To the extent that any Transfers or Assumptions contemplated by this Article II shall not have been consummated on or prior to the Effective Time, the Parties shall use reasonable best efforts to effect such Transfers or Assumptions as promptly following the Effective Time as shall be practicable. Nothing herein shall be deemed to require the Transfer of any Assets or the Assumption of any Liabilities which by their terms or operation of Law cannot be Transferred or Assumed; provided , however , that the Parties and their respective Subsidiaries shall cooperate and use reasonable best efforts to seek to obtain, in accordance with applicable Law, any necessary Consents or Governmental Approvals for the Transfer of all Assets and Assumption of all Liabilities to the fullest extent permitted by applicable Law contemplated to be Transferred and Assumed pursuant to this Article II. In the event that any such Transfer of Assets or Assumption of Liabilities has not been consummated, from and after the Effective Time (i) the Party retaining such Asset shall thereafter hold such Asset for the use and benefit of the Party entitled thereto (provided that the Party entitled thereto shall reimburse the Party retaining such Asset for all out-of-pocket expenses related to such retention other than for fees and disbursements of outside counsel and any other advisors) and (ii) the Party intended to Assume such Liability shall, or shall cause the applicable member of its Group to, pay or reimburse the Party retaining such Liability for all amounts paid or incurred in connection with the retention of such Liability. In addition, the Party retaining such Asset or Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Asset or Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the Party to which such Asset is to be Transferred or by the Party Assuming such Liability in order to place such Party, insofar as reasonably possible, in the same position as if such Asset or Liability had been Transferred or Assumed as contemplated hereby and so that all the benefits and burdens relating to such Asset or Liability, including possession, use, risk of loss, potential for gain, and dominion, control and command over such Asset or Liability, are to inure from and after the Effective Time to the member or members of the Trident Group or the Fountain Group entitled to the receipt of such Asset or required to Assume such Liability.

(b) If and when the Consents, Governmental Approvals and/or conditions, the absence or non-satisfaction of which caused the deferral of Transfer of any Asset or deferral of

 

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the Assumption of any Liability pursuant to Section 2.6(a) , are obtained or satisfied, the Transfer, assignment, Assumption or novation of the applicable Asset or Liability shall be effected in accordance with and subject to the terms of this Agreement and/or the applicable Ancillary Agreement.

(c) The Party retaining any Asset or Liability due to the deferral of the Transfer of such Asset or the deferral of the Assumption of such Liability pursuant to Section 2.6(a) shall not be obligated, in connection with the foregoing, to expend any money out-of pocket unless the necessary funds are advanced, assumed, or agreed in advance to be reimbursed by the Party entitled to such Asset or the Person intended to be subject to such Liability, other than reasonable attorneys’ fees and recording or similar fees all of which shall be promptly reimbursed by the Party entitled to such Asset or the Person intended to be subject to such Liability.

(d) After the Effective Time, each Party (or any member of its Group) may receive mail, packages and other communications properly belonging to the other Party (or any member of its Group). Accordingly, at all times after the Effective Time, each Party authorizes the other applicable Party to receive and, if necessary to identify the proper recipient in accordance with this Section 2.6(d) , open all mail, packages and other communications received by such Party that belongs to such other Party, and to the extent that they do not relate to the business of the receiving Party, the receiving Party shall promptly deliver such mail, packages or other communications (or, in case the same also relates to the business of the receiving Party or another Party, copies thereof) to such other Party as provided for in Section 11.6 . The provisions of this Section 2.6(d) are not intended to, and shall not, be deemed to constitute an authorization by either Party to permit the other to accept service of process on its behalf and no Party is or shall be deemed to be the agent of any other Party for service of process purposes.

(e) In the event that, at any time from and after the Effective Time, either Party (or any member of the Trident Group or Fountain Group, as applicable) discovers that it or one of the members of its Group is the owner of, receives or otherwise comes to possess or benefit from any Asset (including the receipt of payments made pursuant to Contracts and proceeds from accounts receivable with respect to such Asset) or is liable for any Liability that is otherwise allocated to any Person that is a member of the other Group pursuant to this Agreement or any Ancillary Agreement (except in the case of any acquisition of Assets or assumption of Liabilities from the other Party for value subsequent to the Effective Time), such Party shall promptly Transfer, or cause to be Transferred, such Asset or Liability to the Person so entitled thereto (and the applicable Party shall cause such entitled Person to accept such Asset or Assume such Liability) for no further consideration. Prior to any such transfer, such Asset shall be held in accordance with the other provisions of this Section 2.6.

(f) With respect to Assets and Liabilities described in Section 2.6(a) , each of Trident and Fountain shall, and shall cause the members of its respective Group to, (i) treat for all Income Tax purposes (A) the deferred Assets as assets having been Transferred to and owned by the Party entitled to such Assets not later than the Effective Time and (B) the deferred Liabilities as liabilities having been Assumed and owned by the Person intended to be subject to such Liabilities not later than the Effective Time and (ii) neither report nor take any Income Tax position (on a Tax Return or otherwise) inconsistent with such treatment (unless required by a change in applicable Tax Law or good faith resolution of a Tax Contest relating to Income Taxes).

 

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Section 2.7. Conveyancing and Assumption Instruments . In connection with, and in furtherance of, the Transfers of Assets and the acceptance and Assumptions of Liabilities contemplated by this Agreement, the Parties shall execute and deliver to each other or cause to be executed and delivered, on or after the date hereof by the appropriate entities, any Conveyancing and Assumption Instruments necessary to evidence the valid and effective Assumption by the applicable Party of its Assumed Liabilities and the valid Transfer to the applicable Party or member of such Party’s Group of all right, title and interest in and to its accepted Assets for Transfers and Assumptions to be effected pursuant to New York Law or the Laws of one of the other states of the United States or, if not appropriate for a given Transfer or Assumption, pursuant to applicable non-U.S. Laws, in such form as Trident, Fountain and Patriot shall reasonably agree, including the Transfer of real property with deeds as may be appropriate and in form and substance as may be required by the jurisdiction in which the real property is located. All Conveyancing and Assumption Instruments shall be prepared, executed and delivered in a manner reasonably agreed by Patriot, Fountain and Trident. Except as reasonably agreed by Trident, Fountain and Patriot, the Conveyancing and Assumption Instruments shall not contain any representations or warranties or indemnities, shall not conflict with this Agreement and, to the extent that any provision of a Conveyancing and Assumption Instrument does conflict with any provision of this Agreement, this Agreement shall govern and control. The Transfer of capital stock shall be effected by means of executed stock powers and notation on the stock record books of the corporation or other legal entities involved, or by such other means as may be required in any non-U.S. jurisdiction to Transfer title to stock and, only to the extent required by applicable Law, by notation on public registries.

Section 2.8. Further Assurances .

(a) In addition to and without limiting the actions specifically provided for elsewhere in this Agreement, including Section 2.6 , each of the Parties shall cooperate with each other and use (and shall cause the members of its respective Group to use) reasonable best efforts, on and after the Effective Time, to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things reasonably necessary on its part under applicable Law or contractual obligations to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.

(b) Without limiting the foregoing, on and after the Effective Time, each Party shall cooperate with the other Party, and without any further consideration, but at the expense of the requesting Party from and after the Effective Time, to execute and deliver, or use reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of Transfer or title, and to make all filings with, and to obtain all Consents and/or Governmental Approvals, any permit, license, Contract, indenture or other instrument (including any Consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by any other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement or the Ancillary Agreements and the Transfers and recordings of the applicable Assets and the assignment and Assumption of the applicable Liabilities and the other

 

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transactions contemplated hereby and thereby. Without limiting the foregoing, each Party shall, at the reasonable request, cost and expense of the other Party, take such other actions as may be reasonably necessary to vest in such other Party such title as possessed by the transferring Party to the Assets allocated to such other Party under this Agreement or any of the Ancillary Agreements, free and clear of any Security Interest.

Section 2.9. Novation of Liabilities .

(a) Each Party, at the request of the other Party, shall use reasonable best efforts to obtain, or to cause to be obtained, any Consent, Governmental Approval, substitution or amendment required to novate or assign to the fullest extent permitted by applicable Law all obligations under Contracts and Liabilities for which a member of such Party’s Group and a member of the other Party’s Group are jointly or severally liable and that do not constitute Liabilities of such other Party as provided in this Agreement (such other Party, the “ Other Party ”), or to obtain in writing the unconditional release of all parties to such arrangements (other than any member of the Other Party’s Group which Assumed or retained such Liability as set forth in this Agreement), so that, in any such case, the members of the applicable Group shall be solely responsible for such Liabilities; provided , however , that no Party shall be obligated to pay any consideration (or otherwise incur any Liability or obligation) therefor to any third party from whom any such Consent, Governmental Authority, substitution or amendment is requested (unless such Party is fully reimbursed or otherwise made whole by the requesting Party).

(b) If the Parties are unable to obtain, or to cause to be obtained, any such Consent, Governmental Approval, release, substitution or amendment required to novate, fully assign or fully release any such obligations under Contracts or any Liabilities, (i) the Other Party shall nonetheless use reasonable best efforts to assign or release, including by executing any such assignment which does not release the Other Party from its obligations under such Contract or from such Liability, to the fullest extent permitted and (ii) the Other Party or a member of such Other Party’s Group shall continue to be bound by such Contract that does not constitute a Liability of such Other Party and, unless not permitted by Law or the terms thereof, as agent or subcontractor for such Party, the Party or member of such Party’s Group who Assumed or retained such Liability as set forth in this Agreement (the “ Liable Party ”) shall, or shall cause a member of its Group to, pay, perform and discharge fully all the obligations or other Liabilities of such Other Party or member of such Other Party’s Group thereunder from and after the Effective Time in each case in accordance with Section 2.6 . The Other Party shall, without further consideration, promptly pay and remit, or cause to be promptly paid or remitted, to the Liable Party or, at the direction of the Liable Party, to another member of the Liable Party’s Group, all money, rights and other consideration received by it or any member of its Group in respect of such performance by the Liable Party (unless any such consideration is an Asset of such Other Party pursuant to this Agreement). If and when any such Consent, Governmental Approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, the Other Party shall promptly Transfer or cause the Transfer of, as applicable, all rights, obligations and other Liabilities thereunder of such Other Party or of any member of such Other Party’s Group to the Liable Party or to another member of the Liable Party’s Group and the Liable Party, or another member of such Liable Party’s Group shall Assume such rights and Liabilities to the fullest extent permitted by applicable Law in accordance with Section 2.6(b) .

 

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Section 2.10. Guarantees .

(a) Except as otherwise specified in any Ancillary Agreement, on or prior to the Effective Time or as soon as practicable thereafter, (i) Trident shall (with the reasonable cooperation of the applicable member of the Fountain Group) use its reasonable best efforts to have any member of the Fountain Group removed as guarantor of or obligor for any Trident Retained Liability, including in respect of those guarantees set forth on Schedule 2.10(a)(i) , to the extent that they relate to Trident Retained Liabilities, and (ii) Fountain shall (with the reasonable cooperation of the applicable member of the Trident Group) use its reasonable best efforts to have any member of the Trident Group removed as guarantor of or obligor for any Fountain Liability, including in respect of those guarantees set forth on Schedule 2.10(a)(ii) , to the extent that they relate to Fountain Liabilities; provided that, the foregoing notwithstanding, Fountain shall have no obligation to remove any member of the Trident Group as guarantor or obligor under any of the guarantees set forth on Schedule 2.10(a)(ii)(B); and provided , however , that no Party shall be obligated to pay any consideration (or otherwise incur any Liability or obligation) therefor to any third party from whom any such Guaranty Release is requested (unless such Party is fully reimbursed or otherwise made whole by the requesting Party).

(b) On or prior to the Effective Time, to the extent required to obtain a release from a guaranty (a “ Guaranty Release ”):

(i) of any member of the Trident Group, Fountain shall execute a guaranty agreement in the form of the existing guaranty or such other form as is agreed to by the relevant parties to such guaranty agreement, except to the extent that such existing guaranty contains representations, covenants or other terms or provisions either (A) with which Fountain would be reasonably unable to comply or (B) which would be reasonably expected to be breached; and

(ii) of any member of the Fountain Group, Trident shall execute a guaranty agreement in the form of the existing guaranty or such other form as is agreed to by the relevant parties to such guaranty agreement, except to the extent that such existing guaranty contains representations, covenants or other terms or provisions either (A) with which Trident would be reasonably unable to comply or (B) which would be reasonably expected to be breached.

(c) If Trident or Fountain is unable to obtain, or to cause to be obtained, any such required removal as set forth in clauses (a) and (b) of this Section 2.10 (or with respect to those guarantees set forth in Schedule 2.10(a)(ii)(B) , which shall be Fountain Liabilities assumed by Fountain pursuant to this Agreement), (i) the relevant member of the Trident Group or Fountain Group, as applicable, that has assumed the Liability with respect to such guaranty shall indemnify and hold harmless the guarantor or obligor for any Indemnifiable Loss arising from or relating thereto (in accordance with the provisions of Article VIII ) and shall or shall cause one of its Subsidiaries, as agent or subcontractor for such guarantor or obligor to pay, perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor thereunder provided that, with respect to those guarantees set forth in Schedule 2.10(a)(ii)(B) , Fountain shall only be obligated to indemnify and hold harmless the Tyco Group for any Indemnifiable Loss relating thereto to the extent that the Trident Group does not receive indemnification from

 

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AECOM Technology Corporation pursuant to the Guaranty Indemnification Agreement, dated as of July 25, 2008, as amended, by and among Trident, TIFSA and AECOM Technology Corporation (the “ GIA ”) with respect to any Liabilities under such guarantees (it being agreed that Trident shall use commercially reasonable efforts to exercise its rights under the GIA, including seeking indemnification thereunder provided that Trident shall be indemnified by Fountain for Indemnifiable Losses related to seeking indemnification under the GIA) and (ii) each of Trident and Fountain, on behalf of themselves and the members of their respective Groups, agree not to renew or extend the term of, increase its obligations under, or Transfer to a third party, any loan, guarantee, lease, contract or other obligation for which the other Party or member of such Party’s Group is or may be liable without the prior written consent of such other Party, unless all obligations of such other Party and the other members of such Party’s Group with respect thereto are thereupon terminated by documentation reasonably satisfactory in form and substance to such Party; provided , however , with respect to leases, in the event a Guaranty Release is not obtained and the relevant beneficiary wishes to extend the term of such guaranteed lease, then such beneficiary shall have the option of extending the term if it provides such security as is reasonably satisfactory to the guarantor under such guaranteed lease.

(d) Notwithstanding anything to the contrary in this Agreement (including the Schedules hereto), Trident and Tyco International Finance S.A. (“TIFSA”) shall be under no obligation to, and shall not in connection with the Fountain Plan of Separation, assign or otherwise transfer any of their respective rights under the GIA. Trident shall cause TIFSA to, prior to the Fountain Separation Date, assign to Fountain or another member of the Fountain Group, TIFSA’s rights under that certain Purchase Agreement, dated as of February 11, 2008, among TIFSA, AECOM Technology Corporation and the other parties thereto.

Section 2.11. Pre-Closing Actions . Notwithstanding anything to the contrary contained in this Agreement or any Ancillary Agreement, following the Effective Time, Fountain shall have no Liability for the breach or alleged breach of this Agreement related to any actions taken or not taken prior to the Effective Time; provided that, for the avoidance of doubt, nothing in this Section 2.11 shall absolve Fountain of any Liability for breach of any of its obligations under any covenants which contemplate performance after the Effective Time.

Section 2.12. Disclaimer of Representations and Warranties . EACH OF TRIDENT (ON BEHALF OF ITSELF AND EACH MEMBER OF THE TRIDENT GROUP) AND FOUNTAIN (ON BEHALF OF ITSELF AND EACH MEMBER OF THE FOUNTAIN GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN, IN ANY ANCILLARY AGREEMENT, IN ANY CONTINUING ARRANGEMENT OR IN THE MERGER AGREEMENT, NO PARTY TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT IS MAKING ANY REPRESENTATION OR WARRANTY IN ANY WAY. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN, IN ANY ANCILLARY AGREEMENT, IN ANY CONTINUING ARRANGEMENT OR IN THE MERGER AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN “AS IS, WHERE IS” BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM DEED OR CONVEYANCE).

 

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ARTICLE III

CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTIONS

Section 3.1. Organizational Documents . Prior to the Fountain Distribution, all necessary actions shall be taken to adopt the form of Articles of Association and Organizational Regulations as required by Section 1.05(c) of the Merger Agreement.

Section 3.2. Directors . Prior to the Fountain Distribution, Trident shall take all necessary action to cause the Board of Directors of Fountain to be of such size and with such composition as required by Section 1.06(b) of the Merger Agreement.

Section 3.3. Resignations . Prior to the Fountain Distribution, (i) Trident shall cause all its employees and any employees of its Affiliates (excluding any employees of any member of the Fountain Group) to resign, effective as of the Effective Time, from all positions as officers or directors of any member of the Fountain Group in which they serve and (ii) Fountain shall cause all its employees and any employees of its Affiliates, to resign, effective as of the Effective Time, from all positions as officers or directors of any members of the Trident Group in which they serve.

Section 3.4. Certain Debt; Cash .

(a) Prior to the close of business on the day prior to the Fountain Distribution Date, (i)(x) Fountain or a member of the Fountain Group shall issue to Trident or any other member of the Trident Group as directed by Trident, the Trident Note (as defined in the Merger Agreement) in a principal amount up to $500 million in accordance with Section 5.03(d) of the Merger Agreement or (y) in the event that, notwithstanding compliance with the terms and conditions of Section 5.03(c) of the Merger Agreement, the Senior Notes Issuance (as defined in the Merger Agreement) is not consummated and Patriot is unable to execute a credit agreement for the Senior Credit Facility (as defined in the Merger Agreement) on Acceptable Terms, Fountain or a member of the Fountain Group shall issue to Trident or any other member of the Trident Group as directed by Trident, the Bridge Note in a principal amount up to $500 million in accordance with Section 5.03(d) of the Merger Agreement, and (ii) either (A) Fountain will transfer cash and cash equivalents to Trident or a member of the Trident Group, as directed by Trident or (B) Trident or a member of the Trident Group, as directed by Trident will transfer cash and cash equivalents to Fountain, such that, following completion of the transactions contemplated by clauses (i) and (ii), the Net Indebtedness of the Fountain Group as of the close of business on the day prior to the Fountain Distribution Date and as of the Effective Time shall equal $275 million.

(b) Notwithstanding anything to the contrary in this Agreement, (1) the Trident Note (as defined the Merger Agreement) or the Bridge Note, as the case may be, shall be (A) a Fountain Liability, (B) taken into account in determining the amount of Net Indebtedness pursuant to Section 3.4 of the Separation Agreement and Closing Net Indebtedness pursuant to Section 3.5 and (C) to the extent not repaid in full in connection with the Closing, shall be a Continuing Arrangement for all purposes under the Separation Agreement, (2) the Senior Notes (as defined in the Merger Agreement) shall be a Fountain Liability and the net proceeds from the

 

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Senior Notes Issuance shall be a Fountain Asset, (3) the Patriot Escrow Amount (as defined in the Merger Agreement) shall not be a Fountain Asset and (4) the calculations of Net Indebtedness pursuant to this Section 3.4 and of Closing Working Capital and Closing Net Indebtedness pursuant to Section 3.5 of the Separation Agreement shall not take into account the Senior Notes Issuance (including any expenses, fees or other Liabilities incurred in connection therewith or arising therefrom), any indebtedness or net proceeds related thereto or the Patriot Escrow Amount. Fountain shall pay or cause to be paid in cash on the Fountain Distribution Date (A) all amounts outstanding under the Trident Note or the Bridge Note, as applicable, and (B) all amounts in respect of the Share Premium Redemption.

Section 3.5. Post-Closing Working Capital Adjustment .

(a) Within 60 days after the Fountain Distribution Date, Fountain shall prepare and deliver to Trident a statement (the “ Statement ”), setting forth (i) the Current Assets minus the Current Liabilities of the Fountain Business as of the close of business on the day prior to the Fountain Distribution Date (and after giving effect on such date to the completion of the reorganization contemplated by the Step Plan as of the Effective Time, including any related cash movements) (“ Closing Working Capital ”) determined in a manner consistent with the Fountain Balance Sheet and without giving effect to any purchase accounting impact arising by virtue of the Merger or the Separation and (ii) the Net Indebtedness of the Fountain Business as of the close of business on the day prior to the Fountain Distribution Date (“ Closing Net Indebtedness ”). Trident shall provide reasonable assistance to Fountain in the preparation of the Statement.

(b) The Statement shall become final and binding upon the Parties on the 60th day following delivery thereof, unless Trident gives written notice of its disagreement with the Statement (a “ Notice of Disagreement ”) to Fountain prior to such date. Any Notice of Disagreement shall (i) specify in reasonable detail the nature of any disagreement so asserted, and (ii) only include disagreements based on mathematical errors or based on Closing Working Capital or Closing Net Indebtedness not being determined in accordance with this Section 3.5 . If a Notice of Disagreement is received by Fountain in a timely manner, then the Statement (as revised in accordance with this sentence) shall become final and binding upon the Parties on the earlier of (A) the date the Parties resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement and (B) the date any disputed matters are finally resolved in writing by the Accountant. During the 30–day period following the delivery of a Notice of Disagreement, the Parties shall seek in good faith to resolve in writing any differences that they may have with respect to the matters specified in the Notice of Disagreement. At the end of such 30–day period, the Parties shall submit to a nationally recognized independent public accountant (the “ Accountant ”) for arbitration any and all matters that remain in dispute and were properly included in the Notice of Disagreement. The Accountant shall be Ernst & Young LLP or, if such firm is unable or unwilling to act, such other nationally recognized independent public accounting firm as shall be agreed upon by the Parties in writing. The scope of the disputes to be resolved by the Accountant shall be solely limited to whether the determination of Closing Working Capital was done in accordance with the Working Capital Principles and this Section 3.5 , whether the determination of Closing Net Indebtedness was done in accordance with this Section 3.5 , and whether there were mathematical errors in the Statement. The Parties shall use reasonable best efforts to cause the Accountant to render a decision resolving the matters

 

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submitted to the Accountant within 30 days of receipt of the submission. Judgment may be entered upon the determination of the Accountant in any court having jurisdiction over the Party against which such determination is to be enforced. The fees and expenses of the Accountant pursuant to this Section 3.5 shall be equally shared by the Parties. Other than the fees and expenses referred to in the immediately preceding sentence, the fees and disbursements of Trident’s independent auditors, attorneys and other consultants shall be borne by Trident and the fees and disbursements of Fountain’s independent auditors, attorneys and other consultants shall be borne by Fountain.

(c) (i) “ Working Capital Adjustment ” shall mean (i) if Closing Working Capital is less than the Working Capital Target by an amount greater than $125 million, the amount by which Closing Working Capital is less than the Working Capital Target, (ii) if Closing Working Capital is more than the Working Capital Target by an amount greater than $125 million, the amount by which the Closing Working Capital is more than the Working Capital Target and (iii) in all other cases, zero; provided that, for purposes of calculating the Closing Amount, the Working Capital Adjustment shall be reflected as a positive number in the event the Working Capital Adjustment is determined pursuant to clause (i) and a negative number in the event the Working Capital Adjustment is determined pursuant to clause (ii).

(ii) “ Net Indebtedness Adjustment ” shall mean an amount equal to Closing Net Indebtedness minus $275 million, which amount can be either a positive or negative number.

(iii) If the Working Capital Adjustment plus the Net Indebtedness Adjustment (the “ Closing Amount ”) is greater than zero, Trident shall, within ten Business Days after the Statement becomes final and binding on the parties, pay to Fountain the Closing Amount. If the Closing Amount is less than zero, Fountain shall, within ten Business Days after the Statement becomes final and binding on the parties, pay to Trident the absolute value of the Closing Amount. Any payment made pursuant to this Section 3.5(c) shall be made by wire transfer in immediately available funds to one or more accounts designated in writing at least two Business Days prior to such payment by the Party entitled to receive such payment together with interest thereon (such interest to be calculated on the basis of the actual number of days elapsed on such amount from the Fountain Distribution Date to the date of such payment at a rate of LIBOR plus 175 basis points for the first 120 days and the Default Interest Rate for any time after the first 120 days).

(d) Any payments to Fountain pursuant to this Section 3.5 shall be treated for all Tax purposes as a capital contribution to Fountain. Any payments made by Fountain pursuant to this Section 3.5 shall be treated for all Tax purposes as an adjustment to the transfer described in Section 2.2(a) .

(e) During the period of time from and after the Fountain Distribution Date through the resolution of any payment contemplated by Section 3.5(c) , each of the Parties shall afford to each other and their respective accountants and counsel in connection with any actions contemplated by this Section 3.5 reasonable access during normal business hours to all the properties, personnel and Records of such Party relevant to the Statement, the Notice of Disagreement and any payments contemplated by this Section 3.5 .

 

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(f) Notwithstanding anything to the contrary in this Agreement, (1) the Trident Note (as defined in the Merger Agreement) or the Bridge Note, as the case may be, shall be (A) a Fountain Liability, (B) taken into account in determining the amount of Net Indebtedness pursuant to Section 3.4 and Closing Net Indebtedness pursuant to this Section 3.5 of the Separation Agreement and (C) to the extent not repaid in full in connection with the Closing, shall be a Continuing Arrangement for all purposes under the Separation Agreement, (2) the Senior Notes (as defined in the Merger Agreement) shall be a Fountain Liability and the net proceeds from the Senior Notes Issuance shall be a Fountain Asset, (3) the Patriot Escrow Amount (as defined in the Merger Agreement) shall not be a Fountain Asset and (4) the calculations of Net Indebtedness pursuant to Section 3.4 and of Closing Working Capital and Closing Net Indebtedness pursuant to this Section 3.5 shall not take into account the Senior Notes Issuance (including any expenses, fees or other Liabilities incurred in connection therewith or arising therefrom), any indebtedness or net proceeds related thereto or the Patriot Escrow Amount.

(g) Notwithstanding anything to the contrary in this Agreement (including the Schedules hereto), (i) all out-of-pocket costs and expenses (including the reasonable costs and expenses of outside legal counsel) incurred in connection with or arising out of the matters set forth in Schedule 1.01(j)(i) hereto shall be the obligation of Fountain and shall be paid by Fountain promptly after the Fountain Distribution Date (collectively, “ Schedule 1.01(j)(i) Expenses ”); (ii) for purposes of this Section 3.5 , in calculating Closing Working Capital and Closing Net Indebtedness, all Schedule 1.01(j)(i) Expenses and items 1-3 and 5 set forth in Schedule 1.01(j)(ii) hereto shall be disregarded and not be considered a Current Asset, a Current Liability or Indebtedness of the Fountain Business; and (iii) for purposes of this Section 3.5 , in calculating Closing Working Capital, item 4 set forth in Schedule 1.01(j)(ii) hereto shall be disregarded and not be considered a Current Asset or a Current Liability of the Fountain Business.

(h) Notwithstanding anything to the contrary in this Agreement, with respect to any amounts paid or payable following the Fountain Distribution Date by Trident or any member of the Trident Group, on the one hand, or Fountain or any member of the Fountain Group, on the other hand, pursuant to Section 3 of that certain Agreement, dated September 27, 2012, between Trident and Fountain in respect of an adjustment to the purchase price paid by Fountain to Trident in respect of 3,175,000 shares of Fountain Common Stock to be used as Fountain treasury shares, any such amounts shall (A) be disregarded for the purposes of determining Closing Working Capital pursuant to this Section 3.5 and (B) be taken into account in determining the amount of Net Indebtedness pursuant to Section 3.4 and Closing Net Indebtedness pursuant to this Section 3.5 as if such payments were made in cash immediately prior to the close of business on the day prior to the Fountain Distribution Date.

Section 3.6. Ancillary Agreements . On or prior to the Effective Time, each of Trident and Fountain shall enter into, and/or (where applicable) shall cause a member or members of their respective Group to enter into, the Ancillary Agreements to the extent not entered into on the date hereof.

 

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Section 3.7. Fountain Recapitalization . Prior to the Fountain Distribution, Trident and Fountain will take all actions necessary so that, immediately prior to the Fountain Distribution, Fountain will have sufficient issued and paid up share capital, including a sufficient number of shares, to effect the Distribution and the Merger and to have such amount of additional treasury shares as may be proposed by Patriot and approved by Trident (such approval not to be unreasonably withheld, conditioned or delayed) (the “ Fountain Treasury Shares ”).

ARTICLE IV

THE DISTRIBUTION

Section 4.1. Stock Dividend to Trident Shareholders . On the Fountain Distribution Date, Trident will cause the Distribution Agent to distribute all of the outstanding shares of Fountain Common Stock then owned by Trident to holders of Trident Common Stock on the Fountain Distribution Record Date, and to credit the appropriate number of such shares of Fountain Common Stock to book entry accounts for each such holder or designated transferee or transferees of such holder of Fountain Common Stock. For stockholders of Trident who own Trident Common Stock through a broker or other nominee, their shares of Fountain Common Stock will be credited to their respective accounts by such broker or nominee. Each holder of Trident Common Stock on the Fountain Distribution Record Date (or such holder’s designated transferee or transferees) will be entitled to receive in the Fountain Distribution a number of shares of Fountain Common Stock equal to the Distribution Ratio for every one share of Trident Common Stock held by such stockholder. No action by any such stockholder shall be necessary for such stockholder (or such stockholder’s designated transferee or transferees) to receive the applicable number of shares of (and, if applicable, cash in lieu of any fractional shares) Fountain Common Stock such stockholder is entitled to in the Fountain Distribution. On the Distribution Date, Trident shall transfer to Fountain all shares of Fountain Common Stock not distributed to the holders of Trident Common Stock in the Fountain Distribution, including the Fountain Treasury Shares.

Section 4.2. Fractional Shares . Trident stockholders holding a number of shares of Trident Common Stock, on the applicable Record Date, which would entitle such stockholders to receive less than one whole share of Fountain Common Stock in the Fountain Distribution, will receive cash in lieu of fractional shares. Fractional shares of Fountain Common Stock will not be distributed in the Fountain Distribution nor credited to book-entry accounts. The Distribution Agent shall, as soon as practicable after the Fountain Distribution Date (a) determine the number of whole shares and fractional shares of Fountain Common Stock allocable to each holder of record or beneficial owner of Trident Common Stock as of close of business on the Fountain Distribution Record Date, (b) aggregate all such fractional shares into whole shares and sell the whole shares obtained thereby in open market transactions, in each case, at then prevailing trading prices on behalf of holders who would otherwise be entitled to fractional share interests, and (c) distribute to each such holder, or for the benefit of each such beneficial owner, such holder or owner’s ratable share of the net proceeds of such sale, based upon the average gross selling price per share of Fountain Common Stock after making appropriate deductions for any amount required to be withheld for Tax purposes and any brokerage fees incurred in connection with these sales of fractional shares. None of Trident, Fountain or the Distribution Agent will guarantee any minimum sale price for the fractional

 

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shares of Fountain Common Stock. Neither Trident nor Fountain will pay any interest on the proceeds from the sale of fractional shares. The Distribution Agent acting on behalf of the applicable Party will have the sole discretion to select the broker-dealers through which to sell the aggregated fractional shares and to determine when, how and at what price to sell such shares. Neither the Distribution Agent nor the broker-dealers through which the aggregated fractional shares are sold will be Affiliates of Trident or Fountain.

Section 4.3. Actions in Connection with the Distribution . On the Fountain Distribution Date, each of Trident and Fountain shall deliver or cause to be delivered to the other Party (to the extent not already in the possession of the other Party) executed counterparts to all Ancillary Agreements to which a member of the Fountain Group is a party, including all Conveyancing and Assumption Instruments relating to the Fountain Business.

Section 4.4. Conditions to Distribution . (a) The consummation of the Fountain Distribution shall be conditioned upon the satisfaction (or waiver by Trident) of each of the conditions to Trident’s obligation to effect the Closing of the transactions contemplated by the Merger Agreement, as provided in Section 6.01 and Section 6.03 of the Merger Agreement (other than those conditions that, by their nature, are to be satisfied between 12:01 a.m., Eastern Daylight Time, on the Closing Date and the Closing or contemporaneously with the Closing and other than the condition set forth in Section 6.01(b)(2) of the Merger Agreement, (b) Trident shall have irrevocably confirmed to Patriot in writing that as of such date each condition to Trident’s, Fountain’s, AcquisitionCo’s and Merger Sub’s obligation to effect the Closing of the transactions contemplated by the Merger Agreement, as provided in Section 6.01 and Section 6.02 of the Merger Agreement, shall have been satisfied or waived (other than those conditions that, by their nature, are to be satisfied between 12:01 a.m., Eastern Daylight Time, on the Fountain Distribution Date and Closing or contemporaneously with the Closing and other than the condition set forth in Section 6.01(b)(2) of the Merger Agreement) and that it is prepared to proceed with the Merger and (c) Patriot shall have irrevocably confirmed to Trident in writing that as of such date each condition to Patriot’s obligation to effect the Closing of the transactions contemplated by the Merger Agreement, as provided in Section 6.01 and Section 6.02 of the Merger Agreement, shall have been satisfied or waived (other than those conditions that, by their nature, are to be satisfied between 12:01 a.m., Eastern Daylight Time, on the Fountain Distribution Date and Closing or contemporaneously with the Closing and other than the condition set forth in Section 6.01(b)(2) of the Merger Agreement) and that it is prepared to proceed with the Merger.

ARTICLE V

CERTAIN COVENANTS

Section 5.1. No Solicit; No Hire

(a) None of Trident, Athens NA or Fountain or any member of their respective Groups (if the Closing occurs, including, with respect to Fountain, Patriot and its Subsidiaries) will, from the Effective Time through and including the second anniversary of the Effective Time, without the prior written consent of the Senior Vice President of Human Resources of the other applicable Party, either directly or indirectly, on their own behalf or in the

 

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service or on behalf of others, hire as an employee or an independent contractor any individual who is a Band 4 or higher employee (or Grade 40, in the case of Patriot and its Subsidiaries) and is employed by any other Party or its Subsidiaries as of the Effective Time (a “ Restricted Person ”).

(b) None of Trident, Athens NA or Fountain or any member of their respective Groups (if the Closing occurs, including, with respect to Fountain, Patriot and its Subsidiaries) will, from the Effective Time through and including the second anniversary of the Effective Time, without the prior written consent of the Senior Vice President of Human Resources of the other applicable Party, either directly or indirectly, on their own behalf or in the service or on behalf of others, solicit, aid, induce or encourage any Restricted Person who is an employee of any other Party’s respective Group to leave his or her employment; provided , however , that nothing in this Section 5.1(b) shall be deemed to prohibit, any general solicitation for employment through advertisements and search firms not specifically directed at employees of another Party; provided , that the soliciting Party has not encouraged or advised such firm to approach any such employee.

Section 5.2. Agreement Not To Compete .

(a) None of Trident and Athens NA or any member of their respective Groups, on the one hand, and Fountain or any member of the Fountain Group, on the other hand, shall, for a period of three (3) years following the Closing Date, establish or acquire any new businesses that involve the sale of products or the provision of services that (i) with respect to Trident or Athens NA or any member of their respective Groups, compete with the Fountain Business or (ii) with respect to Fountain or any member of the Fountain Group compete with the Trident Business or the Athens North American R/SB Business (“ Competitive Activities ”).

(b) Notwithstanding Section 5.2(a) , Trident, Athens NA and Fountain and any member of their respective Groups shall be permitted to continue to conduct their current Businesses and extensions thereof (including any sale of any product or service that otherwise incorporates or uses as a component any of the products that would otherwise constitute Competitive Activities); provided that, for purposes of this Section 5.2, the Trident Retained Business shall be deemed to exclude the Athens North American R/SB Business.

(c) Notwithstanding Section 5.2(a) , Trident, Athens NA and Fountain and any member of their respective Groups shall also be permitted to (I) acquire and own any interests in any publicly-traded Persons that engage in Competitive Activities so long as such interests constitute less than 5% of such Person’s voting securities, (II) acquire and own any interests in any Persons not publicly-traded that engage in Competitive Activities so long as such interests constitute less than 10% of such Person’s voting securities, (III) sell or divest any or all of its assets or businesses to any Person that is not an Affiliate, and such Person shall in no way be bound by the restrictions set forth in Section 5.2(a) and (IV) acquire and own any interests in any Persons that engage in Competitive Activities so long as the Competitive Activities of such Person constitute less than 25% of such Person’s consolidated annual net revenues for its most recently completed fiscal year (a “ Permitted Acquiree ”), and, in the case of clause (IV), each of Trident, Athens NA and Fountain and any member of their respective Groups, as applicable, uses its reasonable best efforts to dispose of the businesses of such Permitted Acquiree in Competitive

 

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Activities within twelve (12) months from the closing of such acquisition; provided that such twelve (12) month period shall be extended in the event that a definitive agreement to dispose of such business within such twelve (12) month period has been entered into (x) for three (3) months, to permit the closing of such transaction or (y) for a reasonable period of time, in the event such definitive agreement is terminated as a result of the failure of a closing condition, the failure to obtain antitrust or other regulatory clearance or a breach by the other party to the agreement, to permit Trident, Athens NA or Fountain or such member of their respective Groups, as applicable to seek an alternative disposition transaction.

Section 5.3. Financial Statements and Accounting .

(a) Each Party agrees to provide the following assistance of access set forth in subsections (b), (c) and (d) of this Section 5.3 , (i) during the three hundred and sixty-five (365) days following the Fountain Distribution Date in connection with the closing of the books and the preparation and audit of each of the Party’s (including for purposes of this Section 5.3 , those of Athens NA) financial statements for the year ended September 28, 2012 or, to the extent the Fountain Distribution Date is after September 28, 2012, the financial statements for the 2013 fiscal year (and September 28, 2012, to the extent the books are not yet closed or audit not yet complete), the printing, filing and public dissemination of such financial statements, the audit of each Party’s internal control over financial reporting and management’s assessment thereof and management’s assessment of each Party’s disclosure controls and procedures, if required, in each case made as of September 28, 2012 or, to the extent the Fountain Distribution Date is after September 28, 2012, made as of the end of the 2013 fiscal year (and if applicable, September 28, 2012); (ii) following such initial three hundred and sixty-five (365) day period and until December 31, 2014, with the consent of the other applicable Party (not to be unreasonably withheld or delayed) for reasonable business purposes in connection with the matters addressed in this Section 5.3 ; (iii) in the event that any Party changes its auditors within two (2) years of the Fountain Distribution Date, then such Party may request reasonable access on the terms set forth in this Section 5.3 for a period of up to one hundred and eighty (180) days from such change; and (iv) from time to time following the Fountain Distribution Date, to the extent reasonably necessary to respond (and for the limited purpose of responding) to any written request or official comment from a Governmental Entity, such as in connection with responding to a comment letter from the Commission:

(b) Annual Financial Statements . For fifteen (15) months following the Fountain Distribution Date, each Party shall provide or provide access, at reasonable times and on reasonable advance notice, to the other Party on a timely basis all Information reasonably required to meet its schedule for the preparation, printing, filing, and public dissemination of its annual financial statements and for management’s assessment of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting in accordance with Items 307 and 308, respectively, of Regulation S-K and, to the extent applicable to such Party, its auditor’s audit of its internal control over financial reporting and management’s assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the Commission’s and Public Company Accounting Oversight Board’s rules and auditing standards thereunder, if required. Without limiting the generality of the foregoing, each Party will provide all required financial and other Information with respect to itself and its Subsidiaries to its auditors in a sufficient and reasonable time and in reasonably sufficient detail to permit its

 

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auditors to take all steps and perform all reviews necessary to provide sufficient assistance to each other Party’s auditors with respect to Information to be included or contained in such other Party’s annual financial statements and to permit such other Party’s auditors and management to complete the Internal Control Audit and Management Assessments, if required.

(c) Access to Personnel and Records . For fifteen (15) months following the Fountain Distribution Date, each Party shall authorize its respective auditors to make reasonably available to each other Party’s auditors (each such other Party’s auditors, collectively, the “ Other Parties’ Auditors ”) both the personnel who performed or are performing the annual audits of such audited Party (each such Party with respect to its own audit, the “ Audited Party ”) and work papers related to the annual audits of such Audited Party, in all cases within a reasonable time prior to such Audited Party’s auditors’ opinion date, so that the Other Parties’ Auditors are able to perform the procedures they reasonably consider necessary to take responsibility for the work of the Audited Party’s auditors as it relates to their auditors’ report on such other Party’s financial statements, all within sufficient time to enable such other Party to meet its timetable for the printing, filing and public dissemination of its annual financial statements. Each Party shall make reasonably available to the Other Parties’ Auditors and management its personnel and Records in a reasonable time prior to the Other Parties’ Auditors’ opinion date and other Parties’ management’s assessment date so that the Other Parties’ Auditors and other Parties’ management are able to perform the procedures they reasonably consider necessary to conduct the Internal Control Audit and Management Assessments.

(d) Annual Reports . Each Party will deliver to the other Parties a substantially final draft, as soon as the same is prepared, of the first report to be filed with the Commission (or otherwise) that includes their respective financial statements (in the form expected to be covered by the audit report of such Party’s independent auditors) for the year ended September 28, 2012 or the end of the 2013 fiscal year (and, if not already completed, September 28, 2012), if the Fountain Distribution Date should occur after September 28, 2012 (such reports, collectively, the “ Annual Reports ”); provided , however , that each Party may continue to revise its respective Annual Report prior to the filing thereof, which changes will be delivered to the other Parties as soon as reasonably practicable; provided , further , that each Party’s personnel will actively consult with the other Party’s personnel regarding any material changes which they may consider making to its respective Annual Report and related disclosures prior to the anticipated filing with the Commission, with particular focus on any changes which could reasonably be expected to have an effect upon the other Party’s financial statements or related disclosures.

(e) Nothing in this Section 5.3 shall require any Party to violate any agreement with any third party regarding the confidentiality of confidential and proprietary Information relating to that third party or its business; provided , however , that in the event that a Party is required under this Section 5.3 to disclose any such Information, such Party shall use reasonable best efforts to seek to obtain such third party’s written consent to the disclosure of such Information; provided , however , that no Party shall be obligated to pay any consideration (or otherwise incur any Liability or obligation) therefor to any third party from whom any such consent is sought (unless such Party is fully reimbursed or otherwise made whole by the requesting Party).

 

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Section 5.4. Certain Securities . Subject to the provisions of Section 6.1 as applicable, following the Fountain Distribution Date, Fountain agrees that, upon exercise of any option, warrant or similar security to purchase Trident Common Stock or the conversion of any note or other security of Trident convertible into Trident Common Stock, in each case that Trident has issued to third persons prior to the Effective Time, Fountain shall, upon request by Trident, promptly (and in any event within any time periods required by the terms of any such option, warrant, note or similar security) issue to Trident, as agent for the holder thereof, such number of shares of Fountain Common Stock that Trident would otherwise be required to deliver to such holder pursuant to the terms of any such security and Trident shall promptly deliver such shares to such holder. It is further agreed that with respect to such options, warrants, notes or similar securities, Fountain shall keep reserved for issuance a sufficient number of shares of Fountain Common Stock to satisfy any future exercises of such options or warrants or conversion of such notes or other securities. In connection with the foregoing, Trident will promptly following receipt of notice that a holder desires to exercise any such options, warrants or similar security or convert such note or other security, in each case of the type described in this Section 5.4 notify, in writing, Fountain so that it may comply with the terms of this Section 5.4 ; provided , that Fountain shall not have any additional Liability beyond the obligation to deliver shares as set forth in this Section 5.4 for failing to deliver such shares of Fountain Common Stock in the time period described in the foregoing sentence if such failure and delay was the result of untimely notification by Trident. Fountain hereby Assumes the obligations set forth in this Section 5.4 .

Section 5.5. Removal of Trident Designations . Without undue delay after the Fountain Distribution Date, but in any event not later than within 180 days after the Fountain Distribution Date, Fountain shall and shall cause the applicable members of the Fountain Group to execute and file in the relevant offices such amended organizational documents so that any reference to “Trident” shall be eliminated from the corporate names of members of the Fountain Group and shall as soon as practicable thereafter pursue such name changes until effective.

Section 5.6. Asbestos Agreements . As promptly as practical after the date hereof, the Parties shall (a) negotiate in good faith, execute and enter into those agreements set forth in Schedule 5.6(a) and (b) take those actions set forth in Schedule 5.6(b) .

Section 5.7. FOL Database . Each Party shall provide or provide access to copies of the UBS Financials Online (FOL) report including the information relating to the stock options, restricted stock and similar securities granted to the employees of each Party prior to the Effective Time in its possession to the other Party promptly (and in any event within two (2) Business Days) following the request by such other Party. Any Party making a request for FOL reports shall provide clear parameters for the FOL reports being requested.

 

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ARTICLE VI

EMPLOYEE MATTERS

Section 6.1. Stock Options . Except as provided on Schedule 6.1 :

(a) Fountain Options .

(i) On behalf of all Fountain Employees and any beneficiary or legal representative thereof who hold Trident Options, prior to the Distribution, Trident shall take all actions necessary such that each Trident Option held by such individual which is outstanding immediately prior to the Distribution, whether vested or unvested, other than any Trident Option subject to the provisions of Section 6.1(c) below, shall, as of 12:00:01 a.m. Eastern Daylight Time on the Fountain Distribution Date, be converted into an option to acquire Fountain Common Stock (a “ Fountain Option ”) in accordance with the succeeding paragraphs of this Section 6.1(a) .

(ii) The number of shares subject to the Fountain Option shall equal the number of shares of Trident Common Stock subject to the Trident Option multiplied by a fraction, the numerator of which is the last per share trading price of Trident Common Stock with due bills on the NYSE in the last trade on the NYSE immediately prior to the Distribution (the “ Closing Trident Stock Price ”) and the denominator of which is the last per share trading price of Fountain Common Stock when-issued in the last trade on the NYSE immediately prior to the Distribution or in the absence of a “when issued” trading market for Fountain Common Stock, the closing price of Patriot Common Stock (as defined in the Merger Agreement) on the last trading day prior to the Distribution (the “ Pre-Distribution Fountain Stock Price ”), with the resulting number of shares subject to the Fountain Option being rounded down to the nearest whole share.

(iii) The per share exercise price of the Fountain Option (the “ Adjusted Fountain Exercise Price ”) shall be equal to the product of (A) the original exercise price of the Trident Option multiplied by (B) a fraction, the numerator of which shall be the Pre-Distribution Fountain Stock Price and the denominator of which shall be the Closing Trident Stock Price, which product shall be rounded up to the nearest hundredth of a cent (four decimal places).

(iv) Prior to the Fountain Distribution Date, Trident shall (A) cause Fountain to adopt the Fountain 2012 Stock and Incentive Plan (the “ 2012 Fountain Stock and Incentive Plan ”), effective as of 12:00:01 a.m. Eastern Daylight Time on the Fountain Distribution Date, (B) ensure or cause Fountain to ensure that the shares issuable under such plan have been registered on Form S-8 (or successor form) promulgated by the Commission under the Securities Act and (C) approve, as the sole stockholder, the adoption of the 2012 Fountain Stock and Incentive Plan. The 2012 Fountain Stock and Incentive Plan shall be in the form as agreed by the Parties no later than 90 days after the date of this Agreement, provided that in preparing such plan Patriot will consult reasonably with Trident and such Stock and Incentive Plan shall be consistent with the terms of this Agreement and further provided, that if the Parties are unable to agree on

 

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the form of such Stock and Incentive Plan, then such plan will be based on Patriot’s 2008 Omnibus Stock Incentive Plan, to the extent permissible under the terms of any current applicable award.

(b) Trident Options .

(i) On behalf of all Trident Employees who hold Trident Options prior to the Distribution, Trident shall take all actions necessary such that each Trident Option which is outstanding immediately prior to the Distribution, whether vested or unvested, other than any Trident Option subject to the provisions of Section 6.1(c) below, shall, as of 12:00:01 a.m. Eastern Daylight Time on the Fountain Distribution Date, be adjusted such that the number of shares subject to each Option and the per-share exercise price reflect the impact of the Distribution in accordance with the succeeding paragraphs of this Section 6.1(b) .

(ii) The adjusted number of shares subject to the Trident Option shall equal the original number of shares of Trident Common Stock subject to the Trident Option multiplied by a fraction, the numerator of which is the Closing Trident Stock Price, and the denominator of which is the last per share trading price of Trident Common Stock when-issued in the last trade immediately prior to the Distribution (the “ Pre-Distribution Trident Stock Price ”), with the resulting number of shares subject to the Trident Option being rounded down to the nearest whole share.

(iii) The per share exercise price of the Trident Option (the “ Adjusted Trident Exercise Price ”) shall be equal to the product of (A) the original exercise price of the Trident Option multiplied by (B) a fraction, the numerator of which is the Pre-Distribution Trident Stock Price and the denominator of which is the Closing Trident Stock Price, which product shall be rounded up to the nearest hundredth of a cent (four decimal places).

(c) Trident Options for Trident Corporate Employees .

(i) Notwithstanding Sections 6.1(a) and (b) , for all Trident Options granted prior to October 12, 2011 to, and held by, the employees listed in Schedule 6.1(c) and for all Trident Options held by non-employee directors of Trident on the Fountain Distribution Date (“ Trident Directors ”), Trident shall take all actions necessary such that each such Trident Option which is outstanding immediately prior to the Distribution, whether vested or unvested, shall, as of 12:00:01 a.m. Eastern Daylight Time on the Fountain Distribution Date, (A) be converted into options to separately acquire shares of Fountain Common Stock and Trident Common Stock and, if the Athens Distribution Date occurs simultaneously, Athens NA Common Stock, and (B) be adjusted such that the number of shares subject to the option and the per-share exercise price reflect the impact of the Distribution in accordance with the succeeding paragraphs of this Section 6.1(c) , except to the extent expressly provided to the contrary in a written agreement with the holder of such Trident Options, in which case such options shall be treated in accordance with the provisions of such individual agreement.

 

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(ii) The adjusted number of shares subject to each option to acquire Trident Common Stock shall equal the original number of shares of Trident Common Stock subject to the Trident Option multiplied by a fraction obtained by dividing (x) the Closing Trident Stock Price minus the original exercise price for such Trident Option, by (y) the sum of (A) the Pre-Distribution Trident Stock Price minus the Adjusted Trident Exercise Price plus (B) the Distribution Ratio times the result obtained by subtracting the Adjusted Fountain Exercise Price from the Pre-Distribution Fountain Stock Price and, if the Athens Distribution Date occurs simultaneously, plus (C) one half of the result obtained by subtracting the Adjusted Athens Exercise Price (as defined in the Athens NA Agreement) from the last per share trading price of Athens NA Common Stock when-issued in the last trade on the NYSE immediately prior to the Distribution (the “ Pre-Distribution Athens NA Stock Price ”), with the resulting number of shares rounded down to the nearest whole share. The per-share exercise price of each such option to acquire Trident Common Stock shall be the Adjusted Trident Exercise Price.

(iii) The adjusted number of shares subject to each option to acquire Fountain Common Stock shall be equal to the Distribution Ratio times the number of shares of Trident Common Stock determined as set forth in Section 6.1(c)(ii) above, with the resulting number of shares rounded down to the nearest whole share. The per-share exercise price of each such option to acquire Fountain Common Stock shall be the Adjusted Fountain Exercise Price.

(iv) If the Athens Distribution occurs simultaneously, the adjusted number of shares subject to each option to acquire Athens NA Common Stock shall be equal to one half of the number of shares of Trident Common Stock determined as set forth in Section 6.1(c)(ii) above, with the resulting number of shares rounded down to the nearest whole share. The per-share exercise price of each such option to acquire Athens NA Common Stock shall be the Adjusted Athens Exercise Price.

(d) Former Employees and Former Trident Directors .

(i) Trident Options held by Former Trident Employees and Former Fountain Employees shall be treated in the same manner as described in Section 6.1(c) above. Notwithstanding the foregoing, if a written agreement between a Party (or any of their Affiliates or Subsidiaries) and the holder of any such Trident Options prior to the Fountain Distribution Date expressly provides for contrary treatment, such options shall be treated in accordance with the provisions of such individual agreement.

(ii) Trident Options held by individuals who formerly served as Trident Directors and on and after the Fountain Distribution Date are not serving as Trident Directors shall be treated in the same manner as described in Section 6.1(c) above, except to the extent expressly provided to the contrary in a written agreement with the holder of such Trident Options, in which case such options shall be treated in accordance with the provisions of such individual agreement.

(e) Adjustments to Equity Awards in Connection With The Distribution . Notwithstanding any other provision of this Agreement, Trident shall have the authority to make

 

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any appropriate adjustments necessary to satisfy the requirements of U.S. Treasury Regulation Section 1.424-1 and Section 1.409A-1 for each option award (without regard to whether such options would otherwise be subject to such regulation) in accordance with the anti-dilution provisions of the governing plan.

(f) Settlement of Options. Subject to the terms of this Agreement and any other agreement made by the Parties from time to time, upon the exercise of any Trident Options or Fountain Options, each of Trident and Fountain, respectively, shall be solely responsible to issue shares in settlement of such options without reimbursement, recourse or other compensation from any other Party; provided, however, that if a Party resolves to amend the vesting schedule and/or exercise period of an employee or former employee’s Trident Options or Fountain Options, as the case may be, then (i) the Party that requested such amendment shall reimburse the Party that made such amendment for any increased compensation or other costs incurred by the amending Party (determined in accordance with the amending Party’s normal practices) in connection with such amendment, and (ii) the amending Party shall make any required changes to implement such requested amendment; provided, further, however, that the foregoing proviso shall in no event apply to any individual who is a member of the Board of Directors of Fountain.

Section 6.2. Restricted Stock Units, Performance Share Units and Deferred Stock Units . Except as provided on Schedule 6.2 :

(a) Restricted Stock Units, Performance Share Units and Deferred Stock Units .

(i) Restricted Stock Units Granted Prior to October 12, 2011 . Each Trident Restricted Stock Unit award granted prior to October 12, 2011 that is outstanding immediately prior to the Distribution shall be converted so that immediately after the Fountain Distribution Date, the holder has, in addition to the original Trident Restricted Stock Unit award, an additional award of Fountain Restricted Stock Units and, if the Athens Distribution Date occurs simultaneously, Athens Restricted Stock Units (as defined in the Athens NA Agreement). The number of additional Fountain Restricted Stock Units and Athens Restricted Stock Units awarded shall be determined pursuant to Section 4.1 as if the Restricted Stock Units award represented actual shares of Trident Common Stock and such Fountain Restricted Stock Units shall generally have the same terms and conditions (including vesting schedule) associated with the original Trident Restricted Stock Units.

(ii) Restricted Stock Units Granted on or After October 12, 2011 . Each Trident Restricted Stock Unit award granted on or after October 12, 2011 that is outstanding immediately prior to the Distribution shall be converted as of 12:00:01 a.m. Eastern Daylight Time on the Fountain Distribution Date into Restricted Stock Units as follows:

(A) On behalf of all Fountain Employees who hold such Restricted Stock Units, Trident shall convert such units into Restricted Stock Units payable solely in Fountain shares which shall generally have the same terms and

 

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conditions (including vesting schedule) associated with such original Trident Restricted Stock Unit award. The number of Fountain Restricted Stock Units shall equal the number of outstanding Trident Restricted Stock Units as of the Fountain Distribution Date, multiplied by a fraction, the numerator of which is the Closing Trident Stock Price and the denominator of which is the Pre-Distribution Fountain Stock Price, which product shall be rounded down to the nearest whole number of units with a cash payment to be made by Fountain for any fractional units. Notwithstanding the foregoing, if the cash payment at such time would cause a Fountain Employee to be subject to the additional taxes of Code Section 409A, then the cash payment shall be made at the time the Fountain Restricted Stock Units are otherwise payable in accordance with the terms of the governing award agreement.

(B) On behalf of all Trident Employees who hold such Restricted Stock Units, Trident shall convert such Units into Restricted Stock Units payable solely in Trident shares which shall generally have the same terms and conditions (including vesting schedule) associated with such original Trident Restricted Stock Unit award. The number of adjusted Trident Restricted Stock Units shall equal the original number of outstanding Trident Restricted Stock Units as of the Fountain Distribution Date, multiplied by a fraction, the numerator of which is the Closing Trident Stock Price and the denominator of which is Pre-Distribution Trident Stock Price, which product shall be rounded down to the nearest whole number of units with a cash payment to be made by Trident for any fractional units.

(iii) Performance Share Units .

(A) Each Performance Share Unit award that is outstanding immediately prior to the Distribution (as adjusted to reflect the number of such units then outstanding based on an adjusted performance period that ends no earlier than the last day of Trident’s 2012 fiscal third quarter) shall be converted in the exact same manner and at the same time that Restricted Stock Units granted on or after October 12, 2011 are converted pursuant to Section 6.2(a)(ii) above; provided, however, that each Performance Share Unit award that is held by an employee listed in Schedule 6.1(c) that was granted prior to October 12, 2011 and is outstanding immediately prior to the Distribution (as adjusted to reflect the number of such units then outstanding based on an adjusted performance period that ends no earlier than the last day of Trident’s 2012 fiscal third quarter) shall be converted into Trident Restricted Share Units, Fountain Restricted Share Units and Athens Restricted Share Units as if such awards were Restricted Stock Unit awards converted pursuant to Section 6.2(a)(i). For the avoidance of doubt, any Performance Share Unit that is adjusted to reflect performance through a date that precedes the Fountain Distribution Date shall continue to be deemed a Performance Share Unit under this Agreement notwithstanding the expiration of the applicable performance period and notwithstanding any employee communications that may refer to such Performance Share Unit as being converted to a Trident Restricted Stock Unit as of a date prior to the Fountain Distribution Date.

 

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(B) The Parties shall take all necessary actions to provide that the terms and conditions of such converted Performance Share Unit awards shall be modified to provide that the converted Performance Share Unit awards shall be payable at the end of the original three-year vesting period without regard to the originally established performance period, provided that the employee remains continuously employed with Trident or Fountain, respectively, through such date (subject to any acceleration of vesting as provided for in the original applicable Performance Share Unit award agreement).

(iv) Deferred Stock Units . Each Deferred Stock Unit that is outstanding immediately prior to the Distribution and which is held by a Trident Employee listed in Schedule 6.1(c) or by a Trident Director shall be adjusted such that the number of Deferred Stock Units reflects the impact of the Distribution as set forth in Section 6.2(a)(i) ; provided that fractional shares will continue to be maintained until the payment of the unit is made. Such converted awards shall remain subject to the terms and conditions in effect with respect to the award immediately preceding the Fountain Distribution Date.

(b) Grant and Settlement of Awards. Trident shall assure that each Trident Stock Option, Restricted Stock Unit and Performance Share Unit is converted into Fountain awards as set forth in Section 6.1 and Section 6.2. All such converted awards will be issued under the 2012 Fountain Stock and Incentive Plan and Trident shall take all commercially reasonable actions to revise award agreements issued with respect to any such converted award to ensure that the terms and conditions of the Fountain awards are substantially similar to the terms and conditions applicable to the corresponding Trident awards, except as specifically provided herein. Subject to the terms of this Agreement and any other agreement in force between the Parties from time to time, upon the vesting or payment of any such award, each of Trident and Fountain shall be solely responsible to issue its shares in settlement of the respective awards payable in its shares without reimbursement, recourse or other compensation from any other Party.

(c) Former Employees and Former Trident Directors .

(i) Trident Restricted Stock Units, Performance Share Units and Deferred Stock Units held by Former Trident Employees and Former Fountain Employees shall be treated in the same manner as described in Section 6.2(a)(i) above. Notwithstanding the foregoing, if a written agreement between a Party (or any of their Affiliates or Subsidiaries) and the holder of any such Trident Restricted Stock Unit, Performance Share Unit or Deferred Stock Unit prior to the Fountain Distribution Date expressly provides for contrary treatment, such units shall be treated in accordance with the provisions of such individual agreement.

(ii) Trident Restricted Stock Units and Deferred Stock Units held by individuals who formerly served as Trident Directors and on and after the Fountain

 

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Distribution Date are not serving as Trident Directors shall be treated in the same manner as described in Section 6.2(a)(i) above, except to the extent expressly provided to the contrary in a written agreement with the holder of such Trident Restricted Stock Unit or Deferred Stock Unit, in which case such units shall be treated in accordance with the provisions of such individual agreement.

Section 6.3. Nonqualified Deferred Compensation Plans .

(a) Fountain Nonqualified Deferred Compensation Plans .

(i) Effective as of the Fountain Distribution Date, Fountain (or any one of its Subsidiaries or Affiliates) shall be the sponsor of, and be solely responsible for the satisfaction of all Liabilities under, the Fountain Nonqualified Deferred Compensation Plans listed in Schedule 6.3(a) . Effective as of the Fountain Distribution Date, Fountain (or any one of its Subsidiaries or Affiliates) also shall be solely responsible for the satisfaction of all Liabilities with respect to nonqualified deferred compensation plan benefits for Fountain Employees and Former Fountain Employees under the Trident Supplemental Savings and Retirement Plan and Trident Supplemental Executive Retirement Plan (the “ Fountain Deferred Compensation Liabilities ”). To the extent necessary to effectuate Fountain’s assumption of the Fountain Deferred Compensation Liabilities, Fountain (or any one of its Subsidiaries or Affiliates), shall establish as of the Fountain Distribution Date one or more nonqualified deferred compensation plans which shall contain terms that are substantially similar to the terms and conditions of the Trident Supplemental Savings and Retirement Plan and Trident Supplemental Executive Retirement Plan as in effect prior to the Fountain Distribution Date (subject to such amendments as necessary to comply with Code Section 409A) and the Fountain Deferred Compensation Liabilities under the Trident Supplemental Savings and Retirement Plan and Trident Supplemental Executive Retirement Plan as of the Fountain Distribution Date shall be transferred to such plans.

(ii) All elections by Fountain Employees, and Former Fountain Employees that were in effect under the terms of the applicable Fountain Nonqualified Deferred Compensation Plans immediately prior to the Fountain Distribution Date shall continue in effect from and after the Fountain Distribution Date until a new election that by its terms supersedes the prior election is made by such Fountain Employee or Former Fountain Employee in accordance with the terms of the applicable Fountain Nonqualified Deferred Compensation Plan and consistent with the provisions of Code Section 409A to the extent applicable.

(iii) As of the Fountain Distribution Date, Fountain shall be solely responsible for the management and administration of the Fountain Nonqualified Deferred Compensation Plans including, but not limited to, the adjudication of claims filed by Fountain Employees or Former Fountain Employees under the Trident Supplemental Savings and Retirement Plan and Trident Supplemental Executive Retirement Plan before the Fountain Distribution Date; provided that (A) the claim relates to a Fountain Deferred Compensation Liability that has been transferred to the applicable Fountain Nonqualified Deferred Compensation Plan; (B) the claim has not been finally adjudicated by Trident

 

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on the day immediately preceding the Fountain Distribution Date; and (C) under the applicable claims procedure Fountain plan administrator or other authorized person or committee will have at least a sixty (60) day period after the Fountain Distribution Date to respond to such claim. Trident shall be solely responsible for the adjudication of any claim that satisfies subsections (A) and (B) but not (C); provided , however , that if Trident’s response to such claim does not finally adjudicate the claim, Trident shall upon sending its response to the claimant immediately transfer administration of such claim to Fountain for final adjudication.

(iv) Payments to Fountain Employees and Former Fountain Employees under the Fountain Nonqualified Deferred Compensation Plans shall be made by Fountain or one of its Subsidiaries or Affiliates as determined in the sole discretion of Fountain.

(b) Trident Nonqualified Deferred Compensation Plans .

(i) Effective as of the Fountain Distribution Date, Trident (or any one of its Subsidiaries or Affiliates) shall be solely responsible for the satisfaction of all Liabilities under the Trident Nonqualified Deferred Compensation Plans and all Liabilities with respect to nonqualified deferred compensation plan benefits for Trident Employees and Former Trident Employees under the Trident Supplemental Savings and Retirement Plan and Trident Supplemental Executive Retirement Plan (the “ Trident Deferred Compensation Liabilities ”).

(ii) Payments to Trident Employees and Former Trident Employees under the Trident Nonqualified Deferred Compensation Plans shall be made by Trident or one of its Affiliates as determined in the sole discretion of Trident.

(c) Continued Employment . Consistent with Code Section 409A, Trident and Fountain agree that Fountain Employees who participate in the Trident Nonqualified Deferred Compensation Plans immediately prior to the Fountain Distribution Date and who participate in the Fountain Nonqualified Deferred Compensation Plans immediately following the Fountain Distribution Date, shall not experience a termination of employment or separation from service as a result of the transactions contemplated herein.

Section 6.4. Pension Plans .

(a) Fountain Pension Plans .

(i) As of the Fountain Distribution Date, Fountain shall Assume sponsorship of and be solely responsible for the management and administration of, and except as otherwise provided below, be responsible for all Assets and Liabilities under the pension plans listed in Schedule 6.4(a) (with such plans to be solely Fountain’s responsibility referred to as the “ Fountain Pension Plans ”).

(ii) For Fountain Pension Plans that are intended to be tax-qualified defined benefit pension plans under Sections 401(a) and 501(a) of the Code (the “ Fountain US Pension Plans ”):

(A) Effective no later than the Fountain Distribution Date, Trident shall cause the sponsor of such plans to take all such actions necessary to transfer the sponsorship of such plans to Fountain, and Fountain shall take all such actions necessary to become the plan sponsor of the Fountain US Pension Plans; and, furthermore, effective on, or within seven days after, the Fountain Distribution Date, Patriot shall designate a trust or trusts designed to (i) be tax-exempt under Section 501(a) of the Code and (ii) hold the assets of the Fountain US Pension Plans (the “ Fountain Master Trust ”).

 

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(B) Within 60 days of the Fountain Distribution Date (such 60th day being the “Initial Transfer Date”), Trident shall cause at least 90% of the Assets of the Trident International Master Retirement Trust attributable to the Fountain US Pension Plans (using estimated values as of September 28, 2012) to be transferred to the Fountain Master Trust in accordance with all applicable Laws. The Assets to be transferred will be in the form of cash or other property, as Trident and Fountain shall mutually agree prior to such transfer; and Trident shall cause the balance of the Trident International Master Retirement Trust Assets attributable to such Fountain US Pension Plans to be transferred to the Fountain Master Trust within 120 days of the Fountain Distribution Date.

(C) Fountain and Trident acknowledge and agree that such transfer of Assets and Liabilities will comply with Sections 401(a)(12), 414(l) and 411(d)(6) of the Code and the regulations thereunder and that the value of the Assets to be transferred as determined under Section 414(l) of the Code and the regulations thereunder shall be determined as of the Fountain Distribution Date. Accordingly, the final value of the Assets to be transferred shall be adjusted from the period between the Fountain Distribution Date and the transfer date to reflect (i) the investment experience under the Trident International Master Retirement Trust using the assumptions and methodology which the Pension Benefit Guaranty Corporation would have used under Section 4044 of ERISA, (ii) the Fountain Pension Plan’s allocable share of Expenses, (iii) the amount paid at the Initial Transfer Date, and (iv) the Fountain Pension Plan’s benefit distributions as described in the following sentence. Until the Initial Transfer Date, Trident shall cause benefit payments to participants, beneficiaries and alternate payees that are due under the Fountain US Pension Plans to be made in the normal course from the Trident International Master Retirement Trust Assets.

(D) Pending the transfer of assets, the Fountain US Pension Plans will continue to participate in the Trident International Master Retirement Trust, subject to Trident’s direction of the investment of the assets of the Trident International Master Retirement Trust without distinction as to any particular participating plan for a transition period not exceeding 60 days for the initial transfer, and not exceeding 120 days for the final transfer, following the Fountain Distribution Date and Trident will cause the Trident International Master Retirement Trust to be amended to provide for such continued participation.

 

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(iii) Following the Fountain Distribution Date, eligible participants shall accrue benefits (to the extent that such Fountain Pension Plans are not frozen) and receive service credit, as applicable, under the Fountain Pension Plans in accordance with the terms and conditions of the relevant Fountain Pension Plan; provided , however , that the foregoing shall in no way alter any right of Fountain, subsequent to the Fountain Distribution Date, to amend or terminate any of the Fountain Pension Plans in accordance with their terms and applicable Law. Fountain and Trident shall reasonably cooperate with each other in order to facilitate the foregoing provisions of this Section 6.4 .

(iv) As of the Fountain Distribution Date, Fountain shall be solely responsible for the adjudication of claims filed under a Fountain Pension Plan including, but not limited to, claims filed before the Fountain Distribution Date under such plans as in effect on the date such claim was filed; provided that (A) the claim relates to Assets or Liabilities assumed by Fountain under Section 6.4(a)(i) ; (B) the claim has not been finally adjudicated by Trident on the day immediately preceding the Fountain Distribution Date; and (C) under the applicable claims procedure, Fountain’s plan administrator or other authorized person or committee will have at least a sixty (60) day period after the Fountain Distribution Date to respond to such claim. Trident shall be solely responsible for the adjudication of any claim that satisfies subsections (A) and (B) but not (C); provided , however , that if Trident’s response to such claim does not finally adjudicate the claim, Trident shall immediately transfer administration of such claim to Fountain for final adjudication upon sending its response to the claimant.

(v) Notwithstanding any other provision set forth in this Agreement, (i) Fountain and the Fountain Pension Plans shall indemnify and hold harmless Trident and the Trident Retained Pension Plans (and each of their respective affiliates, Subsidiaries, officers, employees, agents and fiduciaries) with respect to any and all Liabilities in respect of the participants in the Fountain Pension Plans relating to the provision of pension benefits pursuant to the Fountain Pension Plans and (ii) Trident and the Trident Retained Pension Plans shall indemnify and hold harmless Fountain and the Fountain Pension Plans (and each of their respective affiliates, Subsidiaries, officers, employees, agents and fiduciaries) with respect to any and all Liabilities in respect of the participants in the Trident Retained Pension Plans relating to the provision of pension benefits pursuant to the Trident Retained Pension Plans.

(b) Trident Retained Pension Plans .

(i) Following the Fountain Distribution Date, Trident shall retain sponsorship of, and sole responsibility for all Assets and Liabilities under the pension plans listed in Schedule 6.4(b) (the “ Trident Retained Pension Plans ”), and Fountain shall have no obligation with respect thereto.

(ii) Effective no later than the Fountain Distribution Date, Trident shall amend the TGL Union Pension Plan Part XIII to provide that, each Fountain Employee whose terms and conditions of employment are covered by a collective bargaining agreement with The Crosby-Ashton Employees’ Union, Unit of Amalgamated Local 1596 UAW, shall be treated as fully vested under such pension plan. Trident shall not be obligated to

 

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amend the TGL Union Pension Plan Part XIII if such amendment would otherwise subject Trident to additional bargaining with The Crosby-Ashton Employees’ Union, Unit of Amalgamated Local 1596 UAW. Notwithstanding anything in this Agreement that permits a Party to amend its benefit plans, Trident shall not be permitted to amend the TGL Union Pension Plan Part XIII to cease providing such service credit.

(c) Following the Fountain Distribution Date, eligible participants in the Trident Retained Pension Plans shall continue to accrue benefits (to the extent that such Trident Retained Pension Plans are not frozen) and receive service credit, as applicable under the Trident Retained Pension Plans in accordance with the terms and conditions of the relevant Trident Retained Pension Plan. Nothing contained in this Agreement shall alter in any way the right of Trident, subsequent to the Fountain Distribution Date, to amend or terminate any Trident Retained Pension Plan in accordance with its terms and applicable Law.

(d) Adjustments. If, during the period from the Fountain Distribution Date through the transfer date, the Parties determine that adjustments are appropriate with respect to the data that was used to calculate pension plan Liabilities under Section 4044 of ERISA for the purposes of effecting the transfer of Assets and Liabilities described in subparagraphs (a)(ii)(B) and (C) of this Section 6.4 with respect to the Fountain US Pension Plans, then the Parties agree to cooperate to conform the net difference in Assets transferred or retained attributable to such data adjustments and to cause additional Assets reflecting such net difference to be transferred between the relevant master trusts as soon as practicable after December 31, 2013. Any such additional Assets shall be adjusted from the period between January 1, 2012 and the transfer date to reflect the investment experience under the Fountain Master Trust or Trident International Master Retirement Trust, as applicable, using the assumptions and methodology which the Pension Benefit Guaranty Corporation would have used under Section 4044 of ERISA. Notwithstanding the foregoing, no Assets shall be transferred between the relevant master trusts of the Parties unless the Parties determine that the net result of all such data adjustments is that the Fountain Master Trust or Trident International Master Retirement Trust should have received or retained at least $250,000 of additional Assets (as of January 1, 2012). Any such data adjustments must be communicated to the other relevant Parties in writing on or before December 31, 2013 in order to be considered in determining whether an additional Asset transfer is to be made pursuant to this paragraph (c). The impact of such adjustments on the Liabilities shall be determined for purposes of this paragraph (c) using the same actuarial assumptions and methods used in originally determining such Liabilities.

Section 6.5. Retirement Savings Plans .

(a) Fountain Savings Plans .

(i) As of the Fountain Distribution Date, Fountain shall Assume sponsorship of, and be solely responsible for (except as otherwise provided in this Section 6.5(a) below), the management and administration of all Assets and Liabilities under the Fountain Retirement Savings and Investment Plan (the “ Fountain RSIP ”), and any defined contribution retirement plans listed in Schedule 6.5(a) (collectively, “ Fountain Savings Plans ”). On or shortly after the Fountain Distribution Date, Trident shall cause the value of Assets of the Trident International Management Company Defined

 

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Contribution Plans Master Trust attributable to the Fountain RSIP to be transferred to a trust or trusts created for the Fountain Savings Plans in the United States in a “transfer of assets or liabilities” in accordance with Section 414(l) of the Code and Section 208 of ERISA and the respective rules and regulations promulgated thereunder. The Assets to be transferred will be in the form of cash or other property, as Trident and Fountain shall mutually agree prior to such transfer.

(ii) Effective as of the Fountain Distribution Date, Trident shall cause the sponsor(s) of the Fountain Savings Plans to take all such actions necessary to transfer the sponsorship of such plans to Fountain and Fountain shall take all such actions necessary to become the plan sponsor and establish a new trust or trusts for the Fountain Savings Plans in the United States designed to be tax exempt under Section 501(a) of the Code and hold the assets of the Fountain Savings Plans.

(iii) As of the Fountain Distribution Date, Fountain shall be solely responsible for the adjudication of claims filed by Fountain Employees or Former Fountain Employees under a Fountain Savings Plan including, but not limited to, claims filed before the Fountain Distribution Date under such plans as in effect on the date such claim was filed provided that (A) the claim relates to Assets or Liabilities assumed by Fountain under this Section 6.5(a) ; (B) the claim has not been finally adjudicated by Trident on the day immediately preceding the Fountain Distribution Date; and (C) under the applicable claims procedure, Fountain plan administrator or other authorized person or committee will have at least a sixty (60) day period after the Fountain Distribution Date to respond to such claim. Trident shall be solely responsible for the adjudication of any claim that satisfies subsections (A) and (B) but not (C); provided , however , that if Trident’s response to such claim does not finally adjudicate the claim, Trident shall immediately transfer administration of such claim to Fountain for final adjudication upon sending its response to the claimant.

(iv) Nothing contained in this Agreement shall alter in any way the right of Fountain, subsequent to the Fountain Distribution Date, to amend or terminate any of the Fountain Savings Plans in accordance with its terms and applicable Law.

(v) Notwithstanding any other provision set forth in this Agreement, (A) Fountain and the Fountain Saving Plans shall indemnify and hold harmless Trident and the Trident Retained Savings Plans (and each of their respective Affiliates, Subsidiaries, officers, employees, agents and fiduciaries) with respect to any and all Liabilities in respect of the participants in the Fountain Saving Plans relating to the provision of benefits pursuant to the Fountain Saving Plans and (B) Trident and the Trident Retained Savings Plans shall indemnify and hold harmless Fountain and the Fountain Savings Plans (and each of their respective Affiliates, Subsidiaries, officers, employees, agents and fiduciaries) with respect to any and all Liabilities in respect of the participants in the Trident Retained Savings Plans relating to the provision of benefits pursuant to the Trident Retained Savings Plans.

(b) Trident Retirement Retained Savings Plans . Following the Fountain Distribution Date, Trident shall retain sole responsibility for all benefit obligations incurred prior

 

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to the Fountain Distribution Date and Liabilities under the Trident International Retirement Savings and Investment Plan and the Trident International Retirement Savings and Investment Plan VI, except to the extent such obligations were transferred to the Fountain RSIP as of the Fountain Distribution Date, any defined contribution retirement plans listed in Schedule 6.5(b) , and any other savings plans in the United States or any other country covering Trident Employees or Former Trident Employees, other than those listed in Schedule 6.5(a) and specifically identified as Fountain Savings Plans (collectively, the “ Trident Retained Savings Plans ”). Eligible Trident participants shall continue accruing benefits under the Trident Retained Savings Plans in accordance with the terms and conditions of the Trident Retained Savings Plans. Nothing contained in this Agreement shall alter in any way the right of Trident, subsequent to the Fountain Distribution Date, to amend or terminate the Trident Retained Savings Plan in accordance with its terms and applicable Law.

Section 6.6. Retiree Medical Benefits . Following the Fountain Distribution Date: (a) Trident shall be solely responsible for the management and administration of and satisfaction of all retiree medical and retiree insurance obligations with respect to the plans identified in Schedule 6.6(a) (the “ Trident Retiree Medical Plans ”); and (b) except as otherwise provided below, Fountain shall be solely responsible for the management and administration of and satisfaction of all retiree medical and retiree insurance obligations with respect to the plans identified in Schedule 6.6(b) (the “ Fountain Retiree Medical Plans ”). The Parties agree that each Party and the retiree medical plans described above for which it is responsible (and each of their respective Affiliates, Subsidiaries, officers, employees, agents and fiduciaries) shall indemnify and hold harmless each other Party and the retiree medical plans for which they are responsible (and each of their respective Affiliates, Subsidiaries, officers, employees, agents and fiduciaries) with respect to any and all Liabilities with respect to retiree medical and retiree insurance obligations under the retiree medical plans for which they are responsible. Except as provided below, Fountain shall be solely responsible for the adjudication of any claims filed by a Former Fountain Employee before, on or after the Fountain Distribution Date under a Trident Retiree Medical Plan, or Fountain Retiree Medical Plan. Notwithstanding the previous sentence, Trident shall be solely responsible for the adjudication of any claim under a Trident Retiree Medical Plan, or Fountain Retiree Medical Plan that (A) was filed before the Fountain Distribution Date; (B) has not been finally adjudicated by Trident on the day immediately preceding the Fountain Distribution Date; and (C) under the applicable claims procedure, Trident’s plan administrator or other authorized person or committee will have a less than sixty (60) day period after the Fountain Distribution Date to respond to such claim. Notwithstanding the previous sentence, if Trident’s response to such claim does not finally adjudicate the claim, Trident shall immediately upon sending its response to the claimant transfer administration of such claim to Fountain for final adjudication.

Section 6.7. Health, Welfare and Fringe Benefit Plans .

(a) Health Plans .

(i) Trident shall cause Fountain to establish the Fountain Health Plans (including the Fountain Retiree Medical Plans) effective no later than the Fountain Distribution Date and, correspondingly, Fountain Employees and their dependents shall cease participating in the Trident Health Plans on the dates the new plans are established

 

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and effective. The newly established Fountain Health Plans shall be substantially similar to the Trident Health Plans. After the Fountain Distribution Date (except as otherwise provided below): (A) Fountain shall be solely responsible for the management and administration of the Fountain Health Plans and solely responsible for the payment of all employer-related costs in establishing and maintaining the Fountain Health Plans, and for the collection and remittance of participant contributions and premiums and shall establish and appoint a plan administrator and a HIPAA privacy official, and shall establish a claims and appeals process with its claims administrator(s), and (B) Trident shall retain sole responsibility for all Liabilities under the Trident Health Plans and sole responsibility for the payment of all employer-related costs in maintaining the Trident Health Plans, and for the collection and remittance of participant contributions and premiums.

(ii) Except as provided below, Fountain shall be solely responsible for the adjudication of any claims filed by a Fountain Employee or Former Fountain Employee (or any dependent thereof) before, on or after the Fountain Distribution Date under a Trident Health Plan or Fountain Health Plan. Notwithstanding the previous sentence, Trident shall be solely responsible for the adjudication of any claims filed by a Fountain Employee or Former Fountain Employee (or any dependent thereof) under a Trident Health Plan or Fountain Health Plan before the Fountain Distribution Date that (A) has not been finally adjudicated by Trident on the day immediately preceding the Fountain Distribution Date; and (B) under the applicable claims procedure, Trident’s plan administrator or other authorized person or committee will have a less than sixty (60) day period after the Fountain Distribution Date to respond to such claim. Notwithstanding the previous sentence, if Trident’s response to such claim does not finally adjudicate the claim, Trident shall immediately upon sending its response to the claimant transfer administration of such claim to Fountain for final adjudication.

(iii) Any determination made or settlements entered into by Trident prior to the Fountain Distribution Date with respect to claims incurred under the Trident Health Plans by Fountain Employees and Former Fountain Employees (or any dependent thereof) shall be final and binding on Fountain and Trident, as the case may be. On and after the Fountain Distribution Date, Fountain shall retain financial and administrative (“run-out”) Liability and all related obligations and responsibilities for all claims incurred by Fountain Employees and Former Fountain Employees (or any dependent thereof) while Fountain Employees and Former Fountain Employees are participants in the Trident Health Plans, including any claims that were administered by Trident as of, on, or after the Fountain Distribution Date and in a manner consistent with Section 6.7(a)(ii) , except to the extent that Trident retains the obligation and responsibility to adjudicate claims pursuant to clause (ii) above. Any such run-out Liability and all related claims, charges, and expenses shall be settled in a manner consistent with past practices and policies, including an interim accounting and a final accounting between Trident and Fountain. As of the Fountain Distribution Date, the reserve included in Trident’s financial statements for “Incurred But Not Reported” medical and dental expenses attributable to Fountain Employees and Former Fountain Employees shall be transferred to Fountain.

 

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(iv) As of the date that the Fountain Health Plans are established, any COBRA Liabilities attributable to any Fountain Employee or Former Fountain Employees (or a qualified beneficiary, as such term is defined under COBRA, of such individuals) that were originally obligations under the Trident Health Plans shall become a Fountain Liability. Effective as of the date Fountain Employees cease participating in the Trident Health Plans, Fountain shall be solely responsible for compliance with the health care continuation coverage requirements of COBRA and the Fountain Health Plans for Fountain Employees, Former Fountain Employees and their qualified beneficiaries regardless as to whether such obligation arose under the Trident Health Plans or the Fountain Health Plans.

(v) The Fountain Health Plan shall provide that each eligible Fountain Employee or Former Fountain Employee, as applicable, will receive credit in 2012 for any co-payments and deductibles paid under a Trident Health Plan prior to the Fountain Distribution Date in satisfying any applicable deductible or out-of-pocket requirements under the Fountain Health Plan. The Fountain Health Plan shall each also provide that it shall cover any pre-existing conditions that are covered under the Trident Health Plan. Additionally, the Fountain Health Plan shall also provide any other similar benefit in order to provide coverage that is substantially the same as the Trident Health Plan.

(b) Section 125 Plans. Effective as of the Fountain Distribution Date, Fountain shall have established or caused to be established a Fountain Section 125 Plan and on and after that date Fountain shall be solely responsible for the management and administration of the Fountain Section 125 Plan and such plan shall remain in effect on and after the Fountain Distribution Date.

(c) Severance Plans. Trident shall cause Fountain to establish the Fountain Severance Plans, each effective as of the Fountain Distribution Date and each in substantially the same form(s) as the Trident Severance Plans as provided by Trident in the online data room in Folders 8.2.2.3, 8.2.2.4 and 8.2.2.5 as of the date of this Agreement (provided that Trident will, prior to establishing such Fountain Severance Plans, amend Section 3.02(b)(x) of the Trident Severance Plan in Folder 8.2.2.5 to be identical to Section 3.02(b)(x) of the Trident Severance Plan in Folder 8.2.2.3 and such amended plan shall serve as the form for the corresponding Fountain Severance Plan) and, correspondingly, Fountain Employees and Former Fountain Employees who are currently eligible to receive or are receiving severance payments shall cease participating in the Trident Severance Plans on the Fountain Distribution Date. After the Fountain Distribution Date: (i) Fountain shall be solely responsible for (x) the payment of all Liabilities under the Trident Severance Plans (as amended pursuant to the proviso above) or Fountain Severance Plans relating to Fountain Employees and Former Fountain Employees, (y) the management and administration of the Fountain Severance Plans and (z) the payment of all employer-related costs in establishing and maintaining the Fountain Severance Plans, and (ii) Trident shall retain sole responsibility for (w) all Liabilities under the Trident Severance Plans or Fountain Severance Plans relating to Trident Employees and Former Trident Employees, (x) all Liabilities for severance or termination pay or benefits under individual agreements entered into with any Trident Employee or Former Trident Employee prior to the Fountain Distribution Date, (y) the management and administration of the Trident Severance Plans and (z) the payment of all employer-related costs in maintaining the Trident Severance Plans. In no event shall an

 

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employee or former employee receive a duplication of severance benefits. Except as provided below, Fountain shall be solely responsible for the adjudication of any claims filed by a Fountain Employee or Former Fountain Employee before, on or after the Fountain Distribution Date under a Trident Severance Plan. Notwithstanding the previous sentence, Trident shall be solely responsible for the adjudication of any claim filed by a Fountain Employee or Former Fountain Employee under a Trident Severance Plan before the Fountain Distribution Date that (A) has not been finally adjudicated by Trident on the day immediately preceding the Fountain Distribution Date; and (B) under the applicable claims procedure, Trident’s plan administrator or other authorized person or committee will have a less than sixty (60) day period after the Fountain Distribution Date to respond to such claim. Notwithstanding the previous sentence, if Trident’s response to such claim does not finally adjudicate the claim, Trident shall immediately upon sending its response to the claimant transfer administration of such claim to Fountain for final adjudication.

(d) Disability Plans . Trident shall cause Fountain to establish the Fountain Disability Plans effective no later than the Fountain Distribution Date and, correspondingly, except as provided below, Fountain Employees shall cease participating in the Trident Disability Plans on the dates the new plans are established and shall begin participating in the Fountain Disability Plans. The newly established Fountain Disability Plans shall be substantially similar to the Trident Disability Plans. After the Fountain Distribution Date: (i) Fountain shall be solely responsible for the management and administration of the Fountain Disability Plans and solely responsible for the payment of all employer-related costs in establishing and maintaining the Fountain Disability Plans, and (ii) Trident shall retain sole responsibility for all disability Liabilities that are subject to insurance under the Trident Disability Plans for disabilities incurred prior to the Fountain Distribution Date, including but not limited to those incurred by a Fountain Employee whose disability occurred prior to the Fountain Distribution Date, and shall be solely responsible for the payment of all employer-related costs in maintaining the Trident Disability Plans.

(e) Group Insurance Plans . Trident shall cause Fountain to establish the Fountain Group Insurance Plans, effective no later than the Fountain Distribution Date and, correspondingly, except as provided below, Fountain Employees shall cease participating in the Trident Group Insurance Plans on the dates the new plans are established and shall begin participating in the Fountain Group Insurance Plans. The newly established Fountain Group Insurance Plans shall be substantially similar to the Trident Group Insurance Plans. After the Fountain Distribution Date: (i) Fountain shall be solely responsible for the management and administration of the Fountain Group Insurance Plans and solely responsible for the payment of all employer-related costs in establishing and maintaining the Fountain Group Insurance Plans, and (ii) Trident shall retain sole responsibility for all Liabilities for claims incurred prior to the Fountain Distribution Date under the Trident Group Insurance Plans and shall be solely responsible for the payment of all employer-related costs in maintaining the Trident Group Insurance Plans.

(f) Fringe Benefits . Effective as of the Fountain Distribution Date, each of Trident and Fountain shall be responsible for establishing (as necessary) and maintaining its own fringe benefit plans, policies and arrangements, including any employee assistance program, educational assistance program, adoption assistance program and any other fringe benefit plans,

 

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programs and arrangements (which Fountain fringe benefit plans, policies and arrangements shall be substantially similar to the Trident fringe benefit plans, policies and arrangements). Fountain shall be solely responsible for the management and administration of and assume financial and administrative Liability and all related obligations and responsibilities with respect to claims for such fringe benefits incurred by Fountain and Former Fountain Employees (but not paid by Trident) prior to, on or after the Fountain Distribution Date; and Trident shall retain financial and administrative Liability and all related obligations and responsibilities with respect to claims for such fringe benefits incurred by Trident Employees and Former Trident Employees prior to, on or after the Fountain Distribution Date.

(g) Paid Time Off and Payroll . Effective as of the Fountain Distribution Date, Trident and Fountain shall establish or retain its own paid time off policy (which Fountain paid time off policy shall be substantially similar to the Trident paid time off policy) and (i) any earned but unused paid time off (including vacation pay) that a Fountain Employee is entitled to as of the Fountain Distribution Date will be credited to the Fountain Employee under the Fountain paid time off policy and provided in accordance with that policy; and (ii) any earned but unused paid time off (including vacation pay) that a Trident Employee is entitled to as of the Fountain Distribution Date will be continued by the Trident paid time off policy and provided in accordance with that policy. On and after the Fountain Distribution Date, neither Trident nor Fountain shall have any liability for paid time off on behalf of another Party’s employees.

(h) Bonus Plans . With respect to any annual or multi-year bonus or incentive plan not otherwise described in this Agreement, Patriot and Fountain (or their applicable Affiliate or Subsidiary) shall be responsible for all Liabilities and fully perform, pay and discharge all bonus obligations that become due after the Fountain Distribution Date relating to such plan(s) for Fountain Employees and Former Fountain Employees, as applicable. Fountain shall cause (x) the amounts payable under such plan(s) in respect of the fiscal year in which the Fountain Distribution Date occurs to be no less than the amounts accrued on the financial statements of Fountain as of the Fountain Distribution Date, proportionately increased for a full fiscal year and (y) any Fountain Employee whose employment is terminated by Fountain without “cause” after the Fountain Distribution Date and before the date on which such bonuses are payable to receive an amount equal to no less than such Fountain Employee’s target bonus under the applicable plan.

Section 6.8. Cooperation and Administrative Provisions .

(a) Notwithstanding anything herein to the contrary, the Parties shall reasonably cooperate and work together to unify, consolidate and share (to the extent permissible under applicable privacy/data protection laws) all relevant documents, board resolutions, government filings, data, payroll and employment Information on regular timetables, make certain that each applicable entity’s data and records are correct and updated on a timely basis, and cooperate as needed with respect to (i) any litigation with respect to an employee benefit plan, compensation plan or other plan or arrangement contemplated by this Agreement, (ii) an audit of an employee benefit plan, compensation plan or other plan or arrangement contemplated by this Agreement by the Internal Revenue Service, Department of Labor or any other Government Entity, (iii) seeking a determination letter, private letter ruling or advisory opinion from the Internal Revenue Service or Department or Labor on behalf of any employee benefit

 

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plan or arrangement contemplated by this Agreement, and (iv) any filings that are required to be made or supplemented to the Internal Revenue Service, Pension Benefit Guaranty Corporation, Department of Labor or any other Government Entity; provided , however , that requests for cooperation must be reasonable and not interfere with daily business operations.

(b) Notwithstanding anything herein to the contrary, the Parties agree that they shall share all necessary data elements to administer the Trident and Fountain equity plans described in Section 6.1 and Section 6.2 for a period of ten (10) years following the Fountain Distribution Date. This data shall be made available to their plan administrators in the formats that exist at the time of the distribution or in any other mutually agreeable format. Data shall be transmitted to these administrators via a mutually agreeable method of data transmission. Each Party also agrees to ensure that their plan administrator will make available all necessary data elements required now or in the future including but not limited to, exercise, lapse and tax data, in a timely fashion and to withhold appropriate taxes at the direction of the employer company of the individual for the time period covered under this provision.

(c) With respect to any employees on international assignment who are listed on Schedule 6.8(c) and who become Fountain Employees, (i) if such employees are repatriated to their home countries or initiate the process of repatriation prior to the Fountain Distribution Date, Trident shall pay the costs of repatriation; and (ii) if such employees remain on international assignment through the Fountain Distribution Date, (A) Trident shall pay the cost of assignment up to the Fountain Distribution Date, as applicable (except that the tax obligation for the year of separation shall be prorated between Trident and Fountain as set forth in Schedule 6.8(c) ), and (B) any costs related to repatriation initiated at some future date shall be the responsibility of Fountain.

(d) With respect to any Fountain Employee listed on Schedule 6.8(d) who is subject to a retention agreement, separation bonus agreement and/or eligible for a lump sum award and who transfers to Fountain prior to the Fountain Distribution Date and/or remains in employment with Fountain through any subsequent vesting date applicable to such agreement or award, Fountain shall recognize and assume the obligation of such agreement or award (the “ Retention Letters ”) and be responsible for the making of all payments and withholding of all taxes (including without limitation any employment taxes) associated with such Retention Letters. Trident shall promptly reimburse Fountain for any payments made by Fountain under the Retention Letters (including without limitation any lump sum salary adjustment payment). In addition, (x) Patriot will honor and pay for all costs and expenses related to the integration incentive bonuses set forth on Schedule 6.8(d)(i) , which shall be disregarded for purposes of calculating the Working Capital Adjustment and (y) notwithstanding anything in this Agreement to the contrary, if Fountain or any member of the Fountain Group retains any of the employees receiving any such integration incentive bonus beyond the first anniversary of the Fountain Distribution Date, Fountain shall be responsible for any severance obligations related to such employee.

(e) The Parties shall share, or cause to be shared, all Information on participants in the Fountain Plans and Trident Retained Plans that is necessary and appropriate for the efficient and accurate administration of the Fountain Plans and Trident Retained Plans, including (but not limited to) Information reasonably necessary to timely respond to claims for

 

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benefits made by participants and Information on expenses incurred by Fountain Plans prior to the Fountain Distribution Date so that Fountain may invoice and pay administrative expenses from their respective plan trusts as described in paragraph (g) below. The Parties and their respective authorized agents shall, subject to applicable laws of confidentiality and data protection and transfer, be given reasonable and timely access to, and may make copies of, all Information relating to the subjects of this Article VI to the extent necessary or appropriate for such administration. Each of the Parties agree, upon reasonable request, to provide financial, operational and other Information on each Fountain Plan and Trident Retained Plan, including (but not limited to) Information on a plan’s assets and liabilities, at a level of detail reasonably necessary and appropriate for the efficient and accurate administration of each of the Fountain Plans and Trident Retained Plans. Notwithstanding the foregoing, if any such Information described in this Section 6.8(e) cannot be reasonably obtained without additional cost, the Parties shall agree to reimburse each of the other Parties for all additional third-party costs and such other reasonable costs of obtaining the Information. To the extent that the Fountain Health Plans and the Trident Health Plans share protected health Information (“ PHI ”), the Fountain Health Plans and Trident Health Plans hereby agree to enter into appropriate business associate agreements to cover the sharing of PHI, as required by the Health Insurance Portability and Accountability Act of 1996 (“ HIPAA ”).

(f) Fountain agrees to hold Trident harmless with respect to any Liabilities related to actions taken to establish the Fountain Plans (and related third party administrative agreements) prior to, on or after the Fountain Distribution Date, other than any such Liabilities resulting from the gross negligence or willful or reckless misconduct of any Trident Employee or Former Trident Employee (excluding any Fountain Employee or Former Fountain Employee).

(g) To the extent not covered elsewhere in this Agreement, with respect to expenses and costs incurred on behalf of a Fountain Plan or Trident Retained Plan: (i) Fountain shall be responsible, through either direct payment or reimbursement to Trident for its allocable share of actual third party and/or vendor costs and expenses incurred by or on behalf of any member of the Fountain Group or the Fountain Plans, and (ii) Trident shall be responsible, through either direct payment or reimbursement to Fountain for its allocable share of actual third party and/or vendor costs and expenses incurred by any member of the Trident Group or the Trident Retained Plans. An allocable share of any such costs and expenses will be determined in a manner consistent with the manner in which the allocable share of such costs and expenses was determined prior to the Fountain Distribution Date. The Parties agree to pay for any third-party costs associated partially or entirely with their respective employee benefit plans associated with this Distribution following the Fountain Distribution Date.

(h) To the extent not covered elsewhere in this Agreement, with respect to all employee benefit plans, policies, programs, payroll practices, and arrangements maintained outside of the United States, the Parties agree that they shall reasonably cooperate and work together to facilitate any transfer of employee benefit plans, policies, programs, payroll practices, and arrangements as necessary by the Fountain Distribution Date, but in any event no later than three (3) months following the Fountain Distribution Date and in accordance with applicable Law.

 

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(i) With respect to multinational insurance pools that the Parties’ entities participate in, the respective multinational insurance pools will continue to maintain premium, claim and administrative charges for each participating Trident or Fountain entity within each such pool until the end of the policy year following the Fountain Distribution Date. At the end of such policy year, the multinational insurance pools shall be revised so that the Parties participate in separate pools (to the extent that a Party wishes to continue participating in an applicable pool). In addition, in the policy year accounting to be completed at the end of such policy year, (a) if a Trident or Fountain entity’s experience contributed a surplus to the overall pool experience, then that entity will be paid the appropriate dividend from the pool; (b) if a Trident or Fountain entity’s experience created a deficit for the overall pool, then that entity will not receive a dividend, and such deficit will be carried forward to the successor pools established for that entity for subsequent policy years (or if no successor pool is established and any Party incurs any expense with respect to such deficit, then the Party responsible for such deficit shall promptly reimburse the Party incurring such expense.

(j) To the extent not covered elsewhere in this Agreement, it is the intention of Trident and Fountain to provide herein that Fountain shall be responsible for the management and administration of all of its respective employee benefit plans on and after the Fountain Distribution including, but not limited to, the adjudication of claims pending on the Fountain Distribution Date that were filed by Fountain Employees or Former Fountain Employees under a Trident sponsored employee benefit plan. It is also the intention of Trident and Fountain that if Fountain’s plan administrator or any other authorized person or committee does not have at least a sixty (60) day period after the Fountain Distribution Date to respond to a claim, Trident will respond to the claim and, if such response is not a final adjudication of the claim, immediately transfer administration of such claim to Fountain. The Parties agree that they shall reasonably cooperate with each other and work together to facilitate the transfer of any documents, materials or information necessary or appropriate for the timely adjudication of any claim and to do so in a manner that is consistent with applicable Law.

(k) To the extent not otherwise provided in this Agreement, the Parties agree that if an amount in the nature of a recovery (including without limitation, a litigation recovery, subrogation recovery, premium or other fee or cost rebate, or demutualization proceeds) becomes payable as the result of the maintenance of an employee benefit plan covered by this Agreement and such recovery is attributable to events that occurred prior to the Distribution, then (i) to the extent that the recovery is payable with respect to the maintenance or management of the assets of a pre-Distribution master trust or other trust (a “ Pre-Distribution Trust ”) that was split into two or more trusts maintained by the Parties as a result of the Distribution, such recovery will be allocated to the appropriate post-Distribution trusts in the same proportion as was applicable to the Pre-Distribution Trust split; (ii) to the extent that the recovery is payable with respect to the maintenance or management of the assets of a Pre-Distribution Trust that was not split as a result of the Distribution, such recovery will be allocated solely to that trust and (iii) to the extent that a recovery is not covered by subclauses (i) or (ii) above, the Parties will reasonably cooperate with each other and, subject to any applicable fiduciary duties under ERISA or otherwise, determine a fair allocation of the recovery among the appropriate post-Distribution employee benefit plans, associated trusts and/or plan participants.

 

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(l) To the extent not covered elsewhere in this Agreement, the Parties (and their Subsidiaries and Affiliates) are hereby authorized to implement the provisions of this Article VI, including by making appropriate adjustments to employee benefits provided for in this Agreement; provided that such adjustments are intended for administrative or recordkeeping purposes to retain the value of benefits provided in accordance with the provisions of this Agreement.

Section 6.9. Approval of Plans; Terms of Participation by Employees in Plans .

(a) Approval of Plans . On or prior to the applicable Fountain Distribution Date, the Parties shall take all actions as may be necessary to approve the stock-based employee benefit plans of Fountain in order to satisfy the requirements of Rule 16b-3 under the Exchange Act and the applicable rules and regulations of the NYSE.

(b) Non-Duplication of Benefits . The Fountain Plans and Trident Retained Plans shall not provide benefits that duplicate benefits provided to a participant by a corresponding Fountain Plan, or Trident Retained Plans. The Parties shall agree on methods and procedures, including amending the respective plan documents, to prevent Fountain Employees, Former Fountain Employees, Trident Employees, Former Trident Employees and any dependent or beneficiary thereof from receiving duplicate benefits from the Fountain Plans and Trident Retained Plans; provided that nothing shall prevent Fountain from unilaterally amending the Fountain Plans to avoid such duplication, and nothing shall prevent Trident from unilaterally amending the Trident Retained Plans to avoid such duplication.

(c) Service Credits under Plans . Except as may be specified in Schedule 6.9(c) , service with any member of the Trident controlled group prior to the Fountain Distribution Date shall be credited under the Fountain Plans and Trident Retained Plans to the extent and for the express purposes set forth (including, as applicable and without limitation: eligibility, vesting, company match levels, subsidies, recognition of pre-existing credit and credit for amounts of co-pays, out-of-pocket maximums and deductibles, but not for benefit accrual purposes under pension plans) under the applicable Fountain Plan or Trident Retained Plan, except to the extent duplication of benefits would result; provided , however , that in the event an employee or former employee of one of the Parties (or its Subsidiaries or Affiliates) becomes employed by one of the other Parties (or its Subsidiaries or Affiliates) after December 31, 2012, such employee or former employee’s service with any member of the Trident controlled group prior to the Fountain Distribution Date need not be credited by the new employer except to the extent required by Law. Notwithstanding the foregoing, in the event of any conflict between this paragraph (c) and the terms of any Fountain Plan or Trident Retained Plan, the express terms of such plan shall govern.

(d) Plan Elections . Except as may be specifically provided otherwise under this Agreement or applicable Law, all participant elections (including, without limitation, deferral elections, payment elections, beneficiary designations, qualified domestic relations orders, qualified medical child support orders and loan agreements) with respect to the participation of a Fountain Employee or Former Fountain Employee in a Trident employee benefit arrangement shall be transferred to and be in full force and effect under the corresponding and applicable Fountain Plan in accordance with the terms of each such applicable plan and to the extent permissible under such plan, until such elections are replaced or revoked by the employee who made such election.

 

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(e) Amendment and Termination . No provision in this Agreement shall prohibit the Parties, subsequent to the Fountain Distribution Date, from amending or terminating the employee benefit plans, policies and programs described herein in accordance with the provisions of such plans, policies and programs and applicable Law.

(f) Non-Termination of Employment; No Third-Party Beneficiaries . Except as expressly provided for in this Agreement, no provision of this Agreement shall be construed to create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any Trident Employee, Fountain Employee or any former, present or future employee of the Trident Group, Fountain Group or any of their respective Affiliates under any Trident Plan or Fountain Plan, nor shall any such provision be construed as an amendment to any employee benefit plan or other employee compensatory or benefit arrangement. Furthermore, nothing in this Agreement is intended to confer upon any Trident Employee, Fountain Employee or any former, present or future employee of the Trident Group, Fountain Group or any of their respective Affiliates any right to continued employment, any recall or similar rights to an Employee on layoff or any type of approved leave, or to change the employment status of any Employee from “at will.”

Section 6.10. Tax Consequences . For Tax purposes, the Parties agree that the treatment of all of the equity compensation and deferred compensation arrangements set forth in this Article VI shall be treated in accordance with Section 6 of the Tax Sharing Agreement.

Section 6.11. International Regulatory Compliance . Trident shall have the authority to adjust the treatment otherwise described in this Article VI in order to ensure compliance with the applicable laws or regulations of countries outside the United States or to preserve the Tax benefits provided under local Tax law or regulation prior the Distribution.

Section 6.12. Alternate Procedure . The Parties hereby agree to follow the alternate procedure for United States employment tax withholding as provided in Section 5 of Rev. Proc. 2004-53, I.R.B. 2004-34. Accordingly, Trident and its Subsidiaries shall have no United States employment tax reporting responsibilities, and Fountain shall have full United States employment tax reporting responsibilities, for Fountain Employees and Former Fountain Employees following the close of business on the Fountain Distribution Date, to the extent provided under such Rev. Proc. 2004-53, and except to the extent that any member of the Trident Group provides payroll services to Fountain pursuant to a written agreement among the Parties.

Section 6.13. Employee Transfer; Liabilities .

(a) Transfer . Patriot shall, upon written notice to Trident, during the 30-day period following the date of this Agreement, have the unilateral right to have any Fountain Specified Employee removed from the list of Fountain Tier I Specified Employees set forth on Schedule 1.1(95)(A) . Patriot shall not have any right to remove any Fountain Tier II Specified Employees set forth on Schedule 1.1(95)(B) . Upon Patriot’s exercise of its removal rights as described in this Section 6.13(a) , Trident shall, (i) with respect to any such Fountain Specified

 

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Employee who is so removed, transfer the employment of such Fountain Specified Employee to a Subsidiary of Trident other than Fountain or one of its Subsidiaries and/or terminate the employment of such Fountain Specified Employee (in each case, subject to the allocation of liabilities set forth in Section 6.13(b) ) and (ii) with respect to any such Fountain Specified Employee who is not so removed, transfer the employment of such Fountain Specified Employee to Fountain or one of its Subsidiaries. In addition, Trident shall transfer the employment of the individuals on Schedule 6.13(a) from Fountain and its Subsidiaries to Trident and its Subsidiaries (other than Fountain and its Subsidiaries) prior to the Fountain Distribution Date.

(b) Liabilities with respect to Fountain Specified Employees . Patriot and Fountain shall have the Liabilities with respect to Fountain Specified Employees as set forth on Schedule 6.13(b)(1) . Trident shall have the Liabilities with respect to Fountain Specified Employees as set forth on Schedule 6.13(b)(2) .

ARTICLE VII

ASSUMED TRIDENT CONTINGENT LIABILITIES

Section 7.1. Assumed Trident Contingent Liabilities . Except as otherwise expressly set forth in the Tax Sharing Agreement (with respect to Taxes), the Parties shall each be responsible for its Applicable Percentage of any Indemnifiable Losses paid to third parties in respect of, including any out-of-pocket costs and expenses related to or arising out of any Assumed Trident Contingent Liability. Any out-of-pocket expenses owed in respect of any Assumed Trident Contingent Liabilities (including reimbursement for the out-of-pocket costs and expenses of defending, managing or providing assistance to the Managing Party pursuant to Section 7.3(a) or Section 7.3(b) with respect to any Third Party Claim that is an Assumed Trident Contingent Liability, including, for the avoidance of doubt, any amounts with respect to a bond, prepayment or similar security or obligation required to be posted (or determined to be advisable) by the Managing Party in respect of any claim) shall be remitted promptly after the Party entitled to such amount provides an invoice (including reasonable supporting Information with respect thereto) to the Party owing such amount, and, to the extent not otherwise reimbursed by the applicable Party, such costs and expenses shall be included in the calculation of the amount of the applicable Assumed Trident Contingent Liability in determining the reimbursement obligations of the other Party with respect thereto; provided , however , that in the event that an amount in excess of $50 million in the aggregate is owed by the Parties to any third party or parties with respect to an Assumed Trident Contingent Liability, in lieu of remitting amounts directly to the Party providing the invoice, the invoiced Party may remit the owed amount directly to the appropriate third party or parties or, if applicable, to a trust established by the invoicing Party for the benefit of the Parties. In furtherance of the foregoing, the Managing Party (and any Party providing access as contemplated by Section 7.3(a) ) shall be entitled to reimbursement by the other Party (according to their Applicable Percentages) of any out-of-pocket costs and expenses related to or arising out of defending or managing any such Assumed Trident Contingent Liability, from time to time, when invoiced, including, if applicable, in advance of a final determination or resolution of any Action related to an Assumed Trident Contingent Liability. For U.S. federal income Tax purposes, the Parties shall treat the payment of Assumed Trident Contingent Liabilities (and costs and expenses relating to Assumed Trident Contingent Liabilities, as the case may be) as set forth in the Tax Sharing Agreement. It shall

 

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not be a defense to any obligation of either Party to pay any amounts in respect of any Assumed Trident Contingent Liability that (i) such Party was not consulted in the defense or management thereof, (ii) that such Party’s views or opinions as to the conduct of such defense were not accepted or adopted, (iii) that such Party does not approve of the quality or manner of the defense thereof or (iv) that such Assumed Trident Contingent Liability was incurred by reason of a settlement rather than by a judgment or other determination of Liability, even if such settlement was effected without the consent or over the objection of such Party.

Section 7.2. Management of Assumed Trident Contingent Liabilities .

(a) For purposes of this Article VII , “ Managing Party ” shall initially mean Trident; provided , however , that under certain circumstances Fountain may become the Managing Party as may be otherwise agreed to in writing by the Parties.

(b) The Managing Party shall, on behalf of the other Party, have sole and exclusive authority to commence, prosecute, manage, control, conduct or defend (or assume the defense of) or otherwise determine all matters whatsoever (including, as applicable, litigation strategy and choice of legal counsel or other professionals) with respect to any Action or Third Party Claim with respect to an Assumed Trident Contingent Liability. So long as the Managing Party has assumed and is actively and diligently conducting the defense of any Assumed Trident Contingent Liability in accordance with Section 7.2(b) above, the other Party will not consent to the entry of any judgment or enter into any settlement with respect to the Assumed Trident Contingent Liability without the prior written consent of the Managing Party (not to be delayed or withheld unreasonably).

(c) The Managing Party shall on a quarterly basis, or if a material development occurs, as soon as reasonably practicable thereafter, inform the other Party in reasonable detail of the status of and developments relating to any matter involving an Assumed Trident Contingent Liability and provide copies of any material document, notices or other materials related to such matters; provided , that any failure or delay in providing such information shall not be a basis for liability of the Managing Party except and solely to the extent the receiving Party shall have been actually and materially prejudiced by such failure or delay. The other Party shall use reasonable efforts to cooperate fully with the Managing Party in its management of any of such Assumed Trident Contingent Liability and shall take such actions in connection therewith that the Managing Party reasonably requests (including providing reasonable access to such Party’s Records and employees as set forth in Section 7.3 ); provided that such Party shall only be required to take such actions to the extent that the Parties agree any out-of pocket costs and expenses incurred with respect to such actions shall constitute Assumed Trident Contingent Liabilities to be shared and reimbursed according to the Parties’ Applicable Percentages as contemplated by Section 7.1(b) .

Section 7.3. Access to Information; Certain Services; Expenses .

(a) Access to Information and Employees by the Managing Party . Unless otherwise prohibited by Law or more specifically provided in the Tax Sharing Agreement, in connection with the management and disposition of any Assumed Trident Contingent Liability, the other Party shall provide to the Managing Party reasonable access to its authorized

 

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accountants, counsel and other designated representatives, to the employees, properties, and Information of such Party and the members of such Party’s Group to the extent such access relates to the relevant Assumed Trident Contingent Liability; provided that (x) such access shall not unreasonably interfere with any of such Party’s employees’ normal job functions, (y) such Party shall not be required to provide such access to the extent that the provision of such would require such Party (or its applicable Group member) to waive any attorney-client or other legal privilege and (z) any out-of-pocked costs and expenses incurred in connection with the provision of such access shall constitute Assumed Trident Contingent Liabilities to be shared and reimbursed according to the Parties’ Applicable Percentages as contemplated by Section 7.1(b) . Each Party shall, to the extent so requested by the other Party, enter into a joint-defense agreement with the other Party in respect of the Assumed Trident Contingent Liabilities, on terms as are to be reasonably agreed between the Parties. Nothing in this Section 7.3(a) shall require either Party to violate any agreement with any third party regarding the confidentiality of information relating to that third party.

(b) Costs and Expenses Relating to Access by the Managing Party . Except as otherwise provided in any Ancillary Agreement, the provision of access pursuant to this Section 7.3 shall be at no additional cost or expense of the Managing Party or any other Party (other than for actual out-of-pocket costs and expenses, which shall be allocated as set forth in Section 7.1 ).

Section 7.4. Notice Relating to Assumed Trident Contingent Liabilities; Disputes . In the event that the other Party or any member of such Party’s Group or any of their respective Affiliates, becomes aware of any matter reasonably relevant to the Managing Party’s ongoing or future management, prosecution, defense and/or administration of any Assumed Trident Contingent Liability, such Party shall promptly (but in any event within thirty (30) days of becoming aware, unless, by its nature the subject matter of such notice would reasonably require earlier notice) notify the Managing Party of any such matter (setting forth in reasonable detail the subject matter thereof); provided, however , that the failure to provide such notice shall not release the other Party from any of its obligations under this Article VII except and solely to the extent that the other Party shall have been actually and materially prejudiced as a result of such failure.

Section 7.5. Cooperation with Governmental Entity . If, in connection with any Assumed Trident Contingent Liability, a Party is required by Law to respond to or is reasonably requested to cooperate with a Governmental Entity, such Party shall be entitled to cooperate and respond to such Governmental Entity after, to the extent practicable under the specific circumstances, consultation with the Managing Party; provided , that to the extent such consultation is not practicable, the applicable Party shall promptly inform the Managing Party regarding such response or cooperation and the subject matter thereof. In the event that any Party is requested or required by any Governmental Entity in connection with any Assumed Trident Contingent Liability pursuant to any written or oral request for Information or documents in any legal or administrative proceeding, review, interrogatory, subpoena, investigation, demand, or similar process, such Party shall notify the Managing Party promptly of such request or requirement and such Party’s response thereto, and shall use reasonable best efforts to consult with the Managing Party with respect to the nature of such Party’s response to the extent practicable and not in violation of any attorney-client privilege or applicable legal process.

 

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Section 7.6. Default . In the event that one or more of the Parties defaults in any full or partial payment in respect of any Assumed Trident Contingent Liability (including, for the avoidance of doubt, such Party’s Applicable Percentage of the costs and expenses of the Managing Party or any other assisting Party), then the non-defaulting Party (including Trident) shall be required to pay the amount in default; provided , however , that any such payment by a non-defaulting Party shall in no way release the defaulting Party from its obligations to pay such Assumed Trident Contingent Liability (or any future Assumed Trident Contingent Liability when obligated) and any non-defaulting Party may exercise any available legal remedies against such defaulting Party; provided , further , that interest shall accrue on any such defaulted amounts at the Default Interest Rate.

ARTICLE VIII

INDEMNIFICATION

Section 8.1. Release of Pre-Distribution Claims .

(a) Except (i) as provided in Section 8.1(b) , (ii) as may be otherwise expressly provided in this Agreement, any Ancillary Agreement or the Merger Agreement and (iii) for any matter for which any Party is entitled to indemnification or contribution pursuant to this Article VIII, effective as of the Effective Time, each Party, for itself and each member of its respective Group (including, in the case of Fountain, Patriot and its Subsidiaries from and after the Closing), in each case, together with their respective administrators, successors and assigns, do hereby remise, release and forever discharge the other Party and the other members of such other Party’s’ Group and all Persons who at any time prior to the Effective Time were directors, officers, agents or employees of any member of such other Parties (in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at Law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Effective Time, including in connection with the Fountain Plan of Separation and all other activities to implement the Fountain Distribution and any of the other transactions contemplated hereunder and under the Ancillary Agreements.

(b) Nothing contained in Section 8.1(a) shall impair or otherwise affect any right of either Party, and as applicable, a member of the Party’s Group to enforce this Agreement, the Merger Agreement, any Ancillary Agreement in each case in accordance with its terms. In addition, nothing contained in Section 8.1(a) shall release any Person from:

(i) (A) with respect to Trident or any member of its Group, any Trident Retained Liability and (B) with respect to Fountain or any member of its Group, any Fountain Liability;

(ii) any Liability for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by a member of one Group from or on behalf of a member of the other Group prior to the Effective Time;

 

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(iii) any Liability for unpaid amounts for products or services or refunds owing on products or services due on a value-received basis for work done by a member of one Group at the request or on behalf of a member of the other Group;

(iv) any Liability provided in or resulting from any other Contract or understanding that is entered into after the Effective Time between any Party (and/or a member of such Party’s Group), on the one hand, and the other Party (and/or a member of such Party’s ‘Group), on the other hand;

(v) any Liability with respect to an Assumed Trident Contingent Liability pursuant to Article VII;

(vi) any Liability with respect to any Continuing Arrangements set forth on Schedule 1.1(48) ;

(vii) any Liability with respect to the insurance policies written by White Mountain Insurance Company;

(viii) any Liability that the Parties may have with respect to indemnification or contribution pursuant to this Agreement, the Merger Agreement or otherwise for claims brought against the Parties by third Persons, which Liability shall be governed by the provisions of this Article VIII and, if applicable, the appropriate provisions of the Ancillary Agreements or Continuing Arrangements; and

(ix) any Liability for fraud or willful misconduct.

In addition, nothing contained in Section 8.1(a) shall release Trident from (i) indemnifying any director, officer or employee of Fountain who was a director, officer or employee of Trident or any of its Affiliates on or prior to the Effective Time or the Fountain Distribution Date, as the case may be, to the extent such director, officer or employee is or becomes a named defendant in any Action with respect to which he or she was entitled to such indemnification pursuant to then existing obligations or (ii) any Liability owed to Patriot pursuant to the Merger Agreement.

(c) Effective as of the Effective Time, each Party shall not, and shall not permit any member of its Group (including, in the case of Fountain, Patriot and its Subsidiaries, if the Closing occurs under the Merger Agreement) to make, any claim, demand or offset, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against any other Party or any member of any other Party’s Group, or any other Person released pursuant to Section 8.1(a) , with respect to any Liabilities released pursuant to Section 8.1(a) . The release in this Section 8.1 includes a release of any rights and benefits with respect to such Liabilities that Fountain, Trident and each member of the Fountain Group and Trident Group, and their respective successor and assigns, now has or in the future may have conferred upon them by virtue of any statute or common law principle which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party’s settlement with the obligor. In this connection, each of Trident and Fountain hereby acknowledges that it is aware that factual matters now unknown to it may have given or may hereafter give rise to Liabilities that are presently unknown, unanticipated and

 

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unsuspected, and it further agrees that this release has been negotiated and agreed upon in light of that awareness and it nevertheless hereby intends to release the Persons described in Section 8.1(a) from the Liabilities described in the first sentence of Section 8.1(a). At any time, at the reasonable request of any other Party, each Party shall cause each member of its respective Group and, to the extent practicable, each other Person on whose behalf it released Liabilities pursuant to this Section 8.1 to execute and deliver releases reflecting the provisions hereof.

Section 8.2. Indemnification by Trident . Except as otherwise specifically provided in any provision of this Agreement, any Ancillary Agreement or the Merger Agreement, following the Fountain Distribution Date, Trident shall, and shall cause the other members of the Trident Group to, indemnify, defend and hold harmless the Fountain Indemnitees from and against any and all Indemnifiable Losses of the Fountain Indemnitees, arising out of, by reason of or otherwise in connection with (a) the Trident Retained Liabilities or alleged Trident Retained Liabilities, including, after the Fountain Distribution Date, the failure of Trident or any member of the Trident Group to pay, perform, fulfill, discharge and, to the extent applicable, comply with, in due course and in full, any such Liabilities, (b) any breach by Trident of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder and (c) any breach by Trident or any of its Affiliates (including Fountain other than with respect to any post-Closing obligation of Fountain) of any covenant, or inaccuracy of any representation and warranty made by Trident, in the Merger Agreement that survives the Closing under Section 8.01 of the Merger Agreement; provided that any claim with respect to indemnification pursuant to this clause (c) is made in reasonable written detail consistent with Section 8.5(a) or Section 8.5(b) prior to the termination of the relevant covenant, representation or warranty as contemplated by such Section 8.01; provided further that this Section 8.2 shall not apply with respect to any Assumed Trident Contingent Liability, in which case Article VII shall apply.

Section 8.3. Indemnification by Fountain . Except as otherwise specifically provided in any provision of this Agreement, any Ancillary Agreement or the Merger Agreement, following the Fountain Distribution Date, Fountain shall, and shall cause the other members of the Fountain Group, to indemnify, defend and hold harmless the Trident Indemnitees (which, for the avoidance of doubt, shall include the Athens North American R/SB Indemnitees) from and against any and all Indemnifiable Losses of the Trident Indemnitees, arising out of, by reason of or otherwise in connection with (a) the Fountain Liabilities or alleged Fountain Liabilities, including, after the Fountain Distribution Date, the failure of Fountain or any member of the Fountain Group to pay, perform, fulfill, discharge and, to the extent applicable, comply with, in due course and in full, any such Liabilities, (b) any breach by Fountain subsequent to the Fountain Distribution Date of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder or (c) any breach by Patriot or any of its Affiliates of any covenant, or inaccuracy of any representation and warranty made by Patriot, in the Merger Agreement that survives the Closing under Section 8.01 of the Merger Agreement; provided that any claim with respect to indemnification pursuant to this clause (c) is made in reasonable written detail consistent with Section 8.5(a) or Section 8.5(b) prior to the termination of the relevant covenant, representation or warranty as contemplated by such Section 8.01; provided further that this Section 8.3 shall not apply with respect to any Assumed Trident Contingent Liability, in which case Article VII shall apply.

 

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Section 8.4. Indemnification with Respect to Athens NA . Following the Fountain Distribution Date, Athens NA shall, and shall cause the other members of its Group to, indemnify, defend and hold harmless the Trident Indemnitees and the Fountain Indemnitees ( provided that, for purposes of this Section 8.4 , the Trident Group shall be deemed to exclude the Athens North American R/SB Group) from and against any and all Indemnifiable Losses of the Trident Indemnitees or the Fountain Indemnitees, arising out of, by reason of or otherwise in connection with any breach by Athens of the Specified Sections of this Agreement. Trident shall, and shall cause its other Group members to, indemnify, defend and hold harmless the Athens North American R/SB Indemnitees from and against any and all Indemnifiable Losses of the Athens North American R/SB Indemnitees, arising out of, by reason of or otherwise in connection with any breach by Trident (or a Trident Group member) of the Specified Sections of this Agreement. Fountain shall, and shall cause its other Group members to, indemnify, defend and hold harmless the Athens North American R/SB Indemnitees from and against any and all Indemnifiable Losses of the Athens North American R/SB Indemnitees, arising out of, by reason of or otherwise in connection with any breach by Fountain (or a Fountain Group member) of the Specified Sections of this Agreement. For the avoidance of doubt, as between Fountain and Trident, the provisions of Section 8.2 and Section 8.3 shall control.

Section 8.5. Procedures for Indemnification .

(a) Direct Claims . An Indemnitee shall give the Indemnifying Party notice of any matter that an Indemnitee has determined has given or would reasonably be expected to give rise to a right of indemnification under this Agreement (other than a Third Party Claim which shall be governed by Section 8.5(b) ), within thirty (30) days of such determination, stating the amount of the Indemnifiable Loss claimed, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed by such Indemnitee or arises; provided , however , that the failure to provide such written notice shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been materially prejudiced as a result of such failure.

(b) Third Party Claims . If a claim or demand is made against a Trident Indemnitee, a Athens North American R/SB Indemnitee or a Fountain Indemnitee (each, an “ Indemnitee ”) by any Person who is not a party to this Agreement or a Subsidiary of a Party (a “ Third Party Claim ”) as to which such Indemnitee is or reasonably expects to be entitled to indemnification pursuant to this Agreement, such Indemnitee shall notify the Party (and, if applicable, the Managing Party) which is or may be required pursuant to this Article VIII, or pursuant to any Ancillary Agreement to make such indemnification (the “ Indemnifying Party ”) in writing, and in reasonable detail, of the Third Party Claim promptly (and in any event within thirty (30) days) after receipt by such Indemnitee of written notice of the Third Party Claim. If any Party shall receive notice or otherwise learn of the assertion of a Third Party Claim which may reasonably be determined to be an Assumed Trident Contingent Liability, such Party, as appropriate, shall give the Managing Party (as determined pursuant to Article VII) written notice thereof within thirty (30) days after such Person becomes aware of such Third Party Claim;

 

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provided , however , that the failure to provide notice of any such Third Party Claim pursuant to this or the preceding sentence shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been materially prejudiced as a result of such failure. Thereafter, the Indemnitee shall deliver to the Indemnifying Party (and, if applicable, to the Managing Party), promptly (and in any event within ten (10) Business Days) after the Indemnitee’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third Party Claim; provided , however , that the failure to forward such notices and documents shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been materially prejudiced as a result of such failure.

(c) Other than in the case of (i) an Assumed Trident Contingent Liability (the defense of which shall be assumed and controlled by the Managing Party as provided for in Article VII), (ii) indemnification pursuant to the Tax Sharing Agreement or (iii) indemnification by a beneficiary Party of a guarantor Party pursuant to Section 2.10(c) (the defense of which shall be assumed and controlled by the beneficiary Party), an Indemnifying Party shall assume and control the defense of any Third Party Claim, at such Indemnifying Party’s own cost and expense and by such Indemnifying Party’s own counsel, that is reasonably acceptable to the applicable Indemnitees, within thirty (30) days of the receipt of such notice from such Indemnitees. In connection with the Indemnifying Party’s defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, at its own expense and, in any event, shall reasonably cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party’s expense, all witnesses, pertinent Information, materials and information in such Indemnitee’s possession or under such Indemnitee’s control relating thereto as are reasonably required by the Indemnifying Party; provided , however , that in the event of a conflict of interest between the Indemnifying Party and the applicable Indemnitee(s), such Indemnitee(s) shall be entitled to retain, at the Indemnifying Party’s expense, separate counsel as required by the applicable rules of professional conduct with respect to such matter; provided , further , that if (i) the Third Party Claim is not an Assumed Trident Contingent Liability and (ii) the Indemnifying Party has assumed the defense of the Third Party Claim but has specified, and continues to assert, any reservations or exceptions to such defense, then, in any such case, the reasonable fees and expenses of one separate counsel for all Indemnitees shall be borne by the Indemnifying Party.

(d) Other than in the case of an Assumed Trident Contingent Liability, if an Indemnifying Party fails for any reason to assume responsibility for defending a Third Party Claim within the time specified, such Indemnitee may defend such Third Party Claim at the cost and expense of the Indemnifying Party. If the Indemnitee is conducting the defense against any such Third Party Claim, the Indemnifying Party shall reasonably cooperate with the Indemnitee in such defense and make available to the Indemnitee all witnesses, pertinent Information, and material in such Indemnifying Party’s possession or under such Indemnifying Party’s control relating thereto as are reasonably required by the Indemnitee.

(e) Unless the Indemnifying Party has failed to assume the defense of the Third Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim that is not an Assumed Trident Contingent Liability (with

 

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any Assumed Trident Contingent Liability handled in accordance with Article VII) without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld, conditioned or delayed.

(f) In the case of a Third Party Claim (except for any Third Party Claim that is an Assumed Trident Contingent Liability, which, with respect to the subject matter of this Section 8.5(f), shall be governed by Section 7.4), no Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third Party Claim without the prior written consent of the Indemnitee if the effect thereof is to permit any injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly or indirectly, against any Indemnitee; it being understood that in the case of a Third Party Claim that is an Assumed Trident Contingent Liability, such matters are addressed in Article VII.

(g) Absent fraud or willful misconduct by an Indemnifying Party, the indemnification provisions of this Article VIII shall be the sole and exclusive remedy of an Indemnitee for any monetary or compensatory damages or losses resulting from any breach of this Agreement or any Ancillary Agreement (except as and to the extent otherwise expressly provided in such Ancillary Agreement) and each Indemnitee expressly waives and relinquishes any and all rights, claims or remedies such Person may have with respect to the foregoing other than under this Article VIII against any Indemnifying Party.

Section 8.6. Cooperation in Defense and Settlement .

(a) The Parties recognize that there are certain common questions of law and fact that will affect their ability to comply with their contractual and legal obligations to third parties and their legal obligations to Taxing Authorities (as defined in the Tax Sharing Agreement), and to respond to any Third Party Claim, and that there exists a mutuality of interest between them in a common response, even though the parties recognize that they also may have different interests in respect of specific inquiries or claims.

(b) With respect to any Third Party Claim that is not an Assumed Trident Contingent Liability and that implicates two or more Parties in a material fashion due to the allocation of Liabilities, responsibilities for management of defense and related indemnities pursuant to this Agreement or any of the Ancillary Agreements, the applicable Parties agree to use reasonable best efforts to cooperate fully and maintain a joint defense (in a manner that will preserve for both Parties the attorney-client privilege, joint defense or other privilege with respect thereto). The Party that is not responsible for managing the defense of such Third Party Claims shall, upon reasonable request, be consulted with respect to significant matters relating thereto and may, if necessary or helpful, retain counsel to assist in the defense of such claims.

(c) Each of Trident, Athens NA and Fountain agrees that at all times from and after the Effective Time, if an Action is commenced by a third party (or any member of such Party’s respective Group) with respect to which one or more named Parties (or any member of such Party’s respective Group) is a nominal defendant and/or such Action is otherwise not a Liability allocated to such named Party under this Agreement or any Ancillary Agreement, then the other Party or Parties shall use reasonable best efforts to cause such nominal defendant to be removed from such Action, as soon as reasonably practicable.

 

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Section 8.7. Indemnification Payments . Indemnification required by this Article VIII shall be made by periodic payments of the amount thereof in a timely fashion during the course of the investigation or defense, as and when bills are received or an Indemnifiable Loss or Liability incurred.

Section 8.8. Contribution .

(a) If the indemnification provided for in Sections 8.2 , 8.3 and 8.4 , including in respect of any Assumed Trident Contingent Liability, is unavailable to, or insufficient to hold harmless an Indemnitee under this Agreement or any Ancillary Agreement in respect of any Liabilities referred to herein or therein, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnitee as a result of such Liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnitee in connection with the actions or omissions that resulted in Liabilities as well as any other relevant equitable considerations. With respect to the foregoing, the relative fault of such Indemnifying Party and Indemnitee shall be determined by reference to, among other things, whether the misstatement or alleged misstatement of a material fact or omission or alleged omission to state a material fact relates to Information supplied by such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to Information and opportunity to correct or prevent such statement or omission.

(b) The Parties agree that it would not be just and equitable if contribution pursuant to this Section 8.8 were determined by a pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8.8(a) . The amount paid or payable by an Indemnitee as a result of the Liabilities referred to in Section 8.8(a) shall be deemed to include, subject to the limitations set forth above, any legal or other fees or expenses reasonably incurred by such Indemnitee in connection with investigating any claim or defending any Action. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(c) Notwithstanding the foregoing or anything else to the contrary contained in this Agreement, for purposes of Section 8.3 , Trident shall be deemed to have supplied all Information relating to the Fountain Group included in any filing made with the Commission pursuant to the Securities Act or the Exchange Act prior to the Fountain Distribution Date, regardless of which entity actually makes such filing and under no circumstances shall Fountain have any Liability or be obligated to indemnify the Trident Indemnitees, in each case, with respect thereto pursuant to Section 8.3 ; provided that this Section 8.8(c) shall not apply in respect of any Assumed Trident Contingent Liability or any Liability with respect thereto, in which case Article VII shall apply.

Section 8.9. Indemnification Obligations Net of Insurance Proceeds and Other Amounts .

(a) Any Indemnifiable Loss subject to indemnification or contribution pursuant to this Article VIII including, for the avoidance of doubt, in respect of any Assumed Trident Contingent Liability, will be calculated (i) net of Insurance Proceeds that actually reduce

 

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the amount of the Indemnifiable Loss, (ii) net of any proceeds received by the Indemnitee from any third party for indemnification for such Liability that actually reduce the amount of the Indemnifiable Loss (“ Third Party Proceeds ”) and (iii) net of any Tax benefits realized in accordance with, and subject to, the principles set forth or referred to in the Tax Sharing Agreement, and increased in accordance with, and subject to, the principles set forth in the Tax Sharing Agreement. Accordingly, the amount which any Indemnifying Party is required to pay pursuant to this Article VIII to any Indemnitee pursuant to this Article VIII will be reduced by any Insurance Proceeds or Third Party Proceeds theretofore actually recovered by or on behalf of the Indemnitee in respect of the related Indemnifiable Loss. If an Indemnitee receives a payment required by this Agreement from an Indemnifying Party in respect of any Indemnifiable Loss (an “ Indemnity Payment ”) and subsequently receives Insurance Proceeds or Third Party Proceeds, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds or Third Party Proceeds had been received, realized or recovered before the Indemnity Payment was made.

(b) The Parties acknowledge that the indemnification and contributions hereof do not relieve any insurer who would otherwise be obligated to pay any claim to pay such claim. In furtherance of the foregoing, the Indemnitee shall use commercially reasonable efforts to seek to collect or recover any third-party Insurance Proceeds and any Third Party Proceeds (other than Insurance Proceeds under an arrangement where future premiums are adjusted to reflect prior claims in excess of prior premiums) to which the Indemnified Party is entitled in connection with any Indemnifiable Loss for which the Indemnified Party seeks contribution or indemnification pursuant to this Article VIII; provided that the Indemnitee’s inability to collect or recover any such Insurance Proceeds or Third Party Proceeds (despite having used commercially reasonable efforts) shall not limit the Indemnifying Party’s obligations hereunder.

Section 8.10. Additional Matters; Survival of Indemnities .

(a) The indemnity and contribution agreements contained in this Article VIII shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnitee; (ii) the knowledge by the Indemnitee of Indemnifiable Losses for which it might be entitled to indemnification or contribution hereunder; and (iii) any termination of this Agreement.

(b) The rights and obligations of each Party and their respective Indemnitees under this Article VIII shall survive the sale or other Transfer by any Party or its respective Subsidiaries of any Assets or businesses or the assignment by it of any Liabilities.

(c) Each Party shall, and shall cause the members of its respective Group to, preserve and keep their Records relating to financial reporting, internal audit, employee benefits, past acquisition or disposition transactions, claims, demands, actions, and email files and backup tapes regarding any of the foregoing as such pertains to any period prior to the Separation Date in their possession, whether in electronic form or otherwise, until the date on which such Records are no longer required to be retained pursuant to such Party’s applicable record retention policy and schedules as in effect immediately prior to the Separation Date (as set forth in Schedule 8.10(c) hereto); provided , however , to the extent the Tax Sharing Agreement provides for a longer period of retention of Tax records, such longer period as provided in the Tax Sharing Agreement shall control.

 

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ARTICLE IX

CONFIDENTIALITY; ACCESS TO INFORMATION

Section 9.1. Provision of Corporate Records . Other than in circumstances in which indemnification is sought pursuant to Article VIII (in which event the provisions of such Article will govern) or for matters related to provision of Tax records (in which event the provisions of the Tax Sharing Agreement will govern) and without limiting the applicable provisions of Article VII, and subject to any applicable provisions of this Agreement, any Ancillary Agreement or the Merger Agreement:

(a) After the Effective Time, upon the prior written request by Fountain for specific and identified Information which relates to (x) Fountain or the conduct of the Fountain Business, as the case may be, up to the Effective Time, or (y) any Ancillary Agreement, Trident or Athens NA, as applicable, shall (or shall cause its Group member to) provide, as soon as reasonably practicable following the receipt of such request, appropriate copies of such Information (or the originals thereof if Fountain (or its Group member) has a reasonable need for such originals) in the possession or control of Trident or any of its Subsidiaries or Athens NA or any of its Subsidiaries, as applicable, but only to the extent such items so relate; provided , however , that Trident and Athens NA (or its applicable respective Group member) shall not be required to provide such copies to the extent that the provision of such would require Trident or Athens NA (or their applicable respective Group member), as applicable, to breach any confidentiality covenant or waive any attorney-client or other legal privilege.

(b) After the Effective Time, upon the prior written request by Trident for specific and identified Information which relates to (x) Trident or the conduct of the Trident Retained Business, up to the Effective Time, as the case may be, or (y) any Ancillary Agreement, Fountain or Athens NA, as applicable, shall provide, as soon as reasonably practicable following the receipt of such request, appropriate copies of such Information (or the originals thereof if Trident (or its Group member) has a reasonable need for such originals) in the possession or control of Fountain or any of its Subsidiaries or Athens NA or any of its Subsidiaries, as applicable, but only to the extent such items so relate; provided , however , that Fountain and Athens NA (or their applicable respective Group member) shall not be required to provide such copies to the extent that the provision of such would require Fountain or Athens NA (or its applicable respective Group member), as applicable, to breach any confidentiality covenant or waive any attorney-client or other legal privilege.

(c) After the Effective Time, upon the prior written request by Athens NA for specific and identified Information which relates to (x) Athens NA or the conduct of the Athens North American R/SB Business, as the case may be, up to the Effective Time, or (y) any Ancillary Agreement, Trident or Fountain, as applicable, shall (or shall cause its Group member to) provide, as soon as reasonably practicable following the receipt of such request, appropriate copies of such Information (or the originals thereof if Athens NA (or its Group member) has a reasonable need for such originals) in the possession or control of Trident or any of its

 

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Subsidiaries or Fountain or any of its Subsidiaries, as applicable, but only to the extent such items so relate; provided , however , that Trident and Fountain (or their applicable respective Group member) shall not be required to provide such copies to the extent that the provision of such would require Trident or Fountain (or its applicable respective Group member), as applicable, to breach any confidentiality covenant or waive any attorney-client or other legal privilege.”

Section 9.2. Access to Information . Other than in circumstances in which indemnification is sought pursuant to Article VIII (in which event the provisions of such Article will govern) or for access with respect to Tax matters (in which event the provisions of the Tax Sharing Agreement will govern), from and after the Effective Time for a period of seven (7) years, each of Trident, Athens NA and Fountain shall afford to each of the other Parties and its authorized accountants, counsel and other designated representatives reasonable access during normal business hours, to the personnel, properties, and Information of such first Party and its Subsidiaries insofar as such access is reasonably required by such other Party and relates to (x) such other Party or the conduct of its business prior to the Effective Time or (y) any Ancillary Agreement; provided that none of the Parties shall be required to provide such access to the extent that the provision of such would require such Party (or one of its Group members) to breach any confidentiality covenant or waive any attorney-client or other legal privilege. Nothing in this Section 9.2 shall require any Party to violate any agreement with any third party regarding the confidentiality of confidential and proprietary information relating to that third party or its business.

Section 9.3. Witness Services . At all times from and after the Effective Time, each of Trident and Fountain shall use its reasonable best efforts to make available to the others, upon reasonable written request, its and its Subsidiaries’ officers, directors, employees, consultants and agents as witnesses to the extent that (i) such Persons may reasonably be required to testify in connection with the prosecution or defense of any Action in which the requesting Party may from time to time be involved (except for claims, demands or Actions between members of each Group) and (ii) there is no conflict in the Action between the requesting Party and the requested Party (or any member of the their respective Groups), as applicable. A Party providing a witness to the other Party under this Section 9.3 shall be entitled to receive from the recipient of such services, upon the presentation of invoices therefor, payments for such amounts, relating to disbursements and other out-of-pocket expenses (which shall not include the costs of salaries and benefits of employees who are witnesses or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees’ employer regardless of the employees’ service as witnesses) as may be reasonably incurred and properly paid under applicable Law.

Section 9.4. Reimbursement; Other Matters . Except to the extent otherwise contemplated by this Agreement or any Ancillary Agreement, a Party providing Information or access to Information to the other Party under this Article IX shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses, as may be reasonably incurred in providing such Information or access to such Information.

 

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Section 9.5. Confidentiality . Notwithstanding any termination of this Agreement, for a period of seven (7) years from the date of this Agreement, each Party and the members of its Group shall (i) hold in strict confidence (and at a standard of care no less than they use for their own similar information and in accordance with the terms of all applicable third-party agreements), (ii) disclose, provide, transfer, share or make available only to their and their Subsidiaries’ officers, employees, agents, consultants, auditors, attorneys and advisors (or potential buyers, lenders, investors, or similar transaction counterparties pursuant to any due diligence process), only on a “need to know” basis, and (iii) not use for any purpose other than to ensure compliance with the terms and conditions of this Agreement or any Ancillary Agreement, to enforce or defend any of its rights hereunder or thereunder or to the extent otherwise expressly permitted pursuant to this Agreement or any Ancillary Agreement, all Confidential Information to the extent relating to the business of any other Party or any member(s) of such other Party’s Group. To the extent that any Party or any member of its Group has Confidential Information related to another Party or member of such other Party’s Group that is the subject of this Section 9.5, such first Party shall, and shall cause each member of its Group to (in each case, except as otherwise expressly provided in this Agreement or any Ancillary Agreement), to the extent such Confidential Information is documented or exists in written, photographic or other physical form, return such information (and any copies made thereof) to such other Party or Group, and to the extent it is stored in electronic form, make a copy available to such other Party or Group and expunge such information from any computer or other data carrier, in each case, as promptly as reasonably practicable after the discovery thereof. Each Party is liable hereunder for any unauthorized disclosure or use of the other Parties’ Confidential Information by its recipients, including any members of its Group.

Section 9.6. Privileged Matters .

(a) Pre-Separation Services . The Parties recognize that legal and other professional services that have been and will be provided prior to the Effective Time have been and will be rendered for the collective benefit of each of the members of Trident Group, members of the Fountain Group and members of the Athens North American R/SB Group, and that each of the members of the Trident Group, Fountain Group and/or Athens North American R/SB Group , as applicable, should be deemed to be the client with respect to such pre-separation services for the purposes of asserting all privileges which may be asserted under applicable Law.

(b) Post-Separation Services . The Parties recognize that legal and other professional services will be provided following the Effective Time which will be rendered solely for the benefit of one or more of Trident, Fountain and Athens NA (and/or one or more members of their respective Groups), as the case may be. With respect to such post-separation services, the Parties agree as follows:

(i) Trident shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information which relates solely to the Trident Retained Business (other than to the extent relating solely to the Athens North American R/SB Business, which shall be controlled by Athens NA as provided below), whether or not the privileged Information is in the possession of or under the control of Trident, Athens NA or Fountain (or any member of their respective Groups). Trident shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in

 

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connection with privileged Information that relates solely to the subject matter of any claims constituting Trident Retained Liabilities (other than Athens North American R/SB Liabilities, which shall be controlled by Athens NA as provided below), now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by Trident (or any member of the Trident Group), whether or not the privileged Information is in the possession of or under the control of Trident, Athens NA or Fountain (or any member of their respective Groups);

(ii) Fountain shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information which relates solely to the Fountain Business, whether or not the privileged Information is in the possession of or under the control of Trident, Athens NA or Fountain (or any member of their respective Groups). Fountain shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information that relates solely to the subject matter of any claims constituting Fountain Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by Fountain (or any member of the Fountain Group), whether or not the privileged Information is in the possession of or under the control of Trident, Fountain or Athens NA (or any member of their respective Groups).

(iii) Athens NA shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information which relates solely to the Athens North American R/SB Business, whether or not the privileged Information is in the possession of or under the control of Trident, Athens NA or Fountain (or any member of their respective Group). Athens NA shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information that relates solely to the subject matter of any claims constituting Athens North American R/SB Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by Athens NA (or any member of the Athens North American R/SB Group), whether or not the privileged Information is in the possession of or under the control of Trident, Fountain or Athens NA (or any member of their respective Groups).

(c) The Parties agree that they shall have a shared privilege, with equal right to assert or waive, subject to the restrictions in this Section 9.6 , with respect to all privileges not allocated pursuant to the terms of Section 9.6(b) . All privileges relating to any claims, proceedings, litigation, disputes, or other matters which involve two or more of Trident, Athens NA or Fountain (or their respective Group members) in respect of which two or more of such Parties retain any responsibility or Liability under this Agreement or under the Tax Sharing Agreement, shall be subject to a shared privilege among them.

(d) No Party may waive any privilege which could be asserted under any applicable Law, and in which any other Party has a shared privilege, without the consent of such other Party, which shall not be unreasonably withheld or delayed or as provided in subsections (e) or (f) below. Consent shall be in writing, or shall be deemed to be granted unless written objection is made within twenty (20) days after notice upon such other Party requesting such consent.

 

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(e) In the event of any litigation or dispute between or among any of the Parties, or any members of their respective Groups, any such Party may waive a privilege in which any other Party or member of such Party’s Group has a shared privilege, without obtaining the consent of the other Parties; provided that such waiver of a shared privilege shall be effective only as to the use of Information with respect to such litigation or dispute between the relevant Parties and/or the applicable members of their respective Groups, and shall not operate as a waiver of the shared privilege with respect to third parties.

(f) If a dispute arises between or among the Parties or their respective Subsidiaries regarding whether a privilege should be waived to protect or advance the interest of any Party, each Party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other Parties, and shall not unreasonably withhold consent to any request for waiver by another Party. Each Party specifically agrees that it will not withhold consent to waiver for any purpose except to protect its own legitimate interests.

(g) Upon receipt by any Party or by any member of its Group of any subpoena, discovery or other request which arguably calls for the production or disclosure of Information subject to a shared privilege or as to which another Party has the sole right hereunder to assert a privilege, or if any Party obtains knowledge that any of its or any member of its Group’s current or former directors, officers, agents or employees have received any subpoena, discovery or other requests which arguably calls for the production or disclosure of such privileged Information, such Party shall promptly notify the other Party or Parties of the existence of the request and shall provide the other Party or Parties a reasonable opportunity to review the Information and to assert any rights it or they may have under this Section 9.6 or otherwise to prevent the production or disclosure of such privileged Information.

(h) The transfer of all Information pursuant to this Agreement is made in reliance on the agreement of Trident and Fountain and Athens NA as set forth in Sections 9.5 and 9.6 to maintain the confidentiality of privileged Information and to assert and maintain all applicable privileges. To the extent applicable to each party, the access to Information being granted pursuant to Sections 7.3 , 8.6 , 9.1 and 9.2 hereof, the agreement to provide witnesses and individuals pursuant to Sections 7.3 , 8.6 and 9.3 hereof, the furnishing of notices and documents and other cooperative efforts contemplated by Sections 7.5 and 8.6 hereof, and the transfer of privileged Information between and among the Parties and their respective Subsidiaries pursuant to this Agreement or under the corresponding provisions of the Tax Sharing Agreement shall not be deemed a waiver of any privilege that has been or may be asserted pursuant to applicable law.

(i) Notwithstanding any provision to the contrary in this Section 9.6 , the Audit Management Party (as defined in the Tax Sharing Agreement) shall have the authority to disclose or not disclose, in its sole discretion, any and all privileged Information to (i) any Taxing Authority (as defined in the Tax Sharing Agreement) conducting a Tax Audit (as defined in the Tax Sharing Agreement) or (ii) to third parties in connection with the defense of a Tax Audit, including, expert witnesses, accountants and other advisors, potential witnesses and other parties whose assistance is deemed, in the sole discretion of the Audit Management Party, to be necessary or beneficial to representing the interests of the Parties hereunder.

 

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Section 9.7. Ownership of Information . Any Information owned by one Party or any of its Subsidiaries that is provided to a requesting Party pursuant to this Article IX shall be deemed to remain the property of the providing Party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information.

Section 9.8. Other Agreements . The rights and obligations granted under this Article IX are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any Ancillary Agreement.

ARTICLE X

INSURANCE

Section 10.1. Policies and Rights Included Within Assets . The Fountain Assets shall include (i) any and all rights of an insured Party under each of the Fountain Shared Policies, subject to the terms of such Fountain Shared Policies and any limitations or obligations of Fountain contemplated by this Article X , specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all actual or alleged wrongful acts, occurrences, events, claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses which occurred or are alleged to have occurred, in whole or in part, prior to the Fountain Distribution Date by either Party in or in connection with the conduct of the Fountain Business, regardless of whether any suit, claim, action or proceeding is brought before or after the Fountain Distribution Date or, to the extent any claim is made against Fountain or any of its Subsidiaries or the conduct of the Trident Retained Business, and which actual or alleged wrongful acts, occurrences, events, claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses may arise out of an insured or insurable occurrence or wrongful act under one or more of such Fountain Shared Policies; provided , however , that nothing in this clause shall be deemed to constitute (or to reflect) an assignment of such Fountain Shared Policies, or any of them, to Fountain, and (ii) the Fountain Policies.

Section 10.2. Claims Made Tail Policies . The claims made tail policies provided for in this Section 10.2 will provide coverage for any Claim arising from any Wrongful Act occurring, in whole or in part, prior to the earlier of the Athens NA Distribution Date and Fountain Distribution Date. For purposes of this Section 10.2 , “Claim” and “Wrongful Act” shall have the respective meanings given to such terms in the current Tyco International Ltd., D&O, Fiduciary and Employment Practices Liability Insurance Policies, as applicable.

(a) Trident shall purchase Directors and Officers Liability Insurance Policies having total limits of $275 million, consisting of $275 million of non-rescindable Side A coverage inclusive and $200 million of Side B coverage and having a policy period incepting on the Athens NA Distribution Date, the expiration date of the current Trident Directors and Officers liability insurance Policies or the Fountain Distribution Date, whichever date is earlier, and ending on a date that is six years after the latest of the Athens NA Distribution Date and the Fountain Distribution Date (“ D&O Tail Policies ”). The premium for the D&O Tail Policies shall be pre-paid for the full six-year term of the D&O Tail Policies. Such D&O Tail Policies shall cover Trident, Fountain and Athens NA and the insured persons thereof and shall have material

 

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terms and conditions no less favorable than those contained in the Policies comprising the Trident Directors and Officers liability insurance program existing as of the earlier of the Athens NA Distribution Date or the Fountain Distribution Date, except for the policy period, premium and provisions excluding coverage for wrongful acts, errors or omissions, post-dating the earlier of the Athens NA Distribution Date or the Fountain Distribution Date. Trident (i) shall provide Fountain with copies of the D&O Tail Policies within a reasonable time after the Policies are issued and (ii) shall not amend the terms or cancel or permit cancellation of, any such Policies without ninety (90) days prior written notice to Fountain.

(b) Trident shall purchase Fiduciary Liability Insurance Policies having total limits of $50 million and having a policy period incepting on the Athens NA Distribution Date, the expiration date of the current Trident Directors and Officers liability insurance Policies or the Fountain Distribution Date, whichever date is earlier, and ending on a date that is six years after the latest of the Athens NA Distribution Date and the Fountain Distribution Date (“ Fiduciary Tail Policies ”). The premium for the Fiduciary Tail Policies shall be pre-paid for the full six-year term of the Fiduciary Tail Policies. Such Fiduciary Tail Policies shall cover Trident, Fountain and Athens NA and the insured persons thereof and shall have material terms and conditions no less favorable than those contained in the Policies comprising the Trident fiduciary liability insurance program existing as of the earlier of the Athens NA Distribution Date or the Fountain Distribution Date, except for the policy period, premium and provisions excluding coverage for wrongful acts, errors and omissions, post-dating the earlier of the Athens NA Distribution Date and the Fountain Distribution Date. Trident (i) shall provide Fountain with copies of the Fiduciary Tail Policies within a reasonable time after the Policies are issued and (ii) shall not amend the terms or cancel or permit cancellation of, any such Policies without ninety (90) days prior written notice to Fountain.

(c) Trident shall purchase Employment Practices Liability Insurance Policies having total limits of $50 million of coverage and having a policy period incepting on the Athens NA Distribution Date, the expiration date of the current Trident Directors and Officers liability insurance Policies or the Fountain Distribution Date, whichever date is earlier, and ending on a date that is six years after the latest of the Athens NA Distribution Date and the Fountain Distribution Date (“ EPL Tail Policies ”). The premium for the EPL Tail Policies shall be pre-paid for the full six-year term of the EPL Tail Policies. Such EPL Tail Policies shall cover Trident, Fountain and Athens NA and the insured persons thereof and shall have material terms and conditions no less favorable than those contained in the Policies comprising the Trident Employment Practices liability insurance program existing as of the earlier of the Athens NA Distribution Date and the Fountain Distribution Date, except for the policy period, premium and provisions excluding coverage for wrongful acts, errors and omissions, post-dating the earlier of the Athens NA Distribution Date and the Fountain Distribution Date. Trident (i) shall provide Fountain with copies of the EPL Tail Policies within a reasonable time after the Policies are issued and (ii) shall not amend the terms or cancel or permit cancellation of, any such Policies without ninety (90) days prior written notice to Fountain.

(d) To the extent that Trident is unable prior to the Fountain Distribution Date to obtain any of the policies as provided for in paragraphs (a), (b) and (c) of this Section 10.2 , then, with respect to suits or claims based on wrongful acts, errors or omissions on or before the earlier of the Athens NA Distribution Date and the Fountain Distribution Date, Trident shall use

 

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reasonable best efforts to secure alternative insurance arrangements on the standalone insurance policies for Fountain to provide benefits on terms and conditions (including policy limits) in favor of Fountain and the insured persons thereof no less favorable than the benefits (including policy limits) that were to be afforded by the policies described in paragraphs (a), (b) and (c) of this Section 10.2 . With respect to such alternative insurance arrangements, Trident and Fountain shall be responsible for their own costs under their applicable standalone insurance policies. Trident shall not under any circumstances purchase any such alternative coverage containing an exclusion for suits or claims based on wrongful acts, errors or omissions up to and including the earlier of the Athens NA Distribution Date and the Fountain Distribution Date to the extent such exclusion would preclude coverage for Fountain and/or the insured persons thereof, but would not preclude coverage for Trident and/or the insured persons thereof.

Section 10.3. Occurrence Based Policies .

(a) Notwithstanding anything herein to the contrary, the terms, conditions and procedures set forth in the various Shared Policies issued by White Mountain Insurance Company and Third Party Administrator Claims Service Instructions associated with such Shared Policies that are in effect as of the Fountain Distribution Date, which address, among other things, (i) how claims and suits under the Shared Policies will be administered, paid, accounted for, and the level of input each Party will have in claim settlements, (ii) access to Shared Policies claim data, (iii) Large Loss Notification to each Party for which Fountain shall bear full responsibility to notify Excess carriers of any such losses, (iv) dispute resolution and (v) Umbrella and Excess claims handling, shall be provided to Fountain and Patriot and are incorporated hereby by reference. The prior written consent of Patriot not to be unreasonably withheld, conditioned or delayed shall be required for the entry by Fountain into and any modifications or amendments to a Fountain Shared Policy, including the insurance Policy referenced in the immediately preceding sentence.

(b) With respect to all other occurrence based Trident Shared Policies, for suits or claims that are filed or made based upon occurrences that occurred or are alleged to have occurred in whole or in part prior to the Fountain Distribution Date, Trident and Fountain, shall be responsible for bearing the full amount of the deductible and/or any claims, costs and expenses that are not covered under such insurance policies including that portion of any premium adjustments, tax, assessment or similar regulatory surcharges, that relates to claims based on occurrences that predate the Fountain Distribution Date.

Section 10.4. Administration; Other Matters .

(a) Administration . Except as otherwise provided in Section 10.3 hereof, in any Schedule hereto or in any Ancillary Agreement, from and after the Effective Time, (i) Trident shall be responsible for (A) Insurance Administration of the Shared Policies, (B) Claims Administration under such Shared Policies with respect to Trident Retained Liabilities, and (C) Claims Administration under Shared Policies written by White Mountain Insurance Company with respect to Fountain Liabilities and (ii) Fountain shall be responsible for Claims Administration under such Shared Policies with respect to Fountain Liabilities (other than Fountain Liabilities covered under Shared Policies written by White Mountain Insurance Company for which Trident shall be responsible for Claims Administration); provided that if

 

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White Mountain Insurance Company tenders the underlying Insured Claim for such Fountain Liability to the excess insurance carriers of any losses or claims which may cause the per-occurrence, per claim or aggregate limits of any Shared Policy written by White Mountain Insurance Company to be exceeded, then Fountain shall be responsible for any such Claims Administration and Fountain shall administer the Claim in such instance only so long as (1) Trident has notified the excess insurance carrier as and to the extent required under the applicable Policy and (2) Trident provides Fountain with all information in its possession reasonably necessary for such Claims Administration); provided that the retention of such responsibilities by Trident is in no way intended to limit, inhibit or preclude any right to insurance coverage for any Insured Claim of a named insured under such Policies as contemplated by the terms of this Agreement; provided further that Trident’s retention of the administrative responsibilities for the Shared Policies shall not relieve the Party submitting any Insured Claim of the primary responsibility for reporting such Insured Claim accurately, completely and in a timely manner or of such Party’s authority to settle any such Insured Claim within any period or amount permitted or required by the relevant Policy; provided further that Trident shall keep Patriot apprised of the status of Claims Administration pertaining to Fountain Liabilities covered by Shared Policies issued by White Mountain Insurance Company and shall promptly furnish Patriot with complete, un-redacted copies of all Shared Policies covering Fountain Liabilities, whether issued by White Mountain Insurance Company or other insurance companies. In connection with Claims Administration for Fountain Liabilities covered under Shared Policies, Trident shall provide any updated loss data, notices, communications, status reports or updates, in each case, in Trident’s possession relating to such Claims Administration as requested by Patriot or Fountain, but no less than on an annual basis. On any claim with Gross Total Incurred reserves greater than $1,000,000 (USD 1 million dollars), Trident shall keep Fountain and Patriot reasonably informed in the ongoing handling of that claim. In addition, Trident shall provide annual updates to Fountain of the condition of the Shared Policies covering Fountain Liabilities and written by White Mountain Insurance Company, including audited financials (excluding footnotes) and actuarial projections concerning the losses within White Mountain Insurance Company, as well as any additional information reasonably requested by Fountain subject to an appropriate confidentiality agreement reasonably agreed between Fountain and Trident. Further, Trident shall annually provide notice to Fountain of any claim or claims which may exceed the White Mountain Insurance Company retention and erode any Excess Liability limits available to Fountain. Trident may discharge its administrative responsibilities under this Section 10.4 by contracting for the provision of services by independent parties. Each of the applicable Parties shall pay any costs relating to defending its respective Insured Claims under Shared Policies to the extent such costs, including defense and out-of-pocket expenses, are not covered under such Policies. Each of the Parties shall be responsible for obtaining or reviewing the appropriateness of releases upon settlement of its respective Insured Claims under Shared Policies.

(b) Exceeding Policy Limits . Where Fountain Liabilities are specifically covered under a Shared Policy for occurrences, acts or events prior to the Fountain Distribution Date, then Fountain may claim coverage for Insured Claims under such Shared Policy as and to the extent that such insurance is available up to the full extent of the applicable limits of liability of such Shared Policy (and may receive any Insurance Proceeds with respect thereto as contemplated by Section 10.2 , Section 10.3 or Section 10.4(c) hereof), subject to the terms of this Section 10.4 . Except as set forth in this Section 10.4 , Trident and Fountain shall not be liable

 

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to one another for claims not reimbursed by insurers for any reason not within the control of Trident or Fountain, as the case may be, including coinsurance provisions, deductibles, quota share deductibles, self-insured retentions, bankruptcy or insolvency of an insurance carrier, Shared Policy limitations or restrictions, any coverage disputes, any failure to timely claim by Trident, or Fountain or any defect in such claim or its processing. It is expressly understood that the foregoing shall not limit any Party’s liability to any other Party for indemnification pursuant to Article VIII .

(c) Allocation of Insurance Proceeds . Except as otherwise provided in Section 10.3 , Insurance Proceeds received with respect to suits, occurrences, claims, costs and expenses covered under the Shared Policies shall be paid to Trident with respect to Trident Retained Liabilities and to Fountain with respect to Fountain Liabilities. In the event that the aggregate limits on any Shared Policies are exhausted by the payment of Insured Claims to the Parties, each Party shall be responsible for its own costs, expenses and liabilities for which the corresponding insurance coverage under the Shared Policies has been exhausted. Each of the Parties agrees to use their respective reasonable best efforts to maximize available coverage under those Shared Policies applicable to it for the benefit of all Parties, and to take all reasonable best steps to recover from all other responsible parties (except the Parties) in respect of an Insured Claim to the extent coverage limits under a Shared Policy have been exceeded or would be exceeded as a result of such Insured Claim.

(d) Allocation of Aggregate Deductibles . In the event that both Parties have insured claims under any Shared Policy for which an aggregate deductible is payable, the Parties agree that the aggregate amount of the total deductible paid shall be borne by the Parties in the same proportion to which the Insurance Proceeds received by each such Party bears to the total Insurance Proceeds received under the applicable Shared Policy (their “ allocable share of the deductible ”), and any Party who has paid more than its allocable share of the deductible shall be entitled to receive from the other Party an appropriate amount such that each Party will only have to bear its allocable share of the deductible.

Section 10.5. Agreement for Waiver of Conflict and Shared Defense . In the event that Insured Claims of both of the Parties exist relating to the same occurrence, both Parties shall jointly defend and waive any conflict of interest necessary to the conduct of the joint defense. Nothing in this Article X shall be construed to limit or otherwise alter in any way the obligations of the Parties to this Agreement, including those created by this Agreement, by operation of Law or otherwise.

Section 10.6. Cooperation . The Parties agree to use their respective reasonable best efforts to cooperate with respect to the various insurance matters contemplated by this Agreement.

Section 10.7. Certain Matters Relating to Trident’s Organizational Documents . For a period of six (6) years from the Fountain Distribution Date, the Amended and Restated Articles of Association and Amended and Restated Organizational Regulations of Trident shall contain provisions no less favorable with respect to indemnification than are set forth in the Amended and Restated Articles of Association and Amended and Restated Organizational Regulations of Trident immediately after the Effective Time, which provisions shall not be

 

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amended, repealed or otherwise modified for a period of six (6) years from the Fountain Distribution Date in any manner that would affect adversely the rights thereunder of individuals who, at or prior to the Effective Time, were directors, officers, employees, fiduciaries or agents of any member of the Trident Group or the Fountain Group, unless such modification shall be required by Law and then only to the minimum extent required by Law.

ARTICLE XI

MISCELLANEOUS

Section 11.1. Complete Agreement; Construction . This Agreement, including the Exhibits and Schedules, the Ancillary Agreements and the Merger Agreement, including any related annexes, schedules and exhibits, shall, together constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all prior negotiations, agreements, and understandings of the Parties of any nature, whether oral or written, with respect to such subject matter, including, without limitation, the Separation and Distribution Agreement, by and among Tyco International Ltd., Tyco Flow Control International Ltd. and The ADT Corporation, dated as of March 27, 2012, as amended by Amendment No. 1, dated as of July 25, 2012. If there is a conflict between any provision of this Agreement and a provision of any Schedule hereto, the Schedule shall control unless specifically provided otherwise in this Agreement. If there is a conflict between any provision of this Agreement and a provision of any Ancillary Agreement or Continuing Arrangement or the Merger Agreement, such Ancillary Agreement or Continuing Arrangement or the Merger Agreement shall control; provided that with respect to any Conveyancing and Assumption Instrument, this Agreement shall control unless specifically stated otherwise in such Conveyancing and Assumption Instrument. Except as expressly set forth in this Agreement, any Ancillary Agreement or the Merger Agreement: (a) all matters relating to Taxes and Tax Returns of the Parties and their respective Subsidiaries shall be governed exclusively by the Tax Sharing Agreement; and (b) for the avoidance of doubt, in the event of any conflict between this Agreement, any Ancillary Agreement or the Merger Agreement, on the one hand, and the Tax Sharing Agreement, on the other hand, with respect to such matters, the terms and conditions of the Tax Sharing Agreement shall control.

Section 11.2. Ancillary Agreements; Merger Agreement . Except as expressly set forth herein, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements or the Merger Agreement.

Section 11.3. Counterparts . This Agreement may be executed in multiple counterparts (any one of which need not contain the signatures of more than one Party), each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. This Agreement, and any amendments hereto, to the extent signed and delivered by means of a facsimile machine or other electronic transmission, shall be treated in all manner and respects as an original agreement and shall be considered to have the same binding legal effects as if it were the original signed version thereof delivered in person. At the request of any Party, the other Party shall re-execute original forms thereof and deliver them to the requesting Party. No Party shall raise the use of a facsimile machine or other electronic means to deliver a signature or the fact that any signature was transmitted or communicated through the use of facsimile machine or other electronic means as a defense to the formation of a Contract and each such Party forever waives any such defense.

 

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Section 11.4. Survival of Agreements . Except as otherwise contemplated by this Agreement, any Ancillary Agreement or the Merger Agreement, all covenants and agreements of the Parties contained in this Agreement and each Ancillary Agreement shall survive the Effective Time and remain in full force and effect in accordance with their terms.

Section 11.5. Expenses . Except as otherwise provided (i) in this Agreement, (ii) in any Ancillary Agreement or (iii) in the Merger Agreement, the Parties agree that all out-of-pocket fees and expenses incurred by the Parties, or to be incurred by the Parties and directly related to the Fountain Plan of Separation, the Merger or transactions contemplated hereby or by the Merger Agreement (including third party professional fees, fees and expenses incurred in connection with the execution and delivery of this Agreement and such other third party fees and expenses incurred on a non-recurring basis directly as result of the Fountain Plan of Separation) (collectively, “ Separation Expenses ”) shall (A) to the extent incurred and payable prior to the Fountain Distribution Date be paid by Trident and (B) to the extent any such Separation Expenses arise and are payable by any Party following the Fountain Distribution Date be paid by such Party.

Section 11.6. Notices . All notices, requests, permissions, waivers and other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the Ancillary Agreements shall be in writing and shall be deemed to have been duly given (a) three Business Days following sending by registered or certified mail, postage prepaid, (b) when sent, if sent by facsimile; provided that the facsimile transmission is promptly confirmed and any facsimile transmission received after 5:00 p.m. Eastern time shall be deemed received at 9:00 a.m. Eastern time on the following Business Day, (c) when delivered, if delivered personally to the intended recipient and (d) one Business Day following sending by overnight delivery via a national courier service and, in each case, addressed to a Party at the following address for such Party:

To Trident:

Tyco International Ltd.

c/o Tyco International Management Company, LLC

9 Roszel Road

Princeton, New Jersey 08540

Attn: General Counsel

Facsimile: (609) 720-4208

To Athens NA:

The ADT Corporation

One Town Center Road

Boca Raton, Florida 33486

Attn: General Counsel

Facsimile: (609) 806-2128

 

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To Fountain prior to the Fountain Distribution Date:

Tyco Flow Control International Ltd.

c/o Tyco International Management Company, LLC

9 Roszel Road

Princeton, New Jersey 08540

Attn: General Counsel

Facsimile: (609) 720-4208

If to Fountain after the Fountain Distribution Date:

Pentair, Inc.

5500 Wayzata Boulevard, Suite 800

Golden Valley, Minnesota

Attn: Angela D. Lageson

Facsimile: (763) 656-5403

with copies to (which shall not constitute notice):

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, New York 10019

Attn: Faiza J. Saeed

         Thomas E. Dunn

Facsimile: (212) 474-3700

and to:

Foley & Lardner LLP

777 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

Attn: Benjamin F. Garmer, III

Facsimile: (414) 297-4900

or to such other address(es) as shall be furnished in writing by any such Party to the other Party in accordance with the provisions of this Section 11.6 . Any notice to Trident shall be deemed notice to all members of the Trident Group, any notice to Athens NA shall be deemed notice to all members of the Athens North American R/SB Group and any notice to Fountain shall be deemed notice to all members of the Fountain Group.

Section 11.7. Waivers and Consents . The failure of any Party to require strict performance by any other Party of any provision in this Agreement will not waive or diminish that Party’s right to demand strict performance thereafter of that or any other provision hereof. Any consent required or permitted to be given by any Party to the other Parties under this Agreement shall be in writing and signed by the Party giving such consent and shall be effective only against such Party (and its Group). Notwithstanding the foregoing, no waiver of any

 

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provision hereof or consent required or permitted to be given by Fountain under this Agreement or failure of Fountain to require strict performance by any other Party of any provision in this Agreement shall be permitted without the prior written consent of Patriot.

Section 11.8. Amendments . This Agreement may not be modified or amended except by an agreement in writing signed by a duly authorized representative of each of the Parties and otherwise in accordance with Section 5.19 of the Merger Agreement.

Section 11.9. Assignment . Except as otherwise provided for in this Agreement, this Agreement is not assignable by any Party without the prior written consent of the other Parties and Patriot, and any attempt to assign this Agreement without such consent shall be void and of no effect; provided that a Party may assign this Agreement in whole in connection with a merger transaction in which such Party is not the surviving entity or the sale by such Party of all or substantially all of its Assets; provided that the surviving entity of such merger or the transferee of such Assets shall agree in writing, reasonably satisfactory to the other Parties, to be bound by the terms of this Agreement as if named as a “Party” hereto.

Section 11.10. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the Parties and each of their respective successors and permitted assigns.

Section 11.11. Certain Termination and Amendment Rights . Notwithstanding any provision hereof, this Agreement may be terminated at any time prior to the Fountain Distribution Date by the mutual consent of the Parties hereto, but only in the event that the Merger Agreement has been terminated pursuant to its terms.

Section 11.12. Payment Terms .

(a) Except as expressly provided to the contrary in this Agreement or any Ancillary Agreement, any amount to be paid or reimbursed by any Party (and/or a member of such Party’s Group), on the one hand, to any other Party or Parties (and/or a member of such Party’s or Parties’ Group), on the other hand, under this Agreement shall be paid or reimbursed hereunder within thirty (30) days after presentation of an invoice or a written demand therefor and setting forth, or accompanied by, reasonable documentation or other reasonable explanation supporting such amount.

(b) Except as expressly provided to the contrary in this Agreement or any Ancillary Agreement, any amount not paid when due pursuant to this Agreement (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within thirty (30) days of such bill, invoice or other demand) shall bear interest at the Default Interest Rate, calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment.

Section 11.13. No Circumvention . The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any member of any such Party’s Group to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement or any Ancillary Agreement (including adversely affecting the rights or ability of any Party to successfully pursue indemnification, contribution or payment pursuant to Article VIII ).

 

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Section 11.14. Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party on and after the Fountain Distribution Date.

Section 11.15. Third Party Beneficiaries . Except (i) as provided in Article VIII relating to Indemnitees and for the release under Section 8.1 of any Person provided therein, (ii) as provided in Section 10.2 relating to insured persons and Section 10.7 relating to the directors, officers, employees, fiduciaries or agents provided therein, (iii) for Patriot, who is an intended third-party beneficiary of this Agreement, this Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

Section 11.16. Title and Headings . Headings of the Articles and Sections of this Agreement are for convenience of the Parties and Patriot only and shall be given no substantive or interpretive effect whatsoever. The table of contents to this Agreement is for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 11.17. Exhibits and Schedules . The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Nothing in the Exhibits or Schedules constitutes an admission of any liability or obligation of any member of the Fountain Group or Trident Group or any of their respective Affiliates to any third party, nor, with respect to any third party, an admission against the interests of any member of the Fountain Group or Trident Group or any of their respective Affiliates.

Section 11.18. Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of New York, without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

Section 11.19. Consent to Jurisdiction . Each of the Parties irrevocably and unconditionally agrees that any legal action or proceeding with respect to this Agreement or any Ancillary Agreement and the rights and obligations arising hereunder or thereunder, or for recognition and enforcement of any judgment in respect of this Agreement or any Ancillary Agreement and the rights and obligations arising hereunder or thereunder brought by the other Party hereto or its successors or assigns, shall be brought and determined exclusively in the United States District Court for the Southern District of New York, or, if United States federal jurisdiction is unavailable, in the Supreme Court of the State of New York, New York County. Each of the Parties hereby irrevocably submits and shall cause the members of its Group to submit with regard to any such action or proceeding for itself or for the members of its Group and in respect of its property or the property of the members of its Group, generally and

 

95


unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not and shall cause the members of its Group not to bring any action relating to this Agreement or any of the transactions contemplated by this Agreement or any Ancillary Agreement in any court other than the aforesaid courts. Each of the Parties hereby irrevocably waives, and agrees not to assert, and shall cause the members of its Group to waive and not to assert by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement or any Ancillary Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to serve in accordance with this Section 11.19, (b) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) to the fullest extent permitted by the applicable Law, any claim that (i) the suit, action or proceeding in such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement or any Ancillary Agreement, or the subject matter hereof, may not be enforced in or by such courts.

Section 11.20. Specific Performance . The Parties understand and agree that (a) the covenants and agreements on each of their parts herein contained are uniquely related to the desire of the Parties and their respective Affiliates to consummate the Transactions, (b) the Transactions are a unique business opportunity at a unique time for each of Trident and Patriot and their respective Affiliates, (c) irreparable damage would occur in the event that any provision of this Agreement were not performed in accordance with its specific terms, (d) although monetary damages may be available for the breach of such covenants and agreements such monetary damages are not intended to and do not adequately compensate for the harm that would result from a breach of this Agreement, would be an inadequate remedy therefor and shall not be construed to diminish or otherwise impair in any respect any party’s right to specific performance and (e) the right of specific performance is an integral part of the transactions contemplated by this Agreement and without that right none of the parties would have entered into this Agreement. It is accordingly agreed that, in addition to any other remedy that may be available to it, including monetary damages, each of the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or any of the Ancillary Agreements and to enforce specifically the terms and provisions of this Agreement, with any such remedy to be sought exclusively in the United States District Court for the Southern District of New York, or, if United States federal jurisdiction is unavailable, in the Supreme Court of the State of New York, New York County. Each of the Parties further agrees that no Party shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 11.20 and each Party waives any objection to the imposition of such relief or any right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument.

Section 11.21. Waiver of Jury Trial . EACH OF THE PARTIES IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

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Section 11.22. Severability . Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

Section 11.23. Force Majeure . No Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.

Section 11.24. Interpretation . In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

Section 11.25. No Duplication; No Double Recovery . Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstances (including with respect to the rights, entitlements, obligations and recoveries that may arise out of one or more of the following Sections: Section 3.5 ; Section 7.3 ; Section 8.2 ; Section 8.3 ; Section 8.4 ; and Section 8.5 ).

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

 

TYCO INTERNATIONAL LTD.
By:  

/s/ John S. Jenkins

  John S. Jenkins, VP and Secretary
PENTAIR LTD.
By:  

/s/ John S. Jenkins

  John S. Jenkins, Director
THE ADT CORPORATION
By:  

/s/ N. David Bleisch

  N. David Bleisch
  Vice President

 

98

Exhibit 3.1

 

 

   

Deutsche Übersetzung der

 

 

English translation of the

 

   

GEÄNDERTEN UND BERICHTIGTEN STATUTEN

 

der

 

Pentair Ltd. (die “Gesellschaft”)

 

 

AMENDED AND RESTATED ARTICLES OF ASSOCIATION

 

of

 

Pentair Ltd. (the “Company”)

 

   

Artikel 1   Firma, Sitz und Dauer der Gesellschaft

 

Article 1    Corporate Name, Registered Office and Duration

 

   

Unter der Firma

 

Pentair Ltd.

 

(Pentair AG)

 

(Pentair SA)

 

besteht eine Aktiengesellschaft gemäss Art. 620 ff. OR mit Sitz in Schaffhausen, Schweiz. Die Dauer der Gesellschaft ist unbeschränkt.

 

Under the corporate name

 

Pentair Ltd.

 

(Pentair AG)

 

(Pentair SA)

 

a corporation exists pursuant to art. 620 et seq. of the Swiss Code of Obligations having its registered office in Schaffhausen, Switzerland. The duration of the Company is unlimited.

 

   

Artikel 2   Zweck

 

 

Article 2    Purpose

 

       
(1)  

Zweck der Gesellschaft ist der Erwerb, das Halten, die Verwaltung, die Verwertung und der Verkauf, ob direkt oder indirekt, von Beteiligungen an Industrie- und Handelsunternehmen in der Schweiz und im Ausland. Die Gesellschaft kann direkt oder indirekt Liegenschaften, Patente, Schutzmarken, technisches und industrielles Know-How und andere immaterielle Rechte und Immaterialgüterrechte erwerben, halten, bewirtschaften, belasten, verwerten und verkaufen und darf zudem technische und administrative Beratungsdienstleistungen anbieten.

 

  (1)   The business purpose of the Company is to acquire, hold, manage, exploit and sell, whether directly or indirectly, participations in industrial and commercial businesses, whether in Switzerland or abroad. The Company may acquire, hold, manage, mortgage, exploit and sell, whether directly or indirectly, real estate, patents, trademarks, technical and industrial know how, and other intangible and intellectual property rights, and may provide technical and administrative consultancy services.
       
(2)  

Die Gesellschaft kann alle Geschäfte tätigen und Massnahmen treffen, die geeignet scheinen, den Zweck der Gesellschaft zu fördern oder mit dem Zweck im Zusammenhang stehen, einschliesslich (ohne abschliessende Wirkung) aller Transaktionen oder anderer Massnahmen, um Finanzierungen erhältlich zu machen oder zu gewähren, sei dies gruppenintern oder mit Bezug auf Drittparteien.

 

  (2)   The Company may engage in all types of transactions and may take all measures that appear appropriate to promote the purpose of the Company or that are related thereto, including without limitation transactions or other measures for the purpose of obtaining or extending intercompany or third party financing.


   

Artikel 3   Aktienkapital

 

 

Article 3    Share Capital

 

       
(1)  

Das Aktienkapital der Gesellschaft beträgt CHF 106’500’000 und ist eingeteilt in 213’000’000 Namenaktien im Nennwert von CHF 0.50 je Aktie. Das Aktienkapital ist vollständig liberiert.

 

  (1)  

The share capital of the Company amounts to CHF 106,500,000 and is divided into 213,000,000 registered shares with a nominal value of CHF 0.50 per share. The share capital is fully paid up.

 

       
(2)  

Auf Beschluss der Generalversammlung können jederzeit Namenaktien in Inhaberaktien und Inhaberaktien in Namenaktien umgewandelt werden.

 

  (2)  

Upon resolution of the General Meeting of Shareholders, registered shares may be converted into bearer shares and bearer shares may be converted into registered shares, at any time.

 

   

Artikel 4   Genehmigtes Aktienkapital

 

 

Article 4    Authorized Share Capital

 

       
(1)  

Der Verwaltungsrat ist ermächtigt, das Aktienkapital in einem oder mehreren Schritten bis zum 14. September 2014 im Maximalbetrag von CHF 53’250’000 durch Ausgabe von höchstens 106’500’000vollständig zu liberierenden Namenaktien mit einem Nennwert von CHF 0.50 je Aktie zu erhöhen. Ohne Einschränkung des Vorstehenden sind Kapitalerhöhungen durch Festübernahmen und/oder in Teilbeträgen zulässig.

 

  (1)  

The Board of Directors is authorized to increase the share capital, in one or several steps until September 14, 2014, by a maximum amount of CHF 53,250,000 by issuing a maximum of 106,500,000 fully paid up registered shares with a par value of CHF 0.50 each. Without limitation to the generality of the foregoing, increases of the share capital through underwritten offerings and/or in partial amounts are permitted.

 

       
(2)  

Der Verwaltungsrat bestimmt den Zeitpunkt der Ausgabe, den Ausgabepreis, die Art der Liberierung, den Zeitpunkt der Dividendenberechtigung, die Bedingungen für die Ausübung der Bezugsrechte sowie die Zuteilung der nicht ausgeübten Bezugsrechte. Der Verwaltungsrat kann eingeräumte jedoch nicht ausgeübte Bezugsrechte verfallen lassen, er kann diese (oder die entsprechenden Aktien) zu marktüblichen Konditionen platzieren oder anderweitig im Interesse der Gesellschaft nutzen.

 

  (2)  

The Board of Directors shall determine the time of the issuance, the issue price, the manner in which the new shares have to be paid up, the date from which the shares carry the right to dividends, the conditions for the exercise of the preemptive rights and the allotment of preemptive rights that have not been exercised. The Board of Directors may allow the preemptive rights that have not been exercised to expire, or it may place such rights or shares, the preemptive rights of which have not been exercised, at market conditions or use them otherwise in the interest of the Company.

 

(3)  

Der Verwaltungsrat ist ermächtigt, Bezugsrechte der Aktionäre auszuschliessen oder zu limitieren und diese einzelnen Aktionären oder Dritten zuzuweisen:

 

  (3)  

The Board of Directors is authorized to withdraw or limit the preemptive rights of the shareholders and to allot them to individual shareholders or to third parties:

 

    (a)  

wenn der Ausgabepreis der neuen Aktien unter Berücksichtigung des Marktpreises festgesetzt wird; oder

 

    (a)  

if the issue price of the new shares is determined by reference to the market price; or

 

    (b)  

für den Erwerb von Unternehmen, Unternehmensteilen oder Beteiligungen, oder für die Finanzierung oder Refinanzierung solcher Transaktionen, oder für die Finanzierung von neuen Investitionsvorhaben der Gesellschaft; oder

      (b)  

for the acquisition of an enterprise, part(s) of an enterprise or participations, or for the financing or refinancing of any of such transactions, or for the financing of new investment plans of the Company; or

 

2


           
    (c)   zur Erweiterung des Aktionariats der Gesellschaft in gewissen Finanz- oder Kapitalmärkten, zum Zwecke der Beteiligung von strategischen Partnern, oder im Zusammenhang mit der Kotierung von neuen Aktien an in- und ausländischen Börsen; oder     (c)   for purposes of broadening the shareholder constituency of the Company in certain financial or capital markets, for purposes of the participation of strategic partners, or in connection with the listing of new shares on domestic or foreign stock exchanges; or
       
    (d)   zur Gewährung einer Mehrzuteilungsoption (einschliesslich bezüglich wandelbarer Wertpapiere, wie z.B. Wandelanleihen oder anderen) (Greenshoe) in der Höhe von bis zu 20% der gesamten Anzahl Aktien im Rahmen einer Platzierung oder eines Verkaufs von Aktien an den oder die jeweiligen Ersterwerber oder Underwriter(s); oder     (d)   for purposes of granting an over-allotment option (including options with respect to any security convertible into shares, such as convertible debt securities or otherwise) (Greenshoe) of up to 20% of the total number of shares in a placement or sale of shares to the respective initial purchaser(s) or underwriter(s); or
       
    (e)   für die Beteiligung von Mitgliedern des Verwaltungsrates oder der Geschäftsleitung, Mitarbeitern, Beauftragten, Beratern oder anderen Personen, die zugunsten der Gesellschaft oder einer Tochtergesellschaft oder einer verbundenen Gesellschaft Dienstleistungen erbringen; oder     (e)   for the participation of members of the Board of Directors, members of the executive management, employees, contractors, consultants or other persons performing services for the benefit of the Company or any of its subsidiaries or affiliates; or
       
    (f)  

(i) wenn eine Person wirtschaftlich Berechtigte (wie in Artikel 29 definiert) an mehr als 10% des im Handelsregister eingetragenen Aktienkapitals wird und nach Kenntnis des Verwaltungsrates in diesem Umfang wirtschaftlich Berechtigter bleibt, ohne den übrigen Aktionären ein vom Verwaltungsrat empfohlenes Übernahmeangebot unterbreitet zu haben, oder (ii) im Hinblick auf die Abwehr eines gegenwärtigen, angedrohten oder möglichen Übernahmeangebots, welches vom Verwaltungsrat nach Konsultation eines von ihm mandatierten unabhängigen Finanzberaters den Aktionären nicht zur Annahme empfohlen worden ist, weil der Verwaltungsrat nicht der Ansicht war, dass das Übernahmeangebot gegenüber den Aktionären als fair anzusehen ist.

 

    (f)   (i) following a person becoming, and for so long as to the knowledge of the Board of Directors such person remains, a Beneficial Owner (as defined in Article 29) of shares in excess of 10% of the share capital registered in the commercial register without having submitted to the other shareholders a takeover offer that is recommended by the Board of Directors, or (ii) for the defense of an actual, threatened or potential takeover bid, in relation to which the Board of Directors, upon consultation with an independent financial adviser retained by it, has not recommended to the shareholders acceptance on the basis that the Board of Directors has not found the takeover bid to be fair to the shareholders.
       
(4)  

Der Erwerb von Namenaktien aus genehmigtem Kapital sowie sämtliche weiteren Übertragungen von Namenaktien unterliegen den Eintragungsbeschränkung gemäss Artikel 7 der Statuten.

 

  (4)   The acquisition of registered shares out of authorized share capital and any further transfers of registered shares shall be subject to the restrictions specified in Article 7 of these Articles of Association.

 

3


   

Artikel 5   Bedingtes Aktienkapital

 

 

Article 5    Conditional Share Capital

     

(1)

 

  Das Aktienkapital der Gesellschaft wird erhöht:   (1)   The share capital of the Company shall be increased by:
           
    (a)   im Maximalbetrag von CHF 40’750’000 durch Ausgabe von höchstens 81’500’000 vollständig zu liberierenden Namenaktien mit einem Nennwert von CHF 0.50 je Aktie durch die Ausübung von Wandel-, Options-, Tausch-, Warrant-, oder ähnlichen Rechten, welche Dritten oder Aktionären in Verbindung mit Anleihensobligationen (inklusive Wandel- und Optionsanleihen), Schuldscheinen, Optionen, Warrants oder anderen Finanzmarktinstrumenten, welche durch die Gesellschaft oder eine ihrer Tochtergesellschaften auf nationalen oder internationalen Kapitalmärkten gemäss neuer oder bereits bestehender vertraglicher Verpflichtungen der Gesellschaft, einer ihrer Tochtergesellschaften oder einer ihrer Rechtsvorgänger begegeben oder eingegangen wurden oder werden (nachfolgend die “mit Rechten verbundenen Obligationen”); und/oder     (a)   an amount not exceeding CHF 40,750,000 through the issue of a maximum of 81,500,000 fully paid up registered shares, each with a nominal value of CHF 0.50, upon the exercise of conversion, option, exchange, warrant or similar rights for the subscription of shares granted to third parties or shareholders in connection with bonds (including convertible bonds and bonds with options), notes, options, warrants or other securities issued or to be issued by the Company or by subsidiaries of the Company in national or international capital markets or pursuant to new or already existing contractual obligations by or of the Company, one of its subsidiaries or any of their respective predecessors (hereinafter the “Rights Bearing Obligations”); and/or
       
    (b)  

im Maximalbetrag von CHF 12’500’000 durch Ausgabe von höchstens 25’000’000 vollständig zu liberierenden Namenaktien mit einem Nennwert von CHF 0.50 je Aktie durch die Ausübung von Rechten aus mit Rechten verbundenden Obligationen, welche an Mitglieder des Verwaltungsrats oder der Geschäftsleitung, Arbeitnehmer, Beauftragte, Berater oder andere Personen, welche für die Gesellschaft, deren Tochtergesellschaft oder verbundene Gesellschaften Dienstleistungen erbringen, gewährt wurden oder werden.

 

      (b)   an amount not exceeding CHF 12,500,000 through the issue of a maximum of 25,000,000 fully paid up registered shares, each with a nominal value of CHF 0.50 upon the exercise of rights related to Rights-Bearing Obligations granted to members of the Board of Directors, members of the executive management, employees, contractors, consultants or other persons providing services for the benefit of the Company or its subsidiaries or affiliates.
       
(2)  

Das Bezugsrecht der Aktionäre bezüglich der Aktien, welche gemäss Artikel 5 Absatz 1 ausgegeben werden, ist ausgeschlossen. Die Inhaber der mit Rechten verbundenen Obligationen, welche gemäss Artikel 5 Absatz 1 Buchstabe a ausgegeben worden sind, sind berechtigt, neue Aktien frei von jeglichen Bezugsrechten durch Wandel, Tausch oder Ausübung dieser mit Obligationen verbundenen Rechte zu beziehen. Der Verwaltungsrat legt die Ausgabekonditionen für die mit Rechten verbundenen Obligationen fest, inklusive die Bedingungen für die Wandlung, die Option, den Tausch, den Warrant oder ähnliche Rechte. Mit Rechten verbundene Obligationen gemäss Artikel 5 Absatz 1 Buchstabe b werden an die in dieser Bestimmung genannten Personen ausgegeben gemäss einem oder mehreren Beteiligungs-, Incentivierungs- oder ähnlichen Plänen. Mit Rechten verbundene Obligationen gemäss Artikel 5 Absatz 1 Buchstabe b und Aktien nach Ausübung solcher Rechte können unter dem aktuellen Marktpreis ausgegeben werden. Der Verwaltungsrat

 

  (2)  

Shareholders’ pre-emptive rights are excluded in connection with the issuance of any shares pursuant to para. 1 of this Article 5. The holders of Rights-Bearing Obligations issued pursuant to para. 1(a) of this Article 5 shall be entitled to receive free of any preemptive rights the new shares issued upon conversion, exchange or exercise of such Rights-Bearing Obligations. The Board of Directors shall determine the issue conditions for the Rights-Bearing Obligations, including the conditions for the conversion, option, exchange, warrant or similar rights. Rights-Bearing Obligations issued to para 1(b) of this Article 5 shall be issued to any of the persons referred to in such paragraph in accordance with one or more benefit, incentive or similar plans of the Company. Any Rights-Bearing Obligations issued in accordance with para. 1(b) of this Article 5 and any shares issued upon the exercise thereof may be issued at a price below the then current market price of such security. The Board of Directors shall specify the precise conditions of issue including the issue price and the conversion or exercise

 

 

4


   

bestimmt die genauen Ausgabekonditionen, inklusive den Ausgabepreis und den Umwandlungs- oder den Ausübungspreis solcher mit Rechten verbundenen Obligationen.

 

      price of such Rights-Bearing Obligations.
     
(3)  

Die Vorwegzeichnungsrechte der Aktionäre bei der Ausgabe von mit Rechten verbundenen Obligationen gemäss diesem Artikel 5 Absatz 1 Buchstabe a können durch Beschluss des Verwaltungsrates eingeschränkt oder ausgeschlossen werden, (i) wenn die Ausgabe zum Zwecke der Finanzierung oder Refinanzierung einer Übernahme von Unternehmen, Unternehmensteilen oder Beteiligungen oder neuen geplanten Investitionen der Gesellschaft oder ihrer Tochtergesellschaften dient (sei dies in Eigenkapital oder anderswie), (ii) wenn die Ausgabe auf nationalen oder internationalen Kapitalmärkten oder im Rahmen einer Privatplatzierung erfolgt oder (iii) (x) wenn eine Person wirtschaftlich Berechtigte an mehr als 10% des im Handelsregister eingetragenen Aktienkapitals wird und nach Kenntnis des Verwaltungsrates in diesem Umfang wirtschaftlich Berechtigter bleibt, ohne den übrigen Aktionären ein vom Verwaltungsrat empfohlenes Übernahmeangebot unterbreitet zu haben, oder (y) im Hinblick auf die Abwehr eines gegenwärtigen, angedrohten oder möglichen Übernahmeangebots, welches vom Verwaltungsrat nach Konsultation eines von ihm mandatierten unabhängigen Finanzberaters den Aktionären nicht zur Annahme empfohlen worden ist, weil der Verwaltungsrat nicht der Ansicht war, dass das Übernahmeangebot gegenüber den Aktionären als fair anzusehen ist.

 

  (3)   Shareholders’ advance subscription rights with regard to the issuance of the Rights-Bearing Obligations pursuant to para. 1(a) of this Article 5 may be restricted or excluded by decision of the Board of Directors (i) if the issuance is for purposes of financing or re-financing the acquisition of companies, parts of companies or holdings, or new investments planned by the Company or its subsidiaries (in equity or otherwise), (ii) if the issuance occurs in the national or international capital markets or through a private placement or (iii) (x) following a person becoming, and for so long as to the knowledge of the Board of Directors such person remains, a Beneficial Owner of shares in excess of 10% of the share capital registered in the commercial register without having submitted to the other shareholders a takeover offer that is recommended by the Board of Directors, or (y) for the defense of an actual, threatened or potential takeover bid, in relation to which the Board of Directors, upon consultation with an independent financial advisor retained by it, has not recommended to the shareholders acceptance on the basis that the Board of Directors has not found the takeover bid to be fair to the shareholders.
       
(4)  

Werden bei der Ausgabe von mit Rechten verbundenen Obligationen gemäss Absatz 1 Buchstabe a von diesem Artikel 5 die Vorwegzeichnungsrechte beschränkt oder ausgeschlossen und nicht indirekt gewährt, gilt vorbehältlich von Artikel 5 Absatz 4 Folgendes: (1) die mit Rechten verbundenen Obligationen müssen zu Marktkonditionen platziert oder eingegangen werden, (2) die mit Rechten verbundenen Obligationen sind höchstens während 30 Jahren ab dem jeweiligen Zeitpunkt der betreffenden Ausgabe wandel-, tausch-, oder ausübbar und (3) der Wandlungs-, Tausch-, oder Ausübungspreis der mit Rechten verbundenen Obligationen ist unter Berücksichtigung der Marktkonditionen im Zeitpunkt der Ausgabe der mit Rechten verbundenen Obligationen festzusetzen.

 

  (4)   If advance subscription rights are restricted or excluded in connection with the issuance of any Rights-Bearing Obligations pursuant to para. 1(a) of this Article 5 and not granted indirectly, then, subject to this Article 5 para. 4: (1) the Rights-Bearing Obligations are to be placed or entered into at market conditions, (2) the Rights-Bearing Obligations may be converted, exchanged or exercised during a period not to exceed 30 years from the date on which the Rights-Bearing Obligations are issued, and (3) the conversion, exchange or exercise price of the Rights-Bearing Obligations is to be set with reference to the market conditions prevailing at the date on which the Rights-Bearing Obligations are issued.
     
(5)  

Das Vorwegzeichnungsrecht der Aktionäre ist in Bezug auf die Ausgabe jeglicher mit Rechten verbundenen Obligationen nach Artikel 5 Absatz 1 Buchstabe b generell ausgeschlossen.

 

  (5)  

The advance subscription rights of the shareholders shall be generally excluded in connection with the issuance of any Rights-Bearing Obligations pursuant to para. 1(b) of this Article 5.

 

 

5


       
(6)   Der Erwerb von Namenaktien aus bedingtem Kapital durch Ausübung der entsprechenden Rechte sowie alle weiteren Übertragungen von Namenaktien unterliegen den Eintragungsbeschränkung gemäss Artikel 7 der Statuten.   (6)  

The acquisition of registered shares out of conditional capital through the exercise of the respective Rights-Bearing Obligations and any further transfers of registered shares shall be subject to the restrictions specified in Article 7 of these Articles of Association.

 

   

Artikel 6   Aktienzertifikate

 

Article 6    Share Certificates

 

       
(1)   Die Gesellschaft kann ihre Namenaktien in Form von Einzelzertifikaten, Globalzertifikaten oder unverurkundeten Wertrechten ausgeben. Der Aktionär hat kein Recht, eine Umwandlung der Form der Namenaktien zu verlangen. Die Gesellschaft kann als Bucheffekten ausgestaltete Namenaktien vom Verwahrungssystem zurückziehen.   (1)  

The Company may issue its registered shares in the form of single certificates, global certificates or uncertificated securities. The shareholder has no right to demand a conversion of the form of the registered shares. The Company may withdraw shares existing in the form of book entry securities from the custodian system.

 

       
(2)   Ein Aktionär kann von der Gesellschaft jederzeit die Bescheinigung über die Anzahl der von ihm gehaltenen Aktien verlangen. Der Aktionär ist jedoch nicht berechtigt, zu verlangen, dass die Aktienzertifikate gedruckt und geliefert werden.   (2)  

A shareholder may at any time request an attestation of the number of shares held by it. The shareholder is not entitled, however, to request that certificates representing the shares be printed and delivered.

 

       
(3)   Nicht verurkundete Namenaktien einschliesslich der daraus entspringenden Rechte können nur durch Zession übertragen werden, wobei diese zur Gültigkeit der Anzeige an die Gesellschaft bedarf, bzw., soweit Bucheffekten vorliegen, gemäss der für Bucheffekten relevanten Verfügungsform. Die Übertragung und die Eintragung im Aktienbuch dieser Aktien unterliegt den Voraussetzungen von Artikel 7.   (3)  

Registered shares not physically represented by certificates and the rights arising therefrom may only be transferred by assignment, such assignment being valid only if notice is given to the Company, or, if book entry securities exist, in the form relevant for book entry securities. The transfer and registration of such shares in the share register shall be subject to the provisions of Article 7.

 

       
(4)   Nicht verurkundete Namenaktien sowie die daraus entspringenden Vermögensrechte können ausschliesslich zugunsten der Bank, welche die Aktien im Auftrag des betreffenden Aktionärs verwaltet, verpfändet (oder sonstwie als Sicherheit gewährt) werden. Die Verpfändung bzw. Sicherheitengewährung bedarf eines schriftlichen Vertrages. Eine Benachrichtigung der Gesellschaft ist nicht erforderlich. Soweit die Namenaktien als Bucheffekten ausgestaltet sind, können an diesen Sicherheiten in der gesetzlich vorgesehenen Form bestellt werden.   (4)  

Registered shares not physically represented by certificates and the financial rights arising from these shares may only be pledged (or have a security interest therein otherwise granted) to the bank handling the book entries of such shares for the shareholder. The pledge or other grant of a security interest must be made by means of a written agreement. Notice to the Company is not required. If book entry securities exist in relation to the registered shares, security interests may be granted in the form provided for by law.

 

   

Artikel 7     Aktienbuch, Ausübung von Rechten,

                     Eintragungsbeschränkungen, Nominees

 

Article 7      Share Register, Exercise of Rights, Restrictions

                      on Registration, Nominees

 

       
(1)   Die Gesellschaft führt selbst oder über Dritte ein Aktienbuch, welches Nachnamen, Vornamen, Adresse und Staatsangehörigkeit (bei juristischen Personen den Firmennamen und den Sitz) der Eigentümer und Nutzniesser der Aktien sowie der Nominees enthält. Ins  

(1)

 

 

The Company shall maintain, itself or through a third party, a share register that lists the surname, first name, address and citizenship (in the case of legal entities, the company name and company seat) of the holders and usufructuaries of the shares as well as the nominees. A

 

 

6


   

Aktienbuch eingetragene Personen haben dem Führer des Aktienbuches Adressänderungen zu melden. Bis eine solche Meldung erfolgt, werden schriftliche Mitteilungen an die im Aktienbuch eingetragene Adresse als gültig zugestellt erachtet.

     

person recorded in the share register shall notify the share registrar of any change in address. Until such notification has occurred, all written communication from the Company to persons of record shall be deemed to have validly been made if sent to the address recorded in the share register.

 

       
(2)  

Ein Erwerber von Aktien wird auf Gesuch als Aktionär mit Stimmrecht ins Aktienbuch eingetragen, vorausgesetzt, dass der Verwaltungsrat oder ein vom Verwaltungsrat bezeichneter Ausschuss dem Eintrag zustimmt. Der Eintrag kann aus einem der in diesem Artikel 7 genannten Gründe verweigert oder rückwirkend gestrichen werden.

 

  (2)   An acquirer of shares shall be recorded upon request in the share register as a shareholder with voting rights; provided that the Board of Directors or a committee designated by the Board of Directors approves the entry. Registration may be refused or canceled with retroactive effect on the grounds listed in this Article 7.
       
(3)  

Erklärt ein Erwerber nicht ausdrücklich, dass er die Aktien im eigenen Namen und für eigene Rechnung erworben hat und dass er der wirtschaftliche Eigentümer der Aktien ist, kann der Verwaltungsrat oder ein von diesem bezeichneter Ausschuss die Eintragung als Aktionär mit Stimmrecht im Aktienbuch verweigern, wobei vorbehältlich Artikel 7 Absatz 6 der Verwaltungsrat oder ein von diesem bezeichneter Ausschuss einen Nominee als Aktionär mit Stimmrecht im Aktienbuch eintragen kann, sofern der Nominee der Gesellschaft auf schriftliches Verlangen der Gesellschaft die Namen, Adressen und Aktienbestände jeder einzelnen Person offenlegt, für die er direkt oder indirekt Aktien hält, oder sich verpflichtet, diese Informationen jederzeit offenzulegen.

 

  (3)   The entry of shares as shares with voting rights may be refused by the Board of Directors or a committee designated by the Board of Directors if any shareholder who acquired shares does not expressly declare to have acquired the shares in its own name and for its own account and to be the Beneficial Owner, save that, subject to this Article 7, para. 6, the Board of Directors or a committee designated by the Board of Directors may record a Nominee as a shareholder of record that is entitled to vote in the share register of the Company if such Nominee discloses or undertakes to disclose to the Company at its written request at any time the names, addresses and the share holdings of each person for whom such Nominee is directly or indirectly holding shares.
       
(4)  

Sofern der in guten Treuen handelnde Verwaltungsrat zum Schluss kommt, dass die Eintragung im Aktienbuch auf falschen oder irreführenden Angaben beruht, so kann der Verwaltungsrat nach Anhörung des betreffenden eingetragenen Aktionärs die Eintragung als Aktionär mit Stimmrecht für alle oder für bestimmte Aktien rückwirkend auf das Datum der Eintragung streichen. Der betroffene Aktionär wird umgehend über die Streichung informiert.

 

  (4)  

The Board of Directors may cancel the registration in the share register of a registered shareholder as a shareholder with voting rights, in whole or with respect to specific shares, with retroactive effect as of the date of registration, if the Board of Directors concludes, in good faith after providing such shareholder a hearing, that such registration was made based on false or misleading information. The relevant shareholder shall be informed promptly of the cancellation.

 

       
(5)  

Keine Person wird als Aktionärin mit Stimmrecht in dem Umfang im Aktienbuch eingetragen, in dem die Aktien, an der sie wirtschaftlich berechtigt ist (wie in Artikel 29 definiert), 20% minus eine Aktie des im Handelsregister eingetragenen Aktienkapitals übersteigen (diese Schranke hiernach die “Eintragungsbeschränkung”). Die Eintragungsbeschränkung gilt auch für alle Aktien, welche für den wirtschaftlich Berechtigten durch einen Nominee gehalten werden in Bezug auf alle Aktien, die von einem solchen wirtschaftlich Berechtigten direkt oder indirekt durch einen oder mehrere Nominees gehalten werden. Diejenigen Aktien, an denen eine Person wirtschaftlich berechtigt ist und die die

 

  (5)   No person may be registered as a shareholder with voting rights for any shares Beneficially Owned (as defined in Article 29) by such person in excess of 20% less one share of the Company’s registered share capital recorded in the commercial register (such limit hereinafter referred to as the “Cap”). The Cap on registration shall also apply with respect to shares held by Nominees on behalf of a Beneficial Owner in respect of all shares Beneficially Owned by such Beneficial Owner whether directly or indirectly through one or more Nominees. Any shares Beneficially Owned by any person exceeding the Cap shall be entered in the share register as shares without voting rights. Determinations

 

7


   

Eintragungsbeschränkung übersteigen, werden als Aktien ohne Stimmrecht im Aktienbuch eingetragen. Der nach Treu und Glauben handelnde Verwaltungsrat bestimmt die Anzahl Aktien, an welcher einer Person wirtschaftlich berechtigt ist. Zwecks Umsetzung der Bestimmungen dieses Artikels ist der Verwaltungsrat ermächtigt, jederzeit von jeder Person, welche entweder öffentlich bekanntgibt, an Aktien wirtschaftlich berechtigt zu sein, einschliesslich durch Meldungen an die SEC, oder der Gesellschaft dies anzeigt, zu verlangen, dass diese Person Auskunft gibt hinsichtlich aller Aktien, an denen sie wirtschaftlich berechtigt ist, das heisst, welche entweder direkt durch sie oder indirekt durch Nominees oder andere Personen zu ihren Gunsten gehalten werden.

 

      with respect to the number of shares Beneficially Owned by any person shall be made by the Board of Directors acting in good faith. In furtherance of the provisions of this section, the Board of Directors is authorized at any time to request from any person which discloses publicly, including in any filing with the SEC, or to the Company, that it Beneficially Owns shares, that such person provide information with respect to all shares that it Beneficially Owns, either directly or which are being held by Nominees or other persons on its behalf.
       
(6)  

Der Verwaltungsrat oder ein vom Verwaltungsrat bezeichneter Ausschuss kann weitere Einzelheiten bezüglich Genehmigung und Eintragung von Aktionären in separaten Reglementen vorsehen und Ausnahmen von den oben erwähnten Bestimmungen gewähren, einschliesslich (im Sinne einer nicht abschliessenden Aufzählung) (i) zugunsten von Nominees und Clearing Nominees mit Bezug auf alle oder bestimmte Bestimmungen von Artikel 7 und (ii) mit Bezug auf alle oder bestimmte der oben erwähnten Bestimmungen (inklusive der Eintragungsbeschränkung) hinsichtlich Aktien, an denen eine Gegenpartei zu einer Fusion, einem Zusammenschluss, einem Joint Venture, einer Partnerschaft, einem Aktientausch, einer strategischen Allianz oder einer Sacheinlage wirtschaftlich berechtigt ist oder einer Person, die in einer Spaltung, einer Umwandlung oder in andere besondere Umstände involviert ist, wie bspw. ein Übernahmeangebot in Bezug auf die Gesellschaft, welches die Gesellschaft handelnd durch die Mehrheit des Verwaltungsrates gutgeheissen und den Aktionären der Gesellschaft zur Annahme empfohlen hat.

 

  (6)   The Board of Directors or a committee designated by the Board of Directors may set out further details regarding the approval and registration of shareholders in separate regulations and may approve exceptions to the above regulations, including without limitation (i) to exempt Nominees and Clearing Nominees from all or some of the requirements set out in this Article 7 and (ii) to exempt from some or all of the above provisions (including the Cap) any shares Beneficially Owned by a counterparty to a merger, consolidation, joint venture, partnership, share exchange, strategic alliance or contribution in kind or a person involved in a demerger, conversion or other special circumstances such as a tender offer in relation to the Company that the Company acting through a majority of the Board of Directors has approved and recommended to the Company’s shareholders.
       
(7)  

Falls die Gesellschaft an einer ausländischen Börse kotiert ist, ist die Gesellschaft berechtigt, die einschlägigen ausländischen Bestimmungen und Regularien (falls vorhanden), welche in der ausländischen Jurisdiktion im Zusammenhang mit der in diesem Artikel 7 geregelten Materie zur Anwendung gebracht werden, zu befolgen, ungeachtet gegenteiliger Ausführungen in diesem Artikel 7.

 

  (7)   If the Company is listed on any foreign stock exchange the Company shall be permitted to comply with the relevant rules and regulations (if any) that are applied in that foreign jurisdiction with regard to the subject matter of this Article 7, notwithstanding anything to the contrary in this Article 7.

 

8


   

Artikel 8   Befugnisse

 

 

Article 8    Authorities

   
Die Generalversammlung ist das oberste Organ der Gesellschaft. Sie hat die folgenden unübertragbaren Befugnisse:  

The General Meeting of Shareholders is the supreme corporate body of the Company. It has the following non-transferable powers:

 

       

(1)

 

  die Festsetzung und die Änderung der Statuten;   (1)   to adopt and amend the Articles of Association;
       
(2)   die Wahl und Abwahl der Mitglieder des Verwaltungsrates und der Revisionsstelle;   (2)  

to elect and remove the members of the Board of Directors and the Auditor;

 

       
(3)  

die Genehmigung des gesetzlich vorgesehenen Jahresberichtes, der Jahresrechnung und der Konzernrechnung sowie die Beschlussfassung über die Verwendung des Bilanzgewinns (wie in der Bilanz gezeigt), insbesondere im Hinblick auf die Festsetzung der Dividende;

 

  (3)   to approve the statutorily required annual report, the annual accounts and the consolidated financial statements as well as to pass resolutions regarding the allocation of profits as shown on the balance sheet, in particular to determine the dividend;
       
(4)   die Entlastung der Mitglieder des Verwaltungsrates;   (4)  

to grant discharge from liability to the members of the Board of Directors;

 

       
(5)   die Ausschüttung einer Dividende an die Aktionäre bestehend aus den gesamten oder eines Teils der verfügbaren Reserven und des vorgetragenen Gewinnes;   (5)  

to distribute all or any part of any amount from the available reserves and profits carried forward as a dividend to its shareholders;

 

       
(6)  

die Beschlussfassung über die Rückzahlung von Kapital (Vernichtung von Aktien oder Nennwertreduktion); und

 

  (6)   to resolve on any return of capital (cancelation of shares or reduction of par value); and
       
(7)   die Beschlussfassung über die Gegenstände, die der Generalversammlung durch Gesetz oder Statuten vorbehalten sind oder welche ihr vom Verwaltungsrat vorgelegt werden.   (7)  

to pass resolutions regarding items which are reserved to the General Meeting of Shareholders by law or by the Articles of Association or which are presented to it by the Board of Directors.

 

   

Artikel 9   Generalversammlungen sowie deren Einberufung

 

Article 9      General Meetings and Convening the General

                     Meeting

 

       
(1)  

Die ordentliche Generalversammlung findet alljährlich innerhalb von sechs Monaten nach Abschluss des Geschäftsjahres statt. Der Zeitpunkt und der Ort der Generalversammlung, welcher innerhalb oder ausserhalb der Schweiz liegen kann, werden durch den Verwaltungsrat bestimmt.

 

  (1)   The ordinary annual General Meeting of Shareholders shall be held annually within six months after the close of the business year at such time and at such location, which may be within or outside Switzerland, as determined by the Board of Directors.
       
(2)   Ausserordentliche Generalversammlungen werden in den vom Gesetz vorgesehenen Fällen einberufen, insbesondere wenn dies vom Verwaltungsrat als nötig oder angemessen erachtet oder von der Revisionsstelle verlangt wird. Eine ausserordentliche Generalversammlung ist zudem vom Verwaltungsrat einzuberufen, wenn ein Beschluss der Generalversammlung dies verlangt oder Aktionäre, die mit ausübbaren Stimmrechten mindestens 10% der insgesamt ausübbaren Stimmrechte vertreten, dies verlangen und (a)(1) ein von allen betreffenden Aktionären unterzeichnetes Gesuch mit den   (2)  

Special General Meetings of Shareholders shall be held in the circumstances provided by law, in particular when deemed necessary or appropriate by the Board of Directors or as requested by the Auditor. A special General Meeting of Shareholders shall further be convened by the Board of Directors upon resolution of a General Meeting of Shareholders or if requested by shareholders with voting powers, provided that such shareholders’ voting power represents at least 10% of the Company’s aggregate exercisable voting power of the Company’s share capital and submit (a)(1) a request signed by such shareholder(s) that specifies the item(s)

 

 

9


   

entsprechenden Traktanden, und (2) den entsprechenden Anträgen einreichen und (3) den Nachweis für den im Aktienbuch eingetragenen erforderlichen Aktienanteil erbringen sowie (b) weitere Informationen einreichen, die in einem Proxy Statement gemäss Regulation 14A Exchange Act enthalten sein müssten, inklusive derjenigen Informationen, die in einem Proxy Statement gemäss Regulation 14A eingereicht werden müssten, wenn die Versammlung auf Veranlassung des Verwaltungsrats einberufen worden wäre.

 

      to be included on the agenda, (2) the respective proposals of the shareholders and (3) evidence of the required shareholdings recorded in the share register and (b) such other information as would be required to be included in a proxy statement pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the meeting been convened by the Board of Directors.
       
(3)  

Die Generalversammlung wird auf Englisch abgehalten. Vorbehalten bleibt ein anderslautender Beschluss des Verwaltungsrates. Aktionärsbeschlüsse, die zu einem Eintrag im Handelsregister führen, sind sowohl in Englisch als auch in Deutsch zu verabschieden.

 

  (3)   General Meetings of Shareholders will, unless the Board of Directors decides otherwise, be conducted in English. Shareholder resolutions requiring registration in the commercial register shall be passed in English and German.
   

Artikle 10 Einladung zur Generalversammlung

 

 

Article 10 Notice of Shareholders’ Meetings

 

       
(1)   Die Einladung zur Generalversammlung erfolgt mindestens 20 Kalendertage vor dem Datum der Generalversammlung durch den Verwaltungsrat oder, wenn nötig, durch die Revisionsstelle. Die Einladung erfolgt durch einmalige Publikation im offiziellen Publikationsorgan der Gesellschaft gemäss Artikel 27 dieser Statuten. Die Frist gilt als eingehalten, wenn die Einberufung im offiziellen Publikationsorgan rechtzeitig publiziert worden ist, wobei der Tag der Publikation und der Tag der Generalversammlung nicht in die Frist eingerechnet wird. Im Aktienbuch eingetragene Aktionäre können zusätzlich mit normaler Post oder durch andere vom Verwaltungsrat festgelegte Mittel zur Generalversammlung eingeladen werden.   (1)  

Notice of a General Meeting of Shareholders shall be given by the Board of Directors or, if necessary, by the Auditor, not later than twenty calendar days prior to the date of the General Meeting of Shareholders. Notice of the General Meeting of Shareholders shall be given by way of a one-time announcement in the official means of publication of the Company pursuant to Article 27 of these Articles of Association. The notice period shall be deemed to have been observed if timely publication of the notice of the General Meeting of Shareholders is given in such official means of publication, it being understood that the date of publication and the date of the General Meeting of Shareholders is not to be included for purposes of computing the notice period. Shareholders of record may in addition be informed of the General Meeting of Shareholders by ordinary mail or such other means as determined by the Board of Directors.

 

       
(2)  

In der Einladung zur Generalversammlung der Aktionäre werden die Traktanden und die Anträge des Verwaltungsrates sowie, unter Vorbehalt von Artikel 9 und 11 dieser Statuten, desjenigen Aktionärs oder derjenigen Aktionäre bekannt gegeben, welche die Einberufung einer Generalversammlung oder die Traktandierung eines Verhandlungsgegenstandes verlangt haben, und, falls Wahlen traktandiert sind, die Namen der Kandidaten, welche zur Wahl stehen.

 

  (2)  

The notice of a General Meeting of Shareholders shall specify the items on the agenda and the proposals of the Board of Directors and, subject to Article 9 and Article 11 of these Articles of Association, the shareholder(s) who requested that a General Meeting of Shareholders be held or an item be included on the agenda, and, in the event of elections, the name(s) of the candidate(s) that has or have been put on the ballot for election.

 

   

Artikel 11 Traktanden

 

 

Article 11 Agenda

 

       
(1)  

Der Verwaltungsrat nimmt die Traktandierung der Verhandlungsgegenstände vor.

 

  (1)   The Board of Directors shall state the matters on the agenda.

 

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(2)  

Jeder Aktionär, der die Voraussetzungen von Art. 699 OR erfüllt, kann die Traktandierung eines Verhandlungsgegenstandes für eine Generalversammlung verlangen. Das Traktandierungsbegehren eines Aktionärs für die ordentliche Generalversammlung muss schriftlich gestellt und dem Sekretär an der registrierten Geschäftsadresse der Gesellschaft abgeliefert oder per Post gesandt und von diesem empfangen worden sein, und zwar nicht früher als zum Geschäftsschluss des 70. Kalendertags und nicht später als zum Geschäftsschluss des 45. Kalendertags vor dem ersten Jahrestag des Datums, an dem die Gesellschaft erstmalig das definitive Proxy Material für die letztjährige ordentliche Generalversammlung versandte. Falls jedoch im vergangenen Jahr keine ordentliche Generalversammlung der Aktionäre stattgefunden hat oder falls das Datum, für welches die ordentliche Generalversammlung angesetzt worden ist, um mehr als 30 Tage vom Datum der letztjährigen ordentlichen Generalversammlung abweicht, muss das Traktandierungsbegehren eines Aktionärs nicht früher als zum Geschäftsschluss des 100. Kalendertages vor dem Datum einer solchen ordentlichen Generalversammlung und nicht später als am Geschäftsschluss (A) des 75. Kalendertages vor dem Datum einer solchen ordentlichen Generalversammlung der Aktionäre oder (B) des zehnten Kalendertages nach dem Tag, an welchem die an die Aktionäre gerichtete erste öffentliche Bekanntmachung oder andere Form der Mitteilung des Datums der in Aussicht gestellten ordentlichen Generalversammlung der Aktionäre erfolgte (wobei der spätere Termin massgeblich ist). Im Hinblick auf eine ausserordentliche Generalversammlung muss ein schriftliches Traktandierungsbegehren dem Sekretär an der registrierten Geschäftsadresse der Gesellschaft abgeliefert oder per Post gesandt und von diesem empfangen worden sein und zwar nicht früher als zum Geschäftsschluss des 90. Kalendertags vor dem Datum der ausserordentlichen Generalversammlung der Aktionäre und nicht später als zum Geschäftsschluss (i) des 60. Kalendertags vor dem Datum der ausserordentlichen Generalversammlung der Aktionäre oder (ii) des zehnten Kalendertages nach dem Tag, an welchem die an die Aktionäre gerichtete erste öffentliche Bekanntmachung oder andere Form der Mitteilung des Datums der in Aussicht gestellten ausserordentlichen Generalversammlung der Aktionäre erfolgte (wobei der spätere Termin massgeblich ist). Keinesfalls darf die Ankündigung einer Verschiebung oder Vertagung einer Generalversammlung eine neue Frist für ein Traktandierungsbegehren gemäss Artikel 11 auslösen, wobei aber die grundsätzlichen Einberufungsvoraussetzungen gemäss Artikel 10 Absatz 1 stets Anwendung finden.

 

  (2)   Any shareholder satisfying the requirements of article 699 of the Swiss Code of Obligations may request that an item be included on the agenda of a General Meeting of Shareholders. A request for inclusion of an item on the agenda of an annual General Meeting must be requested in writing and must be delivered to or mailed and received by the Secretary at the registered office of the Company not earlier than the close of business on the 70th calendar day nor later than the close of business on the 45th calendar day before the first anniversary of the date on which the Company first mailed the definitive proxy materials for the previous year’s annual General Meeting of Shareholders. However, if no annual General Meeting of Shareholders was held in the previous year or if the date for which the annual General Meeting of Shareholders is called has been changed by more than 30 calendar days from the first annual anniversary of the immediately preceding annual General Meeting of Shareholders, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 100th calendar day prior to the date of such annual General Meeting of Shareholders and not later than the later of the close of business on (A) the 75th calendar day prior to the date of such annual General Meeting of Shareholders or (B) the 10th calendar day following the day on which public announcement or other notification to the shareholders of the date of such annual General Meeting of Shareholders is first made. To be timely for a special General Meeting of Shareholders, a request to include an item on the agenda must be requested in writing and must be delivered to or mailed and received by the Secretary at the registered office of the Company not earlier than the close of business on the 90th calendar day prior to the date of the special General Meeting of Shareholders and not later than the later of the close of business on (i) the 60th calendar day before the date of the special General Meeting of Shareholders or (ii) the date which is ten calendar days after the date of the first public announcement or other notification to the shareholders of the date of such special General Meeting of Shareholders. In no event shall the announcement of an adjournment or postponement of a General Meeting of Shareholders commence a new time period for the giving of a shareholder notice as described in this Article 11, although the general notice requirement of Article 10, para. 1 shall still apply.

 

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(3)  

Das Traktandierungsbegehren des Aktionärs muss vom im Aktienbuch eingetragenen Aktionär, welcher das Begehren stellt (oder einem rechtsgültigen Vertreter oder anderen Repräsentanten) unterschrieben sein, das Datum der Unterschrift dieses Aktionärs (oder des rechtsgültigen Vertreters oder anderen Repräsentanten) tragen und Folgendes enthalten: (i) Name und Adresse des Aktionärs, wie sie im Aktienbuch der Gesellschaft erscheinen, welcher das Begehren stellt und des wirtschaftlich Berechtigten oder der wirtschaftlich Berechtigten (sofern vorhanden), in deren Namen das Begehren gestellt wird, (ii) die Anzahl Aktien, die der betreffende Aktionär oder der wirtschaftlich Berechtigte hält bzw. die wirtschaftlich Berechtigten halten, (iii) eine Bestätigung, dass der betreffende Aktionär beabsichtigt, persönlich oder über einen Vertreter an der Generalversammlung teilzunehmen, um das traktandierte Begehren vorzubringen; (iv) die Daten, wann der Aktionär die betreffenden Aktien erworben hat, (v) schriftliche Unterlagen, um eine etwaige wirtschaftliche Berechtigung zu belegen; (vi) im Falle eines Traktandums betreffend die Wahl von Verwaltungsräten, (A) der Name und die Wohnadresse jeder Person, die durch einen Aktionär zur Wahl als Verwaltungsratsmitglied vorgeschlagen wird, (B) eine Beschreibung aller Vereinbarungen oder gegenseitiger Verständnisse zwischen dem Aktionär oder dem wirtschaftlich Berechtigten oder den wirtschaftlich Berechtigten und jedem Nominee und sonstiger Person oder Personen (wobei diese Person(en) aufzuführen sind), darüber, dass der Aktionär die Nomination vorzunehmen hat, (C) andere Informationen betreffend jede einzelne nominierte Person, welcher von einem Aktionär vorgeschlagen worden ist, wie sie gemäss Regulation 14A Exchange Act im Rahmen von Aufforderungen zur Abgabe von Vollmachten für die Wahl von Verwaltungsratsmitgliedern, oder sonstwie offengelegt werden müssen, inklusive jener Informationen, die in einem Proxy Statement enthalten sein müssten, welches gemäss Regulation 14A einzureichen wäre, wenn die nominierte Person durch den Verwaltungsrat vorgeschlagen worden wäre, und (D) die schriftliche Einwilligung jeder nominierten Person, in einem Proxy Statement aufgeführt zu werden und die Wahl als Verwaltungsrat der Gesellschaft im Falle eines positiven Wahlausgangs anzunehmen, und (vii) mit Bezug auf jedes andere Traktandum, welches der Aktionär zur Traktandierung beantragt, (I) eine kurze Umschreibung des gewünschten Traktandums und der Anträge, welche der Generalversammlung unterbreitet werden sollen, und, falls das Traktandum zu einem Antrag auf Änderung der Statuten führt, die Formlierung der vorgeschlagenen Statutenänderung, (II) die Gründe, weshalb der Aktionär oder der wirtschaftlich Berechtigte

 

  (3)   Such shareholder’s notice requesting inclusion of an item on the agenda of the General Meeting of Shareholders shall be signed by the shareholder of record making such request (or his or her duly authorized proxy or other representative), shall bear the date of signature of such shareholder (or proxy or other representative) and shall set forth: (i) the name and address, as they appear on the Company’s register of shareholders, of the shareholder proposing such business and the Beneficial Owner or Beneficial Owners, if any, on whose behalf such request is made; (ii) the number of shares of the Company which are legally and beneficially owned by such shareholder or Beneficial Owner or Beneficial Owners; (iii) a representation that such shareholder intends to appear in person or by proxy at the General Shareholder Meeting to introduce the business specified in the agenda item included in such notice; (iv) the dates upon which the shareholder acquired such shares; (v) documentary support for any claim of Beneficial Ownership; (vi) in the case of any agenda item relating to the election of directors, (A) the name and residence address of any person or persons to be nominated for election as a director by such shareholder, (B) a description of all arrangements or understandings between such shareholder or Beneficial Owner or Beneficial Owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareholder, (C) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors and (D) the written consent of each nominee to be named in a proxy statement and to serve as a director of the Company if so elected; and (vii) in the case of any agenda item relating to other business that such shareholder proposes to bring before the meeting, (I) a brief description of the business desired to be brought before the General Shareholders Meeting and, if such business includes a proposal to amend these Articles of Association, the language of the proposed amendment, (II) such shareholder’s and Beneficial Owner’s or Beneficial Owners’ reasons for conducting such business at the meeting and (III) any material interest in such business of such shareholder and Beneficial Owner or Beneficial Owners.

 

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oder die wirtschaftlich Berechtigten das jeweilige Traktandum der Generalversammlung unterbreiten und (III) wesentliche Interesse des Aktionärs bzw. des wirtschaftlich Berechtigten oder der wirtschaftlichen Berechtigten an der traktandierten Angelegenheit.

 

       
       
(4)  

Die Aktionäre haben ausserdem die anwendbaren Bestimmungen des Exchange Acts und der gemäss dem Exchange Act erlassenen Regeln und Regulierungen einzuhalten, soweit die in diesem Artikel 11 geregelte Materie betrofffen ist, einschliesslich der Rule 14a-4 und/oder der Rule 14a-8 des Exchange Acts. Sofern die Gesellschaft ausserdem an einer ausländischen Börse kotiert ist, ist die Gesellschaft berechtigt, die einschlägigen ausländischen Bestimmungen (falls relevant) im Zusammenhang mit der in diesem Artikel 11 geregelten Materie zu befolgen, ungeachtet gegenteiliger Ausführungen in diesem Artikel 11.

 

  (4)  

In addition, shareholders shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article 11, including Rule 14a-4 and/or Rule 14a-8 of the Exchange Act. In addition, if the Company is listed on any foreign stock exchange, the Company shall be permitted to comply with the relevant rules and regulations (if any) that are applied in that foreign jurisdiction with regard to the subject matter of this Article 11, notwithstanding anything to the contrary in this Article 11.

 

       
(5)  

Über Anträge zu nicht gehörig angekündigten Traktanden können an einer Generalversammlung keine Beschlüsse gefasst oder Abstimmungen durchgeführt werden. Anträge während der ordentlichen Generalversammlung, die (i) auf Einberufung einer ausserordentlichen Generalversammlung oder (ii) auf Einleitung einer Sonderprüfung gemäss Art. 697a OR lauten, müssen nicht wie oben beschrieben gehörig angekündigt werden.

 

  (5)  

No resolution or other vote may be passed at a General Meeting of Shareholders concerning an agenda item in relation to which due notice was not given. Proposals made during a General Meeting of Shareholders to (i) convene a special General Meeting or (ii) initiate a special investigation in accordance with article 697a of the Swiss Code of Obligations are not subject to the due notice requirement set forth herein.

 

       
(6)  

Nicht im Voraus angekündigt werden müssen Anträge, die traktandierte Verhandlungsgegenstände betreffen oder über die kein Beschluss gefasst werden soll.

 

  (6)   No prior notice is required to bring motions related to items already on the agenda or for the discussion of matters on which no resolution is to be taken.
   

Artikel 12 Vorsitz, Protokoll

 

 

Article 12 Chair, Minutes

       
(1)  

Den Vorsitz in der Generalversammlung führt der Präsident des Verwaltungsrates oder bei dessen Abwesenheit ein anderes vom Verwaltungsrat bezeichnetes Mitglied des Verwaltungsrates oder ein anderer von der Generalversammlung für den betreffenden Tag bezeichneter Vorsitzender.

 

  (1)   The General Meeting shall be chaired by the Chairman, or, in his or her absence, by another member of the Board of Directors designated by the Board of Directors, or by another Chairman elected for that day by the General Meeting.
       
(2)  

Der Vorsitzende der Generalversammlung hat die für die Sicherstellung der ordnungsgemässen Durchführung einer Generalversammlung notwendigen und angemessenen Kompetenzen, einschliesslich der Kompetenz, die Versammlung zu vertagen.

 

  (2)  

The acting chair of the General Meeting of Shareholders shall have all powers and authority necessary and appropriate to ensure the orderly conduct of the General Meeting of Shareholders, including the power and authority to adjourn the meeting.

 

       
(3)  

Der Vorsitzende bezeichnet einen Protokollführer sowie die Stimmenzähler (welche nicht Aktionäre sein müssen).

 

  (3)  

The Chairman shall designate a Secretary for the minutes as well as the vote counters (who need not be shareholders).

 

 

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(4)  

Der Verwaltungsrat ist für die Protokollführung verantwortlich. Das Protokoll wird vom Vorsitzenden und vom Protokollführer unterzeichnet.

 

  (4)  

The Board of Directors shall be responsible for the keeping of the minutes, which are to be signed by the Chairman and by the Secretary.

 

   

Artikel 13 Recht zur Teilnahme und Vertretung

 

 

Article 13 Right to Participation and Representation

 

       
(1)  

Jeder im Aktienbuch eingetragene Aktionär mit Stimmrecht ist zur Teilnahme an der Generalversammlung sowie an dort abgehaltenen Abstimmungen berechtigt. Die Aktionäre dürfen sich durch Bevollmächtigte, die keine Aktionäre sein müssen, vertreten lassen. Der Verwaltungsrat kann eine Verfahrensordnung erlassen, welche die Einzelheiten des Rechtes zur Teilnahme und Vertretung an der Generalversammlung regelt.

 

  (1)  

Each shareholder recorded in the share register with voting rights is entitled to participate at the General Meeting of Shareholders and in any vote taken. The shareholders may be represented by holders of proxies who need not be shareholders. The Board of Directors may issue the particulars of the right to representation and participation at the General Meeting of Shareholders in procedural rules.

 

       
(2)  

Zur Bestimmung der Aktionäre, welche zu einer Generalversammlung einzuladen und dort stimmberechtigt sind, kann der Verwaltungsrat einen Stichtag festlegen.

 

  (2)  

In order that the Company may determine the shareholders entitled to notice of or to vote at any General Meeting of Shareholders, the Board of Directors may fix a record date.

 

   

Artikel 14 Stimmrechte

 

 

Article 14 Voting Rights

 

       
(1)  

Jede Aktie, die als Aktie mit Stimmrecht eingetragen ist, berechtigt zu einer Stimme. Das Stimmrecht steht unter dem Vorbehalt des Artikels 7 und dieses Artikels 14 der Statuten.

 

  (1)  

Each share registered with voting rights shall convey the right to one vote subject to the provisions of Article 7 and this Article 14 of these Articles of Association.

 

       
(2)  

Wenn ein Clearing Nominee Vollmachten an Teilnehmer gewährt, müssen die Teilnehmer gegenüber der Gesellschaft auf deren schriftliche Anfrage die Namen, Adressen und Aktienbestände jeder Person offenlegen, für die der Teilnehmer Aktien hält. Der Verwaltungsrat kann mittels eines Ermessensentscheids die Ausübung von Stimmrechten oder die Anerkennung von Vollmachten verweigern, wenn sich ein Nominee oder Teilnehmer weigert, gegenüber der Gesellschaft die erwähnten Informationen offenzulegen.

 

  (2)  

If a Clearing Nominee grants proxies to Participants, the Participants must disclose to the Company at its written request the names, addresses and share holdings of each of the persons who have deposited shares with such Participant. The Board of Directors may, in its discretion, refuse to give effect to any such proxy if a Participant fails to make the required disclosure.

 

       
(3)  

Wenn ein Nominee Stimmrechte auszuüben oder Vollmachten zu gewähren wünscht, muss er gegenüber der Gesellschaft auf deren schriftliche Anfrage die Namen, Adressen und Aktienbestände jeder Person offenlegen, für die der Nominee diejenigen Aktien hält, deren Stimmrecht er auszuüben oder bezüglich derer er Vollmachten zu erteilen wünscht. Der Verwaltungsrat kann mittels eines Ermessensentscheid die Ausübung von Stimmrechten oder die Anerkennung von Vollmachten verweigern, wenn sich ein Nominee weigert, gegenüber der Gesellschaft die erwähnten Informationen offenzulegen.

 

  (3)   If a Nominee wishes to exercise voting rights or grant proxies, it must disclose to the Company at its written request the names, addresses and share holdings of each of the persons for who such Nominee is holding the shares that it wishes to vote or in relation to which it grants proxies. The Board of Directors may, in its discretion, refuse to give effect to any such vote or proxy if a Nominee fails to make the required disclosure.

 

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(4)  

Wenn eine Person wirtschaftlich an mehr Aktien als der durch die Eintragungsbeschränkung definierten Anzahl berechtigt ist, so ist diese Person nur befugt, diejenigen Stimmen an einer ordentlichen oder ausserordentlichen Generalversammlung abzugeben, welche sich aus der Anzahl vertretener Aktien ergeben, die anzahlmässig der Eintragungsbeschränkung entsprechen (vorbehältlich den Bestimmungen in Artikel 7). Die Anzahl der von einer Person wirtschaftlich beherrschten Aktien und die einer Person zustehenden Anzahl Stimmen wird durch den Verwaltungsrat nach Treu und Glauben festgelegt. Zwecks Umsetzung der Bestimmungen dieses Artikels ist der Verwaltungsrat ermächtigt, jederzeit von jeder Person, welche öffentlich bekanntgibt, an Aktien wirtschaftlich berechtigt zu sein, einschliesslich durch Meldungen an die SEC, oder der Gesellschaft dies anzeigt, zu verlangen, dass diese Person Auskunft gibt hinsichtlich aller Aktien, an denen sie wirtschaftlich berechtigt ist und die entweder direkt oder indirekt durch Nominees oder andere Personen zu ihren Gunsten gehalten werden.

 

  (4)  

If any person Beneficially Owns shares in excess of the Cap, such person shall only be entitled to cast votes at any annual or special General Meeting of Shareholders represented by the number of shares that is equal to the Cap (subject to the provisions of Article 7). Determinations with respect to the number of shares Beneficially Owned by any person and the number of votes any person is entitled to shall be made by the Board of Directors acting in good faith. In furtherance of the provisions of this section, the Board of Directors is authorized at any time to request from any person which discloses publicly, including in any filing with the SEC, or to the Company, that it Beneficially Owns shares, that such person provide information with respect to all shares that it Beneficially Owns, either directly or which are being held by Nominees or other persons on its behalf.

 

       
(5)  

Der Verwaltungsrat kann Ausnahmen von der in diesem Artikel 14 enthaltenen Stimmrechtsbeschränkung bewilligen, um Personen, denen die wirtschaftliche Berechtigung an Aktien über die Stimmrechtsbeschränkung hinaus zustehen, die Stimmabgabe an einer ordentlichen oder ausserordentlichen Generalversammlung für die vertretenen Aktien über die Stimmrechtsbeschränkung hinaus zu ermöglichen, einschliesslich und nicht im Sinne einer abschliessenden Aufzählung (i) in Bezug auf Nominees und Clearing Nominees und (ii) in Bezug auf Aktien über die Stimmrechtsbeschränkung hinaus, an denen eine Gegenpartei zu einer Fusion, einem Zusammenschluss, einem Joint Venture, einer Partnerschaft, einem Aktientausch, einer strategischen Allianz oder einer Sacheinlage wirtschaftlich berechtigt ist oder einer Person, die in einer Spaltung, einer Umwandlung oder in andere besondere Umstände involviert ist, wie bspw. ein Übernahmeangebot in Bezug auf die Gesellschaft, welches die Gesellschaft handelnd durch die Mehrheit des Verwaltungsrates gutgeheissen und den Aktionären der Gesellschaft zur Annahme empfohlen hat. Soweit nicht vom Verwaltungsrat anderweitig festgelegt, gelten die in Artikel 14 enthaltenen Stimmrechtsbeschränkungen nicht für Clearing Nominees, wobei die Stimmrechtsbeschränkung auch in Bezug auf von Clearing Nominees für einen wirtschaftlich Berechtigten gehaltenen Aktien gelten und zwar in Bezug auf alle von einem wirtschaftliche Berechtigten gehaltenen Aktien, ob direkt oder indirekt durch einen oder mehrere Nominees.

 

  (5)  

The Board of Directors may approve exceptions to the voting limitation contained in this Article 14 to allow persons Beneficially Owning shares in excess of the Cap to cast votes at any annual or special General Meeting of Shareholders represented by shares Beneficially Owned by such person in excess of the Cap, including without limitation exceptions (i) with respect to Nominees and Clearing Nominees and (ii) with respect to shares in excess of the Cap that are Beneficially Owned by a counterparty to a merger, consolidation, joint venture, partnership, share exchange, strategic alliance or contribution in kind or a person involved in a demerger, conversion or other special circumstances such as a tender offer in relation to the Company that the Company acting through a majority of the Board of Directors has approved and recommended to the Company’s shareholders. Unless the Board of Directors determines otherwise, the voting limitation contained in this Article 14 shall not apply to Clearing Nominees, except that the Cap on voting shall apply with respect to shares held by Clearing Nominees on behalf of a Beneficial Owner in respect of all shares Beneficially Owned by such Beneficial Owner whether directly or indirectly through one or more Nominees.

 

 

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(6)  

Die Stimmrechtsbeschränkung gemäss Artikel 14 Absatz 4 findet keine Anwendung auf die rechtmässige Stimmrechtsausübung für institutionelle Stimmrechtsvertreter.

 

  (6)   The voting limitation contained in Article 14 para. 4 shall not apply to the exercise of voting rights pursuant to the statutory rules on institutional shareholder representatives.
   

Artikel 15 Beschlüsse und Wahlen

 

 

Article 15 Resolutions and Elections

 

       
(1)  

Sofern das Gesetz oder diese Statuten nicht anderes vorsehen, fasst die Generalversammlung ihre Beschlüsse und entscheidet ihre Wahlen mit der absoluten Mehrheit der an der Generalversammlung vertretenen Aktienstimmen. Absolute Mehrheit bedeutet die Hälfte plus eine der Aktienstimmen, die an der Generalversammlung vertreten sind und die in Bezug auf die entsprechende Beschlussfassung oder Wahl stimmberechtigt sind; nicht stimmberechtigte Aktienstimmen gelten mit Bezug auf die entsprechende Beschlussfassung oder Wahl als nicht vertretene Aktien (so dass hinsichtlich der Berechnung der Anzahl vertretener und stimmberechtigter Aktien mit Bezug auf eine Beschlussfassung oder Wahl Enthaltungen berücksichtigt, aber “Broker Non-Votes” nicht berücksichtigt werden).

 

  (1)   Unless otherwise provided for in these Articles of Association or as required by law, the General Meeting of Shareholders shall take resolutions and conduct elections upon an absolute majority of the shares represented at the General Meeting of Shareholders. Absolute majority means half plus one of the shares represented at the General Meeting of Shareholders and eligible to be voted with respect to the relevant resolution or election; shares not eligible to be voted shall be deemed not to be represented with respect to the relevant resolution or election (such that abstentions shall be included, but Broker Non-Votes shall not be included in the calculation of the number of shares represented at the meeting and eligible to be voted with respect to the relevant resolution or election).
       
(2)   Die Generalversammlung wählt die Mitglieder des Verwaltungsrates mit der absoluten Mehrheit der an einer Generalversammlung abgegebenen Stimmen. Sofern der Vorsitzende feststellt, dass die Anzahl der vorgeschlagenen Verwaltungsratskandidaten die Anzahl zu wählender Verwaltungsräte übersteigt, werden die Verwaltungsräte durch Pluralität der (persönlich oder in Vertretung) abgegebenen und stimmberechtigten Ja-Stimmen gewählt (so dass hinsichtlich der Berechnung der Anzahl abgegebener Stimmen mit Bezug auf eine solche Wahl Enthaltungen und “Broker Non-Votes” nicht berücksichtigt werden). “Pluralität” bedeutet, dass derjenige, welcher die grösste Anzahl Stimmen für einen frei werdenden Sitz erhält, für diesen Verwaltungsratssitz gewählt ist.   (2)  

The General Meeting of Shareholders shall decide elections of members of the Board of Directors upon an absolute majority of the votes cast at the General Meeting of Shareholders. At any election in which the Chairman determines that the number of persons properly nominated to serve as members of the Board of Directors exceeds the number of members to be elected, members are elected by the affirmative vote of a plurality of the votes cast (in person or by proxy) and eligible to be voted with respect to the relevant election at the General Meeting of Shareholders (such that abstentions and Broker Non-Votes shall not be included in the calculation of the number of votes cast with respect to such election). A “plurality” means that the individual who receives the largest number of votes cast for a board seat is selected to that board seat.

 

       
(3)   Ein amtierendes Verwaltungsratsmitglied kann mit oder ohne Grund mit mindestens 2/3 der vertretenen und in Bezug auf die Abwahl stimmberechtigten Aktien abgewählt werden (so dass hinsichtlich der Berechnung der Anzahl vertretener und stimmberechtigter Aktien mit Bezug auf die Abwahl eines Verwaltungsrats Enthaltungen berücksichtigt, aber “Broker Non-Votes” nicht berücksichtigt werden).   (3)  

A serving member of the Board of Directors may be removed with or without cause only upon the approval of at least two-thirds of the shares represented at the General Meeting of Shareholders and eligible to be voted with respect to the removal of such director (such that abstentions shall be included, but Broker Non-Votes shall not be included in the calculation of the number of shares represented at the meeting and eligible to be voted with respect to the removal of such director).

 

 

16


       
(4)  

Wahlen und Abstimmungen werden durch schriftliche Stimmabgabe entschieden, sofern nicht die Generalversammlung oder deren Vorsitzender eine Wahl oder Abstimmung durch Handaufheben anordnet. Der Vorsitzende kann Wahlen oder Abstimmungen auch mit Hilfe eines elektronischen Systems abhalten lassen. Wahlen und Abstimmungen mit Hilfe eines elektronischen Systems sind den Wahlen und Abstimmungen mittels schriftlicher Stimmabgabe gleichgestellt.

 

  (4)  

Resolutions and elections shall be decided by written ballots, unless a show of hands is resolved by the General Meeting of Shareholders or is ordered by the acting chair of the General Meeting of Shareholders. The acting chair may also hold resolutions and elections by use of an electronic voting system. Electronic resolutions and elections shall be considered equal to resolutions and elections taken by way of a written ballot.

 

       
(5)  

Der Vorsitzende der Generalversammlung kann jederzeit eine Wahl oder Abstimmung durch Handaufheben in Form einer schriftlichen Stimmabgabe oder mit Hilfe eines elektronischen Systems wiederholen lassen, wenn er am Resultat der Wahl oder Abstimmung zweifelt. In diesem Fall wird die zuvor durch Handaufheben durchgeführte Wahl oder Abstimmung so behandelt, als hätte sie nicht stattgefunden.

 

  (5)   The chair of the General Meeting of Shareholders may at any time order that an election or resolution decided by a show of hands be repeated by way of a written or electronic ballot if he considers the vote to be in doubt. The resolution or election previously held by a show of hands shall then be deemed to not have taken place.
   

Artikel 16 Qualifizierte Mehrheiten

 

Article 16 Special Vote

 

     

(1)

 

Die Zustimmung von mindestens 66 2/3% der an der Generalversammlung vertretenen und stimmberechtigten Aktien ist erforderlich für:

 

  (1)   The approval of at least 66 2/3% of the shares represented at the General Meeting of Shareholders and eligible to be voted shall be required for the following matters:
    (a)  

die Änderung des Zwecks der Gesellschaft;

 

    (a)   the change of the company purpose;
    (b)  

die Schaffung von Stimmrechtsaktien;

 

    (b)   the creation of shares with privileged voting rights;
    (c)  

jede Änderung von Artikel 7 oder Artikel 14, Abs. 4 oder 5 dieser Statuten;

 

    (c)   any change to Article 7 or Article 14, para. 4 or 5 of these Articles of Association;
    (d)  

die Einschränkung der Übertragbarkeit von Namenaktien;

 

    (d)   the restriction of the transferability of registered shares;
    (e)  

den Erlass, die Erleichterung oder die Aufhebung der Übertragbarkeit von Namenaktien;

 

    (e)   the waiver, reduction or withdrawal of restrictions upon the transfer of registered shares;
   

(f)

 

 

eine genehmigte oder bedingte Kapitalerhöhung;

 

   

(f)

 

 

an increase of authorized or conditional share capital;

 

 

17


     
    (g)  

eine Kapitalerhöhung aus Eigenkapital, gegen Sacheinlage oder zwecks Sachübernahme oder die Gewährung besonderer Vorteile;

 

     

(g)

 

 

an increase of capital out of equity, against contribution in kind, or for the purpose of acquisition of assets or the granting of special benefits;

 

   

 

(h)

 

 

die Einschränkung oder Aufhebung von Bezugsrechten;

   

 

(h)

 

 

the limitation or withdrawal of pre-emptive rights;

     
    (i)   die Sitzverlegung der Gesellschaft;     (i)   the change of the domicile of the Company;
     
    (j)   die Auflösung der Gesellschaft;     (j)   the liquidation of the Company;
     
    (k)   die Fusion, Spaltung oder Umwandlung der Gesellschaft; und     (k)   the merger, de-merger or conversion of the Company; and
     
    (l)  

die Umwandlung von Namenaktien in Inhaberaktien und umgekehrt.

 

    (l)  

the conversion of registered shares into bearer shares and vice versa.

 

       
(2)  

Mit Bezug auf Beschlüsse über vorstehend genannte Angelegenheiten gelten nicht stimmberechtigte Aktien für den relevanten Beschluss als nicht vertreten (so dass hinsichtlich der Berechnung der Anzahl vertretener und stimmberechtigter Aktien mit Bezug auf den relevanten Beschluss Enthaltungen berücksichtigt, aber “Broker Non-Votes” nicht berücksichtigt werden).

 

  (2)  

Shares not eligible to be voted with respect to a resolution relating to any of the foregoing matters shall be deemed not to be represented with respect to such resolution (such that abstentions shall be included, but Broker Non-Votes shall not be included, in the calculation of the number of shares represented at the meeting, and eligible to be voted with respect to such resolution).

 

       
(3)  

Die Zustimmung von mindestens 75% der an der Generalversammlung vertretenen und stimmberechtigten Aktien wird benötigt für jede Änderung von Artikel 9 Abs. 1, Artikel 11, Artikel 14 Abs. 1, 2, 3 oder 6, Artikel 15 Abs. 3, diesen Artikel 16, Artikel 18, Artikel 19, Artikel 20, Artikel 23, Artikel 26 oder Artikel 29 dieser Statuten. Für einen Beschluss nicht stimmberechtigte Aktien gelten mit Bezug auf den entsprechenden Beschluss als nicht vertreten (so dass hinsichtlich der Berechnung der Anzahl vertretener und stimmberechtigter Aktien mit Bezug auf den entsprechenden Beschluss Enthaltungen berücksichtigt, aber “Broker Non-Votes” nicht berücksichtigt werden).

 

  (3)  

The approval of at least 75% of the shares represented at the General Meeting of Shareholders and eligible to be voted shall be required for any change to Article 9 para. 1, Article 11, Article 14 para. 1, 2, 3, or 6, Article 15 para. 3, this Article 16, Article 18, Article 19, Article 20, Article 23, Article 26 or Article 29 of these Articles of Association. Shares not eligible to be voted with respect to the relevant resolution shall be deemed not to be represented with respect to such resolution (such that abstentions shall be included, but Broker Non-Votes shall not be included, in the calculation of the number of shares represented at the meeting and eligible to be voted with respect to such resolution).

 

   

Artikel 17 Anwesenheitsquorum

 

 

Article 17 Presence Quorum

 

     
(1)  

Jeder Beschluss und jede Wahl der Generalversammlung setzt voraus, dass zum Zeitpunkt der Konstituierung der Generalversammlung zumindest die Hälfte und eine aller

 

  (1)  

All resolutions and elections made by the General Meeting of Shareholders require, at the time when the General Meeting of Shareholders proceeds to business,

 

 

18


   

stimmberechtigten Aktien anwesend ist (wobei Enthaltungen und Broker Non-Votes für das Zustandekommen eines Anwesenheitsquorums der Aktionäre als anwesend zu betrachten sind).

 

     

the presence of half plus one of all shares entitled to vote (whereby abstentions and Broker Non-Votes shall be regarded as present for purposes of establishing a presence quorum of shareholders).

 

       
(2)  

Nach Bekanntgabe des Erreichens des Anwesenheitsquorums an der Generalversammlung können die an der Generalversammlung vertretenen Aktionäre mit der Behandlung der traktandierten Geschäfte fortfahren, unbesehen davon, ob das gemäss Artikel 17 Absatz 1 geforderte Anwesenheitsquorum an der Generalversammlung erhalten bleibt.

 

  (2)  

Following announcement of the presence quorum at the meeting, the shareholders present at a General Meeting of Shareholders may continue to transact business, whether or not a quorum of shareholders meeting the requirement of Article 17 para. 1 above continues to be present at such General Meeting of Shareholders.

 

 

Artikel 18 Anzahl Verwaltungsräte

 

 

 

Article 18 Number of Directors

 

 

Der Verwaltungsrat besteht zu Beginn aus 11 Mitgliedern. Änderungen der Anzahl Mitglieder können mit Zustimmung von mindestens 2/3 der an der Generalversammlung vertretenen und hinsichtlich der Änderung der Anzahl Verwaltungsräte stimmberechtigten Aktienstimmen vorgenommen werden, wobei, wenn die Gesellschaft, handelnd durch eine Mehrheit der Verwaltungsräte, den Aktionären eine solche Statutenänderung vorgeschlagen hat, (1) das spezielle Mehrheitserfordernis gemäss diesem Artikel 18 keine Anwendung findet in Bezug auf eine entsprechende Statutenänderung durch die Generalversammlung, zu deren Handen der Verwaltungsrat einen entsprechenden Vorschlag gemacht hat, und (2) sofern vom Gesetz nichts anderes vorgeschrieben ist (in welchem Fall die vorgeschriebene Mehrheit zur Anwendung käme), die erforderliche Mehrheit für eine solche Statutenänderungen derjenigen gemäss Artikel 15 Absatz 1 entspricht. Aktien, die mit Bezug auf den Beschluss der Änderung der Anzahl Verwaltungsräte nicht stimmberechtigt sind, gelten beim entsprechenden Beschluss als nicht vertreten (so dass hinsichtlich der Berechnung der Anzahl vertretener und stimmberechtigter Aktien mit Bezug auf den entsprechenden Beschluss Enthaltungen berücksichtigt werden, aber Broker Non-Votes nicht berücksichtigt werden).

 

 

 

The Board of Directors shall initially consist of 11 members, subject to a change in the number of members with the approval of at least two-thirds of the shares represented at the General Meeting of Shareholders and eligible to be voted with respect to a change in the number of directors, provided that if the Company acting through a majority of the Board of Directors has recommended to the Company’s shareholders that they approve such action, (1) the super majority requirement set forth in this Article 18 shall not apply with respect to such action for purposes of the General Meeting of Shareholders at which the Board of Directors has made such recommendation and (2) except as otherwise provided by law (in which case the required approval shall be as so provided), the required majority for such action shall be as set forth in Article 15 para. 1. Shares not eligible to be voted with respect to a change in the number of directors shall be deemed not to be represented at the relevant resolution (such that abstentions shall be included, but Broker Non-Votes shall not be included, in the calculation of the number of shares represented at the meeting and eligible to be voted with respect to such resolution).

 

 

Artikel 19 Amtsdauer

 

 

 

Article 19 Term of Office

 

 

(1)

 

 

Die Verwaltungsräte werden in drei (3) Klassen eingeteilt, die als Klasse I, Klasse II und Klasse III bezeichnet werden, wobei jede Klasse so genau wie möglich aus einem Drittel der gesamten Anzahl Verwaltungsräte bestehen soll. Die Amtsdauer der erstmals gewählten Verwaltungsräte der Klasse I endet an der ordentlichen Generalversammlung der Aktionäre 2013. Die Amtsdauer der erstmals gewählten Verwaltungsräte der Klasse II endet an der ordentlichen Generalversammlung der Aktionäre 2014. Die Amtsdauer der erstmals gewählten Verwaltungsräte der Klasse III endet an der ordentlichen Generalversammlung der Aktionäre 2015. Anlässlich

 

 

 

(1)

 

 

The directors are divided into three (3) classes designated Class I, Class II and Class III, each class to consist as nearly as possible of one-third of the number of directors then constituting the whole Board. The term of office for the initial directors in Class I shall expire at the annual General Meeting of Shareholders in 2013. The term of office for the initial directors in Class II shall expire at the annual General Meeting of Shareholders in 2014. The term of office for the initial directors in Class III shall expire at the annual General Meeting of Shareholders in 2015. At each annual General Meeting of Shareholders, commencing with the first regularly scheduled annual General Meeting of

 

 

19


   

 

jeder ordentlichen Generalversammlung der Aktionäre, beginnend mit der ersten regulär angesetzten ordentlichen Generalversammlung 2013, soll der jeweilige Nachfolger eines erstmals gewähltenVerwaltungsrates einer Klasse, dessen Amtsdauer bei der jeweiligen ordentlichen Generalversammlung abgelaufen ist, für eine Amtsdauer von drei Jahren gewählt werden, die bis zur dritten seiner Wahl folgenden ordentlichen Generalversammlung und bis sein bzw. ihr jeweiliger Nachfolger ordentlich gewählt ist, dauern soll. Ungeachtet der vorstehenden Bestimmungen dieses Artikels 19 soll jedes Verwaltungsratsmitglied im Amt bleiben, bis sein Nachfolger bzw. seine Nachfolgerin ordentlich gewählt worden ist oder bis zu seinem oder ihrem Tod, Rücktritt oder seiner oder ihrer Abwahl. Sofern die Anzahl der Verwaltungsratsmitglieder nach Inkrafttreten der Statuten geändert wird, ist jede neu geschaffene bzw. gestrichene Stelle eines Verwaltungsrates den Klassen so zuzuteilen, dass die einzelnen Klassen im Rahmen des praktisch Realisierbaren möglichst gleich gross sind, wobei eine Reduzierung der Anzahl Verwaltungsräte keine Verkürzung der Amtsdauer eines bestehenden Verwaltungsratsmitgliedes zur Folge haben darf.

 

     

 

Shareholders in 2013, each of the successors elected to replace the initial directors of a class whose term shall have expired at such annual General Meeting of Shareholders shall be elected to hold office for a three year term until the third annual General Meeting of Shareholders next succeeding his or her election and until his or her respective successor shall have been duly elected. Notwithstanding the foregoing provisions of this Article 19, each director shall serve until his or her successor is duly elected or until his or her death, resignation, or removal. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

       
(2)  

Sofern vor Ende einer Amtsdauer ein Verwaltungsratsmitglied aus irgend einem Grund ersetzt werden sollte, läuft die Amtsdauer des neu gewählten Mitglieds des Verwaltungsrats am Ende der Amtsdauer seines Vorgängers bzw. seiner Vorgängerin ab.

 

  (2)   If, before the expiration of his or her term of office, a Director should be replaced for whatever reason, the term of office of the newly elected member of the Board of Directors shall expire at the end of the term of office of his or her predecessor.
   

Artikel 20 Organisation des Verwaltungsrats

 

 

Article 20 Organization of the Board

   

Der Verwaltungsrat konstituiert sich selber. Er wählt seinen Präsidenten und einen Sekretär, der nicht dem Verwaltungsrat angehören muss. Bei Stimmengleichheit anlässlich eines Beschlusses des Verwaltungsrats hat der Präsident keinen Stichentscheid.

 

 

The Board of Directors shall constitute itself. It shall appoint its Chairman and a Secretary who does not need to be a member of the Board of Directors. In the event of a tie vote with respect to any resolution of the Board of Directors, the Chairman does not have a casting or deciding vote.

 

   

Artikel 21 Schadloshaltung

 

 

Article 21 Indemnification

       
(1)  

Die Gesellschaft hält die gegenwärtigen und ehemaligen Mitglieder des Verwaltungsrates, die mit der Geschäftsführung befassten Personen, die vom Verwaltungsrat als solche bestimmt sind, sowie jede Person, die auf Ersuchen der Gesellschaft als Verwaltungsrat oder als eine mit der Geschäftsführung befasste Person einer anderen Gesellschaft tätig war (jeder einzelne dieser Personen eine “Versicherte Person”) soweit als möglich im Rahmen des gesetzlich Zulässigen schadlos für alle Ausgaben, inklusive Anwaltshonorare, Gerichtsurteile, Bussen und

 

  (1)   To the fullest extent permitted by law, the Company shall indemnify any current or former member of the Board of Directors, officer as defined or appointed by the Board of Directors or any person who is serving or has served at the request of the Company as a member of the Board of Directors or as an officer of another corporation (each individually, a “Covered Person”), against any expenses, including attorneys’ fees, judgments, fines, and amounts paid or to be paid in settlement actually and reasonably incurred or to be incurred by him or her in connection with any

 

20


   

 

vergleichsweise bezahlte oder zu bezahlende Summen, die vernünftigerweise im Zusammenhang mit drohenden, hängigen oder abgeschlossene Klagen, Prozessen oder Verfahren sowohl zivilrechtlicher, verwaltungsrechtlicher als auch strafrechtlicher Natur entstehen oder entstanden sind, in welchen die Versicherte Person Partei war, ist, oder angedroht ist, dass sie eine Partei werden wird, oder in welchen die Versicherte Person auf andere Weise involviert ist (je ein “Verfahren”), weil sie eine Versicherte Person war oder ist. Ungeachtet des vorangehenden Satzes gilt dieser Absatz nicht für die Revisionsstelle oder die Spezialrevisionsstelle der Gesellschaft.

 

     

 

threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which he or she was, is, or is threatened to be made a party, or is otherwise involved (each a “proceeding”), because he or she is or was a Covered Person. Notwithstanding the preceding sentence, this section shall not extend to any person holding the office of auditor or special auditor in relation to the Company.

       
(2)  

Eine Schadloshaltung durch die Gesellschaft gemäss diesem Artikel 21 kommt nur in Frage, wenn im Einzelfall entschieden wird, dass die Schadloshaltung unter den vorliegenden Umständen angebracht ist, weil die Voraussetzungen gemäss Artikel 21 Abs. 1 erfüllt sind. Eine solche Entscheidung betreffend einer Versicherten Person, die zu diesem Zeitpunkt Mitglied des Verwaltungsrates oder der Geschäftsleitung ist, fällt (a) der Verwaltungsrat mit Mehrheitsbeschluss der nicht in das Verfahren als Partei involvierten Mitglieder, auch wenn ein erforderliches Quorum nicht erfüllt ist; (b) ein Ausschuss von solchen Verwaltungsratsmitgliedern mit Mehrheitsbeschluss, auch wenn ein erforderliches Quorum nicht erfüllt ist; (c) wenn es keine solchen Verwaltungsratsmitglieder gibt, oder wenn diese es so bestimmen, ein unabhängiger Rechtsberater durch ein schriftliches Rechtsgutachten; oder (d) die Generalversammlung. Soweit jedoch eine Versicherte Person in der Sache oder anderswie in der Verteidigung eines Verfahrens oder in der Abwehr geltend gemachter Ansprüche, Klagen oder Verfahrensangelegenheiten erfolgreich ist, wird die Versicherte Person schadlos gehalten für Ausgaben (inklusive Anwaltskosten), welche tatsächlich und vernünftigerweise in diesem Zusammenhang entstanden sind, ohne dass die Schadloshaltung im Einzelfall bewilligt werden muss.

 

  (2)   Any indemnification under this Article 21 shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Covered Person is proper in the circumstances because the conditions under Article 21 para. (1) are met. Such determination shall be made, with respect to a Covered Person who is a member of the Board of Directors or officer at the time of such determination, (a) by a majority vote of the members of the Board of Directors who are not parties to such proceeding, even though less than a quorum; (b) by a committee of such members of the Board of Directors designated by a majority vote of such the Board of Directors, even though less than a quorum; (c) if there is no such member of the Board of Directors, or if such member of the Board of Directors so directs, by independent legal counsel in a written opinion; or (d) by the General Meeting of Shareholders. To the extent, however, that any Covered Person has been successful on the merits or otherwise in defense of any proceeding, or in defense of any claim, issue or matter therein, such Covered Person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.
       
(3)  

Ausgaben, inklusive Anwaltskosten, welche im Zusammenhang mit der Verteidigung in Verfahren entstehen, für welche eine Schadloshaltung gemäss diesem Artikel 21 zulässig ist, werden durch die Gesellschaft vor dem endgültigen Entscheid über dieses Verfahren vorgeschossen, nachdem die Versicherte Person gegenüber dem Verwaltungsrat eine Zusicherung abgegeben hat, den Betrag zurückzuzahlen, falls festgestellt wird, dass sie gemäss diesen Statuten nicht zur Schadloshaltung durch die Gesellschaft berechtigt ist.

 

  (3)   Expenses, including attorneys’ fees, incurred in defending any proceeding for which indemnification is permitted pursuant to this Article 21 shall be paid by the Company in advance of the final disposition of such proceeding upon receipt by the Board of Directors of an undertaking by or on behalf of the Covered Person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company under these Articles of Association.

 

21


       
(4)  

Die Schadloshaltung gemäss diesem Artikel 21 nicht als exklusiv zu betrachten (a) gegenüber anderen Rechten, welche denjenigen, die Schadloshaltung oder Vorschüsse verlangen, zustehen, sei dies gemäss Gesetz, diesen Statuten, separaten Abmachungen, durch die Gesellschaft abgeschlossene Versicherungen, Entscheide der Aktionäre oder von unbeteiligten Mitgliedern des Verwaltungsrates, oder gemäss dem Entscheid (irgendwelcher Art) eines zuständigen Gerichts, oder aus anderen Gründen, jeweils in Bezug auf deren offizielle Funktion und im Hinblick auf eine andere Funktion während der betreffenden Amtszeit, oder (b) gegenüber dem Recht der Gesellschaft, jede Person, die Angestellte oder Beauftragte der Gesellschaft oder - auf Wunsch der Gesellschaft - einer anderen Gesellschaft, eines Joint-Ventures, eines Trusts oder einer anderen Unternehmung ist oder war, im selben Umfang und in den selben Situationen und unter Vorbehalt der selben Entscheide wie oben für Versicherte Personen beschrieben, schadlos zu halten. In Artikel 21 bedeuten Bezugnahmen auf die “Gesellschaft” auch betroffene Gesellschaften im Rahmen einer Konsolidierung oder Fusion, in welchen die Gesellschaft oder eine ihrer Vorgängerinnen aufgrund einer Konsolidierung oder Fusion involviert waren. Die Schadloshaltung gemäss Artikel 21 gilt auch für Personen, die nicht mehr als Verwaltungsräte oder mit der Geschäftsführung betraute Personen tätig sind und kommt auch ihren Erben, Willensvollstreckern und Erbschaftsverwaltern zugute.

 

  (4)   The indemnification provided by this Article 21 shall not be deemed exclusive (a) of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, these Articles of Association, any separate agreement, any insurance purchased by the Company, vote of shareholders or disinterested members of the Board of Directors, or pursuant to the direction (however embodied) of any court of competent jurisdiction, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, or (b) of the power of the Company to indemnify any person who is or was an employee or agent of the Company or of another corporation, joint venture, trust or other enterprise which he or she is serving or has served at the request of the Company, to the same extent and in the same situations and subject to the same determinations as are hereinabove set forth with respect to a Covered Person. As used in this Article 21, references to the “Company” include all constituent corporations in a consolidation or merger in which the Company or a predecessor to the Company by consolidation or merger was involved. The indemnification provided by this Article 21 shall continue as to a person who has ceased to be a member of the Board of Directors or officer and shall inure to the benefit of their heirs, executors, and administrators.
       
(5)  

Die Gesellschaft kann Versicherungen abschliessen für Versicherte Personen oder für Personen, die auf Wunsch der Gesellschaft als Verwaltungsrat, Geschäftsleitungsmitglied, Angestellter oder Beauftragter einer anderen Gesellschaft, einer Partnership, eines Joint Ventures, eines Trusts oder eines anderen Unternehmens, oder in einer treuhänderischen oder anderen Funktion im Rahmen eines von der Gesellschaft unterhaltenen Mitarbeiterbeteiligungsplanes, tätig sind oder waren, gegen Haftungsansprüche, die gegen diese Personen in ihrer jeweiligen Funktion oder dem resultierenden Status vorgebracht werden und diese belasten, unabhängig davon, ob die Gesellschaft die Ermächtigung hätte, diese Personen gegen einen solchen Haftungsanspruch gemäss Artikel 21 schadlos zu halten. Die Versicherungsprämien werden der Gesellschaft in Rechnung gestellt und von dieser oder ihren Tochtergesellschaften bezahlt.

 

  (5)   The Company may procure insurance on behalf of any Covered Person, or any person who is or was serving at the request of the Company as a director, officer, employee or agent of another company, partnership, joint venture, trust or other enterprise, or in a fiduciary or other capacity with respect to any employee benefit plan maintained by the Company, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under the provisions of this Article 21. The insurance premiums shall be charged to and paid by the Company or its subsidiaries.
       
(6)  

Eine Aufhebung oder Änderung von Artikel 21 darf die Rechte eines Verwaltungsrats, eines Geschäftsleitungsmitglieds, eines Angestellten oder Vertreters der Gesellschaft in Bezug auf jegliche Vorkommnisse oder Angelegenheiten, welche vor einer solchen Aufhebung oder Änderung eingetreten sind, in keiner Weise verschlechtern oder erschweren.

 

  (6)   No repeal or modification of this Article 21 shall in any way diminish or adversely affect the rights of any director, officer, employee or agent of the Company hereunder in respect of any occurrence or matter arising prior to any such repeal or modification.

 

22


   

Artikel 22 Oberleitung, Delegation

 

 

Article 22 Ultimate Direction, Delegation

 

       
(1)   Der Verwaltungsrat hat die Oberleitung der Gesellschaft sowie die Aufsicht über die Geschäftsleitung. Er vertritt die Gesellschaft gegenüber Dritten und kann in allen Angelegenheiten Beschluss fassen, welche nicht gemäss Gesetz, Statuten oder vom Verwaltungsrat erlassenen Reglementen einem anderen Organ zugewiesen sind.   (1)  

The Board of Directors is entrusted with the ultimate direction of the Company as well as the supervision of the management. It represents the Company towards third parties and attends to all matters which are not delegated to or reserved for another corporate body of the Company by law, the Articles of Association or regulations issued by the Board of Directors.

 

       
(2)  

Der Verwaltungsrat kann aus seiner Mitte Ausschüsse bestellen oder einzelne Mitglieder bestimmen, welche mit der Vorbereitung und/oder Ausführung seiner Beschlüsse oder der Überwachung der Geschäfte betraut sind.

 

  (2)  

The Board of Directors may delegate preparation and/or implementation of its decisions and supervision of the business to committees or to individual members of the Board of Directors.

 

       
(3)   Mit Ausnahme der unübertragbaren Befugnisse kann der Verwaltungsrat die Geschäftsführung ganz oder teilweise sowie die Vertretungsberechtigung an einzelne oder mehrere Personen, einschliesslich Mitglieder des Verwaltungsrats, oder an Dritte, welche keine Aktionäre zu sein brauchen, übertragen. Der Verwaltungsrat erlässt hierzu Reglemente und die erforderliche vertraglichen Rahmenbedingungen.   (3)  

While reserving its non-transferable powers, the Board of Directors may further delegate the management of the business or parts thereof and representation of the Company to one or more persons, including members of the Board of Directors or others who need not be shareholders. The Board of Directors shall record all such arrangements in a set of regulations for the Company and set up the necessary contractual framework.

 

       
(4)  

Das Organisationsreglement wird vom Verwaltungsrat festgelegt.

 

  (4)  

The organizational regulations shall be defined by the Board of Directors.

 

   

Artikel 23 Befugnisse

 

 

Article 23 Duties

 

   

Der Verwaltungsrat hat folgende unübertragbare und unentziehbare Befugnisse:

 

 

The Board of Directors has the following non-transferable and inalienable duties:

 

(1)  

die Oberleitung der Gesellschaft sowie die Schaffung der entsprechenden Reglemente und Verfahren im Hinblick auf eine ordnungsgemässe Organisation des Geschäfts;

 

  (1)   to ultimately manage and direct the Company and to establish such regulations and procedures to properly organize its business;
       
(2)  

die Festlegung der Organisation und der Strategie;

 

  (2)  

to determine the overall organization and strategy;

 

       
(3)  

die Ausgestaltung ihres Rechnungswesens, namentlich die Bestimmung der anzuwendenden Rechnungslegungsprinzipien, der Strukturierung des Buchhaltungssystems, der Finanzkontrolle und der internen Revision sowie die Organisation der Finanzplanung;

 

  (3)   to organize its finances, in particular to determine the applicable accounting principles, the structuring of the accounting system, the financial controls and the internal audit function as well as organize its financial planning;

 

23


       
(4)  

die Ernennung und Abberufung der mit der Geschäftsleitung und der Vertretung betrauten Personen;

 

  (4)  

to appoint and remove the persons entrusted with the management and representation of the Company;

 

       
(5)  

die Erteilung der Zeichnungsberechtigung im Namen der Gesellschaft;

 

  (5)   to grant signatory power in the name and on behalf of the Company;
       
(6)  

die Verifizierung der Qualifikationen der besonders befähigten unabhängigen Revisionsstelle der Gesellschaft;

 

  (6)   to verify the professional qualifications of the specially qualified independent auditor of the Company;
       
(7)   die Oberaufsicht über die mit der Geschäftsführung und der Vertretung betrauten Personen der Gesellschaft, namentlich im Hinblick auf die Befolgung der Gesetze, Statuten, Reglemente und anderen Weisungen;   (7)  

to ultimately supervise the persons entrusted with the management of the Company, in particular with respect to their compliance with the law, the Articles of Association, the Organizational Regulations and other regulations and directives;

 

       
(8)  

die Erstellung des Geschäftsberichts der Gesellschaft (einschliesslich Jahresrechnung) sowie die Organisation und Durchführung der Generalversammlung und die Ausführung ihrer Beschlüsse;

 

  (8)  

to prepare the Company’s business report (including the financial statements) as well as to organize and conduct the General Meeting of Shareholders, and to implement shareholder resolutions;

 

       
(9)   Beschlussfassung betreffend Kapitalerhöhungen, sofern diese in der Kompetenz des Verwaltungsrates liegen, sowie die damit verbundenen Feststellungsbeschlüsse und Änderungen dieser Statuten;   (9)  

to pass resolutions regarding increases in share capital, as far as they are within the competence of the Board of Directors as well as the adoption of capital increases and the amendments to these Articles of Association entailed therewith;

 

       
(10)  

der Vorschlag von Sanierungsmassnahmen an die Generalversammlung, wenn die Hälfte des Aktienkapitals und der gesetzlichen Reserven der Gesellschaft nicht mehr durch die Nettoaktiven gedeckt ist;

 

  (10)   to propose reorganization measures to the General Meeting of Shareholders if half the share capital and the legal reserves are no longer covered by the Company’s net assets;
       
(11)  

die Benachrichtigung des Richters im Falle der Überschuldung der Gesellschaft; und

 

  (11)   to notify the judge in the case of over-indebtedness of the Company; and
       
(12)  

die Genehmigung von Vereinbarungen betreffend Fusionen, Spaltungen, Umwandlungen oder Vermögensübertragungen, bei welchen die Gesellschaft Partei ist, soweit gemäss Schweizerischem Fusionsgesetz erforderlich.

 

  (12)   to approve any agreements to which the Company is a party relating to mergers, demergers, transformations and/or transfer of assets, to the extent required pursuant to the Swiss Merger Act.
   

Artikel 24 Geschäftsjahr und Buchhaltung

 

 

Article 24 Fiscal Year and Accounts

       
(1)  

Der Verwaltungsrat bestimmt das Geschäftsjahr.

 

  (1)   The Board of Directors determines the fiscal year.

 

24


       
(2)  

Die Gesellschaft stellt sicher, dass die Bücher entsprechend dem geltenden Recht geführt und aufbewahrt werden. Die Bücher werden am Sitz der Gesellschaft oder an einem anderen Ort oder anderen Orten geführt und aufbewahrt, die der Verwaltungsrat für geeignet erachtet, und können jederzeit von den Verwaltungsratsmitgliedern eingesehen werden.

 

  (2)   The Company will ensure that proper records of accounts are kept in accordance with applicable law. The records of account shall be kept at the registered office of the Company or at such other place or places as the Board of Directors thinks fit, and shall at all times be open to inspection by the members of the Board of Directors.
       
(3)  

Kein Aktionär (der nicht zugleich Geschäftsleitungsmitglied der Gesellschaft ist) hat das Recht, Buchhaltungsunterlagen oder Bücher oder Dokumente der Gesellschaft einzusehen, es sei denn, das Gesetz verleihe ihm dieses Recht oder der Verwaltungsrat bewillige die Einsichtnahme. Eine Kopie des Jahresberichts (inklusive Jahresrechnung), welcher der Generalversammlung der Gesellschaft vorgelegt wird, inklusive Revisionsbericht, wird auf Verlangen jedem Aktionär zugeschickt.

 

  (3)   No shareholder (other than an officer of the Company) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorized by the Board of Directors. A copy of the annual report (including financial statements) which is to be approved at the annual General Meeting of Shareholders, together with the auditor’s report, shall upon request be sent to each shareholder.
   

Artikel 25 Amtsdauer, Befugnisse und Rechte

 

 

Article 25 Term, Powers and Duties

       
(1)  

Die Revisionsstelle wird von der Generalversammlung gewählt. Rechte und Pflichten der Revisionsstelle bestimmen sich nach den gesetzlichen Vorschriften.

 

  (1)   The Auditor shall be elected by the General Meeting of Shareholders and shall have the powers and duties vested in them by law.
       
(2)  

Die Generalversammlung kann eine Spezialrevisionsstelle ernennen, welche die vom Gesetz bei Kapitalerhöhungen und Kapitalherabsetzungen verlangten Prüfungsbestätigungen abgibt.

 

  (2)   The General Meeting may appoint a special auditing firm entrusted with the examinations required by applicable law in connection with share capital increases or share capital reductions.
       
(3)  

Die Amtsdauer der Revisionsstelle und (falls eingesetzt) der Spezialrevisionsstelle beträgt ein Jahr. Die Amtsdauer beginnt mit dem Tag der Wahl und endet mit der ersten darauf folgenden ordentlichen Generalversammlung.

 

  (3)  

The term of office of the Auditor and (if appointed) the special auditor shall be one year. The term of office shall commence on the day of election, and shall terminate on the first annual ordinary General Meeting of Shareholders following their election.

 

   

Artikel 26 Auflösung und Liquidation

 

 

Article 26 Dissolution and Liquidation

       
(1)  

Die Generalversammlung kann jederzeit in Übereinstimmung mit den gesetzlichen und statutarischen Bestimmungen die Auflösung und die Liquidation der Gesellschaft beschliessen.

 

  (1)   The General Meeting may at any time resolve the dissolution and liquidation of the Company in accordance with the provisions of the law and of the Articles of Association.
       
(2)  

Die Liquidation wird durch den Verwaltungsrat besorgt, sofern sie nicht durch die Generalversammlung einer anderen Person übertragen wird.

 

  (2)   The liquidation shall be carried out by the Board of Directors to the extent that the General Meeting has not entrusted the same to other persons.
       
(3)  

Die Liquidation ist gemäss Art. 742 ff. OR durchzuführen. Dabei können die Liquidatoren über das Vermögen der Gesellschaft (einschliesslich Immobilien) durch privaten Rechtsakt verfügen.

 

  (3)   The liquidation of the Company shall take place in accordance with art. 742 et seq. of the Swiss Code of Obligations. The liquidators are authorized to dispose of the assets (including real estate) by way of private contract.

 

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(4)  

Das Vermögen der aufgelösten Gesellschaft wird nach Tilgung ihrer Schulden unter den Aktionären nach Massgabe der einbezahlten Beträge verteilt.

 

  (4)  

After all debts have been satisfied, the net proceeds shall be distributed among the shareholders in proportion to the amounts paid-in.

 

   

Artikel 27 Mitteilungen und Bekanntmachungen

 

 

Article 27 Communications and Announcements

 

       
(1)  

Das “Schweizerische Handelsamtsblatt” ist das offizielle Publikationsorgan der Gesellschaft.

 

  (1)  

The official means of publication of the Company shall be the “Schweizerisches Handelsamtsblatt”.

 

       
(2)  

Einladungen der Aktionäre sowie andere Bekanntmachungen der Gesellschaft erfolgen durch Publikation im “Schweizerischen Handelsamtsblatt”.

 

  (2)  

Shareholder invitations and communications of the Company shall be published in the “Schweizerisches Handelsamtsblatt”.

 

   

Artikel 28 Sprache der Statuten

 

 

Article 28 Language of the Articles of Association

 

   

Im Falle eines Widerspruchs zwischen der deutschen und jeder anderen Fassung dieser Statuten ist die deutsche Fassung massgeblich.

 

 

In the event of any deviations between the German version of these Articles of Association and any version in any other language, the German authentic text prevails.

 

   

Artikel 29 Zusätzlich definierte Begriffe

 

 

Article 29 Additional Defined Terms

 

       
(1)  

wirtschaftlich berechtigt sein” oder “wirtschaftlich berechtigt ” bedeutet, mit Bezug auf Aktien oder andere Wertpapiere der Gesellschaft und mit Bezug auf jede Person, Aktien oder andere Wertpapiere der Gesellschaft, an welchen diese Person direkt oder indirekt der wirtschaftlich Berechtigte ist.

 

  (1)  

Beneficially Own ” or “ Beneficially Owned ”, with respect to shares or other securities of the Company and any person, shall mean shares or other securities of the Company of which such person is, directly or indirectly, the Beneficial Owner.

 

       
(2)   wirtschaftlich Berechtigter ” bedeutet mit Bezug auf Aktien oder andere Wertpapiere der Gesellschaft eine Person, welche an solchen Aktien oder anderen Wertpapieren der Gesellschaft im Sinne von Absatz 13(d) Exchange Act und den entsprechenden Bestimmungen und Reglementen wirtschaftlich berechtigt ist (einschliesslich, um Zweifel auszuschliessen, Aktien oder andere Wertpapiere, welche eine solche Person im direkten Eigentum hält), wobei (a) die Feststellung, ob eine Person wirtschaftlich Berechtigter einer Aktie oder eines anderen Wertpapiers gemäss Rule 13d-3(d)(1) des Exchange Act ist, unbesehen davon gemacht werden soll, ob eine solche Person das Recht hat, die wirtschaftliche Berechtigung an einer solchen Aktie oder einem solchen Wertpapier innerhalb von sechzig Tagen zu erwerben, (b) eine Person als wirtschaftlich Berechtigter von Aktien oder anderen Wertpapieren gilt, die Gegenstand eines   (2)  

Beneficial Owner ”, with respect to shares or other securities of the Company, shall mean such person which “beneficially owns” such shares or other securities, within the meaning of Section 13(d) of the Exchange Act and the rules and regulations thereunder (including for the avoidance of doubt any shares or other securities that such person directly owns), provided that (a) the determination as to whether a person has Beneficial Ownership of a share or other security pursuant to Rule 13d-3(d)(1) under the Exchange Act shall be made without regard to whether or not such person has the right to acquire beneficial ownership of such share or other security within sixty days, (b) a person shall be deemed to be the Beneficial Owner of shares or other securities which are the subject of, or the reference securities for, or that underlie, any derivative security (as defined under Rule 16a-1 under the Exchange Act) held by such person that increase in

 

 

26


       
   

derivativen Instruments sind (wie unter Rule 16a-1 des Exchange Act definiert), einem solchen als Referenzpapier dienen oder unterliegen, welches von einer solchen Person gehalten wird und dessen Wert zusammen mit dem Wert der zugrunde liegenden Aktie oder anderen Wertpapieren steigt, einschliesslich einer long-convertible-security , einer long-call-option und einer short-put-option Position, und die entsprechenden zugrunde liegenden Aktien oder anderen Wertpapiere als im Eigentum dieser Person stehend gelten und zwar in jedem Falle unbesehen davon, ob (i) solche derivativen Instrumente Stimmrechte an solchen Aktien oder Wertpapieren vermitteln, (ii) solche derivativen Instrumente durch die Lieferung solcher Aktien oder anderer Wertpapiere abgewickelt werden müssen oder können oder (iii) Hedging-Transaktionen die wirtschaftlichen Auswirkungen solcher derivativen Instrumente absichern, (c) eine Person als wirtschaftlich Berechtigter von Aktien oder anderen Wertpapieren gilt, bezüglich derer eine solche Person über eine Vollmacht oder ein anderes vertragliches Stimmrecht verfügt (einschliesslich bedingter Rechte), es sei denn, ein solches Stimmrecht bestehe ausschliesslich aufgrund einer widerruflichen Vollmacht oder einer Zustimmungserklärung, die eine solche Person im Rahmen einer öffentlichen Einholung von Vollmachten oder Zustimmungserklärungen erhalten hat, die generell allen Inhabern von Aktien oder anderen Wertpapieren gemäss den anwendbaren Bestimmungen und Reglementen unter dem Exchange Act unterbreitet wurden, und (d) der Verwaltungsrat oder ein vom Verwaltungsrat bezeichneter Ausschuss weitere Details bezüglich der Feststellung der wirtschaftlichen Berechtigung in separaten Reglementen festlegen kann.

 

Falls zwei oder mehrere Personen vereinbaren, zum Zweckes des Erwerbs, Haltens, Abstimmens oder Veräusserns von Aktien oder anderen Wertpapieren der Gesellschaft zusammenzuwirken, wird die so gebildete Gruppe als eine Person angesehen, welche die wirtschaftlich Berechtigte aller durch die Gruppe gehaltener Aktien oder anderen Wertpapiere im Gesamten ist (wobei der Verwaltungsrat oder ein vom Verwaltungsrat bezeichneter Ausschuss weitere Details in separaten Reglementen festlegen kann).

 

     

value as the value of the underlying share or other security increases, including a long convertible security, a long call option and a short put option position and such underlying shares or other securities shall be deemed to be owned, in each case, regardless of whether (i) such derivative security conveys any voting rights in such shares or other securities, (ii) such derivative security is required to be, or is capable of being, settled through delivery of such shares or other securities or (iii) transactions hedge the economic effect of such derivative security, (c) a person shall be deemed to have beneficial ownership over shares or other securities for which such person holds a proxy or other contractual voting power (including contingent rights) unless such voting power arises solely from a revocable proxy or consent given to such person in response to a public proxy or consent solicitation made generally to all holders of such shares or other securities pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (d) the Board of Directors or a Committee designated by the Board of Directors may set out further details regarding the determination of Beneficial Ownership in separate regulations.

 

When two or more persons agree to act together for the purpose of acquiring, holding, voting or disposing of shares or other securities of the Company, the group formed thereby shall be considered to be one person that beneficially owns all shares or other securities owned by the group in the aggregate (as may be further set out by the Board of Directors or a Committee designated by the Board of Directors in separate regulations).

       
(3)  

Broker Non-Vote ” bedeutet in Bezug auf einen bestimmten Beschluss oder eine bestimmte Wahl eine Aktie, die an der entsprechenden Generalversammlung der Aktionäre durch einen Broker, eine Bank oder einen anderen Nominee vertreten wird und für Zwecke der Feststellung des Präsenzquorums an einer solchen Versammlung als anwesend gilt, jedoch, soweit der Gesellschaft bekannt, im Rahmen eines solchen Beschlusses oder einer solchen Wahl aufgrund des anwendbaren Rechts nicht stimmberechtigt ist, weil ein

 

  (3)   Broker Non-Vote ” means, with respect to a particular resolution or election, a share represented at the applicable General Meeting of Shareholders by a broker, bank or other Nominee and present for purposes of establishing a quorum at such meeting, but, to the extent known by the Company, not eligible as a matter of applicable law to be voted on such resolution or election because such broker, bank or other Nominee has not received voting instructions from the Beneficial Owner of the shares or other securities and does not have the

 

27


   

solcher Broker, eine solche Bank oder ein solcher anderer Nominee vom wirtschaftlich Berechtigten keine Weisung zur Stimmabgabe der Aktien oder anderer Wertpapiere erhalten hat und gemäss dem anwendbaren Recht nicht befugt ist, das Stimmrecht der Aktien oder anderer Wertpapiere in Bezug auf einen solchen bestimmten Beschluss oder eine solche bestimmte Wahl nach seinem Ermessen auszuüben.

 

      discretion as a matter of applicable law to direct the voting of the shares or other securities with respect to such particular resolution or election.
       
(4)  

Clearing Nominee ” bedeutet Nominees einer Clearing Organisation für die Aktien oder anderen Wertpapiere der Gesellschaft (wie z.B. Cede & Co., dem Nominee der Depository Trust Company, einer Clearing- und Verwahrungsstelle in den Vereinigten Staaten von Amerika), und die Depository Trust Company.

 

  (4)   Clearing Nominee ” means Nominees of clearing organizations for the shares or other securities of the Company (such as Cede & Co., the Nominee of the Depository Trust Company, a United States securities depositary and clearing agency and the Depository Trust Company).
       
(5)  

Exchange Act ” bedeutet “Securities Exchange Act” von 1934, inklusive sämtlicher Änderungen.

 

  (5)   Exchange Act ” means the Securities Exchange Act of 1934, as amended.
       
(6)  

Nominee ” bedeutet eine Person, welche die Aktien oder anderen Wertpapiere im eigenen Namen direkt oder indirekt für den wirtschaftlich Berechtigen hält.

 

  (6)   Nominee ” means a person holding shares or other securities in its own name directly or indirectly on behalf of the beneficial owner.
       
(7)  

Teilnehmer ” bedeutet jeder Teilnehmer einer Clearing-Organisation, für welche ein Clearing Nominee handelt.

 

  (7)   Participant ” means any participant of a clearing organization for which a Clearing Nominee is acting.
       
(8)  

Person ” bedeutet jede natürliche Person, Personengesellschaft, Kapitalgesellschaft, Verein, Trust, Nachlass, Gesellschaft (inklusive eine GmbH) oder jede andere Einheit oder Organisation, inklusive einer Regierung, einer politisch untergeordneten Regierungsstelle, und einer Behördenagentur oder -stelle, wobei für die Bestimmung der wirtschaftlichen Berechtigung und der Stimmrechte als eine Person gilt, wer kapitalmässig, stimmenmässig, durch gemeinsame Leitung oder auf andere Weise verbunden ist oder wer sich für den Erwerb von Aktien zusammenschliesst und wer ein gemeinsames Verständnis erzielt oder ein gemeinschaftliches Unternehmen formiert oder sonstwie gemeinsam handelt, um die Bestimmungen hinsichtlich der Eintragungs- und Stimmrechtsbeschränkung zu umgehen.

 

  (8)   person ” means any individual, general or limited partnership, corporation, association, trust, estate, company (including a limited liability company) or any other entity or organization including a government, a political subdivision or agency or instrumentality thereof, provided that for purposes of determining beneficial ownership and voting rights, those associated through capital, voting power, joint management or in any other way, or joining for the acquisition of shares, as well as all persons achieving an understanding or forming a syndicate or otherwise acting in concert to circumvent the regulations concerning the limitation on registration or voting, shall be regarded as one person.
       
(9)  

SEC ” bedeutet United States Securities and Exchange Commission oder jeder ihrer Rechtsnachfolger.

 

  (9)   SEC ” means the U.S. Securities and Exchange Commission or any successor thereto.

 

Basel, 14. September 2012          Basel, September 14 th , 2012

 

28

Exhibit 3.2

ORGANIZATIONAL REGULATIONS

dated September 12, 2012

Pentair Ltd.

a Swiss corporation with its registered office in Schaffhausen, Switzerland

Table of Contents

 

A

     Scope and Basis      2   

B

     Executive (Corporate) Bodies of the Corporation      2   

C

     The Board      2   

D

     Officers      6   

E

     Board Committees      9   

F

     General Provisions      10   

G

     Final Provisions      10   


A Scope and Basis

These organizational regulations (the “ Organizational Regulations ”) are enacted by the Board of Pentair Ltd. (the “ Corporation ”) pursuant to art. 716b of the Swiss Code of Obligations (“ CO ”) and article 22 of the Corporation’s articles of association (the “ Articles ”). The corporate governance, internal organization and the duties, powers and responsibilities of the executive bodies of the Corporation are governed by a) the Articles, b) the Organizational Regulations, c) the charters of the Committees, and d) other regulations or charters as may be adopted by the Board of the Corporation from time to time.

 

B Executive (Corporate) Bodies of the Corporation

The executive bodies of the Corporation are:

 

  a) The board of directors of the Corporation (“ Board ”), consisting of its members (each a “ Director ”);

 

  b) The chairman of the Board (“ Chairman ”);

 

  c) The committees of the Board (each a “ Committee ”);

 

  d) The Chief Executive Officer of the Corporation (“ CEO ”); and

 

  e) the other officers of the Corporation (the CEO and each other officer an “ Officer ” and together the “ Executive Management ”).

 

C The Board

Section 1 - Constitution : The Board shall constitute itself. At the first meeting of the Board held after each Annual Meeting, the Board shall elect the Chairman from amongst its members. The Chairman or any Director may also be appointed as the CEO (provided that the CEO is not required to be a Director). The Board shall further appoint a secretary to the Board who does not need to be a Director.

Section 2 - Powers and Duties in General : The Board is entrusted with the ultimate management of the Corporation, the overall supervision of the business and the subsidiaries of the Corporation and the supervision and control of management. The Board shall exercise its functions as required by law, the Articles and the Organizational Regulations. The Board shall be authorized to pass resolutions on all matters that are not reserved to the General Meeting of Shareholders or to other executive bodies by applicable law, the Articles or the Organizational Regulations.

 

2


Section 3 - Powers and Duties (non-transferable) : The Board has the following non-transferable duties and competencies with respect to the Corporation as set out in the Articles:

 

  a) to ultimately manage and direct the Corporation and to establish such regulations and procedures to properly organize its business;

 

  b) to determine its overall organization and strategy;

 

  c) to organize its finances, in particular to determine the applicable accounting principles, the structuring of the accounting system, the financial controls and the internal audit function, as well as organize its financial planning;

 

  d) to appoint and remove the persons entrusted with the management and representation of the Corporation;

 

  e) to grant signatory power in the name and on behalf of the Corporation;

 

  f) to verify the professional qualifications of the specially qualified independent auditor of the Corporation;

 

  g) to ultimately supervise the persons entrusted with the management of the Corporation, in particular with respect to their compliance with the law, the Articles of Association, the Organizational Regulations and other regulations and directives;

 

  h) to prepare the Corporation’s business report (including the financial statements) as well as to prepare the agenda for the General Meeting of Shareholders, and to implement shareholder resolutions;

 

  i) to pass resolutions regarding increases in share capital, as far as they are within the competence of the Board, as well as the adoption of capital increases and the amendments to the Articles of Association entailed therewith;

 

  j) to propose reorganization measures to the General Meeting of Shareholders if half of the share capital and the legal reserves is no longer covered by the Corporation’s net assets;

 

  k) to notify the judge in the case of over-indebtedness of the Corporation; and

 

  l) to approve any agreements to which the Corporation is a party relating to mergers, demergers, transformations and/or transfer of assets, to the extent required pursuant to the Swiss Merger Act.

Section 4 – Special Powers and Duties with Respect to Committees : The Board has the following further powers and responsibilities:

 

  m) to determine, upon the recommendation of the Governance Committee, the compensation of Directors and the Chairman;

 

3


  n) to determine, upon the recommendation of the Compensation Committee, the compensation framework for Executive Management;

 

  o) to consider the reports and recommendations submitted to it by Committees and resolve on the proposals of the Committees;

 

  p) to propose, upon recommendation by the Governance Committee, to the General Meeting of Shareholders candidates for election or re-election to the Board;

 

  q) to annually review the performance of the Board, the Committees and the Directors; and

 

  r) to empower the Audit Committee to provide regular oversight of accounting and financial reporting processes and audits of financial statements.

Section 5 - Delegation of Management : The Board delegates the management of the Corporation to the CEO and the other members of the Executive Management, except for a) the non-transferable duties set forth in Section 3 and Section 4 above and b) the duties and competencies retained by the Board according to its rules on delegation of authority.

Section 6 - Calendar and Agenda : A calendar of regularly scheduled Board meetings as established by the Board and all regularly scheduled Committee meetings shall be prepared annually by the Chairman in consultation with the Committee chairs, and all interested Directors. The Chairman is responsible for setting meeting agendas for Board meetings with input from the Directors.

Section 7 - Calling of Meetings : The Board shall meet whenever required by business. One of these meetings will be scheduled in conjunction with the Corporation’s annual General Meeting of Shareholders. Meetings shall be convened by the Secretary or the Chairman or, in their absence, by any Director. Any Director may request that the Chairman convene a meeting as soon as practicable, subject to providing a reason for so requesting a meeting.

Section 8 - Notice of Meetings : Notice of any meeting stating the place, date and hour of the meeting shall be given to each Director either by mail, telephone, facsimile, e-mail or any other electronic means on not less than 48 hours notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate and which is reasonable in the circumstances. Items on the agenda shall be set forth in such notice. Any Director may waive any notice required to be given by law or the Organizational Regulations, and the attendance of a Director at a meeting shall be deemed to be a waiver by such Director of notice of such meeting. These formal requirements do

 

4


not have to be observed if a meeting is only convened in order to record completion of increases in share capital that have been approved by shareholders and related amendments to the Articles.

Section 9 - Chairing of Board Meetings : The Chairman shall preside at all meetings of the Board, except that in the Chairman’s absence (a) if the CEO is a Director and a different person than the Chairman, the CEO shall preside or (b) if the CEO is not a Director, a Director designated by the Directors shall preside. The Chairman shall have such additional duties as the Board may assign.

Section 10 - Proposals : At Board meetings, each Director shall be entitled to submit proposals regarding the items on the agenda. Directors may also submit proposals regarding items on the agenda in writing in advance of the meeting.

Section 11 - Quorum : A quorum of the Board shall be constituted when a majority of the Directors are present in person or participate by means of a telephone or video conference or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time, provided that at any meeting duly called, whether or not a quorum is present, a majority of the Directors present may adjourn such meeting from time to time and place to place without notice other than by announcement by the Chairman. A quorum of the Board shall not be required at meetings convened only to record the completion of increases in share capital that have been approved by shareholders and related amendments to the Articles.

Section 12 - Majority Vote : The Board shall pass its resolutions with the absolute majority of the Directors present. Directors may not be represented by alternates or other directors in a meeting of the Board.

Section 13 - Circular Resolutions : Board resolutions may also be passed by means of written resolutions (circular resolutions), in writing, by facsimile or by a signed copy sent by e-mail, provided that no Director requests, either by phone, facsimile or similar means, deliberation in a meeting, within 5 (five) calendar days after becoming aware of, but before signing, the proposed resolution. Board resolutions by means of written resolutions require the vote or communication of abstention of all of the Directors. Such resolutions may be contained in one document or in several documents in like form, each signed by one or more Directors.

Section 14 - Non-Physical Meetings : Board meetings may be held and resolutions may be passed by means of a telephone or video conference or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time.

Section 15 - Minutes : All resolutions shall be recorded. The minutes shall be kept by the Secretary or, in his or her absence, any other person designated by the Chairman.

 

5


The minutes shall be signed by the Chairman and the person keeping the minutes, and must be approved by the Board.

Section 16 - Reporting : At every regular meeting, members of Executive Management shall report to the Board on business developments with respect to the Corporation. If necessary or appropriate, members of the Executive Management may be invited to attend Board meetings.

Section 17 - Right to Request Information and Access : Each Director is entitled to request from the Chairman access to corporate books and records for a purpose reasonably related to his or her position as a Director. If the Chairman rejects the Director’s request , then the Board shall decide on such request.

Section 18 - Compensation : Each Director shall be entitled to receive as compensation for such Director’s services as a Director or Committee member or for attendance at meetings of the Board or Committees, or both, such amounts (if any) as shall be fixed from time to time by the Board or a Committee. Each Director shall be entitled to reimbursement for reasonable traveling expenses incurred by such Director in attending any such meeting.

The Board or a Committee may from time to time determine that, all or part of any fees or other compensation payable to any Director shall be provided in the form of shares or other securities of the Corporation or any subsidiary of the Corporation, or options or rights to acquire such shares or other securities (including, without limitation, deferred stock units), on such terms as the Board or a Committee may determine.

Section 19 – Election of Directors : In accordance with the Articles, the General Meeting of Shareholders shall decide elections of members of the Board upon an absolute majority of the votes cast at the General Meeting of Shareholders. At any election in which the Chairman determines that the number of persons properly nominated to serve as members of the Board of Directors exceeds the number of members to be elected, members are elected by the affirmative vote of a plurality of the votes cast (in person or by proxy) at the General Meeting of Shareholders. A “plurality” means that the individual who receives the largest number of votes cast for a board seat is selected to that board seat.

 

D Officers

Section 1 - Number of Officers :  The officers of the Corporation shall consist of a CEO, a President, a Chief Financial Officer, a Treasurer, one or more Vice Presidents, a Secretary, and such other officers and assistant officers and agents as may be elected or appointed by the Board from time to time. Any number of offices may be held by the same person.

 

6


Section 2 - Election and Term of Office :  At the first meeting of the Board held after each annual General Meeting of Shareholders, the Board shall elect or appoint, from within or without their number, the CEO, President and Chief Financial Officer and such other officers as may be deemed advisable, each of whom shall have the powers, rights, duties and responsibilities provided for in these Organizational Regulation or resolutions of the Board not inconsistent therewith. In the absence of an election or appointment of a CEO or Chief Financial Officer by the Board, the person or persons exercising the principal functions of those offices are respectively deemed to have been elected to those offices. Each Officer shall hold office until his or her successor shall have been duly elected or appointed or until his or her prior death, resignation or removal.

Section 3 - Removal and vacancies : Any Officer may be removed from his or her office by the Board at any time, with or without cause. Such removal, however, shall be without prejudice to the contract rights of the Officer so removed. If there be a vacancy among the Officers of the Corporation by reason of death, resignation or otherwise, such vacancy shall be filled for the unexpired term by the Board.

Section 4 - CEO :  One of the Officers shall be appointed CEO of the Corporation by the Board. The CEO shall have such powers and perform such duties as may be conferred upon him or her by the Board. The CEO shall :

 

  a) Be responsible for the general active management of the business of the Corporation;

 

  b) See that all orders and resolutions of the Board are carried into effect;

 

  c) Perform such duties as may be prescribed, from time to time, by the Board; and

 

  d) Render to the Board, whenever requested, an account of all material transactions by the CEO.

Section 5 - President :  The President shall be appointed by the Directors and shall have such powers and perform such duties as the Board may assign. The President shall:

 

  a) Perform such duties as may be prescribed, from time to time, by the Board or by the CEO; and

 

  b) Render to the CEO or the Board, whenever requested, an account of all transactions by the President.

Section 6 - Vice Presidents :  Each Vice President shall perform such duties as may be prescribed, from time to time, by the Board or the CEO.

 

7


Section 7 - Chief Financial Officer : The Chief Financial Officer shall:

 

  a) Keep accurate financial records for the Corporation;

 

  b) Deposit all money, drafts, and checks in the name of and to the credit of the Corporation in the banks and depositories designated by the Board;

 

  c) Endorse for deposit all notes, checks, and drafts received by the Corporation as ordered by the Board, making proper vouchers therefor;

 

  d) Disburse corporate funds and issue checks and drafts in the name of the Corporation, as ordered by the Board;

 

  e) Perform such duties as may be prescribed, from time to time, by the Board or by the CEO; and

 

  f) Render to the CEO or the Board, whenever requested, an account of all transactions by the Chief Financial Officer and of the financial condition of the Corporation.

Section 8 - Treasurer :  The Treasurer shall have the power and authority to make and endorse notes, drafts and checks and other obligations necessary for the transaction of the business of the Corporation except as otherwise provided in these Organizational Regulations. The Treasurer shall perform such duties as may be prescribed, from time to time, by the Board, the CEO or the Chief Financial Officer.

Section 9 - Secretary :  It shall be the duty of the Secretary to make and keep records of the votes, doings and proceedings of all meetings of the shareholders and Board of the Corporation, and of its Committees, and to authenticate records of the Corporation. The Secretary shall give notice of meetings of the Board and shall perform like duties for the Committees when so required.

Section 10 - Other Officers :  The powers and duties of all other Officers are at all times subject to the control of the Directors, and any other Officer may be removed at any time at the pleasure of the Board.

Section 11 - Change in Power and Duties of Officers : Anything in these Organizational Regulations to the contrary notwithstanding, the Board may, from time to time, increase or reduce the powers and duties of the respective Officers of the Corporation whether or not the same are set forth in these Organizational Regulations and may permanently or temporarily delegate the duties of any Officer to any other Officer, agent or employee and may generally control the action of the Officers and require performance of all duties imposed upon them.

Section 12 - Delegation of Authority : All contracts, deeds, mortgages, bonds, notes, checks, conveyances and other instruments shall be executed in the name and on behalf of the Corporation by the Chairman of the Board, the CEO, the President, the Chief

 

8


Financial Officer, any Vice President, the Treasurer, the Secretary or by such other persons, in each case as may be designated or authorized, from time to time, by the Board or sub-delegated by the CEO (without releasing the CEO from his or her responsibility) having regard to the limitations provided by law, the Articles, the Organizational Regulations and other regulations or charters as may be adopted by the Board of the Corporation from time to time.

Section 13 - Compensation : The Officers of this Corporation shall receive such compensation for their services as may be determined, from time to time, by a resolution of the Board or a Committee.

 

E Board Committees

Section 1 - General : The Board may, by resolution passed by a majority of the whole Board, designate one or more Committees, each Committee to consist of one or more of the Directors, as designated by the Board with respect to the preparation and implementation of its decisions or the supervision of the business. At all meetings of any Committee, a majority of its members (or one member, if the Committee is comprised of only one or two members) shall constitute a quorum for the transaction of business, and the act of a majority of the members present shall be the act of any such Committee, unless otherwise specifically provided by law, the Articles or the Organizational Regulations. The Board shall have the power at any time to change the number and members of any such Committee, to fill vacancies and to discharge any such Committee subject to requirements imposed by law and stock exchange listing rules.

Section 2 - Governing Procedural Rules : With respect to procedural matters, the relevant sections under chapter C above shall apply also to meetings of Committees, unless different provisions shall be prescribed by the Board. Each Committee shall serve at the pleasure of the Board. Each Committee shall keep minutes of its meetings and report the same to the Board when required and shall observe such procedures as are prescribed by the Board.

Section 3 - Standing Committees : The standing Committees of the Board shall be the Audit and Finance Committee, the Compensation Committee, the Governance Committee and any other Committees designated by the Board. The responsibilities and qualifications of the Audit and Finance Committee, the Compensation Committee and the Governance Committee are set forth in the charter of each such Committee.

Section 4 - Executive Committee : The Board may designate an Executive Committee of three or more directors, one of whom shall be the CEO if a Director and at least one of whom shall be independent of management. In the event of an emergency, if one or more of the members is absent, any of the remaining independent directors shall be an alternative member for each member so absent, chosen by the length of service on the Board. The Board shall designate one member of the Executive Committee as chairman.

 

9


The Executive Committee shall exercise all other powers of the Board between the meetings of the Board other than those set forth in Section 3 above; provided that the Executive Committee shall not have authority to alter or amend these Organizational Regulations. The Board shall have the power at any time to change the membership of or to dissolve the Executive Committee. The Executive Committee shall take no action except by unanimous approval of all its members. The Executive Committee shall meet at the request of the chairman or any member with proper notice. In an emergency, any member of the Board or any Officer may call a meeting of the Executive Committee. Regular minutes will be kept of Executive Committee proceedings and shall be reported at the next following meeting of the Board; such report shall become a part of the record to which such report is presented.

 

F General Provisions

Section 1 - Signatory Power : The Directors, Officers and other persons authorized to represent the Corporation and its subsidiaries shall have single or joint signatory power, as determined to be appropriate by the Board.

Section 2 - Fiscal Year : The fiscal year of the Corporation shall be fixed by the Board of Directors.

 

G Final Provisions

Section 1 - Entering into Force : These Organizational Regulations shall enter into force on the date of adoption by the Board.

Section 2 - Review and Amendment : These Organizational Regulations shall be reviewed and, if necessary, amended on a regular basis by a majority of the whole Board.

 

10

Exhibit 4.1

 

 

 

TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A.,

as Issuer

AND

PENTAIR LTD.,

as Guarantor

AND

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Trustee

INDENTURE

Dated as of September 24, 2012

UNSUBORDINATED DEBT SECURITIES

 

 

 


TABLE OF CONTENTS

 

         Page  

ARTICLE I. DEFINITIONS

     1   

Section 1.01

  Definitions of Terms      1   

ARTICLE II. ISSUE, DESCRIPTION, TERMS, EXECUTION, REGISTRATION AND EXCHANGE OF SECURITIES

     9   

Section 2.01

  Designation and Terms of Securities      9   

Section 2.02

  Form of Securities and Trustee’s Certificate      12   

Section 2.03

  Denominations; Provisions for Payment      14   

Section 2.04

  Execution and Authentications      15   

Section 2.05

  Transfer and Exchange      16   

Section 2.06

  Temporary Securities      24   

Section 2.07

  Mutilated, Destroyed, Lost or Stolen Securities      25   

Section 2.08

  Cancellation      25   

Section 2.09

  Third Party Beneficiaries      26   

Section 2.10

  Authenticating Agent      26   

Section 2.11

  Global Securities      26   

Section 2.12

  CUSIP Numbers      27   

Section 2.13

  Securities Denominated in Foreign Currencies      27   

Section 2.14

  Wire Transfers      27   

Section 2.15

  Designated Currency      28   

Section 2.16

  Form of Guarantee      28   

ARTICLE III. REDEMPTION OF SECURITIES AND SINKING FUND PROVISIONS

     29   

Section 3.01

  Redemption      29   

Section 3.02

  Notice of Redemption      29   

Section 3.03

  Payment Upon Redemption      30   

Section 3.04

  Sinking Fund      31   

Section 3.05

  Satisfaction of Sinking Fund Payments with Securities      31   

Section 3.06

  Redemption of Securities for Sinking Fund      32   

ARTICLE IV. CERTAIN COVENANTS

     32   

Section 4.01

  Payment of Principal, Premium and Interest      32   

Section 4.02

  Maintenance of Office or Agency      32   

Section 4.03

  Paying Agents      33   

Section 4.04

  Statement by Officers as to Default      33   

Section 4.05

  Appointment to Fill Vacancy in Office of Trustee      34   

ARTICLE V. SECURITYHOLDERS’ LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

     34   

Section 5.01

  Company to Furnish Trustee Names and Addresses of Securityholders      34   

Section 5.02

  Preservation of Information; Communications with Securityholders      34   

Section 5.03

  Reports by the Company      35   

Section 5.04

 

Reports by the Trustee

     35   

 

i


ARTICLE VI. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT

     35   

Section 6.01

 

Events of Default

     35   

Section 6.02

 

Collection of Indebtedness and Suits for Enforcement by Trustee

     37   

Section 6.03

 

Application of Funds Collected

     39   

Section 6.04

 

Limitation on Suits

     39   

Section 6.05

 

Rights and Remedies Cumulative; Delay or Omission not Waiver

     40   

Section 6.06

 

Control by Securityholders

     40   

Section 6.07

 

Undertaking to Pay Costs

     41   

Section 6.08

 

Waiver Of Usury, Stay Or Extension Laws

     42   

ARTICLE VII. CONCERNING THE TRUSTEE

     42   

Section 7.01

 

Certain Duties and Responsibilities of Trustee

     42   

Section 7.02

 

Certain Rights of Trustee

     43   

Section 7.03

 

Trustee not Responsible for Recitals or Issuance of Securities

     44   

Section 7.04

 

May Hold Securities

     45   

Section 7.05

 

Funds Held in Trust

     45   

Section 7.06

 

Compensation, Reimbursement and Indemnification

     45   

Section 7.07

 

Reliance on Officer’s Certificate

     46   

Section 7.08

 

Disqualification; Conflicting Interests

     46   

Section 7.09

 

Corporate Trustee Required; Eligibility

     46   

Section 7.10

 

Resignation and Removal; Appointment of Successor

     46   

Section 7.11

 

Acceptance of Appointment By Successor

     48   

Section 7.12

 

Merger, Conversion, Consolidation or Succession to Business

     49   

Section 7.13

 

Preferential Collection of Claims Against the Company

     49   

ARTICLE VIII. CONCERNING THE SECURITYHOLDERS

     49   

Section 8.01

 

Evidence of Action by Securityholders

     49   

Section 8.02

 

Proof of Execution by Securityholders

     50   

Section 8.03

 

Who May be Deemed Owners

     50   

Section 8.04

 

Certain Securities Owned by Company Disregarded

     51   

Section 8.05

 

Actions Binding on Future Securityholders

     51   

ARTICLE IX. SUPPLEMENTAL INDENTURES

     52   

Section 9.01

 

Supplemental Indentures Without the Consent of Securityholders

     52   

Section 9.02

 

Supplemental Indentures with Consent of Securityholders

     53   

Section 9.03

 

Effect of Supplemental Indentures

     54   

Section 9.04

 

Securities Affected by Supplemental Indentures

     55   

Section 9.05

 

Execution of Supplemental Indentures

     55   

ARTICLE X. SUCCESSOR

     55   

Section 10.01

 

Consolidation, Merger and Sale of Assets

     55   

Section 10.02

 

Successor Person Substituted

     56   

 

ii


ARTICLE XI. SATISFACTION AND DISCHARGE

     56   

Section 11.01

 

Applicability of Article

     56   

Section 11.02

 

Satisfaction and Discharge of Indenture

     57   

Section 11.03

 

Defeasance and Discharge of Obligations; Covenant Defeasance

     57   

Section 11.04

 

Deposited Funds to be Held in Trust

     59   

Section 11.05

 

Payment of Funds Held by Paying Agents

     60   

Section 11.06

 

Repayment to Parent or the Company

     60   

Section 11.07

 

Reinstatement

     60   

ARTICLE XII. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS

     61   

Section 12.01

 

No Recourse

     61   

ARTICLE XIII. MISCELLANEOUS PROVISIONS

     61   

Section 13.01

 

Effect on Successors and Assigns

     61   

Section 13.02

 

Actions by Successor

     61   

Section 13.03

 

Notices

     62   

Section 13.04

 

Governing Law

     63   

Section 13.05

 

Treatment of Securities as Debt

     63   

Section 13.06

 

Compliance Certificates and Opinions

     63   

Section 13.07

 

Payments on Business Days

     64   

Section 13.08

 

Conflict with Trust Indenture Act

     64   

Section 13.09

 

Counterparts

     64   

Section 13.10

 

Separability

     64   

Section 13.11

 

No Adverse Interpretation of Other Agreements

     64   

Section 13.12

 

Table of Contents, Headings, Etc .

     65   

Section 13.13

 

Consent to Jurisdiction and Service of Process

     65   

Section 13.14

 

Waiver of Jury Trial

     66   

Section 13.15

 

USA Patriot Act

     66   

Section 13.16

 

Force Majeure

     66   

ARTICLE XIV. ADDITIONAL AMOUNTS; CERTAIN TAX PROVISIONS

     66   

Section 14.01

 

Redemption Upon Changes in Withholding Taxes

     66   

Section 14.02

 

Payment of Additional Amounts

     67   

ARTICLE XV. GUARANTEES

     70   

Section 15.01

 

Guarantee

     70   

Section 15.02

 

Execution and Delivery of Guarantee

     72   

Section 15.03

 

Release of Guarantee

     72   

 

iii


Cross Reference Table*

 

Section of Trust Indenture Act of 1939, as amended

   Section of
Indenture

310(a)

   7.09

310(b)

   7.08
   7.10

310(c)

   Inapplicable

311(a)

   7.13

311(b)

   7.13

311(c)

   Inapplicable

312(a)

   5.01
   5.02(a)

312(b)

   5.02(b)

312(c)

   5.02(b)

313(a)

   5.04(a)

313(b)

   5.04(b)

313(c)

   5.04(b)
   5.04(c)

313(d)

   5.04(c)

314(a)

   5.03

314(b)

   Inapplicable

314(c)

   13.06

314(d)

   Inapplicable

314(e)

   13.06

314(f)

   Inapplicable

315(a)

   7.01

315(b)

   6.01(c)

315(c)

   7.01(a)

315(d)

   7.01(b)

315(e)

   6.07

316(a)

   6.06, 8.04

316(b)

   6.04

316(c)

   8.01

317(a)

   6.02

317(b)

   4.03

318(a)

   13.08

 

* This Cross-Reference Table does not constitute part of the Indenture and shall not have any bearing on the interpretation of any of its terms or provisions.

 

iv


THIS INDENTURE is dated as of September 24, 2012 among TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A., a Luxembourg public limited liability company ( société anonyme ) with registered office at 29, avenue de la Porte Neuve, L-2227 Luxembourg and registered with the Luxembourg Trade and Companies Register under number B 166305 (the “ Company ”), PENTAIR LTD., a corporation limited by shares ( Aktiengesellschaft ) organized under the laws of Switzerland and formerly known as Pentair Ltd. (“ Parent ”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (the “ Trustee ”).

RECITALS

A. This Indenture provides for the issuance of unsecured debt securities (the “ Securities ”), in an unlimited aggregate principal amount to be issued from time to time in one or more series, to be authenticated by the certificate of the Trustee, and for guarantees of the Securities.

B. This Indenture is subject to the provisions of the Trust Indenture Act (as defined below) that are deemed to be incorporated into this Indenture and shall, to the extent applicable, be governed by such provisions.

C. All things necessary to make this Indenture a legal, valid and binding agreement, in accordance with its terms, have been done.

NOW, THEREFORE, in consideration of the premises and the purchase of the Securities by the holders thereof, it is mutually covenanted and agreed as follows for the equal and ratable benefit of the holders of Securities:

ARTICLE I.

DEFINITIONS

 

Section 1.01 Definitions of Terms .

The terms defined in this Section 1.01 (except as in this Indenture otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01 and shall include the plural as well as the singular. All other terms used in this Indenture that are defined in the Trust Indenture Act or that are by reference in the Trust Indenture Act defined in the Securities Act of 1933, as amended (the “ Securities Act ”) (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in the Trust Indenture Act and in the Securities Act as in force at the date of the execution of this instrument. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with generally accepted accounting principles, and, except to the extent provided otherwise herein or in any supplemental indenture, the term “generally accepted accounting principles” means such accounting principles as are generally accepted in the United States at the time of any computation.


144A Global Security ”, with respect to any series of Securities, means one or more Global Securities bearing the Private Placement Legend that will be issued in an aggregate amount of denominations equal in total to the outstanding principal amount of the Securities of such series sold in global form in reliance on Rule 144A.

Additional Amounts ” has the meaning set forth in Section 14.02.

Affiliate ”, with respect to any specified Person, means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

Applicable Procedures ”, with respect to any transfer or exchange of or for beneficial interests in any Global Security for a series of Securities, means the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange at the relevant time.

Authenticating Agent ” means an authenticating agent with respect to all or any of the series of Securities appointed with respect to all or any series of the Securities by the Trustee pursuant to Section 2.10.

Authentication Order ” has the meaning set forth in Section 2.04.

Board of Directors ” means the Board of Directors of the Company or Parent, as applicable, or any duly authorized committee of such Board of Directors.

Board Resolution ” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or Parent to have been duly adopted by its Board of Directors and to be in full force and effect on the date of such certification.

Business Day ”, with respect to any series of Securities, means any day other than Saturday, Sunday or a day on which Federal or State banking institutions in the Borough of Manhattan, The City of New York, or in the city where the office or agency for payment on the Securities is maintained pursuant to Section 4.02, are authorized or obligated by law, executive order or regulation to close.

Capital Stock ” of any Person means any and all shares, interests, participations, rights in or other equivalents (however designated) of such Person’s capital stock, other equity interests whether now outstanding or issued after the date of this Indenture, partnership interests (whether general or limited), any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and any rights (other than debt securities convertible into Capital Stock), warrants or options exchangeable for or convertible into such Capital Stock.

Clearstream ” means Clearstream Banking société anonyme, or its successors.

 

2


Commission ” means the Securities and Exchange Commission.

Company ” means Tyco Flow Control International Finance S.A. until a successor entity shall have become such pursuant to Article X, and thereafter “Company” shall mean such successor entity.

Corporate Trust Office ” means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at Wells Fargo Bank, National Association, MAC N9311-115, 625 Marquette Avenue, 11th Floor, Minneapolis, MN 55479, Attention: Corporate Trust Services, or such other address as the Trustee may designate from time to time by notice to the Securityholders and the Company, or the designated corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Securityholders and the Company).

Currency ” means Dollars or Foreign Currency.

Default ” means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default.

Defaulted Interest ” has the meaning set forth in Section 2.03.

Definitive Security ” means a certificated Security registered in the name of the Securityholder thereof and issued in accordance with Section 2.05.

Depositary ”, with respect to Securities of any series which the Company shall determine will be issued in whole or in part as a Global Security, means The Depository Trust Company (“ DTC ”), New York, New York, another clearing agency, or any successor registered as a clearing agency under the Exchange Act, and any other applicable U.S. or foreign statute or regulation, which, in each case, shall be designated by the Company pursuant to Section 2.01.

Designated Currency ” has the meaning set forth in Section 2.15.

Distribution Compliance Period ” means the restricted period as defined in Rule 903(b)(3) under the Securities Act.

Dollar ” or “ $ ” means such currency of the United States as at the time of payment is legal tender for the payment of public and private debts.

Dollar Equivalent ” means, with respect to any monetary amount in a Foreign Currency, at any time for the determination thereof, the amount of Dollars obtained by converting such Foreign Currency involved in such computation into Dollars at the spot rate for the purchase of Dollars with the applicable Foreign Currency as quoted by JPMorgan Chase Bank, N.A. (unless another comparable financial institution is designated by the Company) in New York, New York, at approximately 11:00 a.m. (New York time) on the date two business days prior to such determination.

 

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Euroclear ” means Euroclear Bank S.A./N.V., or its successor, as operator of the Euroclear System.

Event of Default ”, with respect to Securities of a particular series, means any event specified in Section 6.01, continued for the period of time, if any, therein designated.

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

Foreign Currency ” means a currency, currency unit or composite currency, including the euro, issued by the government of one or more countries other than the United States or by any recognized confederation or association of such governments or a composite currency the value of which is determined by reference to the values of the currencies of any group of countries.

Global Security ”, with respect to any series of Securities, means a Security executed by the Company and delivered by the Trustee to the Depositary or pursuant to the Depositary’s instruction, all in accordance with this Indenture, which shall be registered in the name of the Depositary or its nominee.

Governmental Obligations ” means securities that are (i) direct obligations of the United States for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States that, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such Governmental Obligation or a specific payment of principal of or interest on any such Governmental Obligation held by such custodian for the account of the holder of such depositary receipt; provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Governmental Obligation or the specific payment of principal of or interest on the Governmental Obligation evidenced by such depositary receipt.

Guarantee ” means the unconditional and unsubordinated guarantee by Parent of the due and punctual payment of principal of and interest on a series of Securities when and as the same shall become due and payable, whether at the stated maturity, by acceleration, call for redemption or otherwise in accordance with the terms of the Securities and this Indenture.

herein ,” “ hereof ” and “ hereunder ,” and other words of similar import, refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

including ” means including without limitation.

Indenture ” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into in accordance with the terms hereof.

 

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Indirect Participant ” means any entity that, with respect to DTC, clears through or maintains a direct or indirect, custodial relationship with a Participant.

Interest Payment Date, ” when used with respect to any installment of interest on a Security of a particular series, means the date specified herein, in such Security or in a Board Resolution or in an indenture supplemental hereto with respect to such series as the fixed date on which an installment of interest with respect to Securities of that series is due and payable.

Officer ” means any director, the chairman or any vice chairman of the Board of Directors, the chief executive officer, the president, the chief financial officer, any vice president, the treasurer, any assistant treasurer, the secretary or any assistant secretary of the Company or Parent, as the case may be.

Officer’s Certificate ” means a certificate, signed by any director or by the chairman or any vice chairman of the Board of Directors, or the chief executive officer, president, chief financial officer or vice president or the secretary or any assistant secretary or the treasurer or any assistant treasurer of the Company or Parent, as the case may be, that is delivered to the Trustee in accordance with the terms hereof. Each such certificate shall include the statements provided for in Section 13.06, if and to the extent required by the provisions thereof.

Opinion of Counsel ” means an opinion in writing of legal counsel, who may be an Officer or employee of or counsel for Parent or the Company, that is delivered to the Trustee in accordance with the terms hereof. Each such opinion shall include the statements provided for in Section 13.06, if and to the extent required by the provisions thereof.

Original Issue Discount Security ” means a Security that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof pursuant to Section 6.01.

Outstanding ”, when used with reference to Securities of any series, subject to the provisions of Section 8.04, means, as of any particular time, all Securities of such series authenticated and delivered by the Trustee under this Indenture, except:

(a) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;

(b) Securities, or portions thereof, for the payment or redemption of which funds in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent other than the Company, or, if the Company shall act as its own paying agent, shall have been set aside, segregated and held in trust by the Company for the Holders of such Securities, provided that if such Securities, or portions thereof, are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as herein provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and

(c) Securities in substitution for which other Securities shall have been authenticated and delivered, or which shall have been paid, pursuant to the terms of Section 2.07, except with respect to any such Security as to which proof satisfactory to the Trustee is presented that such Security is held by a person in whose hands such Security is a legal, valid and binding obligation of the Company.

 

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In determining whether the holders of the requisite principal amount of Outstanding Securities of any series have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the maturity thereof pursuant to Section 6.01 and the principal amount of a Security denominated in one or more currencies that shall be deemed to be Outstanding for such purposes shall be based on the Dollar Equivalent, on the date of original issuance of such Security, of the principal amount of such Security.

Parent ” means Pentair Ltd. until a successor entity shall have become such pursuant to Article X, and thereafter “Parent” shall mean such successor entity.

Participant ”, with respect to the Depositary, Euroclear or Clearstream, means a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream).

Periodic Offering ” means an offering of Securities of a series from time to time, during which any or all of the specific terms of the Securities, including the rate or rates of interest, if any, thereon, the maturity or maturities thereof and the redemption provisions, if any, with respect thereto, are to be determined by the Company or its agents upon the issuance of such Securities in accordance with the terms of the relevant Supplemental Indenture.

Person ” means any individual, corporation, limited liability company, partnership, joint venture, joint-stock company, unincorporated organization or government or any agency or political subdivision thereof.

Predecessor Security ” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security. For the purposes of this definition, any Security authenticated and delivered under Section 2.07 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security.

Private Placement Legend ” means the legend set forth in Section 2.02(b) to be placed on all Restricted Securities issued under this Indenture or pursuant to a Board Resolution or an indenture supplemental hereto with respect to a series of Securities, except where specifically stated otherwise by the provisions of this Indenture, such Board Resolution or such supplemental indenture.

QIB ” means a “qualified institutional buyer” as defined in Rule 144A.

Regulation S Global Security ” means, with respect to any series of Securities, a Regulation S Temporary Global Security of such series, if required by Rule 903 of Regulation S, or a Regulation S Permanent Global Security of such series, as the case may be.

 

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Regulation S Permanent Global Security ”, with respect to any series of Securities, means one or more permanent Global Securities bearing the Private Placement Legend, that will be issued in an aggregate amount of denominations equal in total to the outstanding principal amount of the Securities of such series initially sold or, if required by Rule 903 of Regulation S, of the Regulation S Temporary Global Security of such series upon expiration of the Distribution Compliance Period with respect to such series, as the case may be.

Regulation S Temporary Global Security ”, with respect to any series of Securities, means one or more temporary Global Securities, bearing the Private Placement Legend and the Regulation S Temporary Global Security Legend, issued in an aggregate amount of denominations equal in total to the outstanding principal amount of the Securities of such series initially sold, if required by Rule 903 of Regulation S.

Regulation S Temporary Global Security Legend ” means the legend set forth in Section 2.02(d), which is required to be placed on all Regulation S Temporary Global Securities issued under this Indenture.

Regulation S ” means Regulation S promulgated under the Securities Act, as it may be amended from time to time, and any successor provision thereto.

Responsible Officer ” means, when used with respect to the Trustee, any vice president, any trust officer, any assistant trust officer, any assistant vice president, any assistant treasurer, or any other officer of the Trustee customarily performing functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.

Restricted Definitive Security ”, with respect to any series of Securities, means one or more Definitive Securities of such series bearing the Private Placement Legend issued under this Indenture.

Restricted Global Security ”, with respect to any series of Securities, means one or more Global Securities of such series bearing the Private Placement Legend, issued under this Indenture.

Restricted Security ”, with respect to any series of Securities, means a Security of such series, unless or until it has been (i) effectively registered under the Securities Act and disposed of in accordance with a registration statement with respect to such series or (ii) distributed to the public pursuant to Rule 144 under the Securities Act or any similar provision then in force.

Rule 144A ” means Rule 144A promulgated under the Securities Act, as it may be amended from time to time, and any successor provision thereto.

Securities ” means the securities authenticated and delivered under this Indenture.

Securityholder, ” “ Holder, ” “ holder of Securities, ” “ registered holder, ” or other similar term, means the Person or Persons in whose name or names a particular Security shall be registered on the books of the Company kept for that purpose in accordance with the terms of this Indenture.

 

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Security Register ” has the meaning set forth in Section 2.05(a).

Security Registrar ” has the meaning set forth in Section 2.05(a).

Stated Maturity ”, with respect to any Security, means the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision, but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred.

Subsidiary ”, with respect to any Person, means any other Person of which at least a majority of the outstanding Voting Stock at the time is owned or controlled directly or indirectly by such Person or by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person.

Taxes ” has the meaning set forth in Section 14.02.

Taxing Jurisdiction ” has the meaning set forth in Section 14.01.

Trustee ” means Wells Fargo Bank, National Association and, subject to the provisions of Article VII, shall include its successors and assigns. The term “Trustee” as used with respect to a particular series of the Securities shall mean the Trustee with respect to that series.

Trust Indenture Act ” means the Trust Indenture Act of 1939, as amended, as in effect at the date of execution of this instrument subject to the provisions of Sections 9.01, 9.02, and 10.01.

Unrestricted Definitive Security ”, with respect to any series of Securities, means one or more Definitive Securities representing such series of Securities that do not bear and are not required to bear the Private Placement Legend, issued under this Indenture.

Unrestricted Global Security ”, with respect to any series of Securities, means one or more permanent Global Securities representing such series of Securities that do not bear and are not required to bear the Private Placement Legend, issued under this Indenture.

Unrestricted Securities ”, with respect to any series of Securities, means a Security (i) effectively registered under the Securities Act and disposed of in accordance with a registration statement with respect to such series or (ii) distributed to the public pursuant to Rule 144 under the Securities Act or any similar provision then in force.

Voting Stock ” of a Person means Capital Stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person, irrespective of whether or not at the time Capital Stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency.

 

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ARTICLE II.

ISSUE, DESCRIPTION, TERMS, EXECUTION, REGISTRATION AND EXCHANGE OF SECURITIES

 

Section 2.01 Designation and Terms of Securities .

(a) The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series up to the aggregate principal amount of Securities of that series from time to time authorized by or pursuant to a Board Resolution of the Company or pursuant to one or more indentures supplemental hereto. Prior to the initial issuance of Securities of any series, there shall be established in or pursuant to a Board Resolution of the Company, and set forth in an Officer’s Certificate of the Company, or established in one or more indentures supplemental hereto, with respect to the Securities of the series:

(1) the title of the Security of the series, which shall distinguish the Securities of the series from all other Securities;

(2) any limit upon the aggregate principal amount of the Securities of that series that may be authenticated and delivered under this Indenture, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, other Securities of that series;

(3) the date or dates on which the principal and premium, if any, of the Securities of the series is payable;

(4) the rate or rates, which may be fixed or variable, at which the Securities of the series shall bear interest or the manner of calculation of such rate or rates, if any, including any procedures to vary or reset such rate or rates, and the basis upon which interest will be calculated if other than that of a 360 day year of twelve 30-day months;

(5) the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest will be payable or the manner of determination of such Interest Payment Dates, and the record date for the determination of holders to whom interest is payable on any such Interest Payment Dates;

(6) any trustees, authenticating agents or paying agents with respect to such series, if different from those set forth in this Indenture;

(7) the right, if any, to extend the interest payment periods or defer the payment of interest and the duration of such extension or deferral;

(8) the period or periods within which, the price or prices at which and the terms and conditions upon which, Securities of the series may be redeemed, in whole or in part, at the option of the Company;

 

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(9) the obligation, if any, of the Company to redeem, purchase or repay Securities of the series pursuant to any sinking fund or analogous provisions, including payments made in cash in anticipation of future sinking fund obligations, or at the option of a holder thereof and the period or periods within which, the price or prices at which, and the terms and conditions upon which, Securities of the series shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligation;

(10) the form of the Securities of the series including the form of the Trustee’s certificate of authentication for such series;

(11) if other than denominations of $2,000 or any integral multiple of $1,000 in excess thereof, the denominations in which the Securities of the series shall be issuable;

(12) the Currency or Currencies in which payment of the principal of, premium, if any, and interest on, Securities of the series shall be payable;

(13) if the principal amount payable at the Stated Maturity of Securities of the series will not be determinable as of any one or more dates prior to such Stated Maturity, the amount which will be deemed to be such principal amount as of any such date for any purpose, including the principal amount thereof that will be due and payable upon declaration of the maturity thereof pursuant to Section 6.01 or upon any maturity other than the Stated Maturity or that will be deemed to be Outstanding as of any such date, or, in any such case, the manner in which such deemed principal amount is to be determined;

(14) the terms of any repurchase or remarketing rights;

(15) if the Securities of the series shall be issued in whole or in part in the form of a Global Security or Securities, the type of Global Security to be issued; the terms and conditions, if different from those contained in this Indenture, upon which such Global Security or Securities may be exchanged in whole or in part for other individual Securities in definitive registered form; the Depositary for such Global Security or Securities; and the form of any legend or legends to be borne by any such Global Security or Securities in addition to or in lieu of the legends referred to in Section 2.02;

(16) whether the Securities of the series will be convertible into or exchangeable for other Securities, common shares or other securities of any kind of the Company or another obligor, and, if so, the terms and conditions upon which such Securities will be so convertible or exchangeable, including the initial conversion or exchange price or rate or the method of calculation, how and when the conversion price or exchange ratio may be adjusted, whether conversion or exchange is mandatory, at the option of the holder or at the Company’s option, the conversion or exchange period, and any other provision in addition to or in lieu of those described herein;

(17) any additional restrictive covenants or Events of Default that will apply to the Securities of the series, or any changes to the restrictive covenants set forth in Article IV or the Events of Default set forth in Section 6.01 that will apply to the Securities of the series,

 

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which may consist of establishing different terms or provisions from those set forth in Article IV or Section 6.01 or eliminating any such restrictive covenant or Event of Default with respect to the Securities of the series;

(18) any provisions granting special rights to holders when a specified event occurs;

(19) if the amount of principal of or any premium or interest on Securities of a series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts will be determined;

(20) any special tax implications of the Securities, including provisions for original issue discount securities, if offered;

(21) whether and upon what terms Securities of a series may be defeased if different from the provisions set forth in this Indenture;

(22) with regard to the Securities of any series that do not bear interest, the dates for certain required reports to the Trustee;

(23) whether the Securities of the series will be issued as Unrestricted Securities or Restricted Securities, and, if issued as Restricted Securities, the rule or regulation promulgated under the Securities Act in reliance on which they will be sold; and

(24) any and all additional, eliminated or changed terms that shall apply to the Securities of the series, including any terms that may be required by or advisable under United States laws or regulations, including the Securities Act and the rules and regulations promulgated thereunder, or advisable in connection with the marketing of Securities of that series.

(b) All Securities of any one series shall be substantially identical except that Securities of any particular series may be issued at various times, in different denominations, with different currency of payments due thereunder, with different dates on which the principal or any installment of principal is payable, with different rates of interest, if any, or different methods by which rates of interest may be determined, with different dates from which such interest may accrue or on which such interest may be payable, and with different redemption dates, and except as may otherwise be provided in or pursuant to any such Board Resolution or in any supplemental indenture. If any of the terms of the series are established by action taken pursuant to a Board Resolution of the Company, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officer’s Certificate of the Company setting forth the terms of the series. The terms of the Securities of any series may provide that such Securities shall be authenticated and delivered by the Trustee upon original issuance from time to time upon written order of persons designated in such Board Resolution or supplemental indenture and that such persons are authorized to determine, consistent with such Board Resolution or supplemental indenture, such terms and conditions of the Securities of such series.

 

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Section 2.02 Form of Securities and Trustee’s Certificate .

(a) The Securities of any series and the Trustee’s certificate of authentication to be borne by such Securities shall be substantially of the tenor set forth in an indenture supplemental hereto or as provided in a Board Resolution of the Company and as set forth in an Officer’s Certificate of the Company and may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, any Board Resolution or any indenture supplemental hereto, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Securities of that series may be listed, or to conform to usage.

(b) Each Restricted Security (and all Restricted Securities issued in exchange therefor or substitution thereof) shall bear a Private Placement Legend in substantially the following form:

“THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”). THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.”

 

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(c) To the extent required by the Depositary for particular series of Securities, each Global Security of such series shall bear legends in substantially the following forms:

“THIS GLOBAL SECURITY IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS SECURITY) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE HOLDERS OF BENEFICIAL INTERESTS HEREIN, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE ANY SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO THE INDENTURE, (II) THIS GLOBAL SECURITY MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.05(C) OF THE INDENTURE, (III) THIS GLOBAL SECURITY MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO THE INDENTURE AND (IV) THIS GLOBAL SECURITY MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.”

“UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR TO ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF ANY ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO SUCH ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF HAS AN INTEREST HEREIN.”

(d) To the extent required by the Depositary, each Regulation S Temporary Global Security shall bear a legend in substantially the following form:

“THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL SECURITY, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SECURITIES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE HOLDER OF BENEFICIAL INTERESTS IN THIS REGULATION S TEMPORARY SECURITY SHALL BE ENTITLED TO RECEIVE CASH PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER HOLDS THIS SECURITY. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT INTEREST FROM ACCRUING ON THIS SECURITY.”

 

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Section 2.03 Denominations; Provisions for Payment .

The Securities shall be issuable as registered Securities and in the denominations of $2,000 or any integral multiple of $1,000 in excess thereof, subject to Section 2.01(a)(11). The Securities of a particular series shall bear interest payable on the dates and at the rate specified as provided in Section 2.01 with respect to that series. The principal of and the interest on the Securities of any series, as well as any premium thereon in case of redemption thereof prior to maturity, shall be payable in Dollars except as otherwise specified pursuant to Section 2.01(a)(12), at the office or agency of the Company maintained for that purpose pursuant to Section 4.02. Each Security shall be dated the date of its authentication. Unless otherwise specified with respect to a series of Securities in accordance with the provisions of Section 2.01(a)(4), interest on the Securities shall be computed on the basis of a 360-day year composed of twelve 30-day months.

The interest installment on any Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date for Securities of that series shall be paid to the Person in whose name said Security (or one or more Predecessor Securities) is registered at the close of business on the regular record date for such interest installment. In the event that any Security of a particular series or portion thereof is called for redemption and the redemption date is subsequent to a regular record date with respect to any Interest Payment Date and prior to such Interest Payment Date, interest on such Security will be paid upon presentation and surrender of such Security as provided in Section 3.03.

Unless otherwise set forth in a Board Resolution or one or more indentures supplemental hereto establishing the terms of any series of any Securities pursuant to Section 2.01, the term “regular record date” as used in this Section 2.03 with respect to a series of Securities shall mean a date 15 days immediately preceding any Interest Payment Date, whether or not such day is a Business Day. Subject to the provisions of this Section 2.03, each Security of a series delivered under this Indenture upon registration of transfer or in exchange for or in lieu of any other Security of such series shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Security.

Unless otherwise specified with respect to a series of Securities in accordance with the provisions of Section 2.01, any interest on any Security that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date for such Security (“ Defaulted Interest ”) shall forthwith cease to be payable to the registered holder on the relevant regular record date, and such Defaulted Interest shall be paid by the Company, at its election, as provided in clause (1) or clause (2) below.

(1) The Company may make payment of any Defaulted Interest on Securities to the Persons in whose names such Securities (or their respective Predecessor Securities) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on

 

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each such Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee funds in an amount equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such funds when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this clause (1). Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall not be more than 15 nor less than ten days prior to the date of the proposed payment and not less than ten days after the receipt by the Trustee of the notice of the proposed payment. The Trustee promptly shall notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Securityholder at his or her address as it appears in the Security Register, not less than ten days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Securities, or their respective Predecessor Securities, are registered on such special record date and shall not be payable pursuant to the following clause (2).

(2) The Company may make payment of any Defaulted Interest on any Securities in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange.

 

Section 2.04 Execution and Authentications .

The Securities shall be signed on behalf of the Company by any member of the Board of Directors of the Company or by both (a) its chief executive officer, president, chief financial officer or any vice president and (b) any vice president, its secretary, any assistant secretary, its treasurer or any assistant treasurer. Signatures may be in the form of a manual or facsimile signature. In the case of Definitive Securities of any series, such signatures may be imprinted or otherwise reproduced on such Securities. The Securities may contain such notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication by the Trustee.

A Security shall not be valid until authenticated manually by an authorized signatory of the Trustee or by an Authenticating Agent. Such signature shall be conclusive evidence, and the only evidence, that the Security so authenticated has been duly authenticated and delivered hereunder. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company, with the form of Guarantee thereon executed by Parent, to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Securities, signed by an Officer (an “ Authentication Order ”), and the Trustee in accordance with such written order shall authenticate and deliver such Securities.

Notwithstanding the provisions of Section 2.01 and the preceding paragraph, in the case of Securities offered in a Periodic Offering, the Trustee shall authenticate and deliver such

 

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Securities from time to time in accordance with an Authentication Order or such other procedures acceptable to the Trustee as may be specified by or pursuant to a supplemental indenture or the written order of the Company delivered to the Trustee prior to the time of the first authentication of Securities of such series. With respect to Securities of a series subject to a Periodic Offering, the Trustee conclusively may rely and shall be fully protected in relying upon:

(a) A copy of the resolution or resolutions of the Board of Directors in or pursuant to which the terms and form of the Securities were established, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect as of the date of such certificate, and if the terms and form of such Securities are established by an Officer’s Certificate pursuant to general authorization of the Board of Directors, such Officer’s Certificate;

(b) an executed supplemental indenture, if any;

(c) an Officer’s Certificate delivered in accordance with Section 13.06; and

(d) an Opinion of Counsel which shall state:

(1) that the form of such Securities has been established by a supplemental indenture or by or pursuant to a resolution of the Board of Directors in accordance with Sections 2.01 and 2.02 and in conformity with the provisions of this Indenture;

(2) that the terms of such Securities have been established in accordance with Section 2.01 and in conformity with the other provisions of this Indenture; and

(3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors’ rights and to general equity principles.

The Trustee shall have the right to decline to authenticate and deliver any Securities under this Section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken or if the Trustee in good faith shall determine that such action would expose the Trustee to personal liability to existing Securityholders.

 

Section 2.05 Transfer and Exchange .

(a) Registration of Transfer and Exchange . The Company shall keep, or cause to be kept, at its office or agency designated for such purpose as provided in Section 4.02, a register or registers (the “ Security Register ”) in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Securities and the transfers of Securities as provided in this Article II and which at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Securities and the transfer of Securities as herein provided shall be appointed as authorized by Board Resolution (the “ Security Registrar ”). If the Company fails to appoint or maintain another entity as Security Registrar, the Trustee shall act as

 

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such. The Company or any of its Subsidiaries may act as Security Registrar. In the case of discrepancies between the register held at the registered office of the Company (the “ Company’s Register ”) and the register held by the Security Registrar (other than the Company’s Register), the Company’s Register shall prevail for Luxembourg law purposes.

To permit registrations of transfers and exchanges, the Company shall execute a new Security or Securities of the same series as the Security presented for a like aggregate principal amount and in authorized denominations, and Parent shall execute the form of Guarantee or Guarantees thereon, and the Trustee shall authenticate and deliver such Security or Securities upon receipt of an Authentication Order. The Trustee shall not be required to register the transfer of or exchange any Security selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.

All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company and Parent, evidencing the same indebtedness as the Securities surrendered upon such registration of transfer or exchange. Prior to such due presentment for the registration of a transfer of any Security, the Trustee, the Company, any paying agent and the Security Registrar may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Securities and for all other purposes, and none of the Trustee, the Company, the paying agent or the Security Registrar shall be affected by notice to the contrary.

All certifications, Officer’s Certificates and Opinions of Counsel required to be submitted to the Trustee pursuant to this Section 2.05 to effect a registration of transfer or exchange may be submitted by facsimile or sent electronically in PDF format, to be followed by delivery of the original document to Trustee within three (3) Business Days of delivery by facsimile or PDF transmission.

(b) Service Charge . No service charge shall be payable by a holder of a beneficial interest in a Global Security or by a Holder of a Definitive Security for any exchange or registration of transfer of Securities, or for any issue of new Securities in case of partial redemption of any series. The Company, however, may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than any such taxes or other governmental charge payable upon exchange or registration of transfer pursuant to Sections 2.06, 3.03(b) and 9.04.

(c) Transfer and Exchange of Global Securities . A Global Security may not be transferred except as a whole by the Depositary for a series of the Securities to a nominee of such Depositary, by a nominee of such Depositary to such Depositary or to another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for a series of the Securities or a nominee of such successor Depositary. If at any time the Depositary for a series of the Securities notifies the Company that it is unwilling or unable to continue as Depositary for such series or if at any time the Depositary for such series shall no longer be registered or in good standing under the Exchange Act or other applicable statute or regulation, and a successor Depositary for such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, the provisions of Section

 

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2.11 shall no longer be applicable to the Securities of such series. In addition, the Company may at any time determine that the Securities of any series shall no longer be represented by a Global Security and that the provisions of Section 2.11 shall no longer apply to the Securities of such series. In either such event the Company will execute the Definitive Securities of such series, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Security of such series, and Parent will execute the form of Guarantees thereon, and subject to this Section 2.05 the Trustee, upon receipt of an Officer’s Certificate evidencing such determination by the Company, if applicable, will authenticate and deliver such Definitive Securities in exchange for such Global Security. Upon the exchange of the Global Security of such series for such Definitive Securities of such series, the Global Security shall be canceled by the Trustee. Such Definitive Securities shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its Participants or Indirect Participants or otherwise, shall in writing instruct the Trustee. The Trustee shall deliver such Securities to the Depositary for delivery to the Persons in whose names such Securities are so registered.

Except as provided in Sections 2.06 and 2.07, a Global Security may not be exchanged for another Security other than as provided in this Section 2.05(c); however, beneficial interests in a Global Security may be transferred and exchanged as provided in Section 2.05(d) or (e). The provisions of this Section 2.05(c) are subject to Section 2.11.

(d) Transfer and Exchange of Beneficial Interests in the Global Securities . The transfer and exchange of beneficial interests in the Global Securities of a series shall be effected through the Depositary, in accordance with the provisions of this Indenture, any Board Resolution and any one or more indentures supplemental hereto, and the Applicable Procedures. Beneficial interests in the Restricted Global Securities of a series shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Securities also shall require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:

(1) Transfer of Beneficial Interests in the Same Global Security . Beneficial interests in any Restricted Global Security of a series may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Security in accordance with the transfer restrictions set forth in the Private Placement Legend. Beneficial interests in any Unrestricted Global Security of a series may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security of such series. Subject to Section 2.05(e)(4), no written orders or instructions shall be required to be delivered to the Security Registrar to effect the transfers described in this Section 2.05(d)(1).

 

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(2) All Other Transfers and Exchanges of Beneficial Interests in Global Securities . In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.05(d)(1) above, the transferor of such beneficial interest must deliver to the Security Registrar, as applicable, either:

(A)(1) an order from a Participant or an Indirect Participant given to the Depositary in accordance with the relevant Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Security of such series in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the relevant Applicable Procedures containing information regarding the Participant account to be credited with such increase; or

(B)(1) an order from a Participant or an Indirect Participant given to the Depositary in accordance with the relevant Applicable Procedures directing the Depositary to cause to be issued a Definitive Security of such series in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Security Registrar containing information regarding the Person in whose name such Definitive Security shall be registered to effect the transfer or exchange referred to in (B)(1) above;

provided that in no event shall Definitive Securities of a series be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Security of such series prior to (y) the expiration of the relevant Distribution Compliance Period and (z) the receipt by the Security Registrar of any certificates identified by the Company or its counsel to be required pursuant to Rule 903 and Rule 904 under the Securities Act. Upon satisfaction of all the requirements for transfer and exchange of beneficial interests in Global Securities of a series contained in this Indenture, any Board Resolution, or one or more indentures supplemental hereto and the Securities of such series or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Security or Securities of such series pursuant to Section 2.05(h).

(3) Transfer of Beneficial Interests to Another Restricted Global Security . A beneficial interest in any Restricted Global Security of a series may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Security of the same series if the transfer complies with the requirements of Section 2.05(d)(2) and the Security Registrar receives a completed certificate in the form of Exhibit A.

(4) Transfer and Exchange of Beneficial Interests in a Restricted Global Security for Beneficial Interests in an Unrestricted Global Security . A beneficial interest in any Restricted Global Security of any series may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Security of such series or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Security of such series if the exchange or transfer complies with the requirements of Section 2.05(d)(2) above and the Security Registrar receives a completed certificate from such holder in the form of Exhibit A or Exhibit B, as applicable, and an opinion of

 

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counsel in form, and from legal counsel, reasonably acceptable to the Security Registrar and the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

If any such transfer is effected at a time when an Unrestricted Global Security of such series has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.04, the Trustee shall authenticate one or more Unrestricted Global Securities of such series in an aggregate principal amount equal to the aggregate principal amount of beneficial interests so transferred. Beneficial interests in an Unrestricted Global Security of a series cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Security of such series.

(e) Transfer or Exchange of Beneficial Interests for Definitive Securities .

(1) Beneficial Interests in Restricted Global Securities to Restricted Definitive Securities . If any holder of a beneficial interest in a Restricted Global Security of a series proposes to exchange such beneficial interest for a Restricted Definitive Security of such series or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Security of such series, then, upon receipt by the Security Registrar of a completed certificate from such holder in the form of Exhibit A or Exhibit B, as applicable, and certificates and opinions of counsel, if applicable, the Trustee, upon receipt of written instructions accompanied by an Officer’s Certificate and Opinion of Counsel, shall cause the aggregate principal amount of the applicable Restricted Global Security of such series to be reduced accordingly pursuant to Section 2.05(h), and the Company shall execute a Restricted Definitive Security of such series in the appropriate principal amount, and Parent shall execute the form of Guarantee thereon, and, upon receipt of an Authentication Order pursuant to Section 2.04, the Trustee shall authenticate and deliver to the Person designated in the instructions such Restricted Definitive Security. Any Restricted Definitive Security of such series issued in exchange for a beneficial interest in a Restricted Global Security of such series pursuant to this Section 2.05(e) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Security Registrar through instructions from the Depositary for such series and the Participant or Indirect Participant. The Trustee shall deliver such Restricted Definitive Securities of such series to the Persons in whose names such Securities are so registered. Any Restricted Definitive Security of such series issued in exchange for a beneficial interest in a Restricted Global Security of such series pursuant to this Section 2.05(e)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.

(2) Beneficial Interests in Restricted Global Securities to Unrestricted Definitive Securities . A holder of a beneficial interest in a Restricted Global Security of a series may exchange such beneficial interest for an Unrestricted Definitive Security of such series or may transfer such beneficial interest to a Person who takes delivery thereof

 

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in the form of an Unrestricted Definitive Security of such series only if the Security Registrar receives a completed certificate from such holder in the form of Exhibit A or Exhibit B, as applicable, and an opinion of counsel in form, and from legal counsel, reasonably acceptable to the Security Registrar and the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

(3) Beneficial Interests in Unrestricted Global Securities to Unrestricted Definitive Securities . If any holder of a beneficial interest in an Unrestricted Global Security of a series proposes to exchange such beneficial interest for an Unrestricted Definitive Security of such series or to transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Security of such series, then, upon satisfaction of the conditions set forth in Section 2.05(d)(2), the Trustee, upon receipt of written instructions accompanied by an Officer’s Certificate, shall cause the aggregate principal amount of the applicable Unrestricted Global Security of such series to be reduced accordingly pursuant to Section 2.05(h), and the Company shall execute an Unrestricted Definitive Security of such series in the appropriate principal amount, and Parent shall execute the form of Guarantee thereon, and, upon receipt of an Authentication Order in accordance with Section 2.04, the Trustee shall authenticate and deliver to the Person designated in the instructions such Unrestricted Definitive Security. Any Unrestricted Definitive Security issued in exchange for a beneficial interest pursuant to this Section 2.05(e)(3) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Security Registrar through instructions from the Depositary for such series and the Participant or Indirect Participant. The Trustee shall deliver such Unrestricted Definitive Securities to the Persons in whose names such Securities are so registered. Any Unrestricted Definitive Security issued in exchange for a beneficial interest pursuant to this Section 2.05(e)(3) shall not bear the Private Placement Legend.

(4) Transfer or Exchange of Regulation S Temporary Global Securities. Notwithstanding the other provisions of this Section 2.05, a beneficial interest in the Regulation S Temporary Global Security of a series may not be (A) exchanged for a Definitive Security of such series prior to (y) the expiration of the Distribution Compliance Period with respect to such series, unless such exchange is effected by the Company, does not require an investment decision on the part of the Holder thereof and does not violate the provisions of Regulation S, and (z) the receipt by the Security Registrar of any certificates identified by the Company or its counsel to be required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act or (B) transferred to a U.S. person (as such term is defined in Regulation S) or for the account or benefit of a U.S. person, other than an initial purchaser of such Regulation S Temporary Global Security, or a Person who takes delivery thereof in the form of a Definitive Security of such series prior to the events set forth in clause (A) above or unless the transfer is pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or 904.

 

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(f) Transfer and Exchange of Definitive Securities for Beneficial Interests .

(1) Restricted Definitive Securities to Beneficial Interests in Restricted Global Securities . If any Holder of a Restricted Definitive Security of a series proposes to exchange such Security for a beneficial interest in a Restricted Global Security of such series or to transfer such Restricted Definitive Securities of such series to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Security of such series, then, upon receipt by the Trustee of the following documentation:

(A) if the Holder of such Restricted Definitive Security of such series proposes to exchange such Security for a beneficial interest in a Restricted Global Security of such series, a completed certificate from such holder in the form of Exhibit B; or

(B) if such Restricted Definitive Security is being transferred to a QIB in accordance with Rule 144A under the Securities Act or to a non-U.S. person in an offshore transaction in accordance with Rule 903 or 904 under the Securities Act, a completed certificate to that effect set forth in Exhibit A,

the Trustee shall cancel the Restricted Definitive Security of such series, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Security of such series and, in the case of clause (B) above, the 144A Global Security of such series or the Regulation S Global Security of such series as applicable.

(2) Restricted Definitive Securities to Beneficial Interests in Unrestricted Global Securities . A Holder of a Restricted Definitive Security of a series may exchange such Security for a beneficial interest in an Unrestricted Global Security of such series or transfer such Restricted Definitive Security of such series to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Security of such series only if the Security Registrar receives a completed certificate from such Holder in the form of Exhibit A or Exhibit B, as applicable, and an opinion of counsel in form, and from legal counsel, reasonably acceptable to the Security Registrar and the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon receipt of evidence of the satisfaction of the conditions of any of the subparagraphs in this Section 2.05(f)(2), the Trustee shall cancel the Restricted Definitive Securities of such series so transferred or exchanged and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Security of such series.

(3) Unrestricted Definitive Securities to Beneficial Interests in Unrestricted Global Securities . A Holder of an Unrestricted Definitive Security of a series may exchange such Security for a beneficial interest in an Unrestricted Global Security of such series or transfer such Definitive Securities of such series to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Security of such series at any time. Upon receipt of a written request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Security and increase or cause or be increased the aggregate principal amount of one of the

 

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Unrestricted Global Securities of such series. If any such exchange or transfer from a Definitive Security of a series to a beneficial interest is effected pursuant to subparagraphs (2) or (3) of this Section 2.05(f) at a time when an Unrestricted Global Security of such series has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.04, the Trustee shall authenticate one or more Unrestricted Global Securities of such series in an aggregate principal amount equal to the principal amount of Definitive Securities of such series so transferred.

(g) Transfer and Exchange of Definitive Securities for Definitive Securities . Upon written request by a Holder of Definitive Securities of a series and such Holder’s compliance with the provisions of this Section 2.05(g), the Trustee shall register the transfer or exchange of Definitive Securities of such series pursuant to the provisions of Section 2.05(a). In addition to the requirements set forth in Section 2.05(a), the requesting Holder shall provide any additional certifications, documents, and information, as applicable, required pursuant to the following provisions of this Section 2.05(g).

(1) Restricted Definitive Securities to Restricted Definitive Securities . Any Restricted Definitive Security of a series may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Security of such series if the Trustee receives a completed certificate in the form of Exhibit A, including the certifications, certificates and opinions of counsel required by item (3) thereof, if applicable.

(2) Restricted Definitive Securities to Unrestricted Definitive Securities . Any Restricted Definitive Security of a series may be exchanged by the Holder thereof for an Unrestricted Definitive Security of such series or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Security of such series if the Security Registrar receives a completed certificate from such Holder in the form of Exhibit A or Exhibit B, as applicable and an opinion of counsel in form, and from legal counsel, reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

(3) Unrestricted Definitive Securities to Unrestricted Definitive Securities . A Holder of Unrestricted Definitive Securities of a series may transfer such Securities to a Person who takes delivery thereof in the form of an Unrestricted Definitive Security of such series in accordance with Section 2.05(a). Upon receipt of a request to register such a transfer, the Security Registrar shall register the Unrestricted Definitive Securities of such series pursuant to the instructions from the Holder thereof.

(h) Cancellation and/or Adjustment of Global Securities . At such time as all beneficial interests in a particular Global Security of a series have been exchanged for Definitive Securities of such series or a particular Global Security of a series has been redeemed, repurchased or cancelled in whole and not in part, each such Global Security of such series shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.08. At any

 

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time prior to such cancellation, if any beneficial interest in a Global Security of such series is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Security of such series or for Definitive Securities of such series, the principal amount of Securities of such series represented by such Global Security shall be reduced accordingly and an endorsement may be made on such Global Security by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Security of such series, such other Global Security shall be increased accordingly and an endorsement may be made on such Global Security by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.

(i) No Exchange or Transfer . The Company shall not be required (i) to issue, exchange or register the transfer of any Securities during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of the Securities of the same series and ending at the close of business on the day of such mailing, (ii) to register the transfer of or exchange any Securities of any series or portions thereof called for redemption, or (iii) to register the transfer of or exchange a Security of any series between the applicable record date pursuant to Section 2.01(a)(5) and the next succeeding Interest Payment Date.

(j) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary Participants or beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

 

Section 2.06 Temporary Securities .

Pending the preparation of definitive Securities of any series, the Company may execute temporary Securities (printed, lithographed or typewritten) of any authorized denomination, and Parent shall execute the Guarantees thereon, and the Trustee, upon receipt of an Authentication Order, shall authenticate and deliver such Securities. Such temporary Securities shall be substantially in the form of the definitive Securities in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Every temporary Security of any series shall be executed by the Company, with the form of Guarantee thereon executed by Parent, and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Securities of such series. Without unnecessary delay the Company will execute, and if applicable Parent will endorse, and will furnish definitive Securities of such series and thereupon any or all temporary Securities of such series may be surrendered in exchange therefor without charge to the holders, at the office or agency of the Company maintained pursuant to Section 4.02 for the purpose of exchanges of Securities of such series, and the Trustee, upon receipt of an Authentication Order, shall authenticate and such office or agency shall deliver in exchange for such temporary Securities an equal aggregate principal amount of

 

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definitive Securities of such series, unless the Company advises the Trustee to the effect that definitive Securities need not be executed and furnished until further notice from the Company. Until so exchanged, temporary Securities of any series shall in all respects be valid obligations under this Indenture.

 

Section 2.07 Mutilated, Destroyed, Lost or Stolen Securities .

In case any temporary or definitive Security shall become mutilated or be destroyed, lost or stolen, the Company, subject to the next succeeding sentence, shall execute a new Security of the same series, bearing a number not contemporaneously outstanding in exchange and substitution for the mutilated Security, or in lieu of and in substitution for the Security so destroyed, lost or stolen, and Parent shall execute the form of Guarantee thereon, and upon the Company’s written request the Trustee, subject to the next succeeding sentence, upon receipt of an Authentication Order, shall authenticate and deliver such Security. In every case the applicant for a substituted Security shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of the applicant’s Security and of the ownership thereof. The Trustee, upon receipt of an Authentication Order, shall authenticate any such substituted Security and deliver the same. Upon the issuance of any substituted Security, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses, including the fees and expenses of the Trustee, connected therewith. In case any Security that has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company, instead of issuing a substitute Security, may pay or authorize the payment of the same, without surrender thereof except in the case of a mutilated Security, if the applicant for such payment shall furnish to the Company and the Trustee such security or indemnity as they may require to save them harmless, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Security and of the ownership thereof.

Every replacement Security issued pursuant to the provisions of this Section 2.07 shall constitute an additional contractual obligation of the Company whether or not the mutilated, destroyed, lost or stolen Security shall be found at any time, or be enforceable by anyone. All Securities shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities, and shall preclude, to the extent lawful, any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender.

 

Section 2.08 Cancellation .

All Securities surrendered for the purpose of payment, redemption, exchange or registration of transfer, if surrendered to the Company or any paying agent, shall be delivered to the Trustee for cancellation, or, if surrendered to the Trustee, shall be cancelled by it, and no Securities shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On written request of the Company at the time of such surrender, the Trustee shall deliver to the Company evidence of the cancellation of Securities by the

 

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Trustee. If the Company shall otherwise acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are delivered to the Trustee for cancellation.

 

Section 2.09 Third Party Beneficiaries .

Nothing in this Indenture or in the Securities, express or implied, shall give or be construed to give to any Person, other than the parties hereto and the holders of the Securities, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision contained herein.

 

Section 2.10 Authenticating Agent .

So long as any of the Securities of any series remain Outstanding, there may be an Authenticating Agent for any or all such series of Securities which either the Trustee or the Company shall have the right to appoint. The Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Securities of such series, including Securities issued upon exchange, registration of transfer or partial redemption thereof, and Securities so authenticated shall be valid obligations for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Securities by the Trustee shall be deemed to include authentication by an Authenticating Agent for such series. Each Authenticating Agent shall be acceptable to the Company and shall be a corporation that has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of any jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and that is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by Federal or State authorities. If at any time any Authenticating Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. Any Authenticating Agent may resign at any time by giving written notice of resignation to the Trustee and to the Company. The Trustee with the Consent of the Company at any time may, and upon written request by the Company shall, terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon resignation, termination or cessation of eligibility of any Authenticating Agent, either the Trustee or the Company may appoint an eligible successor Authenticating Agent acceptable to the Company. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder as if originally named as an Authenticating Agent pursuant hereto.

 

Section 2.11 Global Securities .

(a) General . If the Company shall establish pursuant to Section 2.01 that the Securities of a particular series are to be issued as a Global Security, then the Company shall execute one or more Global Securities that (i) shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the Outstanding Securities of such series, (ii) shall be registered in the name of the Depositary or its nominee and (iii) shall be delivered to the Trustee as custodian for the Depositary or otherwise delivered pursuant to the Depositary’s instructions, and Parent shall execute the Guarantee or Guarantees thereon, and the Trustee in accordance with Section 2.04 shall authenticate such Global Security or Global Securities.

 

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(b) Euroclear and Clearstream Procedures Applicable . The provisions of the “Operating Procedures of the Euroclear System” and the “Terms and Conditions Governing Use of Euroclear” and the “General Terms and Conditions” and “Customer Handbook” of Clearstream, respectively, in effect at the relevant time shall be applicable to transfers of beneficial interests in the Regulation S Global Securities of such series that are held by Participants through Euroclear or Clearstream.

(c) Neither the Trustee nor any agent shall have any responsibility or liability for any actions taken or not taken by the Depositary.

 

Section 2.12 CUSIP Numbers .

The Company in issuing the Securities of a series may use “CUSIP” numbers if then generally in use, and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Securityholders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee in writing of any change in the “CUSIP” numbers.

 

Section 2.13 Securities Denominated in Foreign Currencies .

Except as otherwise specified pursuant to Section 2.01 for Securities of any series, payment of the principal of, premium, if any, and interest on, Securities of such series denominated in any Foreign Currency will be made in such Foreign Currency.

In the event any Foreign Currency or Currencies in which any payment with respect to any series of Securities may be made ceases to be a freely convertible Currency on United States Currency markets, for any date thereafter on which payment of principal of, premium, if any, or interest on the Securities of a series is due, the Company shall select the Currency of payment for use on such date, all as provided in the Securities of such series, in a Board Resolution or in one or more indentures supplemental hereto. In such event, the Company shall notify the Trustee of the Currency which it has selected to constitute the funds necessary to meet the Company’s obligations on such payment date and of the amount of such Currency to be paid. Such amount shall be determined as provided in the Securities of such series, in a Board Resolution or in one or more indentures supplemental hereto. The payment with respect to such payment date shall be deposited with the Trustee by the Company solely in the Currency so selected.

 

Section 2.14 Wire Transfers .

Notwithstanding any other provision to the contrary in this Indenture, the Company may make any payment required to be deposited with the Trustee or any Paying Agent on account of principal of, premium, if any, or interest on, the Securities by any method of wire transfer to an account designated in writing by the Trustee or such Paying Agent such that funds are available

 

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on or before the date such payment is to be made to the Holders of the Securities in accordance with the terms hereof. If the Company is acting as its own Paying Agent with respect to Securities of any series that are represented by one or more Global Securities, the Company may make any such payment by wire transfer to an account designated in writing by the Depositary for such Securities.

 

Section 2.15 Designated Currency .

The Company may provide pursuant to Section 2.01 for Securities of any series that:

(a) the obligation, if any, of the Company to pay the principal of, premium, if any, and interest on the Securities of any series in a Foreign Currency or Dollars (the “ Designated Currency ”) as may be specified pursuant to Section 2.01(a)(12) is of the essence and agree that, to the fullest extent possible under applicable law, judgments in respect of Securities of such series shall be given in the Designated Currency;

(b) the obligation of the Company to make payments in the Designated Currency of the principal of, premium, if any, and interest on such Securities shall be discharged, notwithstanding any payment in any other Currency (whether pursuant to a judgment or otherwise), only to the extent of the amount in the Designated Currency that the Securityholder receiving such payment, in accordance with normal banking procedures, may purchase with the amount paid in such other Currency after any premium and cost of exchange on the business day in the country of issue of the Designated Currency or in the international banking community immediately following the day on which such Securityholder receives such payment;

(c) if the amount in the Designated Currency that may be so purchased for any reason falls short of the amount originally due, the Company shall pay such additional amounts as may be necessary to compensate for such shortfall; and

(d) any obligation of the Company not discharged by such payment shall be due as a separate and independent obligation and, until discharged as provided herein, shall continue in full force and effect.

 

Section 2.16 Form of Guarantee .

The form of Guarantee shall be set forth on the applicable series of Securities substantially as follows:

GUARANTEE

For value received, Parent hereby absolutely, unconditionally and irrevocably guarantees (i) to the holder of this Security the payment of principal of, premium, if any, and interest on, the Security upon which this Guarantee is set forth in the amounts and at the time when due and payable whether by declaration thereof, or otherwise, and interest on the overdue principal and interest, if any, of such Security, if lawful, to the holder of such Security and the Trustee on behalf of the Holders, and (ii) to the Trustee all amounts owed to the Trustee under the Indenture, in each case in accordance with and subject to the terms and limitations of such

 

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Security and Article XV of the Indenture. This Guarantee will not become effective until the Trustee or Authenticating Agent duly executes the certificate of authentication on this Security. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles thereof.

Dated:

 

[PARENT]
By:  

 

  Name:
  Title:

ARTICLE III.

REDEMPTION OF SECURITIES AND SINKING FUND PROVISIONS

 

Section 3.01 Redemption .

The Company may redeem the Securities of any series issued hereunder on and after the dates and in accordance with the terms established for such series pursuant to Section 2.01 or 14.01. In addition, Parent, the Company and their respective Affiliates may purchase Securities from the holders thereof from time to time, either in the open market at prevailing prices or in private transactions at negotiated prices. Any Securities purchased by Parent, the Company or any of their respective Affiliates may, at the purchaser’s discretion, be held, resold or canceled.

 

Section 3.02 Notice of Redemption .

(a) If the Company desires to exercise such right to redeem all or, as the case may be, a portion of the Securities of any series, the Company shall, or shall instruct the Trustee in writing to, give notice of such redemption to holders of the Securities of such series to be redeemed by mailing, first class postage prepaid, a notice of such redemption not less than 30 days and not more than 90 days before the date fixed for redemption of that series to the Trustee and such holders at their last addresses as they shall appear upon the Security Register, unless a shorter period is specified in the Securities to be redeemed. Any notice that is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the registered holder receives the notice. In any case, failure duly to give such notice to the holder of any Security of any series designated for redemption in whole or in part, or any defect in the notice, shall not affect the validity of the proceedings for the redemption of any other Securities of such series or any other series. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officer’s Certificate evidencing compliance with any such restriction.

Each such notice of redemption shall specify the date fixed for redemption and the redemption price at which Securities of that series are to be redeemed (or if the redemption price cannot be determined at the time such notice is delivered, the formula by which such redemption

 

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price will be determined) and the CUSIP numbers of such series, and shall state that: (i) payment of the redemption price of such Securities to be redeemed will be made at the office or agency of the Company maintained for such purpose, or, if none, at the Corporate Trust Office of the Trustee, upon presentation and surrender of such Securities; (ii) interest accrued to the date fixed for redemption will be paid as specified in said notice; (iii) from and after said date interest will cease to accrue; and (iv) the redemption is for a sinking fund, if such is the case. If less than all the Securities of a series are to be redeemed, the notice to the holders of Securities of that series to be redeemed in whole or in part shall specify the particular Securities to be so redeemed. In case any Security is to be redeemed in part only, the notice that relates to such Security shall state the portion of the principal amount thereof to be redeemed, and shall state that on and after the redemption date, upon surrender of such Security, a new Security or Securities of such series in principal amount equal to the unredeemed portion thereof will be issued.

(b) The Company shall give the Trustee at least 45 days’ written notice, unless a shorter period shall be satisfactory to the Trustee, in advance of the date fixed for redemption as to the aggregate principal amount of Securities of the series to be redeemed. If less than all the Securities of such series are to be redeemed, the Trustee thereupon shall select from Securities of such series Outstanding not previously called for redemption, in accordance with a method that complies with applicable legal requirements, the rules and procedures of DTC, if applicable, and the requirements, if any, of the Depositary and of any stock exchange on which Securities are listed and that the Trustee considers fair and appropriate, which may include selection pro rata or by lot, and that may provide for the selection of a portion or portions equal to $1,000 or any integral multiple thereof of the principal amount of such Securities of such series of a denomination larger than $1,000, the Securities of such series to be redeemed. The Trustee promptly shall notify the Company in writing of the numbers of the Securities of such series to be redeemed, in whole or in part.

The Company, if and whenever it shall so elect, by delivery of an Officer’s Certificate, may instruct the Trustee or any paying agent to call all or any part of the Securities of a particular series for redemption and to give notice of redemption in the manner set forth in this Section 3.02, such notice to be in the name and at the expense of the Company or its own name, as the Trustee or such paying agent may deem advisable. In any case in which notice of redemption is to be given by the Trustee or any such paying agent, the Company shall deliver or cause to be delivered to, or permit to remain with, the Trustee or such paying agent, as the case may be, such Security Register, transfer books or other records, or suitable copies or extracts therefrom, sufficient to enable the Trustee or such paying agent to give any notice by mail that may be required under the provisions of this Section 3.02.

 

Section 3.03 Payment Upon Redemption .

(a) If the giving of notice of redemption shall have been completed as above provided, the Securities or portions of Securities of the series to be redeemed specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, in each case as established pursuant to Section 2.01 or 14.01. Interest on such Securities or portions of Securities shall cease to accrue on and after the date fixed for redemption, unless the

 

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Company shall default in the payment of such redemption price and accrued interest with respect to any such Security or portion thereof. On presentation and surrender of such Securities on or after the date fixed for redemption at the place of payment specified in the notice, such Securities shall be paid and redeemed at the applicable redemption price for such series, together with interest accrued thereon to the date fixed for redemption (but if the date fixed for redemption is an Interest Payment Date, the interest installment payable on such date shall be payable to the registered holder at the close of business on the applicable record date pursuant to Section 2.01).

(b) Upon presentation of any Security of such series that is to be redeemed in part only, the Company shall execute a new Security of the same series and tenor of authorized denominations in principal amount equal to the unredeemed portion of the Security so presented, and Parent shall execute the form of Guarantee thereon, and the Trustee, upon receipt of an Authentication Order, shall authenticate, and the office or agency where the Security is presented shall deliver to the holder thereof, at the expense of the Company, such new Security; except that if a Global Security is so surrendered, the Company shall execute a new Global Security of like tenor in a denomination equal to and in exchange for the unredeemed portion of the principal of the Global Security so surrendered, and Parent shall execute the form of Guarantee thereon, and, upon receipt of an Officer’s Certificate requesting authentication and delivery, the Trustee, upon receipt of an Authentication Order, shall authenticate and deliver to the Depositary for such Global Security, without service charge, such new Global Security.

 

Section 3.04 Sinking Fund .

The provisions of Sections 3.04, 3.05 and 3.06 shall be applicable to any sinking fund for the retirement of Securities of a series, except as otherwise specified as contemplated by Section 2.01 for Securities of such series.

The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is referred to as a “mandatory sinking fund payment,” and any payment in excess of such minimum amount provided for by the terms of Securities of any series is referred to as an “optional sinking fund payment.” If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 3.05. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series.

 

Section 3.05 Satisfaction of Sinking Fund Payments with Securities .

The Company (i) may deliver Outstanding Securities of a series other than any Securities previously called for redemption and (ii) may apply as a credit Securities of a series that have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities, provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the redemption price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly.

 

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Section 3.06 Redemption of Securities for Sinking Fund .

Not less than 30 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officer’s Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of the series, the portion thereof, if any, that is to be satisfied by payment of cash in the Currency in which the Securities of such series are denominated (except as provided pursuant to Section 2.01), the portion thereof, if any, that is to be satisfied by delivering and crediting Securities of that series pursuant to Section 3.05 and the basis for such credit. Together with such Officer’s Certificate, the Company will deliver to the Trustee any Securities to be so delivered. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 3.02 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.02. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Section 3.03.

ARTICLE IV.

CERTAIN COVENANTS

The following covenants shall apply to the Securities, except with respect to any series of Securities for which the supplemental indenture or resolution of the Board of Directors under which such series of Securities is issued or the form of Security for such series expressly provides that any such covenant shall not apply to such series of Securities:

 

Section 4.01 Payment of Principal, Premium and Interest .

The Company will duly and punctually pay or cause to be paid the principal of, premium, if any, and interest on the Securities of a series at the time and place and in the manner provided herein and established with respect to such Securities.

 

Section 4.02 Maintenance of Office or Agency .

So long as any series of the Securities remain Outstanding, the Company will maintain for such series an office or agency where Securities of such series may be presented or surrendered for payment, where Securities of such series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of such series and this Indenture may be given or served. Such designation will continue with respect to each office or agency until the Company, by written notice signed by any Officer and delivered to the Trustee, shall designate some other office or agency for such purposes or any of them. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all presentations, surrenders, notices and demands. Unless otherwise specified in accordance with Section 2.01 with respect to a series of Securities, the Company initially designates Wells Fargo Bank, National Association, MAC N9311-115, 625 Marquette Avenue, 11th Floor, Minneapolis, MN 55479, Attention: Corporate Trust Services, acting as the Company’s agent, as the office to be maintained by it for each such purpose.

 

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Section 4.03 Paying Agents .

(a) The Company, upon written notice to the Trustee accompanied by an Officer’s Certificate, may appoint one or more paying agents, other than the Trustee, for all or any series of the Securities. If the Company fails to appoint or maintain another entity as paying agent, the Trustee shall act as such. Parent, the Company or any of their Subsidiaries, upon notice to the Trustee, may act as paying agent.

(b) The Company shall require each paying agent, other than Parent, the Company and the Trustee, to agree in writing with the Company, and the Company shall deliver a copy of such agreement to the Trustee, that the paying agent will hold in trust for the benefit of Securityholders or the Trustee all funds held by the paying agent for the payment of principal, premium, if any, or interest on the Securities, and will promptly notify the Trustee in writing of any default by the Company in making any such payment. While any such default continues, the Trustee may require a paying agent to pay all funds held by it to the Trustee. The Company at any time may require a paying agent to pay all funds held by it to the Trustee. Upon payment over to the Trustee, the paying agent, if other than Parent or the Company, shall have no further liability for the funds. If Parent or the Company acts as paying agent, it shall segregate and hold in a separate trust fund for the benefit of the Securityholders all funds held by it as paying agent.

(c) Notwithstanding anything in this Section 4.03 to the contrary, (i) the agreement to hold funds in trust as provided in this Section 4.03 is subject to the provisions of Section 11.06, and (ii) the Company at any time, for the purpose of obtaining the satisfaction and discharge or defeasance of this Indenture or for any other purpose, may pay, or direct any paying agent to pay, to the Trustee all funds held in trust by the Company or such paying agent, such funds to be held by the Trustee upon the same terms and conditions as those upon which such funds were held by the Company or such paying agent. Upon such payment by any paying agent to the Trustee, such paying agent shall be released from all further liability with respect to such funds.

 

Section 4.04 Statement by Officers as to Default .

So long as any of the Securities remain outstanding, the Company and Parent will furnish to the Trustee on or before April 30 in each year a certificate, which need not comply with Section 13.06, executed by the principal executive, financial or accounting officer, on behalf of the Company or Parent, as the case may be, as to such officer’s knowledge of the Company’s or Parent’s compliance with all covenants and agreements under this Indenture required to be complied with by the Company and Parent, as applicable (such compliance to be determined without regard to any period of grace or requirement of notice provided under this Indenture). Such certificate need not include a reference to any non-compliance that has been fully cured prior to the date as of which such certificate speaks.

The Company shall provide written notice to the Trustee within 30 days of the occurrence of any Event of Default under Section 6.01 that remains continuing as of the date of such notice.

 

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Section 4.05 Appointment to Fill Vacancy in Office of Trustee .

The Company, whenever necessary to avoid or to fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.10, a Trustee, so that there shall be at all times a Trustee hereunder.

ARTICLE V.

SECURITYHOLDERS’ LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE

 

Section 5.01 Company to Furnish Trustee Names and Addresses of Securityholders .

The Company will furnish or cause to be furnished to the Trustee (a) semi-annually at least seven Business Days before each Interest Payment Date for a series of Securities (and in all events at intervals of not more than six months) a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of each series of Securities as of such date, provided that the Company shall not be obligated to furnish or cause to furnish such list at any time that the list shall not differ in any respect from the most recent list furnished to the Trustee by the Company and (b) at such other times as the Trustee may require in writing within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that, in either case, no such list need be furnished for any series for which the Trustee shall be the Security Registrar.

 

Section 5.02 Preservation of Information; Communications with Securityholders .

(a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Securities contained in the most recent list furnished to it as provided in Section 5.01 and as to the names and addresses of holders of Securities received by the Trustee in its capacity as Security Registrar (if acting in such capacity).

(b) Securityholders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Securityholders with respect to their rights under this Indenture or under the Securities. Each Securityholder, by receiving and holding a Security, agrees with Parent, the Company and the Trustee that none of Parent, the Company or the Trustee or any agent of any of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with this Section 5.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under this Section 5.02(b).

 

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Section 5.03 Reports by the Company .

(a) So long as any Securities are outstanding, the Company shall file with the Trustee, within 15 days after Parent files with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) that Parent files with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act. The Company shall be deemed to have complied with the previous sentence to the extent that such information, documents and reports are filed with the Commission via EDGAR (or any successor electronic delivery procedure); provided, however, that the trustee shall have no obligation whatsoever to determine whether or not such information, documents or reports have been filed pursuant to the EDGAR system (or its successor).

(b) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer’s Certificates).

 

Section 5.04 Reports by the Trustee .

(a) The Trustee shall transmit to Securityholders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each July 15 following the date of the initial issuance of Securities under this Indenture deliver to Securityholders a brief report, dated as of such July 15, which complies with the provisions of such Section 313(a).

(b) The Trustee shall comply with Section 313(b) and Section 313(c) of the Trust Indenture Act.

(c) A copy of each Trustee’s report shall, at the time of such transmission to Securityholders, be filed by the Trustee with the Company, with any stock exchange upon which any Securities are listed, if any, and with the Commission. The Company will promptly notify the Trustee in writing when any Securities become listed on any stock exchange or delisted therefrom.

ARTICLE VI.

REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT

 

Section 6.01 Events of Default .

(a) Whenever used herein with respect to Securities of a particular series, “ Event of Default ” means any one or more of the following events that has occurred and is continuing, except with respect to any series of Securities for which the supplemental indenture or resolution of the Board of Directors under which such series of Securities is issued or the form of Security for such series expressly provides that any such Event of Default shall not apply to such series of Securities:

(1) default in the payment of any installment of interest upon any of the Securities of such series as and when the same shall become due and payable, and continuance of such default for a period of 30 days; or

 

35


(2) default in the payment of all or any part of the principal of or premium, if any, on any of the Securities of such series as and when the same shall become due and payable either at maturity, upon redemption, by declaration or otherwise; or

(3) default in the payment of any sinking fund installment as and when the same shall become due and payable by the terms of the Securities of such series; or

(4) default in the performance, or breach, of any covenant or agreement of Parent or the Company in respect of the Securities of such series and the related Guarantee (other than a default or breach that is specifically dealt with elsewhere in this Section 6.01), and continuance of such default or breach for a period of 90 days after the date on which there has been given, by registered or certified mail, to Parent and the Company by the Trustee or to Parent, the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

(5) the Guarantee with respect to the Securities of such series shall for any reason cease to be, or shall for any reason be asserted in writing by Parent or the Company not to be, in full force and effect and enforceable in accordance with its terms except to the extent contemplated by this Indenture and such Guarantee; or

(6) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or Parent in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee or sequestrator or similar official of the Company or Parent or for any substantial part of its property or ordering the winding up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or

(7) the Company or Parent shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator or similar official of the Company or Parent or for any substantial part of its property, or make any general assignment for the benefit of creditors; or

(8) default in the performance of, or breach, the covenant set forth in the first paragraph of Section 10.01; or

 

36


(9) any other Event of Default provided in the supplemental indenture or resolution of the Board of Directors under which such series of Securities is issued or in the form of Security for such series.

(b) If an Event of Default shall have occurred and be continuing in respect of the Securities of a series, in each and every such case, unless the principal of all the Securities of that series shall have already become due and payable, either the Trustee at the request of the holders or the holders of not less than 25% in aggregate principal amount of the Securities of that series then Outstanding hereunder, by notice in writing to Parent and the Company, and to the Trustee if given by such Securityholders, may declare the unpaid principal of all the Securities of that series to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, notwithstanding anything contained in this Indenture or in the Securities of that series or established with respect to that series pursuant to Section 2.01 to the contrary.

(c) The Trustee shall give to the Securityholders of any series, as the names and addresses of such Holders appear on the Security Register, notice by mail or electronic mail in PDF format of all defaults known to the Trustee that have occurred with respect to such series, such notice to be transmitted within 90 days after the occurrence thereof, unless such defaults shall have been cured before the giving of such notice (the term “default” or “defaults” for the purposes of this Section 6.01(c) being hereby defined to mean any event or condition which is, or with notice or lapse of time or both would become, an Event of Default); provided that, except in the case of default in the payment of the principal of, premium, if any, or interest on any of the Securities of such series, or in the payment of any sinking or purchase fund installment with respect to the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as it in good faith determines that the withholding of such notice is in the interests of the Securityholders of such series.

 

Section 6.02 Collection of Indebtedness and Suits for Enforcement by Trustee .

(a) The Company covenants that (i) in case it shall default in the payment of any installment of interest on any of the Securities of a series, or any payment required by any sinking or analogous fund established with respect to that series as and when the same shall have become due and payable, and such default shall have continued for a period of 30 days, or (ii) in case it shall default in the payment of the principal of, or premium, if any, on any of the Securities of a series when the same shall have become due and payable, whether upon maturity of the Securities of a series or upon redemption or upon declaration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Securities of that series, the whole amount that then shall have been become due and payable on all such Securities for principal, premium, if any, or interest, or both, with interest upon the overdue principal, premium, if any, and, to the extent that payment of such interest is enforceable under applicable law, upon overdue installments of interest at the rate expressed in the Securities of that series; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, and the amount payable to the Trustee under Section 7.06.

(b) If the Company shall fail to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to

 

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institute any action or proceedings at law or in equity for the collection of the amounts so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or Parent and collect the amounts adjudged or decreed to be payable in the manner provided by law out of the property of the Company or Parent, wherever situated.

(c) In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, readjustment, arrangement, composition or judicial proceedings affecting the Company or Parent or its respective creditors or property, the Trustee shall have power to intervene in such proceedings and take any action therein that may be permitted by the court and applicable law and, except as otherwise provided by law, shall be entitled to file such proofs of claim and other papers and documents as may be necessary or advisable in order to have the claims of the Trustee and of the holders of Securities of such series allowed for the entire amount due and payable by the Company under this Indenture at the date of institution of such proceedings and for any additional amount that may become due and payable by the Company after such date, and to collect and receive any funds or other property payable or deliverable on any such claim, and to distribute the same in accordance with Section 6.03. Any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the holders of Securities of such series to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to such Securityholders, to pay to the Trustee any amount due it under Section 7.06.

(d) All rights of action and of asserting claims under this Indenture, or under any of the terms established with respect to Securities of that series, may be enforced by the Trustee without the possession of any of such Securities, or the production thereof at any trial or other proceeding relative thereto. Any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for payment to the Trustee of any amounts due under Section 7.06, be for the ratable benefit of the holders of the Securities of such series.

In case of an Event of Default, the Trustee in its discretion or in accordance with the direction of the holders of a majority in aggregate principal amount of the Securities of any series at the time Outstanding may proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law.

Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities of that series or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding.

 

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Section 6.03 Application of Funds Collected .

Any funds collected by the Trustee pursuant to this Article VI with respect to a particular series of Securities shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such funds on account of principal, premium, if any, or interest, upon presentation of the Securities of that series, and notation thereon of the payment, if only partially paid, and upon surrender thereof if fully paid:

FIRST: To the payment of costs and expenses of collection and of all amounts payable to the Trustee under Section 7.06;

SECOND: To the payment of the amounts then due and unpaid upon Securities of such series for principal, premium, if any, and interest, in respect of which or for the benefit of which such funds have been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium, if any, and interest, respectively; and

THIRD: To the Company.

 

Section 6.04 Limitation on Suits .

No holder of any Security of any series shall have any right by virtue or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (i) such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof with respect to the Securities of such series specifying such Event of Default; (ii) the holders of not less than 25% in aggregate principal amount of the Securities of such series then Outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as trustee hereunder; (iii) such holder or holders shall have offered to the Trustee such indemnity and security reasonably satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby; (iv) the Trustee for 60 days after its receipt of such written notice, request and offer of indemnity and security reasonably satisfactory to it, shall have failed to institute any such action, suit or proceeding; and (v) during such 60 day period, the holders of a majority in principal amount of the Securities of that series do not give the Trustee a direction inconsistent with such request.

Notwithstanding anything contained herein to the contrary, any other provisions of this Indenture, the right of any holder of any Security to receive payment of the principal of, and premium, if any, and interest on such Security, as therein provided, on or after the respective due dates expressed in such Security or, in the case of redemption, on the redemption date, or to institute suit for the enforcement of any such payment on or after such respective dates or redemption date, shall not be impaired or affected without the consent of such holder. By accepting a Security hereunder it is expressly understood, intended and covenanted by the taker and holder of every Security of such series with every other such taker and holder and the Trustee, that no one or more holders of Securities of such series shall have any right in any manner whatsoever by virtue or by availing of any provision of this Indenture to affect, disturb

 

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or prejudice the rights of the holders of any other of such Securities, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Securities of such series (it being understood that the Trustee does not have an affirmative duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such holders). For the protection and enforcement of the provisions of this Section 6.04, each Securityholder and the Trustee shall be entitled to such relief as can be given either at law or in equity.

 

Section 6.05 Rights and Remedies Cumulative; Delay or Omission not Waiver .

(a) Except as otherwise provided in Section 2.07, all powers and remedies given by this Article VI to the Trustee or to the Securityholders, to the extent permitted by law, shall be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Securities, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to such Securities.

(b) No delay or omission of the Trustee or of any holder of any of the Securities to exercise any right or power accruing upon any Event of Default occurring and continuing shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein. Subject to the provisions of Section 6.04, every power and remedy given by this Article VI or by law to the Trustee or the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders.

 

Section 6.06 Control by Securityholders .

(a) The holders of a majority in aggregate principal amount of the Securities of any series at the time Outstanding, determined in accordance with Section 8.04, shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to such series; provided, however, that such direction shall not be in conflict with any rule of law or with this Indenture or be unduly prejudicial to the rights of holders of Securities of any other series at the time Outstanding determined in accordance with Section 8.04. Subject to the provisions of Section 7.01, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith, by a Responsible Officer or Responsible Officers of the Trustee, shall determine that the proceeding so directed would involve the Trustee in personal liability.

(b) In the case of an Event of Default with respect to a series of Securities, at any time before the principal of the Securities of that series shall have been declared due and payable, the holders of a majority in aggregate principal amount of the Securities of such series at the time Outstanding, determined in accordance with Section 8.04, on behalf of the holders of all of the Securities of such series, by written notice to Parent and the Company and the Trustee, may waive any existing default in the performance of any of the covenants contained herein or established pursuant to Section 2.01 with respect to such series and its consequences, except a default in the payment of the principal of, premium, if any, or interest on, any of the Securities of that series as and when the same shall become due by the terms of such Securities. Upon any

 

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such waiver, the default covered thereby and any Event of Default arising therefrom shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Securities of such series shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

(c) At any time after the principal of the Securities of that series shall have been declared due and payable, and before any judgment or decree for the payment of the amount due shall have been obtained or entered as hereinafter provided, the holders of a majority in aggregate principal amount of the Securities of that series at the time Outstanding hereunder, by written notice to Parent and the Company and the Trustee, may rescind and annul such declaration and its consequences if: (i) the Company has or has caused to be paid or deposited with the Trustee an amount sufficient to pay all matured installments of interest upon all the Securities of that series and the principal of and premium, if any, on any and all Securities of that series that shall have become due otherwise than by acceleration, with interest upon such principal and premium, if any, and, to the extent that such payment is enforceable under applicable law, upon overdue installments of interest, at the rate expressed in the Securities of that series to the date of such payment or deposit, and (ii) any and all Events of Default under this Indenture with respect to such series, except non-payment of the principal of, premium, if any, or interest on, any of the Securities of that series as a result of such declaration, shall have been remedied or waived. No such rescission and annulment shall extend to or shall affect any subsequent default or impair any right consequent thereon.

(d) In case the Trustee shall have proceeded to enforce any right with respect to Securities of that series under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken.

 

Section 6.07 Undertaking to Pay Costs .

All parties to this Indenture agree, and each holder of any Securities by such holder’s acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 6.07 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding more than 10% in aggregate principal amount of the Outstanding Securities of any series, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of, premium, if any, or interest on any Security of such series, on or after the respective due dates expressed in such Security or established pursuant to this Indenture.

 

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Section 6.08 Waiver Of Usury, Stay Or Extension Laws .

Each of Parent and the Company covenants, to the extent that it may lawfully do so, that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and each of Parent and the Company, to the extent that it may lawfully do so, hereby expressly waives all benefit or advantage of any such law and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE VII.

CONCERNING THE TRUSTEE

 

Section 7.01 Certain Duties and Responsibilities of Trustee .

(a) In case an Event of Default with respect to the Securities of a series has occurred (that has not been cured or waived), the Trustee shall exercise with respect to Securities of that series such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

(b) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

(1) prior to the occurrence of an Event of Default with respect to the Securities of a series and after the curing or waiving of all such Events of Default with respect to that series that may have occurred:

(i) the duties and obligations of the Trustee shall with respect to the Securities of such series be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable with respect to the Securities of such series except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(ii) in the absence of bad faith on the part of the Trustee, the Trustee with respect to the Securities of such series may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical computations or other facts, statements and opinions stated therein);

 

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(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;

(3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Securities of any series at the time Outstanding, determined as provided in Sections 1.01, 6.06, 8.01 and 11.03, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to the Securities of that series; and

(4) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not assured to it under the terms of this Indenture or indemnity and security reasonably satisfactory to it against such risk is not assured.

 

Section 7.02 Certain Rights of Trustee .

Except as otherwise provided in Section 7.01:

(a) The Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval, bond, security, other evidence of indebtedness or other paper or document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper party or parties.

(b) Any request, direction, order, Authentication Order or demand of the Company mentioned herein shall be sufficiently evidenced by a Board Resolution or an instrument signed in the name of the Company by an Officer (unless other evidence in respect thereof is specifically prescribed herein).

(c) The Trustee may consult with counsel of its own selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted hereunder in good faith and in reliance thereon.

(d) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Securityholders, pursuant to the provisions of this Indenture, unless such Securityholders shall have offered to the Trustee indemnity satisfactory to it against the costs, expenses and liabilities that may be incurred therein or thereby.

(e) The Trustee shall not be liable for any action taken, suffered or omitted to be taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.

 

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(f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval, bond, security, other evidence of indebtedness or other papers or documents, but the Trustee, in its discretion, may make such further inquiry into such matters as it may see fit, and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.

(g) The Trustee shall not be deemed to have notice of any Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture.

(h) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.

(i) The rights, privileges, protections, benefits and immunities given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.

(j) The Trustee may request that the Company deliver a certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture.

(k) In no event shall the Trustee be responsible or liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

(l) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder.

 

Section 7.03 Trustee not Responsible for Recitals or Issuance of Securities .

(a) The recitals contained herein and in the Securities shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same.

(b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities.

(c) Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of any of the Securities or of the proceeds of such Securities, or for the use or application of any funds paid over by the Trustee in accordance with any provision of this Indenture or established pursuant to Section 2.01, or for the use or application of any funds received by any paying agent other than the Trustee.

 

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Section 7.04 May Hold Securities .

Each of the Trustee, any Authenticating Agent, any paying agent and the Security Registrar, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not Trustee, Authenticating Agent, paying agent or Security Registrar. However, the Trustee is subject to Sections 7.08 and 7.13.

 

Section 7.05 Funds Held in Trust .

Subject to the provisions of Section 11.06, all funds received by the Trustee, until used or applied as herein provided, shall be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any funds received by it hereunder except such as it may agree in writing with the Company to pay thereon.

 

Section 7.06 Compensation, Reimbursement and Indemnification .

(a) The Company shall pay to the Trustee, and the Trustee shall be entitled to be paid, such compensation, which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust, as the Company and the Trustee from time to time may agree in writing, for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee. Except as otherwise expressly provided herein, the Company will pay or reimburse the Trustee upon its request for all reasonable expenses and disbursements incurred or made by the Trustee in accordance with any of the provisions of this Indenture, including such compensation as has been agreed between the Trustee and the Company from time to time and the expenses and disbursements of its agents, counsel and of all Persons not regularly in its employ, except any such expense or disbursement as may arise from its own negligence or willful misconduct. The Company and Parent shall indemnify the Trustee or any predecessor Trustee (and their officers, agents, directors and employees) for, and shall hold them harmless against, any and all loss, liability, claim, damage or expense, including taxes, other than taxes based upon, measured by or determined by the income of the Trustee, reasonably incurred by the Trustee without negligence or willful misconduct on its part and arising out of or in connection with the acceptance or administration or enforcement of this trust, including the costs and expenses of defending itself against any claim of liability whether asserted by the Company, Parent, any Holder or any other Person.

(b) The obligations of the Company under this Section 7.06 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses and disbursements shall: (i) be secured by a lien prior to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Securities; and (ii) survive the termination of this Indenture and resignation or removal of the Trustee.

 

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(c) Where the Trustee incurs expenses or renders services in connection with a bankruptcy event of default, such costs and expenses (including reasonable attorneys’ fees and expenses) and the compensation for the services are intended to constitute expenses of administration under applicable Federal or State, bankruptcy, insolvency or other law.

 

Section 7.07 Reliance on Officer’s Certificate .

Except as otherwise provided in Section 7.01, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter, unless other evidence in respect thereof be herein specifically prescribed, in the absence of negligence or willful misconduct on the part of the Trustee, may be deemed to be conclusively proved and established by an Officer’s Certificate delivered to the Trustee and such certificate, in the absence of negligence or willful misconduct on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Indenture upon the faith thereof.

 

Section 7.08 Disqualification; Conflicting Interests .

If the Trustee has or shall acquire any “conflicting interest” within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act.

 

Section 7.09 Corporate Trustee Required; Eligibility .

There shall at all times be a Trustee with respect to the Securities issued hereunder which shall at all times be a corporation organized and doing business under the laws of the United States or any State or Territory thereof or of the District of Columbia, or a corporation or other Person permitted to act as trustee by the Commission, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000, and subject to supervision or examination by Federal, State, Territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 7.09 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Company may not, nor may any Affiliate of the Company, serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.09, the Trustee shall resign immediately in the manner and with the effect specified in Section 7.10.

 

Section 7.10 Resignation and Removal; Appointment of Successor .

(a) The Trustee or any successor hereafter appointed may resign at any time with respect to the Securities of one or more series by giving a written notice thereof to the Company and by transmitting notice of resignation by mail, first class postage prepaid, to the Securityholders of such series, as their names and addresses appear upon the Security Register. Upon receiving such notice of resignation, the Company promptly shall appoint a successor trustee with respect to Securities of such series. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the retiring Trustee resigns, the

 

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retiring Trustee, at the expense of the Company, or the Company may petition any court of competent jurisdiction for the appointment of a successor trustee with respect to Securities of such series, or any Securityholder of that series who has been a bona fide holder of a Security or Securities for at least six months may on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee.

(b) The Company may remove the Trustee with respect to all or any series of Securities and appoint a successor trustee, or, unless the Trustee’s duty to resign is stayed as provided herein, any Securityholder who has been a bona fide holder of a Security or Securities for at least six months, on behalf of that holder and all others similarly situated, may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee if:

(1) the Trustee shall fail to comply with the provisions of Section 7.08 after written request therefor by the Company or by any Securityholder who has been a bona fide holder of a Security or Securities for at least six months; or

(2) the Trustee shall cease to be eligible in accordance with the provisions of Section 7.09 and shall fail to resign after written request therefor by the Company or by any such Securityholder; or

(3) the Trustee shall become incapable of acting, or shall be adjudged to be bankrupt or insolvent, or commences a voluntary bankruptcy proceeding, or a receiver of the Trustee or of its property shall be appointed or consented to, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation.

Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee being removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

(c) The holders of a majority in aggregate principal amount of the Securities of any series at the time Outstanding at any time may remove the Trustee with respect to such series by so notifying the Trustee and the Company and may appoint a successor Trustee for such series with the consent of the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee being removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

(d) Any resignation or removal of the Trustee and appointment of a successor trustee with respect to the Securities of a series pursuant to any of the provisions of this Section 7.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 7.11.

 

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(e) Any successor trustee appointed pursuant to this Section 7.10 may be appointed with respect to the Securities of one or more series or all of such series, and at any time there shall be only one Trustee with respect to the Securities of any particular series.

 

Section 7.11 Acceptance of Appointment By Successor .

(a) In case of the appointment hereunder of a successor trustee with respect to all Securities, every such successor trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee. On the written request of the Company or the successor trustee, such retiring Trustee, upon payment of its charges, shall execute and deliver an instrument transferring to such successor trustee all the rights, powers, and trusts of the retiring Trustee and shall assign, transfer and deliver to such successor trustee all property and funds held by such retiring Trustee hereunder.

(b) In case of the appointment hereunder of a successor trustee with respect to the Securities of one or more but not all series, the Company, the retiring Trustee and each successor trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor trustee shall accept such appointment and which: (i) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor trustee relates; (ii) shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee; and (iii) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust, that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and that no Trustee shall be responsible for any act or failure to act on the part of any other Trustee hereunder. Upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein, and such retiring Trustee shall have no further responsibility with respect to the Securities of that or those series to which the appointment of such successor trustee relates for the exercise of rights and powers or for the performance of the duties and obligations vested in the Trustee under this Indenture. Each such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor trustee relates. On the written request of the Company or any successor trustee, such retiring Trustee shall assign, transfer and deliver to such successor trustee, to the extent contemplated by such supplemental indenture, the property and funds held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor trustee relates.

 

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(c) Upon request of any such successor trustee, the Company may execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and trusts referred to in Section 7.11(a) or (b), as the case may be.

(d) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article VII.

(e) Upon acceptance of appointment by a successor trustee as provided in this Section 7.11, the successor trustee shall cause a notice of its succession to be transmitted to Securityholders.

 

Section 7.12 Merger, Conversion, Consolidation or Succession to Business .

Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such corporation shall be qualified under the provisions of Section 7.08 and eligible under the provisions of Section 7.09, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.

 

Section 7.13 Preferential Collection of Claims Against the Company .

The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall continue to be subject to Section 311(a) of the Trust Indenture Act.

ARTICLE VIII.

CONCERNING THE SECURITYHOLDERS

 

Section 8.01 Evidence of Action by Securityholders .

Whenever in this Indenture it is provided that the holders of a majority or specified percentage in aggregate principal amount of the Securities of a particular series may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action the holders of such majority or specified percentage of that series have joined therein may be evidenced by any instrument or any number of instruments of similar tenor executed by such holders of Securities of that series in Person or by agent or proxy appointed in writing.

 

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If the Company shall solicit from the Securityholders of any series any request, demand, authorization, direction, notice, consent, waiver or other action, the Company, at its option, as evidenced by an Officer’s Certificate, may fix in advance a record date for such series for the determination of Securityholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Securityholders of record at the close of business on the record date shall be deemed to be Securityholders for the purposes of determining whether Securityholders of the requisite proportion of Outstanding Securities of that series have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Outstanding Securities of that series shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Securityholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. Articles 86 to 94-8 of the Luxembourg act dated August 10, 1985 on commercial companies, as amended, are not applicable to the Securities.

 

Section 8.02 Proof of Execution by Securityholders .

Subject to the provisions of Section 7.01, proof of the execution of any instrument by a Securityholder (such proof will not require notarization) or his agent or proxy and proof of the holding by any Person of any of the Securities shall be sufficient if made in the following manner:

(a) The fact and date of the execution by any such Person of any instrument may be proved in any reasonable manner acceptable to the Trustee.

(b) The ownership of Securities shall be proved by the Security Register of such Securities or by a certificate of the Security Registrar thereof.

(c) The Trustee may require such additional proof of any matter referred to in this Section 8.02 as it shall deem necessary.

 

Section 8.03 Who May be Deemed Owners .

Prior to the due presentment for registration of transfer of any Security, the Company, the Trustee, any paying agent and any Security Registrar may deem and treat the Person in whose name such Security shall be registered upon the books of the Company as the absolute owner of such Security, whether or not such Security shall be overdue and notwithstanding any notice of ownership or writing thereon made by anyone other than the Security Registrar, for the purpose of receiving payment of or on account of the principal of, premium, if any, and (subject to Section 2.03) interest on such Security and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any Security Registrar shall be affected by any notice to the contrary.

None of the Company, the Trustee, any paying agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial interests in a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial interests.

 

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Section 8.04 Certain Securities Owned by Company Disregarded .

In determining whether the holders of the requisite aggregate principal amount of Securities of a particular series have concurred in any direction, consent of waiver under this Indenture, the Securities of that series that are owned by Parent, the Company or any other obligor on the Securities of that series or by an Affiliate of Parent or the Company shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Securities of such series that a Responsible Officer of the Trustee knows are so owned shall be so disregarded. The Securities so owned that have been pledged in good faith may be regarded as Outstanding for the purposes of this Section 8.04, if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not an Affiliate. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officer’s Certificate listing and identifying all Securities of a particular series, if any known by Parent or the Company to be owned or held by or for the account of any of the above described Persons and, subject to Sections 7.01 and 7.02, the Trustee shall be entitled to accept such Officer’s Certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities of such particular series not listed therein are Outstanding for the purpose of any such determination.

 

Section 8.05 Actions Binding on Future Securityholders .

At any time prior to the evidencing to the Trustee, as provided in Section 8.01, of the taking of any action by the holders of the majority or percentage in aggregate principal amount of the Securities of a particular series specified in this Indenture in connection with such action, any holder of a Security of that series that is shown by the evidence to be included in the Securities the holders of which have consented to such action, by filing written notice with the Trustee, and upon proof of holding as provided in Section 8.02, may revoke such action so far as concerns such Security. Except as aforesaid any such action taken by the holder of any Security shall be conclusive and binding upon such holder and upon all future holders and owners of such Security, and of any Security issued in exchange therefor, on registration of transfer thereof or in place thereof, irrespective of whether or not any notation in regard thereto is made upon such Security. Any action taken by the holders of the majority or percentage in aggregate principal amount of the Securities of a particular series specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Securities of that series.

 

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ARTICLE IX.

SUPPLEMENTAL INDENTURES

 

Section 9.01 Supplemental Indentures Without the Consent of Securityholders .

In addition to any supplemental indenture otherwise authorized by this Indenture, Parent, the Company and the Trustee from time to time and at any time may enter into an indenture or indentures supplemental hereto which shall conform to the provisions of the Trust Indenture Act as then in effect, without the consent of the holders of any series of Securities, for one or more of the following purposes:

(a) to cure any ambiguity, defect, or inconsistency herein or in the Securities of any series, including making any such changes as are required for this Indenture to comply with the Trust Indenture Act;

(b) to add an additional obligor on the Securities, to add a guarantor of any outstanding series of Securities or to evidence the succession of another Person to Parent or the Company, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of Parent or the Company, as the case may be, pursuant to Article X;

(c) to provide for uncertificated Securities in addition to or in place of certificated Securities;

(d) to add to the covenants of the Company for the benefit of the holders of any outstanding series of Securities (and if such covenants are to be for the benefit of less than all outstanding series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon Parent or the Company;

(e) to add any additional Events of Default for the benefit of the holders of any outstanding series of Securities (and if such Events of Default are to be applicable to less than all outstanding series, stating that such Events of Default are expressly being included solely to be applicable to such series);

(f) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall not become effective with respect to any outstanding Security of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision;

(g) to secure the Securities of any series or any related Guarantee;

(h) to make any other change that does not adversely affect the rights of any Securityholder of Outstanding Securities of the affected series of Securities in any material respect;

 

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(i) to provide for the issuance of and establish the form and terms and conditions of the Securities of any series as provided in Section 2.01, to provide which, if any, of the covenants of the Company shall apply to such series, to provide which of the Events of Default shall apply to such series, to name one or more guarantors and provide for guarantees of such series of Securities, to provide for the terms and conditions upon which the Guarantee by Parent or another guarantor of such series of Securities may be released or terminated, or to define the rights of the holders of such series of Securities;

(j) to issue additional Securities of any series; provided that such additional Securities have the same terms as, and be deemed part of the same series as, the applicable series of Securities issued hereunder to the extent required by Section 2.01(b);

(k) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trust hereunder by more than one Trustee;

(l) to supplement any of the provisions herein to permit or facilitate the defeasance and discharge of the Securities of any series in a manner consistent with the provisions described in Section 11.03; provided, however, that any such action shall not adversely affect the interest of the holders of Securities of such series or any other series in any material respect; or

(m) to conform the text of this Indenture, any supplemental indenture or any Security to the description thereof in any prospectus, prospectus supplement or offering circular or memorandum or supplement thereto with respect to the offer and sale of Securities of any series, to the extent that such description is inconsistent with a provision in this Indenture, any supplemental indenture or Security, as provided in an Officer’s Certificate.

Upon the request of the Company, accompanied by Board Resolutions authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.05, the Trustee shall join with Parent and the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture that affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Any supplemental indenture authorized by the provisions of this Section 9.01 may be executed by Parent, the Company and the Trustee without the consent of the holders of any of the Securities at the time Outstanding, notwithstanding any of the provisions of Section 9.02.

 

Section 9.02 Supplemental Indentures with Consent of Securityholders .

With the consent (evidenced as provided in Section 8.01) of the holders of not less than a majority in aggregate principal amount of the Securities of each series at the time Outstanding affected by such supplemental indenture or indentures, Parent and the Company, when authorized by Board Resolutions, and the Trustee from time to time and at any time may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any

 

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supplemental indenture or of modifying in any manner not covered by Section 9.01 the rights of the holders of the Securities of such series under this Indenture; provided, however, that no such supplemental indenture, without the consent of the holders of each Security of such series then Outstanding and affected thereby, shall: (i) extend a fixed maturity of or any installment of principal of any Securities of any series or reduce the principal amount thereof or reduce the amount of principal of any original issue discount security that would be due and payable upon declaration of acceleration of the maturity thereof; (ii) reduce the rate of or extend the time for payment of interest on any Security of any series; (iii) reduce the premium payable upon the redemption of any Security; (iv) make any Security payable in Currency other than that stated in the Security; (v) impair the right to institute suit for the enforcement of any payment on or after the fixed maturity thereof (or in the case of redemption, on or after the redemption date); (vi) modify the subordination provisions applicable to any Security or the related Guarantee in a manner adverse in any material respect to the holder thereof; or (vi) reduce the aforesaid percentage of Securities, the holders of which are required to consent to any such supplemental indenture or indentures.

A supplemental indenture that changes or eliminates any covenant, Event of Default or other provision of this Indenture that has been expressly included solely for the benefit of one or more particular series of Securities, if any, or which modifies the rights of the holders of Securities of such series with respect to such covenant, Event of Default or other provision, shall be deemed not to affect the rights under this Indenture of the holders of Securities of any other series.

It shall not be necessary for the consent of Securityholders of a series affected thereby under this Section 9.02 to approve the particular form of any proposed supplemental indenture, amendment or waiver, but it shall be sufficient if such consent shall approve the substance thereof.

Promptly after the execution by Parent, the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section 9.02, the Company shall mail or caused to be mailed a notice thereof by first class mail to the Holders of Securities of each series affected thereby at their addresses as they shall appear on the Security Register, setting forth in general terms the substance of such supplemental indenture. Any failure of the Company to mail such notice, or any defect therein, shall not in any way impair or affect the validity of any such supplemental indenture.

 

Section 9.03 Effect of Supplemental Indentures .

Upon the execution of any supplemental indenture pursuant to the provisions of this Article IX or Section 10.01, this Indenture shall be and be deemed to be modified and amended with respect to such series in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, Parent, the Company and the holders of Securities of the series affected thereby shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes.

 

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Section 9.04 Securities Affected by Supplemental Indentures .

Securities of any series affected by a supplemental indenture and authenticated and delivered after the execution of such supplemental indenture pursuant to the provisions of this Article or of Section 10.01 may bear a notation in form approved by the Company, provided such form meets the requirements of any exchange upon which such series may be listed, as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of that series so modified as to conform, in the opinion of the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee in accordance with the terms of this Indenture and delivered in exchange for the Securities of that series then Outstanding.

 

Section 9.05 Execution of Supplemental Indentures .

Upon the request of the Company, accompanied by Board Resolutions authorizing the execution of any such supplemental indenture, and, if applicable, upon the filing with the Trustee of evidence of the consent of Securityholders required to consent thereto as aforesaid, the Trustee shall join with Parent and the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee in its discretion may but shall not be obligated to enter into such supplemental indenture. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article IX or the modifications thereby of the trusts created by this Indenture, the Trustee shall receive, and shall be fully protected in relying upon, an Officer’s Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and that such supplemental indenture is the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.

ARTICLE X.

SUCCESSOR

 

Section 10.01 Consolidation, Merger and Sale of Assets .

Each of Parent and the Company covenants that it will not merge or consolidate with any other Person or sell or convey all or substantially all of its assets to any Person, unless:

(i) either Parent or the Company, as the case may be, shall be the continuing entity, or the successor entity or the Person which acquires by sale or conveyance substantially all the assets of Parent or the Company, as the case may be (if other than Parent or the Company, as the case may be), (A) shall expressly assume the due and punctual payment of the principal of, premium, if any, and interest on all the Securities or the obligations under the Guarantees, as the case may be, according to their tenor, and the due and punctual performance and observance of all of the covenants and agreements of this Indenture to be performed or observed by Parent or the Company, as the case may be, by a supplemental indenture reasonably satisfactory to the Trustee, executed and delivered to the Trustee by

 

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such Person and (B) shall be an entity treated as a “corporation” for United States tax purposes, and obtain either (x) an opinion, in form and substance reasonably acceptable to the Trustee, of tax counsel of recognized standing reasonably acceptable to the Trustee, which counsel shall include Gibson, Dunn & Crutcher LLP and Foley & Lardner LLP, or (y) a ruling from the United States Internal Revenue Service, in either case to the effect that such merger or consolidation, or such sale or conveyance, will not result in an exchange of the Securities for new debt instruments for United States federal income tax purposes; and

(ii) no Event of Default and no event that, after notice or lapse of time or both, would become an Event of Default shall be continuing immediately after such merger or consolidation, or such sale or conveyance.

The Company shall deliver to the Trustee prior to or simultaneously with the consummation of the proposed transaction an Officer’s Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture.

To the extent that a Board Resolution or supplemental indenture pertaining to any series provides for different provisions relating to the subject matter of this Article X, the provisions in such Board Resolution or supplemental indenture shall govern for purposes of such series.

 

Section 10.02 Successor Person Substituted .

Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of Parent or the Company, as the case may be, the successor Person formed by such consolidation or into or with which Parent or the Company, as the case may be, is merged or to which such sale, lease, conveyance or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, Parent or the Company, as the case may be, under this Indenture with the same effect as if such successor Person has been named as Parent or the Company, as the case may be, herein. In the event of any such sale or conveyance (other than a conveyance by way of lease) Parent or the Company, as the case may be, or any successor entity which shall theretofore have become such in the manner described in this Article X, shall be discharged from all obligations and covenants under this Indenture, the Securities and the Guarantees and may be liquidated and dissolved.

ARTICLE XI.

SATISFACTION AND DISCHARGE

 

Section 11.01 Applicability of Article .

If the Securities of a series are denominated and payable only in Dollars (except as provided pursuant to Section 2.01), then the provisions of this Article XI relating to defeasance of Securities shall be applicable except as otherwise specified pursuant to Section 2.01 for Securities of such series. Defeasance provisions, if any, for Securities denominated in a Foreign Currency may be specified pursuant to Section 2.01.

 

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Section 11.02 Satisfaction and Discharge of Indenture .

If at any time:

(a) Parent or the Company shall have delivered or shall have caused to be delivered to the Trustee for cancellation all Securities of a series theretofore authenticated, other than any Securities that shall have been destroyed, lost or stolen and that shall have been replaced or paid as provided in Section 2.07, and Securities for whose payment funds or Governmental Obligations have theretofore been deposited in trust or segregated and held in trust by Parent or the Company and thereupon repaid to Parent or the Company or discharged from such trust, as provided in Section 11.06; or

(b) all such Securities of a particular series not theretofore delivered to the Trustee for cancellation shall have become due and payable or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and Parent or the Company shall irrevocably deposit or cause to be deposited with the Trustee as trust funds the entire amount, in funds or Governmental Obligations sufficient, or a combination thereof sufficient, to pay at maturity or upon redemption all Securities of such series not theretofore delivered to the Trustee for cancellation, including principal, premium, if any, and interest due or to become due on such date of maturity or redemption date, as the case may be, and if in either case Parent or the Company shall also pay or cause to be paid all other sums payable hereunder with respect to such series by the Company,

then this Indenture shall cease to be of further effect with respect to such series except for the provisions of Sections 2.03, 2.04, 2.05, 2.07, 4.01, 4.02, 4.03, 7.05 and 7.10, that shall survive until the date of maturity or redemption date, as the case may be, and Sections 7.06 and 11.06 and Article XIV, that shall survive to such date and thereafter, and the Trustee, on demand of the Company and at the cost and expense of the Company shall execute proper instruments acknowledging satisfaction of and discharging this Indenture with respect to such series.

 

Section 11.03 Defeasance and Discharge of Obligations; Covenant Defeasance .

(a) If at any time:

(i) all such Securities of a particular series not heretofore delivered to the Trustee for cancellation or that have not become due and payable as described in Section 11.02 shall have been paid by the Company or Parent by depositing irrevocably with the Trustee in trust funds or Governmental Obligations, or a combination thereof, sufficient, in the opinion of a nationally recognized firm of certified public accountants, to pay at maturity or upon redemption all such Securities of that series not theretofore delivered to the Trustee for cancellation, including principal, premium, if any, and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and

(ii) Parent or the Company shall also pay or cause to be paid all other amounts payable hereunder by the Company with respect to such series,

 

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then, subject to Section 11.03(c), after the date such funds or Governmental Obligations, as the case may be, are deposited with the Trustee, the obligations of Parent and the Company under this Indenture with respect to such series shall cease to be of further effect except, to the extent applicable to each, for the provisions of Sections 2.03, 2.04, 2.05, 2.07, 4.01, 4.02, 4.03, 7.05 and 7.10 hereof that shall survive until such Securities shall mature and be paid (“ defeasance ”). Thereafter, Sections 7.06 and 11.06 and Article XIV shall survive such satisfaction and discharge.

(b) In addition, each of Parent and the Company, at its option and at any time, by written notice executed by an Officer delivered to the Trustee, may elect to have its obligations, to the extent applicable to each, under Section 5.03 and any covenant contained in Article X, and any other covenant contained in the Board Resolution or supplemental indenture relating to such series pursuant to Section 2.01, discharged with respect to all Outstanding Securities of a series, this Indenture and any indentures supplemental to this Indenture insofar as such Securities are concerned (“ covenant defeasance ”), such discharge to be effective on the date the conditions set forth in clauses (i) through (vi) of Section 11.03(c) are satisfied, and such Securities shall thereafter be deemed to be not “Outstanding” for the purposes of any direction, waiver, consent or declaration of Securityholders (and the consequences of any thereof) in connection with such covenants, but shall continue to be “Outstanding” for all other purposes under this Indenture. For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities of a series, Parent and the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute an Event of Default under Section 6.01(a)(4) or otherwise, but except as specified in this Section 11.03(b), the remainder of Parent’s and the Company’s obligations under the Securities of such series, this Indenture, and any indentures supplemental to this Indenture with respect to such series shall be unaffected thereby.

(c) The following shall be the conditions to the application of Section 11.03 to the Outstanding Securities of the applicable series:

(i) Parent or the Company irrevocably deposits in trust with the Trustee or, at the option of the Trustee, with a trustee satisfactory to the Trustee and Parent or the Company, as the case may be, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, funds or Governmental Obligations sufficient, in the opinion of a nationally recognized firm of certified public accountants, to pay principal of, premium, if any, and interest on the Outstanding Securities of such series due or to become due to the date of maturity or date fixed for redemption, as the case may be, and to pay all other amounts payable by it hereunder with respect to the Outstanding Securities of such series, provided that (A) the trustee of the irrevocable trust shall have been irrevocably instructed to pay such funds or the proceeds of such Governmental Obligations to the Trustee and (B) the Trustee shall have been irrevocably instructed to apply such funds or the proceeds of such Governmental Obligations to the payment of said principal, premium, if any, and interest with respect to the Securities of such series;

 

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(ii) Parent or the Company, as the case may be, delivers to the Trustee an Officer’s Certificate stating that all conditions precedent specified herein relating to defeasance or covenant defeasance, as the case may be, have been complied with, and an Opinion of Counsel to the same effect;

(iii) no Event of Default under clauses (1), (2), (3), (5), (6), (7) or (8) of Section 6.01(a) shall have occurred and be continuing, and no event which with notice or lapse of time or both would become such an Event of Default shall have occurred and be continuing, on the date of such deposit;

(iv) Parent or the Company, as the case may be, shall have delivered to the Trustee an Opinion of Counsel or a ruling received from the Internal Revenue Service to the effect that the holders of the Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of Parent’s or the Company’s exercise of its option to effect defeasance or covenant defeasance, as the case may be, under this Section 11.03 and will be subject to Federal income tax in the same amount and in the same manner and at the same times as would have been the case if such election had not been exercised;

(v) such defeasance or covenant defeasance shall not (i) cause the Trustee to have a conflicting interest for purposes of the Trust Indenture Act with respect to any Securities or (ii) result in the trust arising from such deposit to constitute, unless it is registered as such, a regulated investment company under the Investment Company Act of 1940; and

(vi) notwithstanding any other provisions of this Section 11.03, such covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on Parent or the Company pursuant to Section 2.01.

After such irrevocable deposit made pursuant to this Section 11.03 and satisfaction of the other conditions set forth herein, the Trustee upon written request shall acknowledge in writing the discharge of Parent’s and the Company’s obligations pursuant to this Section 11.03.

 

Section 11.04 Deposited Funds to be Held in Trust .

All funds or Governmental Obligations deposited with the Trustee pursuant to Sections 11.02 or 11.03 shall be held in trust and shall be available for payment as due, either directly or through any paying agent, including Parent or the Company acting as its own paying agent, to the holders of the particular series of Securities for the payment or redemption of which such funds or Governmental Obligations have been deposited with the Trustee. Parent or the Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Governmental Obligations deposited pursuant to Section 11.03 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Securityholders of Outstanding Securities.

 

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Section 11.05 Payment of Funds Held by Paying Agents .

In connection with the provisions of Section 11.02 or 11.03, all funds or Governmental Obligations then held by any paying agent under the provisions of this Indenture shall, upon demand of Parent or the Company, be paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such funds or Governmental Obligations. Parent or the Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Governmental Obligations deposited pursuant to Section 11.03 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Securityholders of Outstanding Securities.

 

Section 11.06 Repayment to Parent or the Company .

Any funds or Governmental Obligations deposited with any paying agent or the Trustee, or then held by Parent or the Company, in trust for payment of principal of, premium, if any, or interest on the Securities of a particular series that are not applied but remain unclaimed by the holders of such Securities for at least one year after the date upon which the principal of, premium, if any, or interest on such Securities shall have respectively become due and payable, shall be repaid to Parent or the Company, as applicable, or if then held by Parent or the Company shall be discharged from such trust; and thereafter, the paying agent and the Trustee shall be released from all further liability with respect to such funds or Governmental Obligations, and the holder of any of the Securities entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to Parent or the Company, as applicable, for the payment thereof. Anything in this Article XI to the contrary notwithstanding, subject to Section 7.06, the Trustee shall deliver or pay to Parent or the Company, as applicable, from time to time upon written request by Parent or the Company, which shall be accompanied by an Officer’s Certificate, any funds or Governmental Obligations (or other property and any proceeds therefrom) held by it as provided in Sections 11.02 or 11.03 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required to be deposited to effect a defeasance or covenant defeasance, as the case may be, in accordance with this Article XI.

 

Section 11.07 Reinstatement .

If the Trustee or paying agent is unable to apply any funds or Governmental Obligations in accordance with Section 11.02 or 11.03 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, Parent and the Company’s obligations under this Indenture, any indentures supplemental to this Indenture with respect to the applicable series of Securities and the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.02 or 11.03, as the case may be, until such time as the Trustee or paying agent is permitted to apply all such funds or Governmental Obligations in accordance with Section 11.02 or 11.03, as the case may be; provided, however, that if Parent or the Company has made any payment of principal, premium, if any, or interest on any Securities of such series following the reinstatement of its obligations as aforesaid, Parent or the Company, as applicable, shall be subrogated to the rights of the holders of such Securities of such series to receive such payment from the funds or Governmental Obligations held by the Trustee or paying agent.

 

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ARTICLE XII.

IMMUNITY OF INCORPORATORS, STOCKHOLDERS,

OFFICERS AND DIRECTORS

 

Section 12.01 No Recourse .

No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director, past, present or future as such, of Parent or the Company or of any predecessor or successor corporation, either directly or through Parent or the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers or directors as such, of Parent or the Company or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, shareholder, officer or director as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Securities.

ARTICLE XIII.

MISCELLANEOUS PROVISIONS

 

Section 13.01 Effect on Successors and Assigns .

All the agreements of Parent and the Company in this Indenture or the Securities shall bind their respective successors whether so expressed or not. All agreements of the Trustee in this Indenture shall bind its successor.

 

Section 13.02 Actions by Successor .

Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of Parent or the Company shall and may be done and performed with like force and effect by the corresponding board, committee or officer of any corporation that shall at the time be the lawful sole successor of Parent or the Company, as applicable.

 

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Section 13.03 Notices .

Any notice or communication by Parent, the Company or the Trustee to the others is duly given if in writing and delivered in person or mailed by first-class mail (registered or certified, return receipt requested), telecopier, electronic mail (in PDF format) or overnight air courier guaranteeing next day delivery, to the other’s address:

 

If to the Company:    Tyco Flow Control International Finance S.A.
   29 Avenue de la Porte Neuve
   L-2227 Luxembourg
   Attention: The Directors
   Facsimile No.:
If to Parent:    Pentair Ltd.
   Freier Platz 10
   CH-8200 Schaffhausen, Switzerland
   Attn: Chief Corporate Counsel
   Facsimile No.:
In either case, with copies to:
   Tyco International (U.S.), Inc.
   9 Roszel Road
   Princeton, New Jersey 08540
   Attn: Treasurer
   Facsimile No.: (609) 720-4208
and   
   Gibson, Dunn & Crutcher LLP
   200 Park Avenue
   New York, New York 10166
   Attention: Steven R. Finley
   Facsimile No.: (212) 351-4035
If to the Trustee:    Wells Fargo Bank, National Association
   MAC N9311-115
   625 Marquette Avenue, 11th Floor
   Minneapolis, MN 55479
   Attention: Corporate Trust Services
   Facsimile No.: (612) 667-9825

Parent, the Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications.

All notices and communications, other than those sent to Securityholders, shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when sent, if

 

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electronically mailed in PDF format; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.

Any notice or communication to a Securityholder shall be mailed by first-class mail, certified or registered, return receipt requested, to his address shown on the Security Register. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders.

In the event of suspension of regular mail service or by reason of any other cause it shall be impracticable to give notice by mail, then such notification as shall be given with the approval of the Trustee shall constitute sufficient notice for every purpose hereunder.

If a notice or communication is mailed in the manner provided above within the time prescribed, it is conclusively presumed duly given, whether or not the addressee receives it.

 

Section 13.04 Governing Law .

This Indenture and each Security and Guarantee shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State without regard to conflicts of laws principles that would require the application of any other law. This Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions.

 

Section 13.05 Treatment of Securities as Debt .

It is intended that the Securities will be treated as indebtedness and not as equity for United States federal income tax purposes. The provisions of this Indenture shall be interpreted to further this intention.

 

Section 13.06 Compliance Certificates and Opinions .

(a) Upon any application or demand by Parent or the Company to the Trustee to take any action under any of the provisions of this Indenture, Parent or the Company shall furnish to the Trustee an Officer’s Certificate stating that, in the opinion of the signer, all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically dealt with by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished.

(b) Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant in this Indenture (excluding any certificate contemplated by Section 4.04) shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions

 

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contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with.

 

Section 13.07 Payments on Business Days .

Except as provided pursuant to Section 2.01 pursuant to a Board Resolution, and as set forth in an Officer’s Certificate or established in one or more indentures supplemental to this Indenture, in any case where the date of maturity of interest or principal of any Security or the date of redemption of any Security shall not be a Business Day, then payment of principal, premium, if any, or interest or principal and premium, if any, may be made on the next succeeding Business Day with the same force and effect as if made on the nominal date of maturity or redemption, and no interest shall accrue on such nominal date or for the period after such nominal date.

 

Section 13.08 Conflict with Trust Indenture Act .

If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control.

 

Section 13.09 Counterparts .

This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. The exchange of copies of this Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.

 

Section 13.10 Separability .

In case any one or more of the provisions contained in this Indenture or in the Securities of any series shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of such Securities, but this Indenture and such Securities shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.

 

Section 13.11 No Adverse Interpretation of Other Agreements .

This Indenture may not be used to interpret another indenture, loan or debt agreement of Parent, the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

 

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Section 13.12 Table of Contents, Headings, Etc .

The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

 

Section 13.13 Consent to Jurisdiction and Service of Process .

Each of Parent and the Company agrees that any legal suit, action or proceeding brought by any party to enforce any rights under or with respect to this Indenture, any Security and any Guarantee or any other document or the transactions contemplated hereby or thereby may be instituted in any state or federal court in The City of New York, State of New York, United States of America, irrevocably waives to the fullest extent permitted by law any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding, irrevocably waives to the fullest extent permitted by law any claim that and agrees not to claim or plead in any court that any such action, suit or proceeding brought in such court has been brought in an inconvenient forum and irrevocably submits to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding or for recognition and enforcement of any judgment in respect thereof.

Each of Parent and the Company hereby irrevocably and unconditionally designates and appoints CT Corporation System, 111 Eighth Avenue, New York, New York 10011, U.S.A. (and any successor entity) as its authorized agent to receive and forward on its behalf service of any and all process which may be served in any such suit, action or proceeding in any such court and agrees that service of process upon CT Corporation shall be deemed in every respect effective service of process upon the Company in any such suit, action or proceeding and shall be taken and held to be valid personal service upon Parent or the Company, as the case may be. Said designation and appointment shall be irrevocable. Nothing in this Section 13.13 shall affect the right of the Holders to serve process in any manner permitted by law or limit the right of the Holders to bring proceedings against Parent or the Company in the courts of any jurisdiction or jurisdictions. Each of Parent and the Company further agrees to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of CT Corporation in full force and effect so long as the Securities are outstanding. Each of Parent and the Company hereby irrevocably and unconditionally authorizes and directs CT Corporation to accept such service on its behalf. If for any reason CT Corporation ceases to be available to act as such, each of Parent and the Company agrees to designate a new agent in New York City.

To the extent that Parent or the Company has or hereafter may acquire any immunity from jurisdiction of any court (including any court in the United States, the State of New York, Luxembourg, Switzerland or other jurisdiction in which Parent or the Company, or any successor thereof, may be organized or any political subdivisions thereof) or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property or assets, this Indenture, the Securities, the Guarantees or any other documents or actions to enforce judgments in respect of any thereof, then each of Parent and the Company hereby irrevocably waives such immunity, and any defense based on such immunity, in respect of its obligations under the above-referenced documents and the transactions contemplated thereby, to the extent permitted by law.

 

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Section 13.14 Waiver of Jury Trial .

EACH OF THE COMPANY AND THE TRUSTEE, AND EACH HOLDER BY VIRTUE OF ITS PURCHASE OF SECURITIES, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SECURITIES OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

Section 13.15 USA Patriot Act .

The parties hereto acknowledge that in accordance with Section 326 of the USA Patriot Act the Trustee, like all financial institutions and in order to help fight the funding of terrorism and money laundering, is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they will provide the Trustee with such information as it may request in order for the Trustee to satisfy the requirements of the USA Patriot Act.

 

Section 13.16 Force Majeure .

In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

ARTICLE XIV.

ADDITIONAL AMOUNTS; CERTAIN TAX PROVISIONS

 

Section 14.01 Redemption Upon Changes in Withholding Taxes .

The Securities of any series may be redeemed, as a whole but not in part, at the option of the Company, upon not less than 30 nor more than 90 days notice (which notice shall be irrevocable), at a redemption price equal to 100% of the principal amount thereof, together with accrued interest, if any, to, but excluding, the redemption date and Additional Amounts (as defined in Section 14.02), if any, if as a result of any amendment to, or change in, the laws or regulations of Luxembourg, Switzerland or the United States, as applicable, or any political subdivision thereof or therein having the power to tax (a “ Taxing Jurisdiction ”), or any change in the application or official interpretation of such laws, including any action taken by a taxing authority or a holding by a court of competent jurisdiction (regardless of whether such action or such holding is with respect to the Company or Parent), which amendment or change is

 

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announced or becomes effective after the date the Securities of such series are issued, Parent or the Company has become, or there is a material probability that it will become, obligated to pay Additional Amounts on the next date on which any amount would be payable with respect to the Securities of such series, and such obligation cannot be avoided by the use of commercially reasonable measures available to Parent or the Company, as the case may be; provided, however, that (a) no such notice of redemption may be given earlier than 90 days prior to the earliest date on which Parent or the Company, as the case may be, would be obligated to pay such Additional Amounts, and (b) at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. Prior to the giving of any notice of redemption described in this paragraph, the Company shall deliver to the Trustee (i)(A) certificate signed by two directors of the Company stating that the obligation to pay Additional Amounts cannot be avoided by the Company taking commercially reasonable measures available to it or (B) a certificate signed by two Officers of Parent stating that the obligation to pay Additional Amounts cannot be avoided by Parent taking commercially reasonable measures available to it, as the case may be, and (ii) a written opinion of independent legal counsel to Parent or the Company, as the case may be, of recognized standing to the effect that the Company has or there is a material probability that it will become obligated to pay Additional Amounts as a result of a change, amendment, official interpretation or application described above and that Parent or the Company, as the case may be, cannot avoid the payment of such Additional Amounts by taking commercially reasonable measures available to it.

 

Section 14.02 Payment of Additional Amounts .

All payments made by Parent or the Company under or with respect to the Securities and the Guarantees will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, levies, imposts, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Taxing Jurisdiction (“ Taxes ”), unless Parent or the Company, as the case may be, is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. In the event that Parent or the Company is required to so withhold or deduct any amount for or on account of any Taxes from any payment made under or with respect to the Securities or the Guarantees, as the case may be, Parent or the Company, as the case may be, will pay such additional amounts (“ Additional Amounts ”) as may be necessary so that the net amount received by each holder of Securities (including Additional Amounts) after such withholding or deduction will equal the amount that such Holder would have received if such Taxes had not been required to be withheld or deducted; provided that no Additional Amounts will be payable with respect to a payment to a holder of Securities or a holder of a beneficial interests in Global Securities where such holder is subject to taxation on such payment by a relevant Taxing Jurisdiction for any reason other than such holder’s mere ownership of the Securities or for or on account of:

(a) any Taxes that are imposed or withheld solely because such holder or a fiduciary, settler, beneficiary, or member of such holder if such holder is an estate, trust, partnership, limited liability company or other fiscally transparent entity, or a person holding a power over an estate or trust administered by a fiduciary holder:

 

  (i) is or was present or engaged in, or is or was treated as present or engaged in, a trade or business in the Taxing Jurisdiction or has or had a permanent establishment in the Taxing Jurisdiction;

 

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  (ii) has or had any present or former connection (other than the mere fact of ownership of such Securities) with the Taxing Jurisdiction imposing such Taxes, including being or having been a citizen or resident thereof or being treated as being or having been a resident thereof;

 

  (iii) with respect to any withholding Taxes imposed by the United States, is or was with respect to the United States a personal holding company, a passive foreign investment company, a controlled foreign corporation, a foreign tax exempt organization or corporation that has accumulated earnings to avoid United States federal income tax; or

 

  (iv) owns or owned 10% or more of the total combined voting power of all classes of stock of the Parent or the Company;

(b) any estate, inheritance, gift, sales, transfer, excise or personal property Taxes imposed with respect to the Securities, except as otherwise provided herein;

(c) any Taxes imposed solely as a result of the presentation of such Securities (where presentation is required) for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever is later, except to the extent that the beneficiary or holder thereof would have been entitled to the payment of Additional Amounts had the Securities been presented for payment on any date during such 30-day period;

(d) any Taxes imposed solely as a result of the failure of such holder or any other person to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connection with the Taxing Jurisdiction of such holder, if such compliance is required by statute or regulation of the relevant Taxing Jurisdiction as a precondition to relief or exemption from such Taxes;

(e) with respect to withholding Taxes imposed by the United States, any such Taxes imposed by reason of the failure of such holder to fulfill the statement requirements of sections 871(h) or 881(c) of the Internal Revenue Code of 1986, as amended (the “ Code ”);

(f) any Taxes that are payable by any method other than withholding or deduction by the Parent or the Company or any paying agent from payments in respect of such Securities;

(g) any Taxes required to be withheld by any paying agent from any payment in respect of any Securities if such payment can be made without such withholding by at least one other paying agent;

 

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(h) any Taxes required to be deducted or withheld pursuant to the European Council Directive 2003/48/EC of June 3, 2003 on the taxation of savings income in the form of interest payments, or any amendment thereof, or any law implementing or complying with, or introduced in order to conform to, that Directive or the Luxembourg Law of December 23, 2005, as amended;

(i) any withholding or deduction for Taxes which would not have been imposed if the relevant Securities had been presented to another paying agent in a Member State of the European Union;

(j) any Taxes imposed or withheld by reason of a change in law, regulation, or administrative or judicial interpretation that becomes effective more than 15 days after the payment becomes due or is duly provided for, whichever occurs later; or

(j) any combination of Section 14.02(a), (b), (c), (d), (e), (f), (g), (h), (i) and (j).

Additional Amounts will not be payable to or for the account of any Holder or the holder of a beneficial interest in a Global Security if such payment would not be subject to such withholding or deduction of Taxes but for the failure of a Holder or the holder of a beneficial interest in a Global Security to make a valid declaration of non-residence or other similar claim for exemption or to provide a certificate declaring its non-residence, if the Company were treated as a domestic corporation under United States federal income tax and if (x) the making of such declaration or claim or the provision of such certificate is required or imposed by statute, treaty, regulation, ruling or administrative practice of the relevant Taxing Authority as a precondition to an exemption from, or reduction in, the relevant Taxes, and (y) at least 60 days prior to the first payment date with respect to which Tyco or the Company shall apply this paragraph, Tyco or the Company shall have notified all Holders of Securities in writing that they shall be required to provide such declaration or claim.

Additional Amounts also will not be payable to any Holder or the holder of a beneficial interest in a Global Security that is a fiduciary, partnership, limited liability company or other fiscally transparent entity, or to such holder that is not the sole Holder or holder of such beneficial interests of such Security, as the case may be. This exception, however, will apply only to the extent that a beneficiary or settlor with respect to the fiduciary, or a beneficial owner or member of the partnership, limited liability company or other fiscally transparent entity, would not have been entitled to the payment of an Additional Amount had the beneficiary, settlor, beneficial owner or member received directly its beneficial or distributive share of the payment. In addition, no Additional Amounts will be paid on account of any taxes imposed or withheld pursuant to Sections 1471 through 1474 of the Code (or any amended or successor version that is substantively comparable) and any current or future regulations promulgated thereunder or official interpretations thereof.

Parent or the Company, as the case may be, will also (i) make such withholding or deduction of Taxes and (ii) remit the full amount of Taxes so deducted or withheld to the relevant Taxing Jurisdiction in accordance with all applicable laws. Parent or the Company, as applicable, will use its commercially reasonable efforts to obtain certified copies of tax receipts

 

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evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. Parent or the Company, as the case may be, will, upon request, make available to the holders of the Securities, within 90 days after the date the payment of any Taxes so deducted or withheld is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by Parent or the Company or if, notwithstanding Parent’s or the Company’s efforts to obtain such receipts, the same are not obtainable, other evidence of such payments by Parent or the Company.

At least 30 days prior to each date on which any payment under or with respect to the Securities or Guarantees is due and payable, if Parent or the Company will be obligated to pay Additional Amounts with respect to such payment, Parent or the Company will deliver to the Trustee an Officer’s Certificate stating the fact that such Additional Amounts will be payable, the amounts so payable and will set forth such other information as is necessary to enable such Trustee to pay such Additional Amounts to holders of Securities on the payment date.

In addition, the Company will pay any stamp, issue, registration, documentary or other similar taxes and duties, including interest, penalties and Additional Amounts with respect thereto, payable in Luxembourg or the United States or any political subdivision or taxing authority of or in the foregoing in respect of the creation, issue, offering, enforcement, redemption or retirement of the Securities.

The provisions of this Article XIV shall survive any termination of the discharge of this Indenture and shall apply mutatis mutandis to any jurisdiction in which Parent or the Company or any successor Person to Parent or the Company, as the case may be, is organized or is engaged in business for tax purposes or any political subdivisions or taxing authority or agency thereof or therein; provided, however, the date on which Parent or the Company changes its jurisdiction in which it is organized or such Person becomes a successor to Parent or the Company, as the case may be, shall be substituted for the date on which the series of Securities was issued.

Whenever in this Indenture, the Securities or the Guarantees there is mentioned, in any context, the payment of principal and premium, if any, redemption price, interest or any other amount payable under or with respect to any Security, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof.

ARTICLE XV.

GUARANTEES

 

Section 15.01 Guarantee .

Parent hereby fully and unconditionally guarantees (i) (A) to each Holder of each Security that is authenticated and delivered by the Trustee and (B) to the Trustee on behalf of such Holder, the due and punctual payment of the principal of, premium, if any, and interest on such Security when and as the same shall become due and payable, whether at the stated maturity, by acceleration, call for redemption or otherwise and (ii) to the Trustee on its behalf all amounts owed to the Trustee under the Indenture, in each case in accordance with the terms of

 

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such Security and of this Indenture. In case of the failure of the Company punctually to make any such payment, Parent hereby agrees to cause such payment to be made punctually when and as the same shall become due and payable, whether at the stated maturity or by acceleration, call for redemption or otherwise, and as if such payment were made by the Company.

Parent hereby agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, the validity, regularity or enforceability of such Security or this Indenture, the absence of any action to enforce the same or any release, amendment, waiver or indulgence granted to the Company or Parent (other than any waiver that expressly waives Parent’s obligations under this Article XV) or any consent to departure from any requirement of any other guarantee of all or any of the Securities or any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. Parent hereby waives the benefits of diligence, presentment, demand for payment, any requirement that the Trustee or any of the Holders protect, secure, perfect or insure any security interest in or other lien on any property subject thereto or exhaust any right or take any action against the Company or any other Person or any collateral, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to such Security or the indebtedness evidenced thereby and all demands whatsoever, and covenants that this Guarantee will not be discharged in respect of such Security except by complete performance of the obligations contained in such Security and in such Guarantee. Parent agrees that if, after the occurrence and during the continuance of an Event of Default, the Trustee or any of the Holders of the applicable series of Securities are prevented by applicable law from exercising their respective rights to accelerate the maturity of such Securities, to collect interest on such Securities, or to enforce or exercise any other right or remedy with respect to such Securities, Parent agrees to pay to the Trustee for the account of such Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of such Holders.

Parent shall be subrogated to all rights of the holders of the Securities against the Company in respect of any amounts paid by Parent on account of such Security pursuant to the provisions of its Guarantee or this Indenture; provided, however, that Parent shall not be entitled to enforce or to receive any payment arising out of, or based upon, such right of subrogation until the principal of and interest on all Securities of such series issued hereunder shall have been paid in full.

The Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make a general assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any part of the Company’s assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of such Securities, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any holder of such Securities, whether as a “voidable preference,” “fraudulent transfer,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, such Securities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

 

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Any term or provision of the Guarantee to the contrary notwithstanding, the aggregate amount of the obligations guaranteed hereunder shall be reduced to the extent necessary to prevent such Guarantee from violating or becoming voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.

 

Section 15.02 Execution and Delivery of Guarantee .

The Guarantee shall include the terms of the Guarantee set forth in Section 15.01 and shall be substantially in the form established pursuant to Section 2.16. Parent hereby agrees to execute its Guarantee, in a form established pursuant to Section 2.16, on each Security authenticated and delivered by the Trustee.

The Guarantee shall be executed on behalf of Parent by any one of its chairman of the Board of Directors, president, vice presidents or other person duly authorized by Parent’s Board of Directors. The signature of any or all of these persons on the Guarantee may be manual or facsimile.

A Guarantee bearing the manual or facsimile signature of individuals who were at any time the proper officers of Parent shall bind Parent, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of any Security or did not hold such offices at the date of such Guarantee.

The delivery of any Security by the Trustee, after the authentication thereof, shall constitute due delivery of the Guarantee on behalf of Parent and shall bind Parent notwithstanding the fact that the Guarantee does not bear the signature of Parent. Parent agrees that its Guarantee set forth in Section 15.01 and in the form of Guarantee established pursuant to Section 2.16 shall remain in full force and effect notwithstanding any failure to execute a Guarantee on any such Security.

 

Section 15.03 Release of Guarantee .

Notwithstanding anything in this Article XV to the contrary, concurrently with the payment in full of the principal of, premium, if any, and interest on Securities of a series, Parent shall be released from and relieved of its obligations under this Article XV with respect to the Securities of such series. Upon the delivery by the Company to the Trustee of an Officer’s Certificate and an Opinion of Counsel to the effect that the transaction giving rise to the release of this Guarantee was made by the Company in accordance with the provisions of this Indenture and the Securities, the Trustee shall execute any documents reasonably required in order to evidence the release of Parent from its obligations under this Guarantee. If any of the obligations to pay the principal of, premium, if any, and interest on such Securities and all other obligations of the Company are revived and reinstated after the termination of this Guarantee, then all of the obligations of Parent under this Guarantee shall be revived and reinstated as if this Guarantee had not been terminated until such time as the principal of, premium, if any, and interest on such Securities are paid in full, and Parent shall enter into an amendment to this Guarantee, reasonably satisfactory to the Trustee, evidencing such revival and reinstatement.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written.

 

TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A. , as Issuer
By:  

/s/ Andrea Goodrich

  Name: Andrea Goodrich
  Title:  Managing Director
By:  

/s/ Peter Schieser

  Name: Peter Schieser
  Title:  Managing Director
PENTAIR LTD. , as Parent
By:  

/s/ Mark Armstrong

  Name: Mark Armstrong
  Title:   Director
By:  

/s/ Andrea Goodrich

  Name: Andrea Goodrich
  Title:  Director
WELLS FARGO BANK, NATIONAL ASSOCIATION , as Trustee
By:  

/s/ Richard Prokosch

  Name: Richard Prokosch
  Title:   Vice President

 

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EXHIBIT A

FORM OF CERTIFICATE OF TRANSFER

Tyco Flow Control International Finance S.A.

29 Avenue de la Porte Neuve

L-2227 Luxembourg

R.C.S. B 166305

Attention: The Directors

Wells Fargo Bank, National Association

DAPS Reorg

MAC N9303-121

608 – 2nd Avenue South

Minneapolis, MN 55479

Email: DAPSReorg@wellsfargo.com

Attention: Corporate Trust Services

Re: [insert description of Securities]

Ladies and Gentlemen,

Reference is hereby made to the Indenture, dated as of                     , among Tyco Flow Control International Finance S.A., a Luxembourg company (the Company ”), Pentair Ltd., a Swiss corporation ( Parent ”), and Wells Fargo Bank, National Association, a national banking association, as trustee (the Trustee ”), [as supplemented by that certain supplemental indenture dated as of                     ][and the Board Resolution adopted                     ] (together, the Indenture ”). Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.                      (the Transferor ”) owns and proposes to transfer the Security or Securities or interest[s] in such Security or Securities specified in Annex A hereto, in the principal amount of $         in such Security or Securities or interest[s] (the Transfer ”), to                      (the Transferee ”), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:

[CHECK ALL THAT APPLY]

1. ¨ Check if Transferee will take delivery of a beneficial interest in the 144A Global Security or a Definitive Security Pursuant to Rule 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the Securities Act ”), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Security is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Security for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a “qualified institutional buyer” within the meaning of Rule 144A (a “ QIB ”) in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any State of the United States. Upon consummation of the proposed Transfer in accordance with the

 

A-1


terms of the Indenture, the transferred beneficial interest or Definitive Security will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Security and/or the Definitive Security and in the Indenture and the Securities Act.

2. ¨ Check if Transferee will take delivery of a beneficial interest in the Regulation S Global Security or a Definitive Security pursuant to Regulation S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (y) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (z) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904 (b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed Transfer is being made prior to the expiration of the Distribution Compliance Period, the Transfer is not being made to a U.S. person (as such is defined in Regulation S) or for the account or benefit of a U.S. person (other than an initial purchaser of the Securities) and the interest transferred will be held immediately thereafter through Euroclear or Clearstream. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Regulation S Global Security and/or the Definitive Security and in the Indenture and the Securities Act.

3. ¨ Check and complete if Transferee will take delivery of a beneficial interest in a Definitive Security pursuant to any provision of the Securities Act other than Rule 144A or Regulation S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Securities and Restricted Definitive Securities and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any State of the United States, and accordingly the Transferor hereby further certifies that (check one):

(a) ¨ Such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or

(b) ¨ Such Transfer is being effected to the Company or a subsidiary thereof; or

(c) ¨ Such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act.

4. ¨ Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Security or of an Unrestricted Definitive Security.

 

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(a) ¨ Check if Transfer is pursuant to Rule 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Securities, on Restricted Definitive Securities and in the Indenture and the Securities Act.

(b) ¨ Check if Transfer is Pursuant to Regulation S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Securities, on Restricted Definitive Securities and in the Indenture and the Securities Act.

(c) ¨ Check if Transfer is Pursuant to Other Exemption. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Security will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Securities or Restricted Definitive Securities and in the Indenture.

 

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This certificate and the statements contained herein are made for the benefit of the Company and the Trustee.

 

 

      Dated:

 

     
[Insert Name of Transferor]      
By:  

 

     
  Name:      
  Title:      

 

A-4


ANNEX A TO CERTIFICATE OF TRANSFER

 

1. The Transferor owns and proposed to transfer the following:

[CHECK ONE OF (a) OR (b)]

 

(a)    ¨    a beneficial interest in the:
   (i)    ¨    144A Global Security (CUSIP             ), or
   (ii)    ¨    Regulation S Global Security (CUSIP             ), or
(b)    ¨    a Restricted Definitive Security.

 

2. After the transfer the Transferee will hold:

 

(a)    ¨    a beneficial interest in the:
   (i)    ¨    144A Global Security (CUSIP             ), or
   (ii)    ¨    Regulation S Global Security (CUSIP             ), or
   (iii)    ¨    Unrestricted Global Security (CUSIP             ); or
(b)    ¨    a Restricted Definitive Security; or
(c)    ¨    an Unrestricted Definitive Security,

in accordance with the terms of the Indenture.

 

A-5


EXHIBIT B

FORM OF CERTIFICATE OF EXCHANGE

Tyco Flow Control International Finance S.A.

L-2227 Luxembourg

R.C.S. B 166305

Attention: The Directors

Wells Fargo Bank, National Association

DAPS Reorg

MAC N9303-121

608 – 2nd Avenue South

Minneapolis, MN 55479

Email: DAPSReorg@wellsfargo.com

Attention: Corporate Trust Services

Re: [insert description of the Securities]

Ladies and Gentlemen,

Reference is hereby made to the Indenture, dated as of                     , among Tyco Flow Control International Finance S.A., a Luxembourg company (the Company ”), Pentair Ltd., a Swiss corporation ( Parent ”), and Wells Fargo Bank, National Association, a national banking association, as trustee (the Trustee ”) [as supplemented by that certain supplemental indenture dated as of                     ][and the Board Resolution adopted                     ] (together, the Indenture ”). Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

                    , (the Owner ”) owns and proposes to transfer the Security or Securities or interest[s] in such Security or Securities specified herein, in the principal amount of $         in such Security or Securities or interest[s] (the Exchange ”). In connection with the Exchange, the Owner hereby certifies that:

1. Exchange of Restricted Definitive Securities or Beneficial Interests in a Restricted Global Security for Unrestricted Definitive Securities or Beneficial Interests in an Unrestricted Global Security.

(a) ¨ Check if Exchange is from beneficial interest in a Restricted Global Security to beneficial interest in an Unrestricted Global Security. In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Security for a beneficial interest in an Unrestricted Global Security in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Securities and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the Securities Act ”), (iii) the restrictions on transfer contained in the

 

C-1


Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Security is being acquired in compliance with any applicable blue sky securities laws of any State of the United States.

(b) ¨ Check if Exchange is from beneficial interest in a Restricted Global Security to Unrestricted Definitive Security. In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Security for an Unrestricted Definitive Security in an equal principal amount, the Owner hereby certifies (i) the Definitive Security is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Securities and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Security is being acquired in compliance with any applicable blue sky securities laws of any State of the United States.

(c) ¨ Check if Exchange is from Restricted Definitive Security to beneficial interest in an Unrestricted Global Security. In connection with the Owner’s Exchange of a Restricted Definitive Security for a beneficial interest in an Unrestricted Global Security, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Securities and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Security is being acquired in compliance with any applicable blue sky securities laws of any State of the United States.

(d) ¨ Check if Exchange is from Restricted Definitive Security to Unrestricted Definitive Security. In connection with the Owner’s Exchange of a Restricted Definitive Security for an Unrestricted Definitive Security, the Owner hereby certifies (i) the Unrestricted Definitive Security is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Securities and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Security is being acquired in compliance with any applicable blue sky securities laws of any State of the United States.

2. Exchange of Restricted Definitive Securities or Beneficial Interests in Restricted Global Securities for Restricted Definitive Securities or Beneficial Interests in Restricted Global Securities.

(a) ¨ Check if Exchange is from beneficial interest in a Restricted Global Security to Restricted Definitive Security. In connection with the Exchange of the Owner’s

 

C-2


beneficial interest in a Restricted Global Security for a Restricted Definitive Security with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Security is being acquired for the Owner’s own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Security issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Security and in the Indenture and the Securities Act.

(b) ¨ Check if Exchange is from Restricted Definitive Security to beneficial interest in a Restricted Global Security. In connection with the Exchange of the Owner’s Restricted Definitive Security for a beneficial interest in the: [CHECK ONE] ¨ 144A Global Security or ¨ Regulation S Global Security with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Global Securities and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any State of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Security and in the Indenture and the Securities Act.

 

C-3


This certificate and the statements contained herein are made for the benefit of the Company and the Trustee.

 

 

[Insert Name of Owner]
By:  

 

  Name:
  Title:

Dated:                     

 

C-4

Exhibit 4.2

 

 

 

TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A.,

as Issuer

AND

PENTAIR LTD.

as Guarantor

AND

PENTAIR, INC.

AND

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Trustee

FIRST SUPPLEMENTAL INDENTURE

Dated as of September 24, 2012

$350,000,000 of 1.875% Notes due 2017

 

 

 


THIS FIRST SUPPLEMENTAL INDENTURE is dated as of September 24, 2012 among TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A., a Luxembourg public limited liability company ( société anonyme ) with registered office at 29, avenue de la Porte Neuve, L-2227 Luxembourg and registered with the Luxembourg Trade and Companies Register under number B 166305 (the “Company”), PENTAIR LTD., a corporation limited by shares ( Aktiengesellschaft ) organized under the laws of Switzerland and formerly known as Tyco Flow Control International Ltd. (“Parent”), PENTAIR, INC., a Minnesota corporation (“Pentair”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (the “Trustee”).

RECITALS

A. Parent, the Company and the Trustee executed and delivered an Indenture, dated as of September 24, 2012 (the “ Base Indenture ”), to provide for the issuance by the Company from time to time of unsubordinated debt securities evidencing its unsecured indebtedness and the guarantee of such securities by Parent to the extent described therein and herein.

B. Pursuant to resolutions of a duly authorized Pricing Committee of the Board of Directors, the Company has authorized the issuance of $350,000,000 principal amount of 1.875% Notes due 2017 (the “ Offered Securities ”).

C. The entry into this First Supplemental Indenture by the parties hereto is in all respects authorized by the provisions of the Base Indenture.

D. Parent, the Company and Pentair desire to enter into this First Supplemental Indenture pursuant to Section 9.01 of the Base Indenture to establish the terms of the Offered Securities in accordance with Section 2.01 of the Base Indenture and to establish the form of the Offered Securities in accordance with Section 2.02 of the Base Indenture.

E. All things necessary to make this First Supplemental Indenture a legal, valid and binding indenture and agreement according to its terms have been done.

NOW, THEREFORE, for and in consideration of the foregoing premises, Parent, the Company, Pentair and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective holders from time to time of the Offered Securities as follows:

ARTICLE I

 

Section 1.1. Terms of Offered Securities .

The following terms relate to the Offered Securities:

(1) The Offered Securities constitute a series of securities having the title “1.875% Notes due 2017”.

(2) The initial aggregate principal amount of the Offered Securities that may be authenticated and delivered under the Base Indenture (except for Offered Securities

 

2

First Supplemental Indenture


authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Offered Securities pursuant to Section 2.05, 2.06, 2.07, 2.11, or 3.03 of the Base Indenture) is $350,000,000.

(3) The entire Outstanding principal of the Offered Securities shall be payable on September 15, 2017.

(4) The rate at which the Offered Securities shall bear interest shall be 1.875% per year. The date from which interest shall accrue on the Offered Securities shall be September 24, 2012, or the most recent Interest Payment Date to which interest has been paid or provided for. The Interest Payment Dates for the Offered Securities shall be March 15 and September 15 of each year, beginning March 15, 2013. Interest shall be payable on each Interest Payment Date to the Holders of record at the close of business on the March 1 and September 1 prior to each Interest Payment Date (a “ regular record date ”). The basis upon which interest shall be calculated shall be that of a 360-day year consisting of twelve 30-day months.

(5) The Offered Securities shall be issuable in whole in the registered form of one or more Global Securities, and the Depositary for such Global Securities shall be The Depository Trust Company, New York, New York. The Offered Securities shall be substantially in the form attached hereto as Exhibit A the terms of which are herein incorporated by reference. The Offered Securities shall be issuable in denominations of $2,000 or any integral multiple of $1,000 in excess thereof.

(6) (A) The Offered Securities will be subject to redemption at the Company’s option on any date (a “ Redemption Date ”) prior to the maturity date, in whole or from time to time in part, in $1,000 increments ( provided that any remaining principal amount thereof shall be at least the minimum authorized denomination thereof). The Offered Securities will be redeemable at a redemption price equal to the greater of (i) 100% of the principal amount of the Offered Securities to be redeemed and (ii) as determined by the Quotation Agent and delivered to the Trustee in writing, the sum of the present values of the remaining scheduled payments of principal and interest thereon due on any date after the Redemption Date (excluding the portion of interest that will be accrued and unpaid to and including the Redemption Date) discounted from their scheduled date of payment to the Redemption Date (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 20 basis points, plus accrued and unpaid interest, if any, thereon to, but excluding, the Redemption Date.

(B) As used herein:

Adjusted Redemption Treasury Rate ”, with respect to any Redemption Date, means the rate equal to the semiannual equivalent yield to maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the Comparable Redemption Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Redemption Treasury Price for such Redemption Date.

Comparable Redemption Treasury Issue ” means the United States Treasury security selected by the Quotation Agent as being the most recently issued United States Treasury note or bond as displayed by Bloomberg LP (or any successor service) on screens PXI through PX8 (or any other screens as may replace such screens on such service) have a maturity comparable to the remaining term of the Offered Securities to be redeemed.

 

3

First Supplemental Indenture


Comparable Redemption Treasury Price ”, with respect to any Redemption Date, means (i) the average of the Redemption Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury Dealer Quotations.

Quotation Agent ” means a Redemption Reference Treasury Dealer appointed as such agent by the Company.

Redemption Reference Treasury Dealer ” means four primary U.S. government securities dealers in the United States selected by the Company.

Redemption Reference Treasury Dealer Quotations ”, with respect to each Redemption Reference Treasury Dealer and any Redemption Date, means the average, as determined by the Quotation Agent, of the bid and offer prices at 11:00 a.m., New York City time, for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the Redemption Date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer on the third Business Day preceding such Redemption Date.

(7) Except as provided herein, the Offered Securities shall not be subject to redemption, repurchase or repayment at the option of any Holder thereof, upon the occurrence of any particular circumstances or otherwise. The Offered Securities will not have the benefit of any sinking fund. For the avoidance of doubt, Parent, the Company and their respective Affiliates may purchase Offered Securities from the Holders thereof from time to time, either in the open market at prevailing prices or in private transactions at negotiated prices. Any Offered Securities purchased by Parent, the Company or any of their respective Affiliates may, at the purchaser’s discretion, be held, resold or canceled, provided, however, that no Securities that constitute “restricted securities” (as defined in Rule 144 under the Securities Act of 1933) shall be resold for a period of one year after the date hereof.

(8) Except as provided herein, the Holders of the Offered Securities shall have no special rights in addition to those provided in the Base Indenture upon the occurrence of any particular events.

(9) The Offered Securities will be general unsecured and unsubordinated obligations of the Company and will be ranked equally among themselves.

(10) The Offered Securities are not convertible into shares of common stock or other securities of the Company or Parent.

 

4

First Supplemental Indenture


Section 1.2 Additional Defined Terms .

As used herein, the following defined terms shall have the following meanings with respect to the Offered Securities only:

Attributable Debt ”, in connection with a Sale and Lease-Back Transaction, as of any particular time, means the aggregate of present values (discounted at a rate that, at the inception of the lease, represents the effective interest rate that the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased assets) of the obligations of the Company, Parent or any Restricted Subsidiary for net rental payments during the remaining term of the applicable lease, including any period for which such lease has been extended or, at the option of the lessor, may be extended. The term “net rental payments” under any lease of any period shall mean the sum of the rental and other payments required to be paid in such period by the lessee thereunder, not including any amounts required to be paid by such lessee, whether or not designated as rental or additional rental, on account of maintenance and repairs, reconstruction, insurance, taxes, assessments, water rates or similar charges required to be paid by such lessee thereunder or any amounts required to be paid by such lessee thereunder contingent upon the amount of sales, maintenance and repairs, reconstruction, insurance, taxes, assessments, water rates or similar charges.

Change of Control ” means the occurrence on or after the date of the Escrow Release Date of any of the following (excluding, in each case, the internal reorganization and other transactions connected to the Spin-Off and the Merger): (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or more series of related transactions, of all or substantially all of the assets of Parent and its Subsidiaries, taken as a whole, to any person other than Parent or a direct or indirect wholly-owned Subsidiary of Parent; (2) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person becomes the “beneficial owner” (as defined in Rules 13(d)(3) and 13(d)(5) under the Exchange Act), directly or indirectly, of more than 50% of the outstanding Voting Stock of Parent or other Voting Stock into which Parent’s Voting Stock is reclassified, consolidated, exchanged or changed, measured by voting power rather than number of shares; (3) Parent consolidates with, or merges with or into, any person, or any person consolidates with, or merges with or into, Parent, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of Parent or such other person is converted into or exchanged for cash, securities or other property, other than any such transaction where the shares of the Voting Stock of Parent outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, at least a majority of the Voting Stock of the surviving person or any direct or indirect parent company of the surviving person immediately after giving effect to such transaction; (4) the first day on which a majority of the members of the Board of Directors of Parent are not Continuing Directors or (5) the approval by the holders of Parent’s Voting Stock of a plan for the liquidation or dissolution of Parent. Notwithstanding the foregoing, a transaction shall not be deemed to involve a Change of Control under clause (1), (2) or (5) above if: (i) Parent becomes a direct or indirect wholly-owned Subsidiary of a holding company or a holding company becomes the successor to Parent under Section 10.2 of the Base Indenture pursuant to a transaction that is permitted under Section 10.1 of the Base Indenture and (ii) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction (or a series of related transactions) are

 

5

First Supplemental Indenture


the same or substantially the same (and hold in the same or substantially the same proportions) as the holders of Parent’s Voting Stock immediately prior to that transaction. The term “person,” as used in this definition, means any Person and any two or more Persons as provided in Section 13(d)(3) of the Exchange Act.

Change of Control Triggering Event ” means the occurrence of both a Change of Control and a Rating Event; provided, however, that a Change of Control Triggering Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a Change of Control if the Rating Agency or Rating Agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee in writing at its request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the purported Change of Control Triggering Event). Unless at least two of the three Rating Agencies are providing a rating for the Offered Securities at the commencement of any period referred to in the definition of “Rating Event”, a Rating Event will be deemed to have occurred during such period. Notwithstanding the foregoing, no Change of Control Triggering Event will be deemed to have occurred in connection with any particular Change of Control unless and until such Change of Control has actually been consummated.

Consolidated Net Tangible Assets ” at any date means Consolidated Net Worth less all intangible assets appearing on the most recently prepared consolidated balance sheet of Parent and its Subsidiaries as of the end of a fiscal quarter of Parent and its Subsidiaries, prepared in accordance with United States generally accepted accounting principles as in effect on the date of the consolidated balance sheet. “Intangible assets” means the amount (if any) stated under the heading “Goodwill and Other Intangible assets, net” or under any other heading of intangible assets separately listed, in each case on the face of such consolidated balance sheet.

Consolidated Net Worth ” at any date means total assets less total liabilities, in each case appearing on the most recently prepared consolidated balance sheet of Parent and its Subsidiaries as of the end of a fiscal quarter of Parent and its Subsidiaries, prepared in accordance with United States generally accepted accounting principles as in effect on the date of the consolidated balance sheet.

Consolidated Total Assets ” at any date means the total assets appearing on the most recently prepared consolidated balance sheet of Parent and its Subsidiaries as of the end of a fiscal quarter of Parent and its Subsidiaries, prepared in accordance with United States generally accepted accounting principles as in effect on the date of the consolidated balance sheet.

Continuing Director ” means, as of any date after the completion of the Distribution and the Merger, any member of the Board of Directors of Parent who:

(1) was a member of such Board of Directors immediately after the completion of the Distribution and the Merger; or

(2) was nominated for election, elected or appointed to such Board of Directors pursuant to a proposal by a majority of the Continuing Directors who were members of

 

6

First Supplemental Indenture


such Board of Directors at the time of such nomination, election or appointment (either by a specific vote or by approval of a proxy statement of Parent in which such member was named as a nominee for election as a director, without objection to such nomination).

Distribution ” means the pro-rata distribution of all of the outstanding common stock of Parent to the shareholders of Tyco International Ltd. in the form of a special dividend out of Tyco International Ltd.’s qualifying surplus.

Escrow Account ” means the 2017 Notes Escrow Account established pursuant to the Escrow Agreement.

Escrow Agreement ” means the Escrow Agreement, dated as of September 24, 2012, by and among the Company, Parent, Pentair, the Trustee and JPMorgan Chase Bank, NA, as Escrow Agent.

Escrow Agent ” means JPMorgan Chase Bank, NA, as escrow agent under the Escrow Agreement.

Fitch ” means Fitch Inc., and its successors.

Funded Indebtedness ” means any Indebtedness maturing by its terms more than one year from the date of the determination thereof, including any Indebtedness renewable or extendible at the option of the obligor to a date later than one year from the date of the determination thereof.

Indebtedness ” means, without duplication, the principal amount (such amount being the face amount or, with respect to original issue discount bonds or zero coupon notes, bonds or debentures or similar securities, determined based on the accreted amount as of the date of the most recently prepared consolidated balance sheet of Parent and its Subsidiaries as of the end of a fiscal quarter of Parent prepared in accordance with United States generally accepted accounting principles as in effect on the date of such consolidated balance sheet) of (i) all obligations for borrowed money, (ii) all obligations evidenced by debentures, notes or other similar instruments, (iii) all obligations in respect of letters of credit or bankers acceptances or similar instruments or reimbursement obligations with respect thereto (such instruments to constitute Indebtedness only to the extent that the outstanding reimbursement obligations in respect thereof are collateralized by cash or cash equivalents reflected as assets on a balance sheet prepared in accordance with United States generally accepted accounting principles), (iv) all obligations as lessee to the extent capitalized in accordance with United States generally accepted accounting principles in effect on the date of this First Supplemental Indenture and (v) all Indebtedness of others consolidated in such balance sheet that is guaranteed by the Company, Parent or any of their respective Subsidiaries or for which the Company, Parent or any of their respective Subsidiaries is legally responsible or liable (whether by agreement to purchase indebtedness of, or to supply funds or to invest in, others).

Investment Grade Rating ” means a rating equal to or higher than BBB- (or the equivalent) by Fitch, Baa3 (or the equivalent) by Moody’s and BBB- (or the equivalent) by S&P, and the equivalent investment grade credit rating from any replacement rating agency or rating agencies selected by the Company.

 

7

First Supplemental Indenture


Issue Date ” means the date on which the Offered Securities are originally issued.

Merger ” means the merger of Panthro Merger Sub with and into Pentair with Pentair surviving the merger and all transactions contemplated by the Merger Agreement, except the Distribution, and all other actions or matters necessary or appropriate to give effect to the Merger Agreement and the transactions contemplated thereby, except the Distribution.

Merger Agreement ” means the Merger Agreement, dated as of March 27, 2012, among Tyco, Parent, Panthro Acquisition, Panthro Merger Sub and Pentair, as amended from time to time.

Moody’s ” means Moody’s Investors Service, Inc., and its successors.

Non-Recourse Indebtedness ” means Indebtedness upon the enforcement of which recourse may be had by the holder(s) thereof only to identified assets of Parent or the Company or any Subsidiary of Parent or the Company and not to Parent or the Company or any Subsidiary of Parent or the Company personally (subject to, for the avoidance of doubt, customary exceptions contained in non-recourse financings to the non-recourse nature of the obligations thereunder).

Panthro Acquisition ” refers to Panthro Acquisition Co., a Delaware corporation and currently a wholly-owned Subsidiary of Parent.

Panthro Merger Sub ” refers to Panthro Merger Sub, Inc., a Minnesota corporation and currently a wholly-owned Subsidiary of Panthro Acquisition.

Principal Property ” means any manufacturing, processing or assembly plant, warehouse or distribution facility, office building or parcel of real property of Parent or any of its Subsidiaries that is located in the United States of America, Canada or the Commonwealth of Puerto Rico and (A) is owned by Parent or any Subsidiary of Parent immediately after the completion of the Spin-Off and the Merger, (B) the initial construction of which has been completed after the date hereof, or (C) is acquired after the date hereof, in each case, other than any such plants, facilities, warehouses, office buildings, parcels or portions thereof, that (i) in the opinion of the Board of Directors of Parent, are not collectively of material importance to the total business conducted by Parent and its Subsidiaries as an entirety, or (ii) has a net book value (excluding any capitalized interest expense), immediately after completion of the Spin-Off and the Merger in the case of clause (A) of this definition, on the date of completion of the initial construction in the case of clause (B) of this definition or on the date of acquisition in the case of clause (C) of this definition, of less than 1.0% of Consolidated Net Tangible Assets on the consolidated balance sheet of Parent as of the applicable date.

Purchase Agreement ” means the Purchase Agreement, dated September 10, 2012, among the Company, Parent, Pentair and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and U.S. Bancorp Investments, Inc., as representatives of the purchasers named in Schedule I thereto.

Rating Agencies ” means (1) each of Fitch, Moody’s and S&P; and (2) if any of Fitch, Moody’s or S&P ceases to rate the Offered Securities or fails to make a rating of the Offered

 

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First Supplemental Indenture


Securities publicly available for reasons outside of the Company’s control, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, selected by the Company (as certified by a resolution of the Company’s Board of Directors) as a replacement agency for Fitch, Moody’s or S&P, or all of them, as the case may be.

Rating Event ” means the rating on the Offered Securities is lowered by at least two of the three Rating Agencies and such Offered Securities are rated below an Investment Grade Rating by at least two of the three Rating Agencies on any day during the period (which period shall be extended so long as the rating of such Offered Securities is under publicly announced consideration for a possible downgrade by any of the Rating Agencies) commencing on the date of Parent’s first public notice of the occurrence of a Change of Control or Parent’s intention to effect a Change of Control and ending 60 days following consummation or abandonment of such Change of Control.

Restricted Subsidiary ” means any Subsidiary of Parent that owns or leases a Principal Property.

Sale and Lease-Back Transaction ” means an arrangement with any Person providing for the leasing by Parent or a Restricted Subsidiary of any Principal Property whereby such Principal Property has been owned and in full operation for more than 180 days and has been or is to be sold or transferred by Parent or a Restricted Subsidiary to such Person other than Parent, the Company or any of their respective Subsidiaries; provided, however, that the foregoing shall not apply to any such arrangement involving a lease for a term, including renewal rights, for not more than three years.

Spin-Off ” refers to the transfer to Parent of Tyco International Ltd.’s flow control business, the Distribution and all other transactions required under the Separation and Distribution Agreement, dated as of March 27, 2012, among Tyco International Ltd., Parent and The ADT Corporation, as amended from time to time (the “ Separation and Distribution Agreement ”).

S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.

Tyco Credit Facilities ” means, collectively: (i) the Five-Year Senior Unsecured Credit Agreement, dated as of June 22, 2012 among Tyco International Finance S.A., Tyco International Ltd., the lenders party thereto and Citibank, N.A., as Administrative Agent, as supplemented by the Subsidiary Guaranty, dated as of September 21, 2012, made by the Company and Parent in favor of Citibank, N.A., as Administrative Agent; and (ii) the Five-Year Senior Unsecured Credit Agreement, amended as of June 22, 2012 and originally dated April 25, 2007, among Tyco International Finance S.A., Tyco International Ltd., the lenders party thereto and Citibank, N.A., as Administrative Agent, as supplemented by the Subsidiary Guaranty, dated as of September 21, 2012, made by the Company and Parent in favor of Citibank, N.A., as Administrative Agent.

 

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First Supplemental Indenture


Tyco Administrative Agent ” means the person named as the “Administrative Agent” under the Tyco Credit Facilities.

Voting Stock ” means, with respect to any specified “Person” as of any date, the capital stock of such Person that is at the time entitled to vote generally in the election of the board of directors of such Person.

 

Section 1.3. Additional Covenants .

The following additional covenants shall apply with respect to the Offered Securities so long as any of the Offered Securities remain Outstanding (but subject to defeasance, as provided in the Base Indenture and Section 15 of this First Supplemental Indenture):

(1) Limitation on Liens.

Neither the Company nor Parent will, and neither will permit, any Restricted Subsidiary to, issue, assume or guarantee any Indebtedness that is secured by a mortgage, pledge, security interest, lien or similar encumbrance (each a “ lien ”) upon any property that at the time of such issuance, assumption or guarantee constitutes a Principal Property, or any shares of stock of or Indebtedness issued by any Restricted Subsidiary, whether now owned or hereafter acquired, without effectively providing that, for so long as such lien shall continue in existence with respect to such secured Indebtedness, the Offered Securities (together with, if the Company shall so determine, any other Indebtedness of the Company ranking equally with the Offered Securities, it being understood that for purposes hereof, Indebtedness which is secured by a lien and Indebtedness which is not so secured shall not, solely by reason of such lien, be deemed to be of different ranking) shall be equally and ratably secured by a lien ranking ratably with or equal to (or at the Company’s option prior to) such secured Indebtedness; provided, however, that the foregoing covenant shall not apply to:

(a) liens existing on the date the Offered Securities are first issued;

(b) liens on the stock, assets or Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary, unless created in contemplation of such Person becoming a Restricted Subsidiary;

(c) liens on any assets or Indebtedness of a Person existing at the time such Person is merged with or into or consolidated with or acquired by the Company, Parent or a Restricted Subsidiary or at the time of a purchase, lease or other acquisition of the assets of a corporation or firm as an entirety or substantially as an entirety by the Company, Parent or any Restricted Subsidiary;

(d) liens on any Principal Property existing at the time of acquisition thereof by the Company, Parent or any Restricted Subsidiary, or liens to secure the payment of the purchase price of such Principal Property by the Company, Parent or any Restricted Subsidiary, or to secure any Indebtedness incurred, assumed or guaranteed by the Company, Parent or a Restricted Subsidiary for the purpose of financing all or any part of the purchase price of such Principal Property or improvements or construction thereon, which Indebtedness is incurred, assumed or guaranteed prior to, at the time of or within

 

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180 days after such acquisition (or in the case of real property, completion of such improvement or construction or commencement of full operation of such property, whichever is later); provided, however , that in the case of any such acquisition, construction or improvement, the lien shall not apply to any Principal Property theretofore owned by the Company, Parent or a Restricted Subsidiary, other than the Principal Property so acquired, constructed or improved (and accessions thereto and improvements and replacements thereof and the proceeds of the foregoing);

(e) liens securing Indebtedness owing by any Restricted Subsidiary to the Company, Parent or a Subsidiary thereof or by the Company to Parent;

(f) liens in favor of the United States or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract, statute, rule or regulation or to secure any Indebtedness incurred or guaranteed for the purpose of financing all or any part of the purchase price (or, in the case of real property, the cost of construction or improvement) of the Principal Property subject to such liens (including liens incurred in connection with pollution control, industrial revenue or similar financings);

(g) pledges, liens or deposits under workers’ compensation or similar legislation, and liens thereunder that are not currently dischargeable, or in connection with bids, tenders, contracts (other than for the payment of money) or leases to which the Company, Parent or any Restricted Subsidiary is a party, or to secure the public or statutory obligations of the Company, Parent or any Restricted Subsidiary, or in connection with obtaining or maintaining self-insurance, or to obtain the benefits of any law, regulation or arrangement pertaining to unemployment insurance, old age pensions, social security or similar matters, or to secure surety, performance, appeal or customs bonds to which the Company, Parent or any Restricted Subsidiary is a party, or in litigation or other proceedings in connection with the matters heretofore referred to in this clause, such as interpleader proceedings, and other similar pledges, liens or deposits made or incurred in the ordinary course of business;

(h) liens created by or resulting from any litigation or other proceeding that is being contested in good faith by appropriate proceedings, including liens arising out of judgments or awards against the Company, Parent or any Restricted Subsidiary with respect to which the Company, Parent or such Restricted Subsidiary in good faith is prosecuting an appeal or proceedings for review or for which the time to make an appeal has not yet expired; or final unappealable judgment liens which are satisfied within 15 days of the date of judgment; or liens incurred by the Company, Parent or any Restricted Subsidiary for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which the Company, Parent or such Restricted Subsidiary is a party, provided that (x) in the case of liens arising out of judgments or awards, the enforcement of such liens is effectively stayed and (y) the aggregate amount secured by all such liens does not at any time exceed the greater of (i) $25,000,000 or (ii) 0.5% of Consolidated Total Assets;

 

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First Supplemental Indenture


(i) liens for taxes or assessments or governmental charges or levies not yet due or delinquent; or that can thereafter be paid without penalty, or that are being contested in good faith by appropriate proceedings; landlord’s liens on property held under lease; and any other liens or charges incidental to the conduct of the business of the Company, Parent or any Restricted Subsidiary, or the ownership of their respective assets, that were not incurred in connection with the borrowing of money or the obtaining of advances or credit and that, in the opinion of the Board of Directors of Parent, do not materially impair the use of such assets in the operation of the business of the Company, Parent or such Restricted Subsidiary or the value of such Principal Property for the purposes of such business;

(j) liens to secure the Company’s, Parent’s or any Restricted Subsidiary’s obligations under agreements with respect to spot, forward, future and option transactions, entered into in the ordinary course of business;

(k) liens not permitted by the foregoing clauses (a) to (j), inclusive, if at the time of, and upon giving effect to, the creation or assumption of any such lien, the aggregate amount of all outstanding Indebtedness of the Company, Parent and all Restricted Subsidiaries (without duplication) secured by all such liens not so permitted by the foregoing clauses (a) through (j), inclusive, together with the Attributable Debt in respect of Sale and Lease-Back Transactions permitted by paragraph (a) under subsection (2) below, do not exceed an amount equal to 15% of Consolidated Net Tangible Assets; and

(l) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part, of any lien referred to in the foregoing clauses (a) to (k), inclusive; provided, however, that the principal amount of Indebtedness secured thereby (except to the extent otherwise excepted under clauses (a) through (k)) shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or a part of the assets (or any replacements therefor and products and proceeds thereof) that secured the lien so extended, renewed or replaced (plus improvements and construction on real property).

(2) Limitation on Sale and Lease-Back Transactions.

Neither the Company nor Parent will, and neither will permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction (other than with Parent, the Company and/or one or more Subsidiaries of Parent) unless:

(a) the Company, Parent or such Restricted Subsidiary, at the time of entering into such Sale and Lease-Back Transaction, would be entitled to incur Indebtedness secured by a lien on the Principal Property to be leased in an amount at least equal to the Attributable Debt in respect of such Sale and Lease-Back Transaction, without equally and ratably securing the Offered Securities pursuant to Section 1.3(1) above; or

 

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First Supplemental Indenture


(b) the direct or indirect proceeds of the sale of the Principal Property to be leased are at least equal to the fair value of such Principal Property, as determined by Parent’s Board of Directors, and an amount equal to the net proceeds from the sale of the property or assets so leased is applied, within 180 days of the effective date of any such Sale and Lease-Back Transaction, to the purchase or acquisition (or, in the case of real property, commencement of the construction) of property or assets or to the retirement (other than at maturity or pursuant to a mandatory sinking fund or mandatory redemption provision) of Securities, or of Funded Indebtedness of Parent or a consolidated Subsidiary ranking on a parity with or senior to the Securities; provided that there shall be credited to the amount of net worth proceeds required to be applied pursuant to this clause (b) an amount equal to the sum of (i) the principal amount of Securities delivered within 180 days of the effective date of such Sale and Lease-Back Transaction to the Trustee for retirement and cancellation and (ii) the principal amount of other Funded Indebtedness voluntarily retired by Parent within such 180-day period, excluding retirements of Securities and other Funded Indebtedness as a result of conversions or pursuant to mandatory sinking fund or mandatory prepayment provisions.

(3) Change of Control Triggering Event.

(a) If a Change of Control Triggering Event occurs after the Escrow Release Date (as defined in Section 1.5(2)), unless the Company has exercised its option to redeem the Offered Securities, it shall be required to make an offer (a “ Change of Control Offer ”) to each Holder of the Offered Securities to repurchase, at the Holder’s election, all or any part (equal to $1,000 or an integral multiple of $1,000 in excess thereof) of that Holder’s Offered Securities on the terms set forth herein. In a Change of Control Offer, the Company shall be required to offer payment in cash equal to 101% of the aggregate principal amount of Offered Securities repurchased, plus accrued and unpaid interest, if any, on the Offered Securities repurchased to, but excluding, the date of repurchase (a “ Change of Control Payment ”). Within 30 days following any Change of Control Triggering Event or, at the Company’s option, prior to any Change of Control, but after public announcement of the transaction that constitutes or may constitute the Change of Control, a notice shall be mailed to the Trustee and to the Holders of the Offered Securities describing in reasonable detail the transaction that constitutes or may constitute the Change of Control Triggering Event and offering to repurchase such Offered Securities on the date specified in the notice, which date shall, except as described in the immediately following sentence and other than as required by law, be no earlier than 30 days and no later than 60 days from the date such notice is mailed (a “ Change of Control Payment Date ”). The notice shall, if mailed prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on the Change of Control Triggering Event occurring on or prior to the Change of Control Payment Date.

(b) In order to accept the Change of Control Offer, the Holder must deliver (or otherwise comply with alternative instructions in accordance with the procedures of the Depositary) to the paying agent, at least five Business Days prior to the Change of Control Payment Date, its Offered Security together with the form entitled “Election Form” (which form is contained in the form of note attached hereto as Exhibit A) duly completed, or a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange, or the Financial Industry Regulatory Authority, Inc. or a commercial bank or trust company in the United States setting forth:

(i) the name of the Holder of such Offered Security;

 

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First Supplemental Indenture


(ii) the principal amount of such Offered Security;

(iii) the principal amount of such Offered Security to be repurchased;

(iv) the certificate number or a description of the tenor and terms of such Offered Security;

(v) a statement that the Holder is accepting the Change of Control Offer; and

(vi) a guarantee that such Offered Security, together with the form entitled “Election Form” duly completed, will be received by the paying agent at least five Business Days prior to the Change of Control Payment Date.

(c) Any exercise by a Holder of its election to accept the Change of Control Offer shall be irrevocable. The Change of Control Offer may be accepted for less than the entire principal amount of an Offered Security, but in that event the principal amount of such Offered Security remaining outstanding after repurchase must be equal to $2,000 or an integral multiple of $1,000 in excess thereof.

(d) On the Change of Control Payment Date, the Company shall, to the extent lawful:

(i) accept for payment all Offered Securities or portions of such Offered Securities properly tendered pursuant to the Change of Control Offer;

(ii) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Offered Securities or portions of Offered Securities properly tendered; and

(iii) deliver or cause to be delivered to the Trustee the Offered Securities properly accepted together with an Officers’ Certificate stating the aggregate principal amount of Offered Securities or portions of Offered Securities being repurchased.

(e) The Company shall not be required to make a Change of Control Offer upon the occurrence of a Change of Control Triggering Event if a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirements for an offer made by the Company and the third party purchases all Offered Securities properly tendered and not withdrawn under its offer. In addition, the Company shall not repurchase any Offered Securities if there has occurred and is continuing on the Change of Control Payment Date an Event of Default under the Indenture, other than a default in the payment of the Change of Control Payment upon a Change of Control Triggering Event.

(f) Notwithstanding the foregoing, Parent and the Company shall comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and any other securities laws and regulations thereunder to the extent those

 

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First Supplemental Indenture


laws and regulations are applicable in connection with the repurchase of the Offered Securities as a result of a Change of Control Triggering Event. To the extent that the provisions of any such securities laws or regulations conflict with this Section 1.3(3), neither the Company nor Parent shall be deemed to have breached its obligations under this Section 1.3(3) by virtue of its compliance with such laws or regulations.

 

Section 1.4 Additional Events of Default .

The following additional events shall be established and shall each constitute an “Event of Default” under Section 6.01(a) of the Base Indenture with respect to the Offered Securities so long as any of the Offered Securities remain Outstanding:

(10) an event of default shall happen and be continuing with respect to any Indebtedness (other than Non-Recourse Indebtedness) of the Company, Parent or any Restricted Subsidiary under any indenture or other instrument evidencing or under which the Company, Parent or any Restricted Subsidiary shall have a principal amount outstanding (such amount with respect to original issue discount bonds or zero coupon notes, bonds or debentures or similar securities based on the accreted amount determined in accordance with United States generally accepted accounting principles and as of the date of the most recently prepared consolidated balance sheet of the Company, Parent or any Restricted Subsidiary, as the case may be) in excess of $100,000,000, and such event of default shall involve the failure to pay the principal of such Indebtedness on the final maturity date thereof after the expiration of any applicable grace period with respect thereto, or such Indebtedness shall have been accelerated so that the same shall have become due and payable prior to the date on which the same would otherwise have become due and payable, and such acceleration shall not be rescinded or annulled within 30 days after notice thereof shall have been given to the Company and Parent by the Trustee, or to the Company, Parent and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of such series; provided however that:

(i) if such event of default under such indenture or instrument shall be remedied or cured by the Company or Parent or waived by the requisite holders of such Indebtedness, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or any of the Securityholders; and

(ii) subject to the provisions of Sections 7.01 and 7.02 of the Base Indenture, the Trustee shall not be charged with knowledge of any such event of default unless written notice thereof shall have been given to the Trustee by the Company or Parent, as the case may be, by the holder or an agent of the holder of any such Indebtedness, by the trustee then acting under any indenture or other instrument under which such default shall have occurred, or by the Holders of not less than 25% in the aggregate principal amount of Outstanding Offered Securities.

 

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First Supplemental Indenture


(11) at any time prior to the Redemption Trigger Date (as defined in Section 1.6(1)), the Company or Parent defaults in the performance of, or breaches, any of its respective covenants or agreements in the Escrow Agreement, or the Escrow Agreement ceases to be in full force and effect (other than in accordance with its terms) or the Company or Parent asserts the invalidity thereof.

 

Section 1.5 Escrow .

(1) On the Issue Date, (i) the Company shall deposit (or cause to be deposited) into the Escrow Account the aggregate amount paid for the Offered Securities and the related guarantees, net of the initial purchasers’ discount and commissions, pursuant to Section 3 of the Purchase Agreement (the “ 2017 Notes Proceeds ”) and (ii) Pentair will deposit into the Escrow Account an amount equal to: (x) the Special Mandatory Redemption Price (as defined in Section 1.6(3)) that would be payable pursuant to Section 1.6(3) if the Special Mandatory Redemption Date were February 8, 2013, less (y) the 2017 Notes Proceeds (the “ Pentair Deposit ”).

(2) Upon the satisfaction of all of the following conditions (collectively, the “ Escrow Release Conditions ”), and only upon the satisfaction of the Escrow Release Conditions, the Company, Parent and Pentair shall execute a Notice of Distribution and Merger, in the form set forth in Exhibit A to the Escrow Agreement, or such other notice as shall be mutually agreed with the Escrow Agent, to cause (x) the 2017 Notes Proceeds (together with any interest thereon or proceeds or investment income in respect thereof) to be released to the Company and (y) the Pentair Deposit (together with any interest thereon or proceeds or investment income in respect thereof) to be released to Pentair:

(a) the Distribution has been completed in all material respects in accordance with the Separation and Distribution Agreement;

(b) the Merger has been completed in all material respects in accordance with the Merger Agreement;

(c) the Tyco Administrative Agent shall have provided a written release of the Company’s and Parent’s guarantees of the Tyco Credit Facilities; and

(d) no Event of Default has occurred and is continuing.

Satisfaction of certain of the Escrow Release Conditions may occur simultaneous with or immediately after the release of funds from the Escrow Account, but the funds will be released upon the certification by the Issuer, the Guarantor and Pentair to the Escrow Agent that such Escrow Release Conditions will be satisfied simultaneous with or immediately after the release of funds. The date on which the Escrow Release Conditions are satisfied or deemed satisfied is referred to as the “ Escrow Release Date ”.

 

Section 1.6 Special Mandatory Redemption .

(1) If (i) the Escrow Release Date does not occur on or before February 1, 2013 or (ii) if either the Merger or the Spin-Off is terminated or abandoned pursuant to the terms of the Merger Agreement or the Separation and Distribution Agreement, as applicable (the earlier of such dates, the “ Redemption Trigger Date ”), then:

(a) the Company will be required to effect the redemption of the Offered Securities in the manner set forth in this Section 1.6 (the “ Special Mandatory Redemption ”);

 

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First Supplemental Indenture


(b) if either the Merger or the Spin-Off is terminated or abandoned as set forth in clause (ii) above, the Company, Parent and Pentair shall execute a Notice of Termination, in the form set forth in Exhibit B to the Escrow Agreement, or such other notice as shall be mutually agreed with the Escrow Agent;

(c) the Company, Parent and Pentair shall cause all funds in the Escrow Account to be disbursed to the Trustee for the purpose of effecting the Special Mandatory Redemption and paying the Special Mandatory Redemption Price; and

(d) the Company, Parent and Pentair shall make all commercially reasonable efforts to cause any funds disbursed from the Escrow Account to the Trustee in excess of the Special Mandatory Redemption Price to be released to Pentair on or promptly after the Special Mandatory Redemption Date.

(2) On the Business Day after the Redemption Trigger Date, the Company will deliver to the Trustee a redemption notice setting forth the Special Mandatory Redemption Date (as defined below) and the Special Mandatory Redemption Price (as defined below). The Trustee will promptly forward such notice to the Holders of the Offered Securities.

(3) On the fifth Business Day (the “ Special Mandatory Redemption Date ”) after the Redemption Trigger Date, the Company shall redeem the Offered Securities at a redemption price (the “ Special Mandatory Redemption Price ”) in cash equal to the sum of (i) 101% of the aggregate principal amount of the Offered Securities to be redeemed, plus (ii) accrued and unpaid interest, if any, thereon to, but excluding, the Special Mandatory Redemption Date. The funds disbursed from the Escrow Account to the Trustee in the manner set forth in Section 1.6(1)(c) shall be used by the Trustee to fund the Special Mandatory Redemption Price.

(4) Interest on the Offered Securities shall cease to accrue on and after the Special Mandatory Redemption Date, unless the Company shall default in the payment of the Special Mandatory Redemption Price.

 

Section 1.7 Additional Changes to the Base Indenture .

(1) For purposes of applying, and determining compliance with, the covenants and other obligations of the Company and Parent set forth in the Base Indenture and this First Supplemental Indenture, including the covenants set forth in Article IV and Article X of the Base Indenture and Section 1.3 of this First Supplemental Indenture, the Spin-Off and the Merger shall be deemed to have occurred immediately prior to the Issue Date.

(2) Section 9.01 of the Base Indenture is hereby deleted with respect to the Offered Securities and replaced with the following:

Section 9.01 Supplemental Indentures Without the Consent of Securityholders .

 

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First Supplemental Indenture


In addition to any supplemental indenture otherwise authorized by this Indenture, Parent, the Company and the Trustee from time to time and at any time may enter into an indenture or indentures supplemental hereto which shall conform to the provisions of the Trust Indenture Act as then in effect or amend the Escrow Agreement in accordance with its provisions, without the consent of the holders of any series of Securities, for one or more of the following purposes:

(a) to cure any ambiguity, defect, or inconsistency herein or in the Securities of any series or the Escrow Agreement, including making any such changes as are required for this Indenture to comply with the Trust Indenture Act;

(b) to add an additional obligor on the Securities, to add a guarantor of any outstanding series of Securities or to evidence the succession of another Person to Parent or the Company, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of Parent or the Company, as the case may be, pursuant to Article X;

(c) to provide for uncertificated Securities in addition to or in place of certificated Securities;

(d) to add to the covenants of the Company for the benefit of the holders of any outstanding series of Securities (and if such covenants are to be for the benefit of less than all outstanding series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon Parent or the Company or conferred by the Escrow Agreement upon Parent or the Company;

(e) to add any additional Events of Default for the benefit of the holders of any outstanding series of Securities (and if such Events of Default are to be applicable to less than all outstanding series, stating that such Events of Default are expressly being included solely to be applicable to such series);

(f) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall not become effective with respect to any outstanding Security of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision;

(g) to secure the Securities of any series or any related Guarantee;

 

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First Supplemental Indenture


(h) to make any other change that does not adversely affect the rights of any Securityholder of Outstanding Securities of the affected series of Securities in any material respect;

(i) to provide for the issuance of and establish the form and terms and conditions of the Securities of any series as provided in Section 2.01, to provide which, if any, of the covenants of the Company shall apply to such series, to provide which of the Events of Default shall apply to such series, to name one or more guarantors and provide for guarantees of such series of Securities, to provide for the terms and conditions upon which the Guarantee by Parent or another guarantor of such series of Securities may be released or terminated, or to define the rights of the holders of such series of Securities;

(j) to issue additional Securities of any series; provided that such additional Securities have the same terms as, and be deemed part of the same series as, the applicable series of Securities issued hereunder to the extent required by Section 2.01(b);

(k) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series or by a successor Escrow Agent under the Escrow Agreement and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trust hereunder by more than one Trustee;

(l) to supplement any of the provisions herein to permit or facilitate the defeasance and discharge of the Securities of any series in a manner consistent with the provisions described in Section 11.03; provided, however, that any such action shall not adversely affect the interest of the holders of Securities of such series or any other series in any material respect; or

(m) to conform the text of this Indenture, any supplemental indenture or any Security to the description thereof in any prospectus, prospectus supplement or offering circular or memorandum or supplement thereto with respect to the offer and sale of Securities of any series, to the extent that such description is inconsistent with a provision in this Indenture, any supplemental indenture or Security, as provided in an Officer’s Certificate.

Upon the request of the Company, accompanied by Board Resolutions authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.05, the Trustee shall join with Parent and the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee

 

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First Supplemental Indenture


shall not be obligated to enter into any such supplemental indenture that affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Any supplemental indenture authorized by the provisions of this Section 9.01 may be executed by Parent, the Company and the Trustee without the consent of the holders of any of the Securities at the time Outstanding, notwithstanding any of the provisions of Section 9.02.

(3) Section 11.03(c)(iii) of the Base Indenture is hereby deleted with respect to the Offered Securities and replaced with the following:

(iii) no Event of Default under clauses (1), (2), (5), (6), (7), (8) or (11) of Section 6.01(a) shall have occurred and be continuing, and no event which with notice or lapse of time or both would become such an Event of Default shall have occurred and be continuing, on the date of such deposit;

ARTICLE II

MISCELLANEOUS

 

Section 2.1. Definitions .

Capitalized terms used but not defined in this First Supplemental Indenture shall have the meanings ascribed thereto in the Base Indenture.

 

Section 2.2. Confirmation of Indenture .

The Base Indenture, as supplemented and amended by this First Supplemental Indenture, is in all respects ratified and confirmed, and the Base Indenture, this First Supplemental Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument.

 

Section 2.3. Concerning the Trustee .

In carrying out the Trustee’s responsibilities hereunder, the Trustee shall have all of the rights, protections and immunities which it possesses under the Indenture. The recitals contained herein and in the Offered Securities, except the Trustee’s certificate of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee shall not be responsible for and makes no representations as to (i) the validity or sufficiency of this First Supplemental Indenture or of the Offered Securities, (ii) the proper authorization hereof by Parent and the Company by action or otherwise, (iii) the due execution hereof by Parent and the Company or (iv) the consequences of any amendment herein provided for. The Trustee shall not be accountable for the use or application by the Company of the Offered Securities or the proceeds thereof.

 

20

First Supplemental Indenture


Section 2.4. Governing Law .

This First Supplemental Indenture and the Offered Securities shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State without regard to conflicts of law principles that would require the application of any other law. This First Supplemental Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this First Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.

 

Section 2.5. Separability .

In case any one or more of the provisions contained in this First Supplemental Indenture or in the Offered Securities of any series shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this First Supplemental Indenture or of such Offered Securities, but this First Supplemental Indenture and such Offered Securities shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.

 

Section 2.6. Counterparts .

This First Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. The exchange of copies of this First Supplemental Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this First Supplemental Indenture as to the parties hereto and may be used in lieu of the original First Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.

 

Section 2.7 No Benefit .

Nothing in this First Supplemental Indenture, express or implied, shall give to any Person other than the parties hereto and their successors or assigns, and the Holders of the Offered Securities, any benefit or legal or equitable rights, remedy or claim under this First Supplemental Indenture or the Base Indenture.

 

Section 2.8 Amendments and Supplemental Indentures .

This First Supplemental Indenture and the Offered Securities are subject to the provisions regarding supplemental indentures and amendments set forth in Article IX of the Base Indenture, as amended by this First Supplemental Indenture.

 

Section 2.9 Legal, Valid and Binding Obligation .

Parent and the Company hereby represent and warrant that, assuming the due authorization, execution and delivery of this First Supplemental Indenture by the Trustee, this First Supplemental Indenture is the legal, valid and binding obligation of Parent and the Company enforceable against Parent and the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors’ rights and to general equity principles.

 

21

First Supplemental Indenture


[Signature Page Follows]

 

22

First Supplemental Indenture


IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed all as of the day and year first above written.

 

TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A. , as Issuer
By:  

/s/ Andrea Goodrich

 

Name: Andrea Goodrich

 

Title:  Managing Director

By:  

/s/ Peter Schieser

 

Name: Peter Schieser

 

Title:  Managing Director

PENTAIR LTD. , as Parent
By:  

/s/ Mark Armstrong

 

Name: Mark Armstrong

 

Title:   Director

By:  

/s/ Andrea Goodrich

 

Name: Andrea Goodrich

 

Title:   Director

PENTAIR, INC.
By:  

/s/ Michael G. Meyer

  Name: Michael G. Meyer
  Title:   Vice President of Treasury and Tax
WELLS FARGO BANK, NATIONAL ASSOCIATION , as Trustee
By:  

/s/ Richard Prokosch

 

Name: Richard Prokosch

 

Title:   Vice President


EXHIBIT A

FORM OF 1.875% NOTES

[Insert the Private Placement Legend and/or the Global Security legend, as applicable]

1.875% NOTES DUE 2017

 

No. [    ]   $[        ]
CUSIP No. [        ]  

TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A.

29 Avenue de la Porte Neuve

L-2227 Luxembourg

R.C.S. B 166305

promises to pay to [    ] or registered assigns, the principal sum of [        ] Dollars on September 15, 2017.

Interest Payment Dates: March 15 and September 15

Record Dates: March 1 and September 1

Each holder of this Security (as defined below), by accepting the same, agrees to and shall be bound by the provisions hereof and of the Indenture described herein, and authorizes and directs the Trustee described herein on such holder’s behalf to be bound by such provisions. Each holder of this Security hereby waives all notice of the acceptance of the provisions contained herein and in the Indenture and waives reliance by such holder upon said provisions.

This Security shall not be entitled to any benefit under the Indenture, or be valid or become obligatory for any purpose, until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Security are continued on the reverse side hereof, and such continued provisions shall for all purposes have the same effect as though fully set forth at this place.

IN WITNESS WHEREOF, the Company has caused this instrument to be signed in accordance with Section 2.04 of the Base Indenture.

Date: [                    ]

 

TYCO FLOW CONTROL

INTERNATIONAL FINANCE S.A.

 

Name:  
Title:  

 

 

A-1


[If second signature is applicable]
Name: Title:  

 

A-2


CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

 

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
By:  

 

  Authorized Signatory
Dated:  

 

A-3


GUARANTEE

For value received, PENTAIR LTD. hereby absolutely, unconditionally and irrevocably guarantees (i) to the holder of this Security the payment of principal of, premium, if any, and interest and any Additional Amounts, if any, on, the Security upon which this Guarantee is set forth in the amounts and at the time when due and payable whether by declaration thereof, or otherwise, and interest on the overdue principal and interest, if any, of such Security, if lawful, to the holder of such Security and the Trustee on behalf of the Holders, and (ii) to the Trustee all amounts owed to the Trustee under the Indenture, in each case in accordance with and subject to the terms and limitations of such Security and Article XV of the Base Indenture. This Guarantee will not become effective until the Trustee or Authenticating Agent duly executes the certificate of authentication on this Security. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles thereof.

Dated:

 

PENTAIR LTD.
By:  

 

  Name:
  Title:
By:  

 

  Name:
  Title:

 

A-4


TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A.

29 Avenue de la Porte Neuve

L-2227 Luxembourg

R.C.S. B 166305

1.875% Notes due 2017

This security is one of a duly authorized series of debt securities of Tyco Flow Control International Finance S.A., a Luxembourg public limited liability company ( société anonyme ) (the “Company”), issued or to be issued in one or more series under and pursuant to an Indenture for the Company’s unsubordinated debt securities, dated as of September 24, 2012 (the “Base Indenture”), duly executed and delivered by and among the Company, Pentair Ltd. (“Parent”) and Wells Fargo Bank, National Association (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of September 24, 2012 (the “First Supplemental Indenture”), by and among the Company, Parent, Pentair, Inc., a Minnesota corporation, and the Trustee. The Base Indenture as supplemented and amended by the First Supplemental Indenture is referred to herein as the “Indenture.” By the terms of the Base Indenture, the debt securities issuable thereunder are issuable in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Base Indenture. This security is one of the series designated on the face hereof (individually, a “Security,” and collectively, the “Securities”), and reference is hereby made to the Indenture for a description of the rights, limitations of rights, obligations, duties and immunities of the Trustee, the Company, Parent and the holders of the Securities (the “Securityholders”). Capitalized terms used herein and not otherwise defined shall have the meanings given them in the Base Indenture or the First Supplemental Indenture, as applicable.

1. Interest . The Company promises to pay interest on the principal amount of this Security at an annual rate of 1.875%. The Company will pay interest semi-annually on March 15 and September 15 of each year (each such day, an “Interest Payment Date”). If any Interest Payment Date, redemption date or maturity date of this Security is not a Business Day, then payment of interest or principal (and premium, if any) shall be made on the next succeeding Business Day with the same force and effect as if made on the date such payment was due, and no interest shall accrue for the period after such date to the date of such payment on the next succeeding Business Day. Interest on the Securities will accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid, from the date of issuance; provided that, if there is no existing Default in the payment of interest, and if this Security is authenticated between a regular record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; and provided, further, that the first Interest Payment Date shall be March 15, 2013. Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months.

2.  Method of Payment . The Company will pay interest on the Securities (except defaulted interest), if any, to the persons in whose name such Securities are registered at the close of business on the regular record date referred to on the facing page of this Security for such interest installment. In the event that the Securities or a portion thereof are called for redemption and the Redemption Date is subsequent to a regular record date with respect to any

 

A-5


Interest Payment Date and prior to such Interest Payment Date, interest on such Securities will be paid upon presentation and surrender of such Securities as provided in the Indenture. The principal of and the interest on the Securities shall be payable in the coin or currency of the United States of America that at the time is legal tender for public and private debt, at the office or agency of the Company maintained for that purpose in accordance with the Indenture.

3.  Paying Agent and Registrar . Initially, Wells Fargo Bank, National Association, the Trustee, will act as paying agent and Security Registrar. The Company may change or appoint any paying agent or Security Registrar without notice to any Securityholder. Parent, the Company or any of their Subsidiaries may act in any such capacity.

4.  Indenture . The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (“TIA”) as in effect on the date the Indenture is qualified. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and TIA for a statement of such terms. The Securities are unsecured general obligations of the Company and constitute the series designated on the face hereof as the “1.875% Notes due 2017”, initially limited to $350,000,000 in aggregate principal amount.

The Company will furnish to any Securityholder upon written request and without charge a copy of the Base Indenture and the First Supplemental Indenture. Requests may be made to: Tyco Flow Control International Finance S.A., 29 Avenue de la Porte Neuve, L-2227 Grandy-Duchy of Luxembourg, Attention: The Managing Directors.

5.  Optional Redemption . The Securities will be subject to redemption at the option of the Company on any date prior to the maturity date, in whole or from time to time in part, in $1,000 increments ( provided that any remaining principal amount thereof shall be at least the minimum authorized denomination thereof), on written notice given to the Securityholders thereof not less than 30 days nor more than 90 days prior to the date fixed for redemption in such notice (the “Redemption Date”). The Securities will be redeemable at a redemption price equal to the greater of (i) 100% of the principal amount of such Securities to be redeemed and (ii) as determined by the Quotation Agent and delivered to the Trustee in writing, the sum of the present values of the remaining scheduled payments of principal and interest thereon due on any date after the Redemption Date (excluding the portion of interest that will be accrued and unpaid to and including the Redemption Date) discounted from their scheduled date of payment to the Redemption Date (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 20 basis points, plus, in either the case of clause (i) or clause (ii), accrued and unpaid interest, if any, thereon to, but excluding, the Redemption Date.

If the giving of the notice of redemption is completed as provided in the Indenture, interest on such Securities or portions of Securities shall cease to accrue on and after the Redemption Date, unless the Company shall default in the payment of any such redemption price and accrued interest with respect to any such Security or portion thereof.

Except as otherwise expressly provided herein or in the First Supplemental Indenture, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Securities.

 

A-6


6.  Special Mandatory Redemption . The Securities are subject to redemption on the fifth Business Day (the “ Special Mandatory Redemption Date ”) after the Redemption Trigger Date at a redemption price (the “ Special Mandatory Redemption Price ”) in cash equal to the sum of (i) 101% of the aggregate principal amount of the Securities to be redeemed, plus (ii) accrued and unpaid interest, if any, thereon to, but excluding, the Special Mandatory Redemption Date. Interest on the Securities shall cease to accrue on and after the Special Mandatory Redemption Date, unless the Company shall default in the payment of the Special Mandatory Redemption Price.

7.  Change of Control Triggering Event . If a Change of Control Triggering Event occurs after the Escrow Release Date, unless the Company has exercised its option to redeem this Security, it shall be required to make an offer to the holder of this Security to repurchase, at such holder’s election, all or a part (equal to $1,000 or an integral multiple of $1,000 in excess thereof; provided that any remaining principal amount of this Security shall be at least the minimum authorized denomination thereof), of this Security, in cash equal to 101% of the aggregate principal amount of this Security repurchased, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. Within 30 days following any Change of Control Triggering Event, or at the Company’s option, prior to any Change of Control, but after public announcement of the transaction that constitutes or may constitute the Change of Control Triggering Event, a notice shall be mailed to each Holder describing in reasonable detail the transaction that constitutes or may constitute the Change of Control Triggering Event and offering to repurchase this Security on the date specified in the notice, which date shall, except as described in the immediately following sentence and other than as required by law, be no earlier than 30 days and no later than 60 days from the date such notice is mailed. The notice shall, if mailed prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on the Change of Control Triggering Event occurring on or prior to the date of repurchase.

8.  Denominations, Transfer, Exchange . The Securities are in registered form without coupons in the denominations of $2,000 or any integral multiple of $1,000 in excess thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Securities may be presented for exchange or for registration of transfer (duly endorsed or with the form of transfer endorsed thereon duly executed if so required by the Company or the Security Registrar) at the office of the Security Registrar or at the office of any transfer agent designated by the Company for such purpose. No service charge will be made for any registration of transfer or exchange, but a Securityholder may be required to pay any applicable taxes or other governmental charges. If the Securities are to be redeemed, the Company will not be required to: (i) issue, register the transfer of, or exchange any Security during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of less than all of the outstanding Securities of the same series and ending at the close of business on the day of such mailing; (ii) register the transfer of or exchange any Security of any series or portions thereof selected for redemption, in whole or in part, except the unredeemed portion of any such Security being redeemed in part; nor (iii) register the transfer of or exchange a Security of any series between the applicable record date and the next succeeding Interest Payment Date.

 

A-7


9.  Persons Deemed Owners . The registered Securityholder may be treated as its owner for all purposes.

10. Repayment to Parent or the Company . Any funds or Governmental Obligations deposited with any paying agent or the Trustee, or then held by Parent or the Company, in trust for payment of principal of, premium, if any, or interest on the Securities of a particular series that are not applied but remain unclaimed by the holders of such Securities for at least one year after the date upon which the principal of, premium, if any, or interest on such Securities shall have respectively become due and payable, shall be repaid to Parent or the Company, as applicable, or (if then held by Parent or the Company) shall be discharged from such trust. After return to the Company or Parent, Holders entitled to the money or securities must look to the Company or Parent, as applicable, for payment as unsecured general creditors.

11.  Amendments, Supplements and Waivers . The Base Indenture contains provisions permitting the Company, Parent and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the securities of each series at the time Outstanding affected by such supplemental indenture or indentures to enter into supplemental indentures for the purpose of adding, changing or eliminating any provisions of the Base Indenture or any supplemental indenture or of modifying in any manner not covered elsewhere in the Base Indenture the rights of the holders of the securities of such series; provided , however , that no such supplemental indenture, without the consent of the holders of each Security then Outstanding and affected thereby, shall: (i) extend a fixed maturity of or any installment of principal of any Securities of any series or reduce the principal amount thereof, or reduce the amount of principal of any original issue discount security that would be due and payable upon declaration of acceleration of the maturity thereof; (ii) reduce the rate of or extend the time for payment of interest of any Security of any series; (iii) reduce the premium payable upon the redemption of any Security; (iv) make any Security payable in Currency other than that stated in the Security; (v) impair the right to institute suit for the enforcement of any payment on or after the fixed maturity thereof (or in the case or redemption, on or after the redemption date); (vi) modify any subordination provisions applicable to this Security or the guarantee of this Security in a manner adverse in any material respect to the holder hereof; or (vii) reduce the percentage of Securities, the holders of which are required to consent to any such supplemental indenture or indentures. The Base Indenture also contains provisions permitting the holders of not less than a majority in aggregate principal amount of the Outstanding securities of each series affected thereby, on behalf of all of the holders of the securities of such series, to waive any past default under the Base Indenture, and its consequences, except a default in the payment of the principal of, premium, if any, or interest on, any of the securities of such series as and when the same shall become due by the terms of such securities.

Any such consent or waiver by the registered Securityholder shall be conclusive and binding upon such holder and upon all future holders and owners of this Security and of any Security issued in exchange for this Security or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Security.

12.  Defaults and Remedies . If an Event of Default with respect to the securities of a series issued pursuant to the Base Indenture occurs and is continuing, the Trustee or the holders

 

A-8


of at least 25% in aggregate principal amount of the Securities of such series then Outstanding, by notice in writing to the Company and Parent (and to the Trustee if notice is given by such holders), may declare the unpaid principal of, premium, if any, and accrued interest, if any, due and payable immediately. Subject to the terms of the Indenture, if an Event of Default under the Indenture shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders, unless such holders have offered the Trustee indemnity satisfactory to it. Upon satisfaction of certain conditions set forth in the Indenture, the holders of a majority in principal amount of the Outstanding securities of a series issued pursuant to the Base Indenture will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the securities of such series.

13. Trustee, Paying Agent and Security Registrar May Hold Securities . The Trustee, subject to certain limitations imposed by the TIA, or any paying agent or Security Registrar, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not Trustee, paying agent or Security Registrar.

14.  No Recourse Against Others . No recourse under or upon any obligation, covenant or agreement of the Indenture, or of any Security, or for any claim based thereon or otherwise in respect hereof or thereof, shall be had against any incorporator, stockholder, officer or director, past, present or future as such, of Parent or the Company or of any predecessor or successor Person, either directly or through Parent or the Company or any such predecessor or successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that the Indenture and the obligations issued hereunder and thereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, organizers, shareholders, partners, members, officers, directors, managers or agents as such, of Parent or the Company or of any predecessor or successor Person, or any of them, because of the creation of the indebtedness authorized by the Indenture, or under or by reason of the obligations, covenants or agreements contained in the Indenture or in the Securities or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, organizer, shareholder, partner, member, officer, director, manager or agent as such, because of the creation of the indebtedness authorized by the Indenture, or under or by reason of the obligations, covenants or agreements contained in the Indenture or in the Securities or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the acceptance of the Securities.

15.  Discharge of Indenture . The Indenture contains certain provisions pertaining to defeasance, which provisions shall for all purposes have the same effect as if set forth herein.

16.  Authentication . This Security shall not be valid until the Trustee signs the certificate of authentication attached to the other side of this Security.

 

A-9


17. Guarantee . All payments by the Company under the Indenture and this Security are fully and unconditionally guaranteed to the Holder of this Security by Parent, as provided in the related Guarantee and the Indenture.

18. Additional Amounts . The Company and Parent are obligated to pay Additional Amounts on this Security to the extent provided in Article XIV of the Indenture.

19.  Abbreviations . Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

20.  Governing Law . The Base Indenture, the First Supplemental Indenture and this Security (and the Guarantee hereon) shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State without regard to conflicts of laws principles that would require the application of any other law.

 

A-10


ASSIGNMENT FORM

To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to

 

 

(Insert assignee’s soc. sec. or tax I.D. no.)

 

 

 

 

(Print or type assignee’s name, address and zip code)
and irrevocably appoint  

 

agent to transfer this Security on the books of the Company. The agent may substitute another to act for him.

 

 

Date:  

 

 

Your Signature:  

 

(Sign exactly as your name appears on the face of this Security)

 

Signature Guarantee:  

 

 

A-11


ELECTION FORM

TO BE COMPLETED ONLY IF THE HOLDER

ELECTS TO ACCEPT THE CHANGE OF CONTROL OFFER

 

 

The undersigned hereby irrevocably requests and instructs the Company to repurchase the within Security (or the portion thereof specified below), pursuant to its terms, on the Change of Control Payment Date specified in the Change of Control Offer, for the Change of Control Payment specified in the within Security, to the undersigned,

 

  , at  

 

 

    (please print or typewrite name, address and telephone number
of the undersigned).

For this election to accept the Change of Control Offer to be effective, the undersigned must (A) deliver, to the address of the paying agent set forth below or at such other place or places of which the Company shall from time to time notify the Holder of the within Security, either (i) the Security with this “Election Form” form duly completed, or (ii) a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange or the Financial Industry Regulatory Authority, Inc. or a commercial bank or a trust company in the United States setting forth (a) the name of the Holder of the Security, (b) the principal amount of the Security, (c) the principal amount of the Security to be repurchased, (d) the certificate number or description of the tenor and terms of the Security, (e) a statement that the option to elect repurchase is being exercised, and (f) a guarantee stating that the Security to be repurchased, together with this “Election Form” duly completed, will be received by the paying agent at least five Business Days prior to the Change of Control Payment Date or (B) otherwise comply with alternative instructions in accordance with the procedures of the depositary. The address of the paying agent is [        ]; Attention: [            ].

If less than the entire principal amount of the within Security is to be repurchased, specify the portion thereof (which principal amount must be $1,000 or an integral multiple of $1,000 in excess thereof; provided that any remaining principal amount shall be at least the minimum authorized denomination thereof) which the Holder elects to have repurchased: $          .

 

Holder:
By:  

 

  Name:
  Title:

 

A-12

Exhibit 4.3

 

 

TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A.,

as Issuer

AND

PENTAIR LTD.

as Guarantor

AND

PENTAIR, INC.

AND

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Trustee

SECOND SUPPLEMENTAL INDENTURE

Dated as of September 24, 2012

$550,000,000 of 3.150% Notes due 2022

 

 

 


THIS SECOND SUPPLEMENTAL INDENTURE is dated as of September 24, 2012 among TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A., a Luxembourg public limited liability company ( société anonyme ) with registered office at 29, avenue de la Porte Neuve, L-2227 Luxembourg and registered with the Luxembourg Trade and Companies Register under number B 166305 (the “Company”), PENTAIR LTD., a corporation limited by shares ( Aktiengesellschaft ) organized under the laws of Switzerland and formerly known as Tyco Flow Control International Ltd. (“Parent”), PENTAIR, INC., a Minnesota corporation (“Pentair”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (the “Trustee”).

RECITALS

A. Parent, the Company and the Trustee executed and delivered an Indenture, dated as of September 24, 2012 (the “ Base Indenture ”), to provide for the issuance by the Company from time to time of unsubordinated debt securities evidencing its unsecured indebtedness and the guarantee of such securities by Parent to the extent described therein and herein.

B. Pursuant to resolutions of a duly authorized Pricing Committee of the Board of Directors, the Company has authorized the issuance of $550,000,000 principal amount of 3.150% Notes due 2022 (the “ Offered Securities ”).

C. The entry into this Second Supplemental Indenture by the parties hereto is in all respects authorized by the provisions of the Base Indenture.

D. Parent, the Company and Pentair desire to enter into this Second Supplemental Indenture pursuant to Section 9.01 of the Base Indenture to establish the terms of the Offered Securities in accordance with Section 2.01 of the Base Indenture and to establish the form of the Offered Securities in accordance with Section 2.02 of the Base Indenture.

E. All things necessary to make this Second Supplemental Indenture a legal, valid and binding indenture and agreement according to its terms have been done.

NOW, THEREFORE, for and in consideration of the foregoing premises, Parent, the Company, Pentair and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective holders from time to time of the Offered Securities as follows:

ARTICLE I

 

Section 1.1. Terms of Offered Securities .

The following terms relate to the Offered Securities:

(1) The Offered Securities constitute a series of securities having the title “3.150% Notes due 2022”.

(2) The initial aggregate principal amount of the Offered Securities that may be authenticated and delivered under the Base Indenture (except for Offered Securities

 

2

Second Supplemental Indenture


authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Offered Securities pursuant to Section 2.05, 2.06, 2.07, 2.11, or 3.03 of the Base Indenture) is $550,000,000.

(3) The entire Outstanding principal of the Offered Securities shall be payable on September 15, 2022.

(4) The rate at which the Offered Securities shall bear interest shall be 3.150% per year. The date from which interest shall accrue on the Offered Securities shall be September 24, 2012, or the most recent Interest Payment Date to which interest has been paid or provided for. The Interest Payment Dates for the Offered Securities shall be March 15 and September 15 of each year, beginning March 15, 2013. Interest shall be payable on each Interest Payment Date to the Holders of record at the close of business on the March 1 and September 1 prior to each Interest Payment Date (a “ regular record date ”). The basis upon which interest shall be calculated shall be that of a 360-day year consisting of twelve 30-day months.

(5) The Offered Securities shall be issuable in whole in the registered form of one or more Global Securities, and the Depositary for such Global Securities shall be The Depository Trust Company, New York, New York. The Offered Securities shall be substantially in the form attached hereto as Exhibit A the terms of which are herein incorporated by reference. The Offered Securities shall be issuable in denominations of $2,000 or any integral multiple of $1,000 in excess thereof.

(6) (A) The Offered Securities will be subject to redemption at the Company’s option on any date (a “ Redemption Date ”) prior to the maturity date, in whole or from time to time in part, in $1,000 increments ( provided that any remaining principal amount thereof shall be at least the minimum authorized denomination thereof). Prior to June 15, 2022, the Offered Securities will be redeemable at a redemption price equal to the greater of (i) 100% of the principal amount of the Offered Securities to be redeemed and (ii) as determined by the Quotation Agent and delivered to the Trustee in writing, the sum of the present values of the remaining scheduled payments of principal and interest thereon due on any date after the Redemption Date (excluding the portion of interest that will be accrued and unpaid to and including the Redemption Date) discounted from their scheduled date of payment to the Redemption Date (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 25 basis points, plus accrued and unpaid interest, if any, thereon to, but excluding, the Redemption Date. On or after June 15, 2022, the Offered Securities will be redeemable in whole or in part from time to time, at the Company’s option, at a redemption price equal to 100% of the principal amount of the Offered Securities to be redeemed plus accrued and unpaid interest thereon to, but excluding, the Redemption Date.

(B) As used herein:

Adjusted Redemption Treasury Rate ”, with respect to any Redemption Date, means the rate equal to the semiannual equivalent yield to maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the Comparable Redemption Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Redemption Treasury Price for such Redemption Date.

 

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Comparable Redemption Treasury Issue ” means the United States Treasury security selected by the Quotation Agent as being the most recently issued United States Treasury note or bond as displayed by Bloomberg LP (or any successor service) on screens PXI through PX8 (or any other screens as may replace such screens on such service) have a maturity comparable to the remaining term of the Offered Securities to be redeemed.

Comparable Redemption Treasury Price ”, with respect to any Redemption Date, means (i) the average of the Redemption Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury Dealer Quotations.

Quotation Agent ” means a Redemption Reference Treasury Dealer appointed as such agent by the Company.

Redemption Reference Treasury Dealer ” means four primary U.S. government securities dealers in the United States selected by the Company.

Redemption Reference Treasury Dealer Quotations ”, with respect to each Redemption Reference Treasury Dealer and any Redemption Date, means the average, as determined by the Quotation Agent, of the bid and offer prices at 11:00 a.m., New York City time, for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the Redemption Date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer on the third Business Day preceding such Redemption Date.

(7) Except as provided herein, the Offered Securities shall not be subject to redemption, repurchase or repayment at the option of any Holder thereof, upon the occurrence of any particular circumstances or otherwise. The Offered Securities will not have the benefit of any sinking fund. For the avoidance of doubt, Parent, the Company and their respective Affiliates may purchase Offered Securities from the Holders thereof from time to time, either in the open market at prevailing prices or in private transactions at negotiated prices. Any Offered Securities purchased by Parent, the Company or any of their respective Affiliates may, at the purchaser’s discretion, be held, resold or canceled, provided, however, that no Securities that constitute “restricted securities” (as defined in Rule 144 under the Securities Act of 1933) shall be resold for a period of one year after the date hereof.

(8) Except as provided herein, the Holders of the Offered Securities shall have no special rights in addition to those provided in the Base Indenture upon the occurrence of any particular events.

(9) The Offered Securities will be general unsecured and unsubordinated obligations of the Company and will be ranked equally among themselves.

(10) The Offered Securities are not convertible into shares of common stock or other securities of the Company or Parent.

 

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Section 1.2 Additional Defined Terms .

As used herein, the following defined terms shall have the following meanings with respect to the Offered Securities only:

Attributable Debt ”, in connection with a Sale and Lease-Back Transaction, as of any particular time, means the aggregate of present values (discounted at a rate that, at the inception of the lease, represents the effective interest rate that the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased assets) of the obligations of the Company, Parent or any Restricted Subsidiary for net rental payments during the remaining term of the applicable lease, including any period for which such lease has been extended or, at the option of the lessor, may be extended. The term “net rental payments” under any lease of any period shall mean the sum of the rental and other payments required to be paid in such period by the lessee thereunder, not including any amounts required to be paid by such lessee, whether or not designated as rental or additional rental, on account of maintenance and repairs, reconstruction, insurance, taxes, assessments, water rates or similar charges required to be paid by such lessee thereunder or any amounts required to be paid by such lessee thereunder contingent upon the amount of sales, maintenance and repairs, reconstruction, insurance, taxes, assessments, water rates or similar charges.

Change of Control ” means the occurrence on or after the date of the Escrow Release Date of any of the following (excluding, in each case, the internal reorganization and other transactions connected to the Spin-Off and the Merger): (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or more series of related transactions, of all or substantially all of the assets of Parent and its Subsidiaries, taken as a whole, to any person other than Parent or a direct or indirect wholly-owned Subsidiary of Parent; (2) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person becomes the “beneficial owner” (as defined in Rules 13(d)(3) and 13(d)(5) under the Exchange Act), directly or indirectly, of more than 50% of the outstanding Voting Stock of Parent or other Voting Stock into which Parent’s Voting Stock is reclassified, consolidated, exchanged or changed, measured by voting power rather than number of shares; (3) Parent consolidates with, or merges with or into, any person, or any person consolidates with, or merges with or into, Parent, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of Parent or such other person is converted into or exchanged for cash, securities or other property, other than any such transaction where the shares of the Voting Stock of Parent outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, at least a majority of the Voting Stock of the surviving person or any direct or indirect parent company of the surviving person immediately after giving effect to such transaction; (4) the first day on which a majority of the members of the Board of Directors of Parent are not Continuing Directors or (5) the approval by the holders of Parent’s Voting Stock of a plan for the liquidation or dissolution of Parent. Notwithstanding the foregoing, a transaction shall not be deemed to involve a Change of Control under clause (1), (2) or (5) above if: (i) Parent becomes a direct or indirect wholly-owned Subsidiary of a holding company or a holding company becomes the successor to Parent under Section 10.2 of the Base Indenture pursuant to a transaction that is permitted under Section 10.1 of the Base Indenture and (ii) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction (or a series of related transactions) are

 

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the same or substantially the same (and hold in the same or substantially the same proportions) as the holders of Parent’s Voting Stock immediately prior to that transaction. The term “person,” as used in this definition, means any Person and any two or more Persons as provided in Section 13(d)(3) of the Exchange Act.

Change of Control Triggering Event ” means the occurrence of both a Change of Control and a Rating Event; provided, however, that a Change of Control Triggering Event otherwise arising by virtue of a particular reduction in rating shall not be deemed to have occurred in respect of a Change of Control if the Rating Agency or Rating Agencies making the reduction in rating to which this definition would otherwise apply do not announce or publicly confirm or inform the Trustee in writing at its request that the reduction was the result, in whole or in part, of any event or circumstance comprised of or arising as a result of, or in respect of, the applicable Change of Control (whether or not the applicable Change of Control shall have occurred at the time of the purported Change of Control Triggering Event). Unless at least two of the three Rating Agencies are providing a rating for the Offered Securities at the commencement of any period referred to in the definition of “Rating Event”, a Rating Event will be deemed to have occurred during such period. Notwithstanding the foregoing, no Change of Control Triggering Event will be deemed to have occurred in connection with any particular Change of Control unless and until such Change of Control has actually been consummated.

Consolidated Net Tangible Assets ” at any date means Consolidated Net Worth less all intangible assets appearing on the most recently prepared consolidated balance sheet of Parent and its Subsidiaries as of the end of a fiscal quarter of Parent and its Subsidiaries, prepared in accordance with United States generally accepted accounting principles as in effect on the date of the consolidated balance sheet. “Intangible assets” means the amount (if any) stated under the heading “Goodwill and Other Intangible assets, net” or under any other heading of intangible assets separately listed, in each case on the face of such consolidated balance sheet.

Consolidated Net Worth ” at any date means total assets less total liabilities, in each case appearing on the most recently prepared consolidated balance sheet of Parent and its Subsidiaries as of the end of a fiscal quarter of Parent and its Subsidiaries, prepared in accordance with United States generally accepted accounting principles as in effect on the date of the consolidated balance sheet.

Consolidated Total Assets ” at any date means the total assets appearing on the most recently prepared consolidated balance sheet of Parent and its Subsidiaries as of the end of a fiscal quarter of Parent and its Subsidiaries, prepared in accordance with United States generally accepted accounting principles as in effect on the date of the consolidated balance sheet.

Continuing Director ” means, as of any date after the completion of the Distribution and the Merger, any member of the Board of Directors of Parent who:

(1) was a member of such Board of Directors immediately after the completion of the Distribution and the Merger; or

(2) was nominated for election, elected or appointed to such Board of Directors pursuant to a proposal by a majority of the Continuing Directors who were members of

 

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such Board of Directors at the time of such nomination, election or appointment (either by a specific vote or by approval of a proxy statement of Parent in which such member was named as a nominee for election as a director, without objection to such nomination).

Distribution ” means the pro-rata distribution of all of the outstanding common stock of Parent to the shareholders of Tyco International Ltd. in the form of a special dividend out of Tyco International Ltd.’s qualifying surplus.

Escrow Account ” means the 2022 Notes Escrow Account established pursuant to the Escrow Agreement.

Escrow Agreement ” means the Escrow Agreement, dated as of September 24, 2012, by and among the Company, Parent, Pentair, the Trustee and JPMorgan Chase Bank, NA, as Escrow Agent.

Escrow Agent ” means JPMorgan Chase Bank, NA, as escrow agent under the Escrow Agreement.

Fitch ” means Fitch Inc., and its successors.

Funded Indebtedness ” means any Indebtedness maturing by its terms more than one year from the date of the determination thereof, including any Indebtedness renewable or extendible at the option of the obligor to a date later than one year from the date of the determination thereof.

Indebtedness ” means, without duplication, the principal amount (such amount being the face amount or, with respect to original issue discount bonds or zero coupon notes, bonds or debentures or similar securities, determined based on the accreted amount as of the date of the most recently prepared consolidated balance sheet of Parent and its Subsidiaries as of the end of a fiscal quarter of Parent prepared in accordance with United States generally accepted accounting principles as in effect on the date of such consolidated balance sheet) of (i) all obligations for borrowed money, (ii) all obligations evidenced by debentures, notes or other similar instruments, (iii) all obligations in respect of letters of credit or bankers acceptances or similar instruments or reimbursement obligations with respect thereto (such instruments to constitute Indebtedness only to the extent that the outstanding reimbursement obligations in respect thereof are collateralized by cash or cash equivalents reflected as assets on a balance sheet prepared in accordance with United States generally accepted accounting principles), (iv) all obligations as lessee to the extent capitalized in accordance with United States generally accepted accounting principles in effect on the date of this Second Supplemental Indenture and (v) all Indebtedness of others consolidated in such balance sheet that is guaranteed by the Company, Parent or any of their respective Subsidiaries or for which the Company, Parent or any of their respective Subsidiaries is legally responsible or liable (whether by agreement to purchase indebtedness of, or to supply funds or to invest in, others).

Investment Grade Rating ” means a rating equal to or higher than BBB- (or the equivalent) by Fitch, Baa3 (or the equivalent) by Moody’s and BBB- (or the equivalent) by S&P, and the equivalent investment grade credit rating from any replacement rating agency or rating agencies selected by the Company.

 

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Issue Date ” means the date on which the Offered Securities are originally issued.

Merger ” means the merger of Panthro Merger Sub with and into Pentair with Pentair surviving the merger and all transactions contemplated by the Merger Agreement, except the Distribution, and all other actions or matters necessary or appropriate to give effect to the Merger Agreement and the transactions contemplated thereby, except the Distribution.

Merger Agreement ” means the Merger Agreement, dated as of March 27, 2012, among Tyco, Parent, Panthro Acquisition, Panthro Merger Sub and Pentair, as amended from time to time.

Moody’s ” means Moody’s Investors Service, Inc., and its successors.

Non-Recourse Indebtedness ” means Indebtedness upon the enforcement of which recourse may be had by the holder(s) thereof only to identified assets of Parent or the Company or any Subsidiary of Parent or the Company and not to Parent or the Company or any Subsidiary of Parent or the Company personally (subject to, for the avoidance of doubt, customary exceptions contained in non-recourse financings to the non-recourse nature of the obligations thereunder).

Panthro Acquisition ” refers to Panthro Acquisition Co., a Delaware corporation and currently a wholly-owned Subsidiary of Parent.

Panthro Merger Sub ” refers to Panthro Merger Sub, Inc., a Minnesota corporation and currently a wholly-owned Subsidiary of Panthro Acquisition.

Principal Property ” means any manufacturing, processing or assembly plant, warehouse or distribution facility, office building or parcel of real property of Parent or any of its Subsidiaries that is located in the United States of America, Canada or the Commonwealth of Puerto Rico and (A) is owned by Parent or any Subsidiary of Parent immediately after the completion of the Spin-Off and the Merger, (B) the initial construction of which has been completed after the date hereof, or (C) is acquired after the date hereof, in each case, other than any such plants, facilities, warehouses, office buildings, parcels or portions thereof, that (i) in the opinion of the Board of Directors of Parent, are not collectively of material importance to the total business conducted by Parent and its Subsidiaries as an entirety, or (ii) has a net book value (excluding any capitalized interest expense), immediately after completion of the Spin-Off and the Merger in the case of clause (A) of this definition, on the date of completion of the initial construction in the case of clause (B) of this definition or on the date of acquisition in the case of clause (C) of this definition, of less than 1.0% of Consolidated Net Tangible Assets on the consolidated balance sheet of Parent as of the applicable date.

Purchase Agreement ” means the Purchase Agreement, dated September 10, 2012, among the Company, Parent, Pentair and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and U.S. Bancorp Investments, Inc., as representatives of the purchasers named in Schedule I thereto.

Rating Agencies ” means (1) each of Fitch, Moody’s and S&P; and (2) if any of Fitch, Moody’s or S&P ceases to rate the Offered Securities or fails to make a rating of the Offered

 

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Second Supplemental Indenture


Securities publicly available for reasons outside of the Company’s control, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, selected by the Company (as certified by a resolution of the Company’s Board of Directors) as a replacement agency for Fitch, Moody’s or S&P, or all of them, as the case may be.

Rating Event ” means the rating on the Offered Securities is lowered by at least two of the three Rating Agencies and such Offered Securities are rated below an Investment Grade Rating by at least two of the three Rating Agencies on any day during the period (which period shall be extended so long as the rating of such Offered Securities is under publicly announced consideration for a possible downgrade by any of the Rating Agencies) commencing on the date of Parent’s first public notice of the occurrence of a Change of Control or Parent’s intention to effect a Change of Control and ending 60 days following consummation or abandonment of such Change of Control.

Restricted Subsidiary ” means any Subsidiary of Parent that owns or leases a Principal Property.

Sale and Lease-Back Transaction ” means an arrangement with any Person providing for the leasing by Parent or a Restricted Subsidiary of any Principal Property whereby such Principal Property has been owned and in full operation for more than 180 days and has been or is to be sold or transferred by Parent or a Restricted Subsidiary to such Person other than Parent, the Company or any of their respective Subsidiaries; provided, however, that the foregoing shall not apply to any such arrangement involving a lease for a term, including renewal rights, for not more than three years.

Spin-Off ” refers to the transfer to Parent of Tyco International Ltd.’s flow control business, the Distribution and all other transactions required under the Separation and Distribution Agreement, dated as of March 27, 2012, among Tyco International Ltd., Parent and The ADT Corporation, as amended from time to time (the “ Separation and Distribution Agreement ”).

S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.

Tyco Credit Facilities ” means, collectively: (i) the Five-Year Senior Unsecured Credit Agreement, dated as of June 22, 2012 among Tyco International Finance S.A., Tyco International Ltd., the lenders party thereto and Citibank, N.A., as Administrative Agent, as supplemented by the Subsidiary Guaranty, dated as of September 21, 2012, made by the Company and Parent in favor of Citibank, N.A., as Administrative Agent; and (ii) the Five-Year Senior Unsecured Credit Agreement, amended as of June 22, 2012 and originally dated April 25, 2007, among Tyco International Finance S.A., Tyco International Ltd., the lenders party thereto and Citibank, N.A., as Administrative Agent, as supplemented by the Subsidiary Guaranty, dated as of September 21, 2012, made by the Company and Parent in favor of Citibank, N.A., as Administrative Agent.

 

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Tyco Administrative Agent ” means the person named as the “Administrative Agent” under the Tyco Credit Facilities.

Voting Stock ” means, with respect to any specified “Person” as of any date, the capital stock of such Person that is at the time entitled to vote generally in the election of the board of directors of such Person.

 

Section 1.3. Additional Covenants .

The following additional covenants shall apply with respect to the Offered Securities so long as any of the Offered Securities remain Outstanding (but subject to defeasance, as provided in the Base Indenture and Section 15 of this Second Supplemental Indenture):

(1) Limitation on Liens.

Neither the Company nor Parent will, and neither will permit, any Restricted Subsidiary to, issue, assume or guarantee any Indebtedness that is secured by a mortgage, pledge, security interest, lien or similar encumbrance (each a “ lien ”) upon any property that at the time of such issuance, assumption or guarantee constitutes a Principal Property, or any shares of stock of or Indebtedness issued by any Restricted Subsidiary, whether now owned or hereafter acquired, without effectively providing that, for so long as such lien shall continue in existence with respect to such secured Indebtedness, the Offered Securities (together with, if the Company shall so determine, any other Indebtedness of the Company ranking equally with the Offered Securities, it being understood that for purposes hereof, Indebtedness which is secured by a lien and Indebtedness which is not so secured shall not, solely by reason of such lien, be deemed to be of different ranking) shall be equally and ratably secured by a lien ranking ratably with or equal to (or at the Company’s option prior to) such secured Indebtedness; provided, however, that the foregoing covenant shall not apply to:

(a) liens existing on the date the Offered Securities are first issued;

(b) liens on the stock, assets or Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary, unless created in contemplation of such Person becoming a Restricted Subsidiary;

(c) liens on any assets or Indebtedness of a Person existing at the time such Person is merged with or into or consolidated with or acquired by the Company, Parent or a Restricted Subsidiary or at the time of a purchase, lease or other acquisition of the assets of a corporation or firm as an entirety or substantially as an entirety by the Company, Parent or any Restricted Subsidiary;

(d) liens on any Principal Property existing at the time of acquisition thereof by the Company, Parent or any Restricted Subsidiary, or liens to secure the payment of the purchase price of such Principal Property by the Company, Parent or any Restricted Subsidiary, or to secure any Indebtedness incurred, assumed or guaranteed by the Company, Parent or a Restricted Subsidiary for the purpose of financing all or any part of the purchase price of such Principal Property or improvements or construction thereon, which Indebtedness is incurred, assumed or guaranteed prior to, at the time of or within

 

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180 days after such acquisition (or in the case of real property, completion of such improvement or construction or commencement of full operation of such property, whichever is later); provided, however , that in the case of any such acquisition, construction or improvement, the lien shall not apply to any Principal Property theretofore owned by the Company, Parent or a Restricted Subsidiary, other than the Principal Property so acquired, constructed or improved (and accessions thereto and improvements and replacements thereof and the proceeds of the foregoing);

(e) liens securing Indebtedness owing by any Restricted Subsidiary to the Company, Parent or a Subsidiary thereof or by the Company to Parent;

(f) liens in favor of the United States or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country or any political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract, statute, rule or regulation or to secure any Indebtedness incurred or guaranteed for the purpose of financing all or any part of the purchase price (or, in the case of real property, the cost of construction or improvement) of the Principal Property subject to such liens (including liens incurred in connection with pollution control, industrial revenue or similar financings);

(g) pledges, liens or deposits under workers’ compensation or similar legislation, and liens thereunder that are not currently dischargeable, or in connection with bids, tenders, contracts (other than for the payment of money) or leases to which the Company, Parent or any Restricted Subsidiary is a party, or to secure the public or statutory obligations of the Company, Parent or any Restricted Subsidiary, or in connection with obtaining or maintaining self-insurance, or to obtain the benefits of any law, regulation or arrangement pertaining to unemployment insurance, old age pensions, social security or similar matters, or to secure surety, performance, appeal or customs bonds to which the Company, Parent or any Restricted Subsidiary is a party, or in litigation or other proceedings in connection with the matters heretofore referred to in this clause, such as interpleader proceedings, and other similar pledges, liens or deposits made or incurred in the ordinary course of business;

(h) liens created by or resulting from any litigation or other proceeding that is being contested in good faith by appropriate proceedings, including liens arising out of judgments or awards against the Company, Parent or any Restricted Subsidiary with respect to which the Company, Parent or such Restricted Subsidiary in good faith is prosecuting an appeal or proceedings for review or for which the time to make an appeal has not yet expired; or final unappealable judgment liens which are satisfied within 15 days of the date of judgment; or liens incurred by the Company, Parent or any Restricted Subsidiary for the purpose of obtaining a stay or discharge in the course of any litigation or other proceeding to which the Company, Parent or such Restricted Subsidiary is a party, provided that (x) in the case of liens arising out of judgments or awards, the enforcement of such liens is effectively stayed and (y) the aggregate amount secured by all such liens does not at any time exceed the greater of (i) $25,000,000 or (ii) 0.5% of Consolidated Total Assets;

 

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(i) liens for taxes or assessments or governmental charges or levies not yet due or delinquent; or that can thereafter be paid without penalty, or that are being contested in good faith by appropriate proceedings; landlord’s liens on property held under lease; and any other liens or charges incidental to the conduct of the business of the Company, Parent or any Restricted Subsidiary, or the ownership of their respective assets, that were not incurred in connection with the borrowing of money or the obtaining of advances or credit and that, in the opinion of the Board of Directors of Parent, do not materially impair the use of such assets in the operation of the business of the Company, Parent or such Restricted Subsidiary or the value of such Principal Property for the purposes of such business;

(j) liens to secure the Company’s, Parent’s or any Restricted Subsidiary’s obligations under agreements with respect to spot, forward, future and option transactions, entered into in the ordinary course of business;

(k) liens not permitted by the foregoing clauses (a) to (j), inclusive, if at the time of, and upon giving effect to, the creation or assumption of any such lien, the aggregate amount of all outstanding Indebtedness of the Company, Parent and all Restricted Subsidiaries (without duplication) secured by all such liens not so permitted by the foregoing clauses (a) through (j), inclusive, together with the Attributable Debt in respect of Sale and Lease-Back Transactions permitted by paragraph (a) under subsection (2) below, do not exceed an amount equal to 15% of Consolidated Net Tangible Assets; and

(l) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part, of any lien referred to in the foregoing clauses (a) to (k), inclusive; provided, however, that the principal amount of Indebtedness secured thereby (except to the extent otherwise excepted under clauses (a) through (k)) shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or a part of the assets (or any replacements therefor and products and proceeds thereof) that secured the lien so extended, renewed or replaced (plus improvements and construction on real property).

(2) Limitation on Sale and Lease-Back Transactions.

Neither the Company nor Parent will, and neither will permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction (other than with Parent, the Company and/or one or more Subsidiaries of Parent) unless:

(a) the Company, Parent or such Restricted Subsidiary, at the time of entering into such Sale and Lease-Back Transaction, would be entitled to incur Indebtedness secured by a lien on the Principal Property to be leased in an amount at least equal to the Attributable Debt in respect of such Sale and Lease-Back Transaction, without equally and ratably securing the Offered Securities pursuant to Section 1.3(1) above; or

 

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(b) the direct or indirect proceeds of the sale of the Principal Property to be leased are at least equal to the fair value of such Principal Property, as determined by Parent’s Board of Directors, and an amount equal to the net proceeds from the sale of the property or assets so leased is applied, within 180 days of the effective date of any such Sale and Lease-Back Transaction, to the purchase or acquisition (or, in the case of real property, commencement of the construction) of property or assets or to the retirement (other than at maturity or pursuant to a mandatory sinking fund or mandatory redemption provision) of Securities, or of Funded Indebtedness of Parent or a consolidated Subsidiary ranking on a parity with or senior to the Securities; provided that there shall be credited to the amount of net worth proceeds required to be applied pursuant to this clause (b) an amount equal to the sum of (i) the principal amount of Securities delivered within 180 days of the effective date of such Sale and Lease-Back Transaction to the Trustee for retirement and cancellation and (ii) the principal amount of other Funded Indebtedness voluntarily retired by Parent within such 180-day period, excluding retirements of Securities and other Funded Indebtedness as a result of conversions or pursuant to mandatory sinking fund or mandatory prepayment provisions.

(3) Change of Control Triggering Event.

(a) If a Change of Control Triggering Event occurs after the Escrow Release Date (as defined in Section 1.5(2)), unless the Company has exercised its option to redeem the Offered Securities, it shall be required to make an offer (a “ Change of Control Offer ”) to each Holder of the Offered Securities to repurchase, at the Holder’s election, all or any part (equal to $1,000 or an integral multiple of $1,000 in excess thereof) of that Holder’s Offered Securities on the terms set forth herein. In a Change of Control Offer, the Company shall be required to offer payment in cash equal to 101% of the aggregate principal amount of Offered Securities repurchased, plus accrued and unpaid interest, if any, on the Offered Securities repurchased to, but excluding, the date of repurchase (a “ Change of Control Payment ”). Within 30 days following any Change of Control Triggering Event or, at the Company’s option, prior to any Change of Control, but after public announcement of the transaction that constitutes or may constitute the Change of Control, a notice shall be mailed to the Trustee and to the Holders of the Offered Securities describing in reasonable detail the transaction that constitutes or may constitute the Change of Control Triggering Event and offering to repurchase such Offered Securities on the date specified in the notice, which date shall, except as described in the immediately following sentence and other than as required by law, be no earlier than 30 days and no later than 60 days from the date such notice is mailed (a “ Change of Control Payment Date ”). The notice shall, if mailed prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on the Change of Control Triggering Event occurring on or prior to the Change of Control Payment Date.

(b) In order to accept the Change of Control Offer, the Holder must deliver (or otherwise comply with alternative instructions in accordance with the procedures of the Depositary) to the paying agent, at least five Business Days prior to the Change of Control Payment Date, its Offered Security together with the form entitled “Election Form” (which form is contained in the form of note attached hereto as Exhibit A) duly completed, or a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange, or the Financial Industry Regulatory Authority, Inc. or a commercial bank or trust company in the United States setting forth:

(i) the name of the Holder of such Offered Security;

 

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(ii) the principal amount of such Offered Security;

(iii) the principal amount of such Offered Security to be repurchased;

(iv) the certificate number or a description of the tenor and terms of such Offered Security;

(v) a statement that the Holder is accepting the Change of Control Offer; and

(vi) a guarantee that such Offered Security, together with the form entitled “Election Form” duly completed, will be received by the paying agent at least five Business Days prior to the Change of Control Payment Date.

(c) Any exercise by a Holder of its election to accept the Change of Control Offer shall be irrevocable. The Change of Control Offer may be accepted for less than the entire principal amount of an Offered Security, but in that event the principal amount of such Offered Security remaining outstanding after repurchase must be equal to $2,000 or an integral multiple of $1,000 in excess thereof.

(d) On the Change of Control Payment Date, the Company shall, to the extent lawful:

(i) accept for payment all Offered Securities or portions of such Offered Securities properly tendered pursuant to the Change of Control Offer;

(ii) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Offered Securities or portions of Offered Securities properly tendered; and

(iii) deliver or cause to be delivered to the Trustee the Offered Securities properly accepted together with an Officers’ Certificate stating the aggregate principal amount of Offered Securities or portions of Offered Securities being repurchased.

(e) The Company shall not be required to make a Change of Control Offer upon the occurrence of a Change of Control Triggering Event if a third party makes such an offer in the manner, at the times and otherwise in compliance with the requirements for an offer made by the Company and the third party purchases all Offered Securities properly tendered and not withdrawn under its offer. In addition, the Company shall not repurchase any Offered Securities if there has occurred and is continuing on the Change of Control Payment Date an Event of Default under the Indenture, other than a default in the payment of the Change of Control Payment upon a Change of Control Triggering Event.

(f) Notwithstanding the foregoing, Parent and the Company shall comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and any other securities laws and regulations thereunder to the extent those

 

14

Second Supplemental Indenture


laws and regulations are applicable in connection with the repurchase of the Offered Securities as a result of a Change of Control Triggering Event. To the extent that the provisions of any such securities laws or regulations conflict with this Section 1.3(3), neither the Company nor Parent shall be deemed to have breached its obligations under this Section 1.3(3) by virtue of its compliance with such laws or regulations.

 

Section 1.4 Additional Events of Default .

The following additional events shall be established and shall each constitute an “Event of Default” under Section 6.01(a) of the Base Indenture with respect to the Offered Securities so long as any of the Offered Securities remain Outstanding:

(10) an event of default shall happen and be continuing with respect to any Indebtedness (other than Non-Recourse Indebtedness) of the Company, Parent or any Restricted Subsidiary under any indenture or other instrument evidencing or under which the Company, Parent or any Restricted Subsidiary shall have a principal amount outstanding (such amount with respect to original issue discount bonds or zero coupon notes, bonds or debentures or similar securities based on the accreted amount determined in accordance with United States generally accepted accounting principles and as of the date of the most recently prepared consolidated balance sheet of the Company, Parent or any Restricted Subsidiary, as the case may be) in excess of $100,000,000, and such event of default shall involve the failure to pay the principal of such Indebtedness on the final maturity date thereof after the expiration of any applicable grace period with respect thereto, or such Indebtedness shall have been accelerated so that the same shall have become due and payable prior to the date on which the same would otherwise have become due and payable, and such acceleration shall not be rescinded or annulled within 30 days after notice thereof shall have been given to the Company and Parent by the Trustee, or to the Company, Parent and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of such series; provided however that:

(i) if such event of default under such indenture or instrument shall be remedied or cured by the Company or Parent or waived by the requisite holders of such Indebtedness, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or any of the Securityholders; and

(ii) subject to the provisions of Sections 7.01 and 7.02 of the Base Indenture, the Trustee shall not be charged with knowledge of any such event of default unless written notice thereof shall have been given to the Trustee by the Company or Parent, as the case may be, by the holder or an agent of the holder of any such Indebtedness, by the trustee then acting under any indenture or other instrument under which such default shall have occurred, or by the Holders of not less than 25% in the aggregate principal amount of Outstanding Offered Securities.

 

15

Second Supplemental Indenture


(11) at any time prior to the Redemption Trigger Date (as defined in Section 1.6(1)), the Company or Parent defaults in the performance of, or breaches, any of its respective covenants or agreements in the Escrow Agreement, or the Escrow Agreement ceases to be in full force and effect (other than in accordance with its terms) or the Company or Parent asserts the invalidity thereof.

 

Section 1.5 Escrow .

(1) On the Issue Date, (i) the Company shall deposit (or cause to be deposited) into the Escrow Account the aggregate amount paid for the Offered Securities and the related guarantees, net of the initial purchasers’ discount and commissions, pursuant to Section 3 of the Purchase Agreement (the “ 2022 Notes Proceeds ”) and (ii) Pentair will deposit into the Escrow Account an amount equal to: (x) the Special Mandatory Redemption Price (as defined in Section 1.6(3)) that would be payable pursuant to Section 1.6(3) if the Special Mandatory Redemption Date were February 8, 2013, less (y) the 2022 Notes Proceeds (the “ Pentair Deposit ”).

(2) Upon the satisfaction of all of the following conditions (collectively, the “ Escrow Release Conditions ”), and only upon the satisfaction of the Escrow Release Conditions, the Company, Parent and Pentair shall execute a Notice of Distribution and Merger, in the form set forth in Exhibit A to the Escrow Agreement, or such other notice as shall be mutually agreed with the Escrow Agent, to cause (x) the 2022 Notes Proceeds (together with any interest thereon or proceeds or investment income in respect thereof) to be released to the Company and (y) the Pentair Deposit (together with any interest thereon or proceeds or investment income in respect thereof) to be released to Pentair:

(a) the Distribution has been completed in all material respects in accordance with the Separation and Distribution Agreement;

(b) the Merger has been completed in all material respects in accordance with the Merger Agreement;

(c) the Tyco Administrative Agent shall have provided a written release of the Company’s and Parent’s guarantees of the Tyco Credit Facilities; and

(d) no Event of Default has occurred and is continuing.

Satisfaction of certain of the Escrow Release Conditions may occur simultaneous with or immediately after the release of funds from the Escrow Account, but the funds will be released upon the certification by the Issuer, the Guarantor and Pentair to the Escrow Agent that such Escrow Release Conditions will be satisfied simultaneous with or immediately after the release of funds. The date on which the Escrow Release Conditions are satisfied or deemed satisfied is referred to as the “ Escrow Release Date” .

 

Section 1.6 Special Mandatory Redemption .

(1) If (i) the Escrow Release Date does not occur on or before February 1, 2013 or (ii) if either the Merger or the Spin-Off is terminated or abandoned pursuant to the terms of the Merger Agreement or the Separation and Distribution Agreement, as applicable (the earlier of such dates, the “ Redemption Trigger Date ”), then:

(a) the Company will be required to effect the redemption of the Offered Securities in the manner set forth in this Section 1.6 (the “ Special Mandatory Redemption ”);

 

16

Second Supplemental Indenture


(b) if either the Merger or the Spin-Off is terminated or abandoned as set forth in clause (ii) above, the Company, Parent and Pentair shall execute a Notice of Termination, in the form set forth in Exhibit B to the Escrow Agreement, or such other notice as shall be mutually agreed with the Escrow Agent;

(c) the Company, Parent and Pentair shall cause all funds in the Escrow Account to be disbursed to the Trustee for the purpose of effecting the Special Mandatory Redemption and paying the Special Mandatory Redemption Price; and

(d) the Company, Parent and Pentair shall make all commercially reasonable efforts to cause any funds disbursed from the Escrow Account to the Trustee in excess of the Special Mandatory Redemption Price to be released to Pentair on or promptly after the Special Mandatory Redemption Date.

(2) On the Business Day after the Redemption Trigger Date, the Company will deliver to the Trustee a redemption notice setting forth the Special Mandatory Redemption Date (as defined below) and the Special Mandatory Redemption Price (as defined below). The Trustee will promptly forward such notice to the Holders of the Offered Securities.

(3) On the fifth Business Day (the “ Special Mandatory Redemption Date ”) after the Redemption Trigger Date, the Company shall redeem the Offered Securities at a redemption price (the “ Special Mandatory Redemption Price ”) in cash equal to the sum of (i) 101% of the aggregate principal amount of the Offered Securities to be redeemed, plus (ii) accrued and unpaid interest, if any, thereon to, but excluding, the Special Mandatory Redemption Date. The funds disbursed from the Escrow Account to the Trustee in the manner set forth in Section 1.6(1)(c) shall be used by the Trustee to fund the Special Mandatory Redemption Price.

(4) Interest on the Offered Securities shall cease to accrue on and after the Special Mandatory Redemption Date, unless the Company shall default in the payment of the Special Mandatory Redemption Price.

 

Section 1.7 Additional Changes to the Base Indenture .

(1) For purposes of applying, and determining compliance with, the covenants and other obligations of the Company and Parent set forth in the Base Indenture and this Second Supplemental Indenture, including the covenants set forth in Article IV and Article X of the Base Indenture and Section 1.3 of this Second Supplemental Indenture, the Spin-Off and the Merger shall be deemed to have occurred immediately prior to the Issue Date.

 

17

Second Supplemental Indenture


(2) Section 9.01 of the Base Indenture is hereby deleted with respect to the Offered Securities and replaced with the following:

Section 9.01 Supplemental Indentures Without the Consent of Securityholders .

In addition to any supplemental indenture otherwise authorized by this Indenture, Parent, the Company and the Trustee from time to time and at any time may enter into an indenture or indentures supplemental hereto which shall conform to the provisions of the Trust Indenture Act as then in effect or amend the Escrow Agreement in accordance with its provisions, without the consent of the holders of any series of Securities, for one or more of the following purposes:

(a) to cure any ambiguity, defect, or inconsistency herein or in the Securities of any series or the Escrow Agreement, including making any such changes as are required for this Indenture to comply with the Trust Indenture Act;

(b) to add an additional obligor on the Securities, to add a guarantor of any outstanding series of Securities or to evidence the succession of another Person to Parent or the Company, or successive successions, and the assumption by the successor Person of the covenants, agreements and obligations of Parent or the Company, as the case may be, pursuant to Article X;

(c) to provide for uncertificated Securities in addition to or in place of certificated Securities;

(d) to add to the covenants of the Company for the benefit of the holders of any outstanding series of Securities (and if such covenants are to be for the benefit of less than all outstanding series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon Parent or the Company or conferred by the Escrow Agreement upon Parent or the Company;

(e) to add any additional Events of Default for the benefit of the holders of any outstanding series of Securities (and if such Events of Default are to be applicable to less than all outstanding series, stating that such Events of Default are expressly being included solely to be applicable to such series);

(f) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall not become effective with respect to any outstanding Security of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision;

(g) to secure the Securities of any series or any related Guarantee;

 

18

Second Supplemental Indenture


(h) to make any other change that does not adversely affect the rights of any Securityholder of Outstanding Securities of the affected series of Securities in any material respect;

(i) to provide for the issuance of and establish the form and terms and conditions of the Securities of any series as provided in Section 2.01, to provide which, if any, of the covenants of the Company shall apply to such series, to provide which of the Events of Default shall apply to such series, to name one or more guarantors and provide for guarantees of such series of Securities, to provide for the terms and conditions upon which the Guarantee by Parent or another guarantor of such series of Securities may be released or terminated, or to define the rights of the holders of such series of Securities;

(j) to issue additional Securities of any series; provided that such additional Securities have the same terms as, and be deemed part of the same series as, the applicable series of Securities issued hereunder to the extent required by Section 2.01(b);

(k) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series or by a successor Escrow Agent under the Escrow Agreement and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trust hereunder by more than one Trustee;

(l) to supplement any of the provisions herein to permit or facilitate the defeasance and discharge of the Securities of any series in a manner consistent with the provisions described in Section 11.03; provided, however, that any such action shall not adversely affect the interest of the holders of Securities of such series or any other series in any material respect; or

(m) to conform the text of this Indenture, any supplemental indenture or any Security to the description thereof in any prospectus, prospectus supplement or offering circular or memorandum or supplement thereto with respect to the offer and sale of Securities of any series, to the extent that such description is inconsistent with a provision in this Indenture, any supplemental indenture or Security, as provided in an Officer’s Certificate.

Upon the request of the Company, accompanied by Board Resolutions authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.05, the Trustee shall join with Parent and the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee

 

19

Second Supplemental Indenture


shall not be obligated to enter into any such supplemental indenture that affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Any supplemental indenture authorized by the provisions of this Section 9.01 may be executed by Parent, the Company and the Trustee without the consent of the holders of any of the Securities at the time Outstanding, notwithstanding any of the provisions of Section 9.02.

(3) Section 11.03(c)(iii) of the Base Indenture is hereby deleted with respect to the Offered Securities and replaced with the following:

(iii) no Event of Default under clauses (1), (2), (5), (6), (7), (8) or (11) of Section 6.01(a) shall have occurred and be continuing, and no event which with notice or lapse of time or both would become such an Event of Default shall have occurred and be continuing, on the date of such deposit;

ARTICLE II

MISCELLANEOUS

 

Section 2.1. Definitions .

Capitalized terms used but not defined in this Second Supplemental Indenture shall have the meanings ascribed thereto in the Base Indenture.

 

Section 2.2. Confirmation of Indenture .

The Base Indenture, as supplemented and amended by this Second Supplemental Indenture, is in all respects ratified and confirmed, and the Base Indenture, this Second Supplemental Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument.

 

Section 2.3. Concerning the Trustee .

In carrying out the Trustee’s responsibilities hereunder, the Trustee shall have all of the rights, protections and immunities which it possesses under the Indenture. The recitals contained herein and in the Offered Securities, except the Trustee’s certificate of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee shall not be responsible for and makes no representations as to (i) the validity or sufficiency of this Second Supplemental Indenture or of the Offered Securities, (ii) the proper authorization hereof by Parent and the Company by action or otherwise, (iii) the due execution hereof by Parent and the Company or (iv) the consequences of any amendment herein provided for. The Trustee shall not be accountable for the use or application by the Company of the Offered Securities or the proceeds thereof.

 

20

Second Supplemental Indenture


Section 2.4. Governing Law .

This Second Supplemental Indenture and the Offered Securities shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State without regard to conflicts of law principles that would require the application of any other law. This Second Supplemental Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this Second Supplemental Indenture and shall, to the extent applicable, be governed by such provisions.

 

Section 2.5. Separability .

In case any one or more of the provisions contained in this Second Supplemental Indenture or in the Offered Securities of any series shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Second Supplemental Indenture or of such Offered Securities, but this Second Supplemental Indenture and such Offered Securities shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.

 

Section 2.6. Counterparts .

This Second Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. The exchange of copies of this Second Supplemental Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Second Supplemental Indenture as to the parties hereto and may be used in lieu of the original Second Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.

 

Section 2.7 No Benefit .

Nothing in this Second Supplemental Indenture, express or implied, shall give to any Person other than the parties hereto and their successors or assigns, and the Holders of the Offered Securities, any benefit or legal or equitable rights, remedy or claim under this Second Supplemental Indenture or the Base Indenture.

 

Section 2.8 Amendments and Supplemental Indentures .

This Second Supplemental Indenture and the Offered Securities are subject to the provisions regarding supplemental indentures and amendments set forth in Article IX of the Base Indenture, as amended by this Second Supplemental Indenture.

 

Section 2.9 Legal, Valid and Binding Obligation .

Parent and the Company hereby represent and warrant that, assuming the due authorization, execution and delivery of this Second Supplemental Indenture by the Trustee, this Second Supplemental Indenture is the legal, valid and binding obligation of Parent and the Company enforceable against Parent and the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors’ rights and to general equity principles.

 

21

Second Supplemental Indenture


[Signature Page Follows]

 

22

Second Supplemental Indenture


IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed all as of the day and year first above written.

 

TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A. , as Issuer
By:  

/s/ Andrea Goodrich

 

Name: Andrea Goodrich

 

Title:  Managing Director

By:  

/s/ Peter Schieser

 

Name: Peter Schieser

 

Title:  Managing Director

PENTAIR LTD. , as Parent
By:  

/s/ Mark Armstrong

 

Name: Mark Armstrong

 

Title:   Director

By:  

/s/ Andrea Goodrich

 

Name: Andrea Goodrich

 

Title:   Director

PENTAIR, INC.
By:  

/s/ Michael G. Meyer

 

Name: Michael G. Meyer

 

Title:   Vice President of Treasury and Tax

WELLS FARGO BANK, NATIONAL ASSOCIATION , as Trustee
By:  

/s/ Richard Prokosch

 

Name: Richard Prokosch

 

Title:   Vice President


EXHIBIT A

FORM OF 3.150% NOTES

[Insert the Private Placement Legend and/or the Global Security legend, as applicable]

3.150% NOTES DUE 2022

 

No. [        ]    $[            ]
CUSIP No. [                ]   

TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A.

29 Avenue de la Porte Neuve

L-2227 Luxembourg

R.C.S. B 166305

promises to pay to [        ] or registered assigns, the principal sum of [            ] Dollars on September 15, 2022.

Interest Payment Dates: March 15 and September 15

Record Dates: March 1 and September 1

Each holder of this Security (as defined below), by accepting the same, agrees to and shall be bound by the provisions hereof and of the Indenture described herein, and authorizes and directs the Trustee described herein on such holder’s behalf to be bound by such provisions. Each holder of this Security hereby waives all notice of the acceptance of the provisions contained herein and in the Indenture and waives reliance by such holder upon said provisions.

This Security shall not be entitled to any benefit under the Indenture, or be valid or become obligatory for any purpose, until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Security are continued on the reverse side hereof, and such continued provisions shall for all purposes have the same effect as though fully set forth at this place.

IN WITNESS WHEREOF, the Company has caused this instrument to be signed in accordance with Section 2.04 of the Base Indenture.

Date: [                    ]

 

TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A.

 

Name:

Title:

 

 

A-1


[If second signature is applicable]

 

Name:

Title:

 

A-2


CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

 

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
By:  

 

  Authorized Signatory
Dated:  

 

A-3


GUARANTEE

For value received, PENTAIR LTD. hereby absolutely, unconditionally and irrevocably guarantees (i) to the holder of this Security the payment of principal of, premium, if any, and interest and any Additional Amounts, if any, on, the Security upon which this Guarantee is set forth in the amounts and at the time when due and payable whether by declaration thereof, or otherwise, and interest on the overdue principal and interest, if any, of such Security, if lawful, to the holder of such Security and the Trustee on behalf of the Holders, and (ii) to the Trustee all amounts owed to the Trustee under the Indenture, in each case in accordance with and subject to the terms and limitations of such Security and Article XV of the Base Indenture. This Guarantee will not become effective until the Trustee or Authenticating Agent duly executes the certificate of authentication on this Security. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles thereof.

Dated:

 

PENTAIR LTD.
By:  

 

  Name:
  Title:
By:  

 

  Name:
  Title:

 

A-4


TYCO FLOW CONTROL INTERNATIONAL FINANCE S.A.

29 Avenue de la Porte Neuve

L-2227 Luxembourg

R.C.S. B 166305

3.150% Notes due 2022

This security is one of a duly authorized series of debt securities of Tyco Flow Control International Finance S.A., a Luxembourg public limited liability company ( société anonyme ) (the “Company”), issued or to be issued in one or more series under and pursuant to an Indenture for the Company’s unsubordinated debt securities, dated as of September 24, 2012 (the “Base Indenture”), duly executed and delivered by and among the Company, Pentair Ltd. (“Parent”) and Wells Fargo Bank, National Association (the “Trustee”), as supplemented by the Second Supplemental Indenture, dated as of September 24, 2012 (the “Second Supplemental Indenture”), by and among the Company, Parent, Pentair, Inc., a Minnesota corporation, and the Trustee. The Base Indenture as supplemented and amended by the Second Supplemental Indenture is referred to herein as the “Indenture.” By the terms of the Base Indenture, the debt securities issuable thereunder are issuable in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Base Indenture. This security is one of the series designated on the face hereof (individually, a “Security,” and collectively, the “Securities”), and reference is hereby made to the Indenture for a description of the rights, limitations of rights, obligations, duties and immunities of the Trustee, the Company, Parent and the holders of the Securities (the “Securityholders”). Capitalized terms used herein and not otherwise defined shall have the meanings given them in the Base Indenture or the Second Supplemental Indenture, as applicable.

1. Interest . The Company promises to pay interest on the principal amount of this Security at an annual rate of 3.150%. The Company will pay interest semi-annually on March 15 and September 15 of each year (each such day, an “Interest Payment Date”). If any Interest Payment Date, redemption date or maturity date of this Security is not a Business Day, then payment of interest or principal (and premium, if any) shall be made on the next succeeding Business Day with the same force and effect as if made on the date such payment was due, and no interest shall accrue for the period after such date to the date of such payment on the next succeeding Business Day. Interest on the Securities will accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid, from the date of issuance; provided that, if there is no existing Default in the payment of interest, and if this Security is authenticated between a regular record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; and provided, further, that the first Interest Payment Date shall be March 15, 2013. Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months.

2.  Method of Payment . The Company will pay interest on the Securities (except defaulted interest), if any, to the persons in whose name such Securities are registered at the close of business on the regular record date referred to on the facing page of this Security for such interest installment. In the event that the Securities or a portion thereof are called for redemption and the Redemption Date is subsequent to a regular record date with respect to any

 

A-5


Interest Payment Date and prior to such Interest Payment Date, interest on such Securities will be paid upon presentation and surrender of such Securities as provided in the Indenture. The principal of and the interest on the Securities shall be payable in the coin or currency of the United States of America that at the time is legal tender for public and private debt, at the office or agency of the Company maintained for that purpose in accordance with the Indenture.

3.  Paying Agent and Registrar . Initially, Wells Fargo Bank, National Association, the Trustee, will act as paying agent and Security Registrar. The Company may change or appoint any paying agent or Security Registrar without notice to any Securityholder. Parent, the Company or any of their Subsidiaries may act in any such capacity.

4.  Indenture . The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (“TIA”) as in effect on the date the Indenture is qualified. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and TIA for a statement of such terms. The Securities are unsecured general obligations of the Company and constitute the series designated on the face hereof as the “3.150% Notes due 2022”, initially limited to $550,000,000 in aggregate principal amount.

The Company will furnish to any Securityholder upon written request and without charge a copy of the Base Indenture and the Second Supplemental Indenture. Requests may be made to: Tyco Flow Control International Finance S.A., 29 Avenue de la Porte Neuve, L-2227 Grandy-Duchy of Luxembourg, Attention: The Managing Directors.

5.  Optional Redemption . The Securities will be subject to redemption at the option of the Company on any date prior to the maturity date, in whole or from time to time in part, in $1,000 increments ( provided that any remaining principal amount thereof shall be at least the minimum authorized denomination thereof), on written notice given to the Securityholders thereof not less than 30 days nor more than 90 days prior to the date fixed for redemption in such notice (the “Redemption Date”). Prior to June 15, 2022, the Securities will be redeemable at a redemption price equal to the greater of (i) 100% of the principal amount of such Securities to be redeemed and (ii) as determined by the Quotation Agent and delivered to the Trustee in writing, the sum of the present values of the remaining scheduled payments of principal and interest thereon due on any date after the Redemption Date (excluding the portion of interest that will be accrued and unpaid to and including the Redemption Date) discounted from their scheduled date of payment to the Redemption Date (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 25 basis points, plus, in either the case of clause (i) or clause (ii), accrued and unpaid interest, if any, thereon to, but excluding, the Redemption Date. On or after June 15, 2022, the Securities will be redeemable at a redemption price equal to 100% of the principal amount of the Securities to be redeemed plus accrued and unpaid interest thereon to, but excluding, the Redemption Date. This Security is also subject to redemption to the extent provided in Article XIV of the Indenture.

If the giving of the notice of redemption is completed as provided in the Indenture, interest on such Securities or portions of Securities shall cease to accrue on and after the Redemption Date, unless the Company shall default in the payment of any such redemption price and accrued interest with respect to any such Security or portion thereof.

 

A-6


Except as otherwise expressly provided herein or in the Second Supplemental Indenture, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Securities.

6.  Special Mandatory Redemption . The Securities are subject to redemption on the fifth Business Day (the “ Special Mandatory Redemption Date ”) after the Redemption Trigger Date at a redemption price (the “ Special Mandatory Redemption Price ”) in cash equal to the sum of (i) 101% of the aggregate principal amount of the Securities to be redeemed, plus (ii) accrued and unpaid interest, if any, thereon to, but excluding, the Special Mandatory Redemption Date. Interest on the Securities shall cease to accrue on and after the Special Mandatory Redemption Date, unless the Company shall default in the payment of the Special Mandatory Redemption Price.

7.  Change of Control Triggering Event . If a Change of Control Triggering Event occurs after the Escrow Release Date, unless the Company has exercised its option to redeem this Security, it shall be required to make an offer to the holder of this Security to repurchase, at such holder’s election, all or a part (equal to $1,000 or an integral multiple of $1,000 in excess thereof; provided that any remaining principal amount of this Security shall be at least the minimum authorized denomination thereof), of this Security, in cash equal to 101% of the aggregate principal amount of this Security repurchased, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. Within 30 days following any Change of Control Triggering Event, or at the Company’s option, prior to any Change of Control, but after public announcement of the transaction that constitutes or may constitute the Change of Control Triggering Event, a notice shall be mailed to each Holder describing in reasonable detail the transaction that constitutes or may constitute the Change of Control Triggering Event and offering to repurchase this Security on the date specified in the notice, which date shall, except as described in the immediately following sentence and other than as required by law, be no earlier than 30 days and no later than 60 days from the date such notice is mailed. The notice shall, if mailed prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on the Change of Control Triggering Event occurring on or prior to the date of repurchase.

8.  Denominations, Transfer, Exchange . The Securities are in registered form without coupons in the denominations of $2,000 or any integral multiple of $1,000 in excess thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Securities may be presented for exchange or for registration of transfer (duly endorsed or with the form of transfer endorsed thereon duly executed if so required by the Company or the Security Registrar) at the office of the Security Registrar or at the office of any transfer agent designated by the Company for such purpose. No service charge will be made for any registration of transfer or exchange, but a Securityholder may be required to pay any applicable taxes or other governmental charges. If the Securities are to be redeemed, the Company will not be required to: (i) issue, register the transfer of, or exchange any Security during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of less than all of the outstanding Securities of the same series and ending at the close of business on the day of such mailing; (ii) register the transfer of or exchange any Security of any series or portions thereof selected for redemption, in whole or in part, except the unredeemed portion of any such Security being redeemed in part; nor (iii) register the transfer of or exchange a Security of any series between the applicable record date and the next succeeding Interest Payment Date.

 

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9.  Persons Deemed Owners . The registered Securityholder may be treated as its owner for all purposes.

10. Repayment to Parent or the Company . Any funds or Governmental Obligations deposited with any paying agent or the Trustee, or then held by Parent or the Company, in trust for payment of principal of, premium, if any, or interest on the Securities of a particular series that are not applied but remain unclaimed by the holders of such Securities for at least one year after the date upon which the principal of, premium, if any, or interest on such Securities shall have respectively become due and payable, shall be repaid to Parent or the Company, as applicable, or (if then held by Parent or the Company) shall be discharged from such trust. After return to the Company or Parent, Holders entitled to the money or securities must look to the Company or Parent, as applicable, for payment as unsecured general creditors.

11.  Amendments, Supplements and Waivers . The Base Indenture contains provisions permitting the Company, Parent and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the securities of each series at the time Outstanding affected by such supplemental indenture or indentures to enter into supplemental indentures for the purpose of adding, changing or eliminating any provisions of the Base Indenture or any supplemental indenture or of modifying in any manner not covered elsewhere in the Base Indenture the rights of the holders of the securities of such series; provided , however , that no such supplemental indenture, without the consent of the holders of each Security then Outstanding and affected thereby, shall: (i) extend a fixed maturity of or any installment of principal of any Securities of any series or reduce the principal amount thereof, or reduce the amount of principal of any original issue discount security that would be due and payable upon declaration of acceleration of the maturity thereof; (ii) reduce the rate of or extend the time for payment of interest of any Security of any series; (iii) reduce the premium payable upon the redemption of any Security; (iv) make any Security payable in Currency other than that stated in the Security; (v) impair the right to institute suit for the enforcement of any payment on or after the fixed maturity thereof (or in the case or redemption, on or after the redemption date); (vi) modify any subordination provisions applicable to this Security or the guarantee of this Security in a manner adverse in any material respect to the holder hereof; or (vii) reduce the percentage of Securities, the holders of which are required to consent to any such supplemental indenture or indentures. The Base Indenture also contains provisions permitting the holders of not less than a majority in aggregate principal amount of the Outstanding securities of each series affected thereby, on behalf of all of the holders of the securities of such series, to waive any past default under the Base Indenture, and its consequences, except a default in the payment of the principal of, premium, if any, or interest on, any of the securities of such series as and when the same shall become due by the terms of such securities.

Any such consent or waiver by the registered Securityholder shall be conclusive and binding upon such holder and upon all future holders and owners of this Security and of any Security issued in exchange for this Security or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Security.

 

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12.  Defaults and Remedies . If an Event of Default with respect to the securities of a series issued pursuant to the Base Indenture occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the Securities of such series then Outstanding, by notice in writing to the Company and Parent (and to the Trustee if notice is given by such holders), may declare the unpaid principal of, premium, if any, and accrued interest, if any, due and payable immediately. Subject to the terms of the Indenture, if an Event of Default under the Indenture shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders, unless such holders have offered the Trustee indemnity satisfactory to it. Upon satisfaction of certain conditions set forth in the Indenture, the holders of a majority in principal amount of the Outstanding securities of a series issued pursuant to the Base Indenture will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the securities of such series.

13. Trustee, Paying Agent and Security Registrar May Hold Securities . The Trustee, subject to certain limitations imposed by the TIA, or any paying agent or Security Registrar, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not Trustee, paying agent or Security Registrar.

14.  No Recourse Against Others . No recourse under or upon any obligation, covenant or agreement of the Indenture, or of any Security, or for any claim based thereon or otherwise in respect hereof or thereof, shall be had against any incorporator, stockholder, officer or director, past, present or future as such, of Parent or the Company or of any predecessor or successor Person, either directly or through Parent or the Company or any such predecessor or successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that the Indenture and the obligations issued hereunder and thereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, organizers, shareholders, partners, members, officers, directors, managers or agents as such, of Parent or the Company or of any predecessor or successor Person, or any of them, because of the creation of the indebtedness authorized by the Indenture, or under or by reason of the obligations, covenants or agreements contained in the Indenture or in the Securities or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, organizer, shareholder, partner, member, officer, director, manager or agent as such, because of the creation of the indebtedness authorized by the Indenture, or under or by reason of the obligations, covenants or agreements contained in the Indenture or in the Securities or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the acceptance of the Securities.

15.  Discharge of Indenture . The Indenture contains certain provisions pertaining to defeasance, which provisions shall for all purposes have the same effect as if set forth herein.

16.  Authentication . This Security shall not be valid until the Trustee signs the certificate of authentication attached to the other side of this Security.

 

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17. Guarantee . All payments by the Company under the Indenture and this Security are fully and unconditionally guaranteed to the Holder of this Security by Parent, as provided in the related Guarantee and the Indenture.

18. Additional Amounts . The Company and Parent are obligated to pay Additional Amounts on this Security to the extent provided in Article XIV of the Indenture.

19.  Abbreviations . Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

20.  Governing Law . The Base Indenture, the Second Supplemental Indenture and this Security (and the Guarantee hereon) shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State without regard to conflicts of laws principles that would require the application of any other law.

 

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ASSIGNMENT FORM

To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to

 

 

(Insert assignee’s soc. sec. or tax I.D. no.)

 

 

 

 

 

 

 

 

(Print or type assignee’s name, address and zip code)

and irrevocably appoint                                                                                                                                                                                         agent to transfer this Security on the books of the Company. The agent may substitute another to act for him.

 

 

 

Date:  

 

 

Your Signature:  

 

(Sign exactly as your name appears on the face of this Security)

 

Signature Guarantee:  

 

 

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ELECTION FORM

TO BE COMPLETED ONLY IF THE HOLDER

ELECTS TO ACCEPT THE CHANGE OF CONTROL OFFER

 

 

The undersigned hereby irrevocably requests and instructs the Company to repurchase the within Security (or the portion thereof specified below), pursuant to its terms, on the Change of Control Payment Date specified in the Change of Control Offer, for the Change of Control Payment specified in the within Security, to the undersigned,

 

  , at  

 

 

    (please print or typewrite name, address and telephone number
of the undersigned).    

For this election to accept the Change of Control Offer to be effective, the undersigned must (A) deliver, to the address of the paying agent set forth below or at such other place or places of which the Company shall from time to time notify the Holder of the within Security, either (i) the Security with this “Election Form” form duly completed, or (ii) a telegram, telex, facsimile transmission or a letter from a member of a national securities exchange or the Financial Industry Regulatory Authority, Inc. or a commercial bank or a trust company in the United States setting forth (a) the name of the Holder of the Security, (b) the principal amount of the Security, (c) the principal amount of the Security to be repurchased, (d) the certificate number or description of the tenor and terms of the Security, (e) a statement that the option to elect repurchase is being exercised, and (f) a guarantee stating that the Security to be repurchased, together with this “Election Form” duly completed, will be received by the paying agent at least five Business Days prior to the Change of Control Payment Date or (B) otherwise comply with alternative instructions in accordance with the procedures of the depositary. The address of the paying agent is [        ]; Attention: [            ].

If less than the entire principal amount of the within Security is to be repurchased, specify the portion thereof (which principal amount must be $1,000 or an integral multiple of $1,000 in excess thereof; provided that any remaining principal amount shall be at least the minimum authorized denomination thereof) which the Holder elects to have repurchased: $          .

 

Holder:
By:  

 

  Name:
  Title:

 

A-12

Exhibit 4.4

Tyco Flow Control International Finance, S.A.

U.S. $350,000,000 1.875% Notes due 2017

U.S. $550,00,000 3.150% Notes due 2022

 

 

Exchange and Registration Rights Agreement

September 24, 2012

J.P. Morgan Securities LLC

Merrill Lynch, Pierce, Fenner & Smith

                     Incorporated

U.S. Bancorp Investments, Inc.

           As representatives of the several Purchasers

           named in Schedule I hereto,

c/o J.P. Morgan Securities LLC

383 Madison Avenue

New York, New York 10179

and

c/o Merrill Lynch, Pierce, Fenner & Smith

                        Incorporated

One Bryant Park

New York, New York 10036

and

c/o U.S. Bancorp Investments, Inc.

214 N. Tryon Street, 26 th Floor

Charlotte, North Carolina 28202

Tyco Flow Control International Finance, S.A., a Luxembourg public limited liability company ( société anonyme ) (the “Company” ), proposes to issue and sell to the Purchasers (as defined herein) upon the terms set forth in the Purchase Agreement (as defined herein) $350,000,000 principal amount of its 1.875% Notes due 2017 and $550,000,000 principal amount of its 3.150% Notes due 2022 (collectively the “ Securities ”), which are guaranteed as to the payment of principal, premium, if any, and interest by Pentair Ltd. (formerly Tyco Flow Control International Ltd.), a corporation limited by shares ( Aktiengesellschaft ) organized under the laws of Switzerland (the “Guarantor” ). As an inducement to the Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchasers thereunder, the Company and the Guarantor agree with the Purchasers for the benefit of holders (as defined herein) from time to time of the Registrable Securities (as defined herein) as follows:

1. Certain Definitions . For purposes of this Exchange and Registration Rights Agreement (this “Agreement” ), the following terms shall have the following respective meanings:

“Base Interest” shall mean the interest that would otherwise accrue on the Securities under the terms thereof and the Indenture, without giving effect to the provisions of this Agreement.


The term “broker-dealer” shall mean any broker or dealer registered with the Commission under the Exchange Act.

“Business Day” shall have the meaning set forth in Rule 13e-4(a)(3) promulgated by the Commission under the Exchange Act, as the same may be amended or succeeded from time to time.

“Closing Date” shall mean the date on which the Securities are initially issued.

“Commission” shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose.

“EDGAR System” means the EDGAR filing system of the Commission and the rules and regulations pertaining thereto promulgated by the Commission in Regulation S-T under the Securities Act and the Exchange Act, in each case as the same may be amended or succeeded from time to time (and without regard to format).

“Effective Time,” in the case of (i) an Exchange Registration, shall mean the time and date as of which the Commission declares the Exchange Registration Statement effective or as of which the Exchange Registration Statement otherwise becomes effective and, (ii) a Shelf Registration, shall mean the time and date as of which the Commission declares the Shelf Registration Statement effective or as of which the Shelf Registration Statement otherwise becomes effective.

“Electing Holder” shall mean any holder of Registrable Securities that has returned a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(ii) or Section 3(d)(iii) and the instructions set forth in the Notice and Questionnaire.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder, as the same may be amended or succeeded from time to time.

“Exchange Offer” shall have the meaning assigned thereto in Section 2(a).

“Exchange Registration” shall have the meaning assigned thereto in Section 3(c).

“Exchange Registration Statement” shall have the meaning assigned thereto in Section 2(a).

“Exchange Securities” shall have the meaning assigned thereto in Section 2(a).

 

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The term “holder” shall mean each of the Purchasers and other persons who acquire Securities from time to time (including any successors or assigns), in each case for so long as any such person owns any Securities.

“Indenture” shall mean the Indenture, dated as of September 24, 2012, among the Company, the Guarantor and Wells Fargo Bank, National Association, as trustee, as the same may be amended from time to time.

“Notice and Questionnaire” means a Notice of Registration Statement and Selling Securityholder Questionnaire substantially in the form of Exhibit A hereto, with such changes thereto as the Company may reasonably determine.

The term “person” shall mean a corporation, limited liability company, association, partnership, organization, business, individual, government or political subdivision thereof or governmental agency.

“Purchase Agreement” shall mean the Purchase Agreement, dated as of September 10, 2012 among the Purchasers, the Company and the Guarantor relating to the Securities.

“Purchasers” shall mean the Purchasers named in Schedule I to the Purchase Agreement.

“Registrable Securities” shall mean the Securities; provided, however, that a Security shall cease to be a Registrable Security upon the earliest to occur of the following: (i) in the circumstances contemplated by Section 2(a), the Security has been exchanged for an Exchange Security in an Exchange Offer as contemplated in Section 2(a) ( provided that any Exchange Security that, pursuant to the last two sentences of Section 2(a), is included in a prospectus for use in connection with resales by broker-dealers shall be deemed to be a Registrable Security with respect to Sections 5, 6 and 9 until resale of such Registrable Security has been effected within the Resale Period); (ii) in the circumstances contemplated by Section 2(b), a Shelf Registration Statement registering such Security under the Securities Act has been declared or becomes effective and such Security has been sold or otherwise transferred by the holder thereof pursuant to and in a manner contemplated by such effective Shelf Registration Statement; (iii) subject to Section 8(b), such Security is actually sold by the holder thereof pursuant to Rule 144 under circumstances in which any legend borne by such Security relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed by the Company or pursuant to the Indenture; or (iv) such Security shall cease to be outstanding.

“Registration Default” shall have the meaning assigned thereto in Section 2(c).

“Registration Default Period” shall have the meaning assigned thereto in Section 2(c).

“Registration Expenses” shall have the meaning assigned thereto in Section 4.

 

3


“Resale Period” shall have the meaning assigned thereto in Section 2(a).

“Restricted Holder” shall mean (i) a holder that is an affiliate of the Company or the Guarantor within the meaning of Rule 405, (ii) a holder who acquires Exchange Securities outside the ordinary course of such holder’s business, (iii) a holder who has arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing Exchange Securities and (iv) a holder that is a broker-dealer, but only with respect to Exchange Securities received by such broker-dealer pursuant to an Exchange Offer in exchange for Registrable Securities acquired by the broker-dealer directly from the Company.

“Rule 144”, “Rule 405”, “Rule 415”, “Rule 424”, “Rule 430B” and “Rule 433” shall mean, in each case, such rule promulgated by the Commission under the Securities Act (or any successor provision), as the same may be amended or succeeded from time to time.

“Securities” shall mean the $350,000,000 principal amount of 1.875% Notes due 2017 and $550,000,000 principal amount of 3.150% Notes due 2022 of the Company to be issued and sold to the Purchasers, and securities issued in exchange therefor or in lieu thereof pursuant to the Indenture. Each Security is entitled to the benefit of the guarantee provided for in the Indenture (the “ Guarantee ”), on the terms and to the extent set forth therein, and, unless the context otherwise requires, any reference herein to a “Security,” an “Exchange Security” or a “Registrable Security” shall include a reference to the related Guarantee.

“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder, as the same may be amended or succeeded from time to time.

“Shelf Registration” shall have the meaning assigned thereto in Section 2(b).

“Shelf Registration Statement” shall have the meaning assigned thereto in Section 2(b).

“Special Interest” shall have the meaning assigned thereto in Section 2(c).

“Suspension Period ” shall have the meaning assigned thereto in Section 2(b).

“Trust Indenture Act” shall mean the Trust Indenture Act of 1939, as amended, and the rules and regulations promulgated by the Commission thereunder, as the same may be amended or succeeded from time to time.

“Trustee” shall mean Wells Fargo Bank, National Association, as trustee under the Indenture, together with any successors thereto in such capacity.

Unless the context otherwise requires, any reference herein to a “Section” or “clause” refers to a Section or clause, as the case may be, of this Agreement, and the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision.

 

4


2. Registration Under the Securities Act .

(a) Except as set forth in Section 2(b) below, the Company and the Guarantor agree to use their commercially reasonable efforts to file under the Securities Act, no later than 180 days after the Closing Date, a registration statement relating to an offer to exchange (such registration statement, the “Exchange Registration Statement” , and such offer, the “Exchange Offer” ) any and all of the Securities for a like aggregate principal amount of debt securities issued by the Company and (subject to the terms of the Indenture) guaranteed by the Guarantor, which debt securities and guarantee are substantially identical to the Securities and the related Guarantee, respectively (and are entitled to the benefits of the Indenture), except that they have been registered pursuant to an effective registration statement under the Securities Act, and do not contain provisions for Special Interest contemplated in Section 2(c) below (such new debt securities hereinafter called “Exchange Securities” ). The Company and the Guarantor agree to use all commercially reasonable efforts to cause the Exchange Registration Statement to become effective under the Securities Act no later than 365 days after the Closing Date. The Exchange Offer will be registered under the Securities Act on the appropriate form and will comply with all applicable tender offer rules and regulations under the Exchange Act. Unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company and the Guarantor further agree to use all commercially reasonable efforts to (i) commence the Exchange Offer promptly (but no later than 10 Business Days) following the Effective Time of such Exchange Registration Statement, (ii) hold the Exchange Offer open for at least 20 Business Days in accordance with Regulation 14E promulgated by the Commission under the Exchange Act and (iii) exchange Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn promptly following the expiration of the Exchange Offer. The Exchange Offer will be deemed to have been “completed” only (i) if the debt securities and any related guarantee received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are, upon receipt, transferable by each such holder without restriction under the Securities Act and the Exchange Act and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America and (ii) upon the Company having exchanged, pursuant to the Exchange Offer, Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least 20 and not more than 30 Business Days following the commencement of the Exchange Offer. The Company and the Guarantor agree (x) to include in the Exchange Registration Statement a prospectus for use in any resales by any holder of Exchange Securities that is a broker-dealer and (y) to keep such Exchange Registration Statement effective for a period (the “Resale Period” ) beginning when Exchange Securities are first issued in the Exchange Offer and ending upon the earlier of the expiration of the 180 th day after the Exchange Offer has been completed or such time as such broker-dealers no longer own any Registrable Securities. With respect to such Exchange Registration Statement, such holders shall have the benefit of the rights of indemnification and contribution set forth in Subsections 6(a), (c), (d) and (e).

 

5


(b) If (i) on or prior to the time the Exchange Offer is completed existing law or Commission interpretations are changed such that the debt securities or the related guarantee received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are not or would not be, upon receipt, transferable by each such holder without restriction under the Securities Act, (ii) the Effective Time of the Exchange Registration Statement is not within 365 days following the Closing Date and the Exchange Offer has not been completed within 30 Business Days of such Effective Time or (iii) any holder of Registrable Securities notifies the Company prior to the 20 th Business Day following the completion of the Exchange Offer that: (A) it is prohibited by law or Commission policy from participating in the Exchange Offer, (B) it may not resell the Exchange Securities to the public without delivering a prospectus and the prospectus supplement contained in the Exchange Registration Statement is not appropriate or available for such resales or (C) it is a broker-dealer and owns Securities acquired directly from the Company or an affiliate of the Company, then the Company and the Guarantor shall, in lieu of (or, in the case of clause (iii), in addition to) conducting the Exchange Offer contemplated by Section 2(a), use its commercially reasonable efforts to file under the Securities Act no later than 30 days after the time such obligation to file arises (but no earlier than 90 days after the Closing Date), a “shelf” registration statement providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Registrable Securities, pursuant to Rule 415 or any similar rule that may be adopted by the Commission (such filing, the “Shelf Registration” and such registration statement, the “Shelf Registration Statement” ). The Company and the Guarantor agree to use all commercially reasonable efforts to cause the Shelf Registration Statement to become or be declared effective no later than 90 days after such Shelf Registration Statement filing obligation arises (but no earlier than 180 days after the Closing Date); provided , that if at any time the Company and the Guarantor are or become “well-known seasoned issuers” (as defined in Rule 405) and are eligible to file an “automatic shelf registration statement” (as defined in Rule 405), then the Company and the Guarantor shall file the Shelf Registration Statement in the form of an automatic shelf registration statement as provided in Rule 405. The Company and the Guarantor agree to use all commercially reasonable efforts to keep such Shelf Registration Statement continuously effective until the earlier of such time as there are no longer any Registrable Securities outstanding or 365 days following the Effective Time. No holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement or to use the prospectus forming a part thereof for resales of Registrable Securities unless such holder is an Electing Holder. The Company and the Guarantor agree, after the Effective Time of the Shelf Registration Statement and promptly upon the request of any holder of Registrable Securities that is not then an Electing Holder, to use all commercially reasonable efforts to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities, including, without limitation, any action necessary to identify such holder as a selling securityholder in the Shelf Registration Statement (whether by post-effective amendment thereto or by filing a prospectus pursuant to Rules 430B and 424(b) under the Securities Act identifying such holder); provided, however, that nothing in this

 

6


sentence shall (A) relieve any such holder of the obligation to return a properly completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(iii) hereof or (B) require the Company and Guarantor to file more than one post-effective amendment to the Shelf Registration Statement in any 30-day period. The Company and the Guarantor further agree to supplement or make amendments to the Shelf Registration Statement, as and when required by the rules, regulations or instructions applicable to the registration form used by the Company and the Guarantor for such Shelf Registration Statement or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company agrees to furnish, or cause to be furnished, to each Electing Holder copies of any such supplement or amendment prior to its being used or promptly following its filing with the Commission. The Company’s and the Guarantor’s obligation to file a Shelf Registration Statement under clause (i) of this Section 2(b), to cause such Shelf Registration Statement to become and remain effective and to comply with its other undertakings in this Section 2(b) in connection with such Shelf Registration Statement shall terminate upon the completion of the Exchange Offer pursuant to Section 2(a).

Notwithstanding the foregoing, the Company and the Guarantor may suspend the availability of any Shelf Registration Statement or, following the consummation of the Exchange Offer, the Exchange Registration Statement (x) if such action is required by applicable law or is taken by the Company or Guarantor in good faith and for valid business reasons (not including avoidance of the Company’s and Guarantor’s obligations hereunder), including the acquisition or divestiture of assets, or (y) with respect to a Shelf Registration Statement required to be filed solely due to the condition set forth in Section 2(b)(ii) hereof, if such action occurs following the consummation of the Exchange Offer. Any period during which the Shelf Registration Statement or Exchange Registration Statement is unavailable in connection with resales of Registrable Securities or Exchange Securities, respectively, except as permitted by clause (y) of this paragraph, is referred to herein as a “Suspension Period”.

(c) In the event that (i) the Company and the Guarantor have not filed the Exchange Registration Statement or the Shelf Registration Statement on or before the date on which such registration statement is required to be filed pursuant to Section 2(a) or Section 2(b), respectively, or (ii) such Exchange Registration Statement or Shelf Registration Statement has not become effective or been declared effective by the Commission on or before the date on which such registration statement is required to become or be declared effective pursuant to Section 2(a) or Section 2(b), respectively, or (iii) the Exchange Offer has not been completed within 30 Business Days after the Effective Time of the Exchange Registration Statement relating to the Exchange Offer (if the Exchange Offer is then required to be made) or (iv) any Exchange Registration Statement or Shelf Registration Statement required by Section 2(a) or Section 2(b) is filed and declared or becomes effective but shall thereafter either be withdrawn by the Company and the Guarantor or shall become subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such registration statement (except as specifically permitted herein including with respect to any Shelf Registration Statement during any applicable Suspension Period in accordance with the second paragraph of Section 2(b)) without being succeeded

 

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immediately by an additional registration statement filed and declared or otherwise becoming effective or (v) one or more Suspension Periods remain in effect for an aggregate of more than 60 days in any consecutive twelve-month period (each such event referred to in clauses (i) through (v), a “Registration Default” and each period during which a Registration Default has occurred and is continuing, a “Registration Default Period” ), then, as liquidated damages for such Registration Default, subject to the provisions of Section 9(b), special interest ( “Special Interest” ), in addition to the Base Interest, shall accrue on all Registrable Securities during the Registration Default Period (but only with respect to one Registration Default at any particular time) until such time as all Registration Defaults have been cured at a per annum rate of 0.25% for the first 90 days of any Registration Default Period (aggregating, for such purpose, the length of such Registration Default Periods with all subsequent Registration Default Periods), and at a per annum rate of 0.50% thereafter until such time as no Registration Default exists, regardless of the number of Registration Defaults that shall have occurred and be continuing.

(d) The Company and the Guarantor shall take all actions reasonably necessary or advisable to be taken by them to ensure that the transactions contemplated herein are effected as so contemplated, including all actions necessary or desirable to register the Guarantee under the registration statement contemplated in Section 2(a) or 2(b) hereof, as applicable.

(e) Any reference herein to a registration statement or prospectus as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time; and any reference herein to any post-effective amendment to a registration statement or to any prospectus supplement as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time.

3. Registration Procedures .

If the Company and the Guarantor file a registration statement pursuant to Section 2(a) or Section 2(b), the following provisions shall apply:

(a) At or before the Effective Time of the Exchange Registration or any Shelf Registration, whichever may occur first, the Company and the Guarantor shall qualify the Indenture under the Trust Indenture Act.

(b) In the event that such qualification would require the appointment of a new trustee under the Indenture, Company and the Guarantor shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture.

(c) In connection with the Company’s and the Guarantor’s obligations with respect to the registration of Exchange Securities as contemplated by Section 2(a) (the “Exchange Registration” ), if applicable, the Company and the Guarantor shall:

(i) prepare and file with the Commission, no later than 180 days after the Closing Date, an Exchange Registration Statement on any form which

 

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may be utilized by the Company and the Guarantor and which shall permit the Exchange Offer and resales of Exchange Securities by broker-dealers during the Resale Period to be effected as contemplated by Section 2(a), and use all commercially reasonable efforts to cause such Exchange Registration Statement to become effective no later than 365 days after the Closing Date;

(ii) as soon as practicable prepare and file with the Commission such amendments and supplements to such Exchange Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Exchange Registration Statement for the periods and purposes contemplated in Section 2(a) and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Exchange Registration Statement, and promptly provide each broker-dealer holding Exchange Securities with such number of copies of the prospectus included therein (as then amended or supplemented), in conformity in all material respects with the requirements of the Securities Act and the Trust Indenture Act, as such broker-dealer reasonably may request prior to the expiration of the Resale Period, for use in connection with resales of Exchange Securities;

(iii) promptly notify each broker-dealer that has requested or received copies of the prospectus included in such Exchange Registration Statement, and confirm such advice in writing, (A) when such Exchange Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Exchange Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such Exchange Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Exchange Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company and the Guarantor of any notification with respect to the suspension of the qualification of the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (F) the occurrence of any event that causes the Company or the Guarantor to become an “ineligible issuer” as defined in Rule 405, or (G) if at any time during the Resale Period when a prospectus is required to be delivered under the Securities Act, that such Exchange Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

 

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(iv) in the event that the Company and the Guarantor would be required, pursuant to Section 3(c)(iii)(G), to notify any broker-dealers holding Exchange Securities (except during any Suspension Period not constituting a Registration Default), use their commercially reasonable efforts to promptly prepare and furnish, or cause to be furnished, to each such holder a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of such Exchange Securities during the Resale Period, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(v) use all commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such Exchange Registration Statement or any post-effective amendment thereto at the earliest practicable date;

(vi) use all commercially reasonable efforts to (A) register or qualify the Exchange Securities under the securities laws or blue sky laws of such jurisdictions as are contemplated by Section 2(a) no later than the commencement of the Exchange Offer, to the extent required by such laws, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions until the expiration of the Resale Period, (C) take any and all other actions as may be reasonably necessary or advisable to enable each broker-dealer holding Exchange Securities to consummate the disposition thereof in such jurisdictions and (D) obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Exchange Registration, the Exchange Offer and the offering and sale of Exchange Securities by broker-dealers during the Resale Period; provided, however, that neither the Company nor the Guarantor shall be required for any such purpose to (1) qualify as a foreign corporation or other entity or as a dealer in securities in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(c)(vi) or (2) consent to general service of process in any such jurisdiction or become subject to taxation in any such jurisdiction;

(vii) obtain a CUSIP number for each series of Exchange Securities, not later than the applicable Effective Time; and

(viii) comply in all material respects with all applicable rules and regulations of the Commission, and make generally available to its securityholders no later than eighteen months after the Effective Time of such Exchange Registration Statement, “earning statements” of the Company and its subsidiaries and of the Guarantor and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder).

 

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(d) In connection with the Company’s and the Guarantor’s obligations with respect to the Shelf Registration, if applicable, the Company and the Guarantor shall:

(i) use its commercially reasonable efforts to prepare and file with the Commission, within the time periods specified in Section 2(b), a Shelf Registration Statement on any form which may be utilized by the Company and the Guarantor and which shall register all of the Registrable Securities for resale by the holders thereof in accordance with such method or methods of disposition as may be specified by the holders of Registrable Securities as, from time to time, may be Electing Holders and use all commercially reasonable efforts to cause such Shelf Registration Statement to become effective within the time periods specified in Section 2(b);

(ii) mail the Notice and Questionnaire to the holders of Registrable Securities (A) not less than 30 days prior to the anticipated Effective Time of the Shelf Registration Statement or (B) in the case of an “automatic shelf registration statement” (as defined in Rule 405), mail the Notice and Questionnaire to the holders of Registrable Securities not later than the Effective Time of such Shelf Registration Statement, and in any such case no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement, and no holder shall be entitled to use the prospectus forming a part thereof for resales of Registrable Securities at any time, unless and until such holder has returned a completed and signed Notice and Questionnaire to the Company by the deadline for response set forth therein;

(iii) after the Effective Time of the Shelf Registration Statement, upon the request of any holder of Registrable Securities that is not then an Electing Holder, promptly send a Notice and Questionnaire to such holder; provided that the Company and the Guarantor shall not be required to (A) take any action to name such holder as a selling securityholder in the Shelf Registration Statement or to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities until such holder has returned a completed and signed Notice and Questionnaire to the Company and (B) nothing in this clause (iii) shall require the Company or the Guarantor to file a post-effective amendment to the Shelf Registration Statement more than once in any 30-day period;

(iv) as soon as practicable prepare and file with the Commission such amendments and supplements to such Shelf Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Shelf Registration Statement for the period specified in Section 2(b) and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Shelf Registration Statement, and furnish, or cause to be furnished, to the Electing

 

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Holders copies of any such supplement or amendment simultaneously with or prior to its being used or filed with the Commission to the extent such documents are not publicly available on the Commission’s EDGAR System;

(v) comply in all material respects with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities covered by such Shelf Registration Statement in accordance with the intended methods of disposition by the Electing Holders provided for in such Shelf Registration Statement;

(vi) provide (A) the Electing Holders, (B) the underwriters (which term, for purposes of this Exchange and Registration Rights Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act), if any, thereof, (C) any sales or placement agent therefor, (D) counsel for any such underwriter or agent and (E) and not more than one counsel for all the Electing Holders the opportunity to participate in the preparation of such Shelf Registration Statement, each prospectus included therein or filed with the Commission and each amendment or supplement thereto;

(vii) for a reasonable period prior to the filing of such Shelf Registration Statement, and throughout the period specified in Section 2(b), make available at reasonable times at the Company’s principal place of business or such other reasonable place for inspection by the persons referred to in Section 3(d)(vi) who shall certify to the Company that they have a current intention to sell the Registrable Securities pursuant to the Shelf Registration such financial and other information and books and records of the Company and the Guarantor, and use their commercially reasonable efforts to cause the officers, employees, counsel and independent certified public accountants of the Company and the Guarantor to respond to such inquiries, as shall be reasonably necessary (and, in the case of counsel, not violate an attorney-client privilege, in such counsel’s reasonable belief), in the judgment of the respective counsel referred to in Section 3(d)(vi), to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering on behalf of the Electing Holders shall be conducted by one counsel designated by the holders of at least a majority in aggregate principal amount of the Registrable Securities held by the Electing Holders at the time outstanding, and provided further that each such party shall be required (pursuant to an agreement in form and substance reasonably satisfactory to the Company) to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such Shelf Registration Statement or otherwise except as a result of a breach of this or any other obligation of confidentiality to the Company or the Guarantor known to such party), or (B) such person shall be required so to disclose such information pursuant to a subpoena or order of any court or other governmental agency or

 

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body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice of such requirement), or (C) such information is required to be set forth in such Shelf Registration Statement or the prospectus included therein or in an amendment to such Shelf Registration Statement or an amendment or supplement to such prospectus in order that such Shelf Registration Statement, prospectus, amendment or supplement, as the case may be, complies with applicable requirements of the federal securities laws and the rules and regulations of the Commission and does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(viii) promptly notify each of the Electing Holders and confirm such advice in writing, (A) when such Shelf Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Shelf Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such Shelf Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company and the Guarantor set forth in Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company or the Guarantor of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (F) the occurrence of any event that causes the Company or the Guarantor to become an “ineligible issuer” as defined in Rule 405, or (G) if at any time when a prospectus is required to be delivered under the Securities Act, that such Shelf Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(ix) use all commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such Shelf Registration Statement or any post-effective amendment thereto at the earliest practicable date;

(x) if requested by any Electing Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as is

 

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required by the applicable rules and regulations of the Commission and as such Electing Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including information with respect to the principal amount of Registrable Securities being sold by such Electing Holder, the name and description of such Electing Holder, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof and with respect to any other terms of the offering of the Registrable Securities to be sold by such Electing Holder; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment;

(xi) furnish, or cause to be furnished, to each Electing Holder and the counsel referred to in Section 3(d)(vi) a copy of such Shelf Registration Statement, each such amendment and supplement thereto (in each case including all exhibits thereto (in the case of an Electing Holder of Registrable Securities, upon request in writing) and documents incorporated by reference therein) and such number of copies of such Shelf Registration Statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such Electing Holder) and of the prospectus included in such Shelf Registration Statement (including each preliminary prospectus and any summary prospectus), in conformity in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act to the extent such documents are not available through the Commission’s EDGAR System, and such other documents as such Electing Holder may reasonably request in writing in order to facilitate the offering and disposition of the Registrable Securities owned by such Electing Holder and to permit such Electing Holder to satisfy the prospectus delivery requirements of the Securities Act; and subject to Section 3(e), the Company and the Guarantor hereby consent to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Electing Holder (subject to any applicable Suspension Period imposed pursuant to Section 2(b) hereof), in each case in the form most recently provided to such person by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto;

(xii) use all commercially reasonable efforts to (A) register or qualify the Registrable Securities to be included in such Shelf Registration Statement under such securities laws or blue sky laws of such jurisdictions as any Electing Holder shall reasonably request in writing, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period the Shelf Registration Statement is required to remain effective under Section 2(b) and for so long as may be necessary to enable any such Electing Holder to complete its distribution of Registrable Securities pursuant to such Shelf Registration Statement, (C) take any and all other actions as may be

 

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reasonably necessary or advisable to enable each such Electing Holder to consummate the disposition in such jurisdictions of such Registrable Securities and (D) obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Shelf Registration or the offering or sale in connection therewith or to enable the selling holder or holders to offer, or to consummate the disposition of, their Registrable Securities; provided, however, that neither the Company nor the Guarantor shall be required for any such purpose to (1) qualify as a foreign corporation or other entity or as a dealer in securities in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(d)(xii) or (2) consent to general service of process in any such jurisdiction or become subject to taxation in any such jurisdiction;

(xiii) unless any Registrable Securities shall be in book-entry only form, cooperate with the Electing Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates, if so required by any securities exchange upon which any Registrable Securities are listed, shall be printed, penned, lithographed, engraved or otherwise produced by any combination of such methods, on steel engraved borders, and which certificates shall not bear any restrictive legends;

(xiv) obtain a CUSIP number for each series of Registrable Securities, not later than the applicable Effective Time;

(xv) whether or not any portion of the offering contemplated by the Shelf Registration is an underwritten offering or is made through a placement or sales agent or any other entity, but subject to Section 7 hereof with respect to any underwritten offering, (A) make such representations and warranties to any Electing Holder, placement agent or underwriter in form, substance and scope as are customarily made to such persons in connection with an offering of debt securities pursuant to any appropriate agreement or to a registration statement filed on the form applicable to the Shelf Registration; (B) obtain an opinion or opinions of counsel to the Company and the Guarantor, addressed to any Electing Holder, placement agent or underwriter that shall confirm, in customary form and covering such matters, of the type customarily covered by such an opinion to such person, as such person may reasonably request, dated the effective date of such Shelf Registration Statement (or if such Shelf Registration Statement contemplates an underwritten offering of a part or all of the Registrable Securities, dated the date of the closing under the underwriting agreement relating thereto) (it being agreed that the matters to be covered by such opinion shall include the due authorization, execution and delivery of the relevant agreement of the type referred to in the last sentence of Section 7 hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the Securities and the Guarantees; and the absence of governmental approvals required to be obtained in connection with the Shelf Registration, the offering and sale of the Registrable Securities, this Exchange and Registration Rights Agreement or any agreement of the type referred to in

 

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the last sentence of Section 7 hereof, except such approvals as may be required under state securities or blue sky laws; (C) obtain a letter from counsel to the Company and the Guarantor, addressed to any Electing Holder, placement agent or underwriter, to the effect that such Shelf Registration Statement appears on its face to comply as to form with the rules and regulations of the Commission relating to registration statements on such form, and, as of the date of the letter, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented (in each case other than the financial statements and other financial information contained therein) of an untrue statement of a material fact or the omission to state therein a material fact necessary to make the statements therein not misleading (in the case of any such prospectus, in the light of the circumstances existing at the time)); (D) obtain a “cold comfort” letter or letters from the independent certified public accountants of the Company and the Guarantor addressed to any Electing Holder, placement agent or underwriter, dated (i) the effective date of such Shelf Registration Statement and (ii) the effective date of any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus (and, if such Shelf Registration Statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto), such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; (E) deliver such documents and certificates, including officers’ certificates, as may be reasonably requested in writing by any Electing Holder, placement agent or underwriter, provided that such Electing Holder, placement agent or underwriter shall confirm to the Company and Guarantor that Section 11 of the Securities Act provides that, in the event an action were to be brought against any such Electing Holder, placement agent or underwriter under Section 11 of the Securities Act with respect to sales of Registrable Securities, such person would have available to it, among other things, a due diligence defense under Section 11 of the Securities Act, to evidence the accuracy of the representations and warranties made pursuant to clause (A) above or those contained in Section 5(a) hereof and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by the Company or the Guarantor; and (F) undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided in Section 6 hereof;

(xvi) notify in writing each holder of Registrable Securities of any proposal by the Company to amend or waive any provision of this Agreement pursuant to Section 9(h) and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; and

 

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(xvii) comply in all material respects with all applicable rules and regulations of the Commission, and make generally available to their respective securityholders no later than eighteen months after the Effective Time of such Shelf Registration Statement an “earning statement” of the each of the Company and its subsidiaries and of the Guarantor and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company and the Guarantor, Rule 158 thereunder).

(e) In the event that the Company and the Guarantor would be required, pursuant to Section 3(d)(viii)(G), to notify the Electing Holders, the Company and the Guarantor shall use their commercially reasonable efforts to promptly prepare and furnish, or cause to be furnished, to each of the Electing Holders a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Securities, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Electing Holder agrees that upon receipt of any notice from the Company and the Guarantor pursuant to Section 3(d)(viii)(G), such Electing Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the Shelf Registration Statement applicable to such Registrable Securities until such Electing Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company and the Guarantor, such Electing Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies, of the prospectus covering such Registrable Securities in such Electing Holder’s possession at the time of receipt of such notice.

(f) In the event of a Shelf Registration, in addition to the information required to be provided by each Electing Holder in its Notice and Questionnaire, the Company may require such Electing Holder to furnish to the Company such additional information regarding such Electing Holder and such Electing Holder’s intended method of distribution of Registrable Securities as may be required in order to comply with the Securities Act. Each such Electing Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Electing Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such Shelf Registration contains or would contain an untrue statement of a material fact regarding such Electing Holder or such Electing Holder’s intended method of disposition of such Registrable Securities or omits to state any material fact regarding such Electing Holder or such Electing Holder’s intended method of disposition of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or

 

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required so that such prospectus shall not contain, with respect to such Electing Holder or the disposition of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing.

(g) Until the earlier to occur of the expiration of one year after the Closing Date or the time that the Securities are freely resaleable pursuant to Rule 144, the Company and the Guarantor will not, and will not permit any of their respective “affiliates” (as defined in Rule 144) to, resell any of the Securities that have been reacquired by any of them except pursuant to an effective registration statement, or a valid exemption from the registration requirements, under the Securities Act.

(h) As a condition to its participation in the Exchange Offer, each holder of Registrable Securities shall furnish, upon the request of the Company, a written representation to the Company (which may be contained in the letter of transmittal or “agent’s message” transmitted via The Depository Trust Company’s Automated Tender Offer Procedures, in either case contemplated by the Exchange Registration Statement) to the effect that (A) it is not an “affiliate” of the Company and the Guarantor, as defined in Rule 405 of the Securities Act, or if it is such an “affiliate”, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (B) it is not engaged in and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Securities to be issued in the Exchange Offer, (C) it is acquiring the Exchange Securities in its ordinary course of business, (D) if it is a broker-dealer that holds Securities that were acquired for its own account as a result of market-making activities or other trading activities (other than Securities acquired directly from the Company or the Guarantor or any of their affiliates), it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the Exchange Securities received by it in the Exchange Offer, (E) if it is a broker-dealer, that it did not purchase the Securities to be exchanged in the Exchange Offer from the Company or the Guarantor or any of their affiliates, and (F) it is not acting on behalf of any person who could not truthfully and completely make the representations contained in the foregoing subclauses (A) through (E).

4. Registration Expenses.

The Company and the Guarantor agree to bear and to pay or cause to be paid promptly all expenses incident to the Company’s and the Guarantor’s performance of or compliance with this Agreement, including (a) all Commission and any FINRA registration, filing and review fees and expenses including reasonable and documented fees and disbursements of one counsel for the Electing Holders in connection with such registration, filing and review (such counsel’s fees and disbursements not to exceed $100,000), (b) all fees and expenses in connection with the qualification of the Registrable Securities, the Securities and the Exchange Securities, as applicable, for offering and sale under the State securities and blue sky laws referred to in Section 3(d)(xii) and determination of their eligibility for investment under the laws of such jurisdictions as the Electing Holders may designate, including any reasonable and

 

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documented fees and disbursements of one counsel for the Electing Holders in connection with such qualification and determination (such counsel’s fees and disbursements not to exceed $25,000), (c) all expenses relating to the preparation, printing, production, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the expenses of preparing the Securities or Exchange Securities, as applicable, for delivery and the expenses of printing or producing any selling agreements and blue sky or legal investment memoranda and all other documents in connection with the offering, sale or delivery of Securities or Exchange Securities, as applicable, to be disposed of (including certificates representing the Securities or Exchange Securities, as applicable), (d) messenger, telephone and delivery expenses relating to the offering, sale or delivery of Securities or Exchange Securities, as applicable, and the preparation of documents referred in clause (c) above, (e) reasonable and documented fees and expenses of the Trustee under the Indenture, any agent of the Trustee and any counsel for the Trustee and of any collateral agent or custodian, (f) internal expenses (including all salaries and expenses of the Company’s and the Guarantor’s officers and employees performing legal or accounting duties), (g) reasonable fees, disbursements and expenses of counsel and independent certified public accountants of the Company and the Guarantor, (h) reasonable and documented fees, disbursements and expenses of one counsel for the Electing Holders retained in connection with a Shelf Registration, as selected by the Electing Holders of at least a majority in aggregate principal amount of the Registrable Securities held by Electing Holders (which counsel shall be reasonably satisfactory to the Company) (such counsel’s fees and disbursements not to exceed $50,000), (i) any fees charged by securities rating services for rating the Registrable Securities, the Securities or the Exchange Securities, as applicable, and (j) fees, expenses and disbursements of any other persons, including special experts, retained by the Company and the Guarantor in connection with such registration (collectively, the “Registration Expenses” ). To the extent that any Registration Expenses are incurred, assumed or paid by any holder of Registrable Securities, Securities or Exchange Securities, as applicable, the Company and the Guarantor shall reimburse such person for the full amount of the Registration Expenses so incurred, assumed or paid promptly after receipt of a request therefor, which shall be accompanied by written evidence of the expenses so incurred. Notwithstanding the foregoing, the holders of the Registrable Securities being registered shall pay all agency fees and commissions and underwriting discounts and commissions, if any, and transfer taxes, if any, attributable to the sale of such Registrable Securities, Securities and Exchange Securities, as applicable, and the fees and disbursements of any counsel or other advisors or experts retained by such holders (severally or jointly), other than the counsel and experts specifically referred to above.

 

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5. Representations and Warranties.

The Company and the Guarantor, jointly and severally, represent and warrant to, and agree with, each Purchaser and each of the holders from time to time of Registrable Securities that:

(a) Each registration statement covering Registrable Securities, Securities or Exchange Securities, as applicable, and each prospectus (including any preliminary or summary prospectus) contained therein or furnished pursuant to Section 3(c) or Section 3(d) and any further amendments or supplements to any such registration statement or prospectus, when it becomes effective or is filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at all times subsequent to the Effective Time when a prospectus would be required to be delivered under the Securities Act, other than from (i) such time as a notice has been given to holders of Registrable Securities pursuant to Section 3(c)(iii)(G) or Section 3(d)(viii)(G) until (ii) such time as the Company and the Guarantor furnish an amended or supplemented prospectus pursuant to Section 3(c)(iv) or Section 3(e) each such registration statement, and each prospectus (including any summary prospectus) contained therein or furnished pursuant to Section 3(c) or Section 3(d), as then amended or supplemented, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein.

(b) Any documents incorporated by reference in any prospectus referred to in Section 5(a), when they become or became effective or are or were filed with the Commission, as the case may be, will conform or conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and none of such documents will contain or contained an untrue statement of a material fact or will omit or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein.

(c) The compliance by the Company and the Guarantor with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company and the Guarantor or any of their respective subsidiaries is a party or by which the Company or the Guarantor or any such subsidiary is bound or to which any of the property or assets of the Company or the Guarantor or any such subsidiary is subject, (ii) result in any violation of the provisions of the certificate of incorporation, as amended, or the by-laws or other governing documents, as applicable, of the Company or the Guarantor or (iii) result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, the Guarantor or

 

20


any of their respective subsidiaries or any of their respective properties except in the case of (i) and (iii) above, for any default, breach, violation or conflict which would not reasonably be expected to have a material adverse effect on the general affairs, management, consolidated financial condition, consolidated shareholders’ equity or consolidated results of operations of the Guarantor and its subsidiaries, taken as a whole, or which would not reasonably be expected to interfere with the ability of the Company and the Guarantor to fulfill their obligations hereunder or the ability of holders to participate in the Exchange Offer and to use the prospectus contained in the Exchange Registration Statement and Shelf Registration Statement to resell Exchange Securities and Registrable Securities, respectively, as provided for herein; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company and the Guarantor of the transactions contemplated by this Agreement, except (x) the registration under the Securities Act of the Registrable Securities, the Securities and the Exchange Securities, as applicable, and qualification of the Indenture under the Trust Indenture Act, (y) such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or blue sky laws in connection with the offering and distribution of the Registrable Securities, the Securities and the Exchange Securities, as applicable, and (z) such consents, approvals, authorizations, registrations or qualifications that have been obtained and are in full force and effect as of the date hereof.

(d) This Agreement has been duly authorized, executed and delivered by the Company and by the Guarantor.

6. Indemnification and Contribution .

(a) Indemnification by the Company and the Guarantor. The Company and the Guarantor, jointly and severally, will indemnify and hold harmless each of the holders of Registrable Securities included in an Exchange Registration Statement and each of the Electing Holders as holders of Registrable Securities included in a Shelf Registration Statement against any losses, claims, damages or liabilities, joint or several, to which such holder or such Electing Holder may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Exchange Registration Statement or any Shelf Registration Statement, as the case may be, under which such Registrable Securities, Securities or Exchange Securities were registered under the Securities Act, or any preliminary, final or summary prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433) contained therein or furnished by the Company to any such holder or any such Electing Holder, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such holder and each such Electing Holder for any and all legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that neither the Company nor the Guarantor shall be

 

21


liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary, final or summary prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433), or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such person expressly for use therein.

(b) Indemnification by the Electing Holders . The Company and the Guarantor may require, as a condition to including any Registrable Securities in any Shelf Registration Statement filed pursuant to Section 2(b), that the Company and the Guarantor shall have received an undertaking reasonably satisfactory to them from each Electing Holder of Registrable Securities included in such Shelf Registration Statement, severally and not jointly, to (i) indemnify and hold harmless the Company, the Guarantor and all other Electing Holders of Registrable Securities included in such Shelf Registration Statement against any losses, claims, damages or liabilities to which the Company, the Guarantor or such other Electing Holders may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433) contained therein or furnished by the Company and the Guarantor to any Electing Holder, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Electing Holder expressly for use therein, and (ii) reimburse the Company and the Guarantor for any legal or other expenses reasonably incurred by the Company and the Guarantor in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that no such Electing Holder shall be required to undertake liability to any person under this Section 6(b) for any amounts in excess of the dollar amount of the proceeds to be received by such Electing Holder from the sale of such Electing Holder’s Registrable Securities pursuant to such registration.

(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of or contemplated by this Section 6, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under the indemnification provisions of or contemplated by Section 6(a) or Section 6(b). In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be

 

22


entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. To the extent that an indemnifying party does not assume the defense of any such action, it is understood and agreed that the indemnifying party shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all indemnified parties, and that all such fees and expenses shall be reimbursed as they are incurred; provided that the fees and expenses of such separate firm or any local counsel shall be reasonable. No indemnifying party shall, without the prior written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of any indemnified party.

(d) Contribution. If for any reason the indemnification provisions contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were determined by pro rata allocation (even if the holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions

 

23


of this Section 6(d), no Electing Holder shall be required to contribute any amount in excess of the amount by which the dollar amount of the proceeds received by such holder from the sale of any Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The holders’ obligations in this Section 6(d) to contribute shall be several in proportion to the principal amount of Registrable Securities registered by them and not joint.

(e) The obligations of the Company and the Guarantor under this Section 6 shall be in addition to any liability which the Company or the Guarantor may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each holder, each Electing Holder, and each person, if any, who controls any of the foregoing within the meaning of the Securities Act; and the obligations of the holders and the Electing Holders contemplated by this Section 6 shall be in addition to any liability which the respective holder or Electing Holder may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company or the Guarantor (including any person who, with his consent, is named in any registration statement as about to become a director of the Company or the Guarantor) and to each person, if any, who controls the Company within the meaning of the Securities Act, as well as to each officer and director of the other holders and to each person, if any, who controls such other holders within the meaning of the Securities Act.

7. Underwritten Offerings.

Each holder of Registrable Securities hereby agrees with the Company and the Guarantor and each other such holder that no holder of Registrable Securities may participate in any underwritten offering hereunder unless (a) the Company and the Guarantor give their prior written consent to such underwritten offering, (b) the managing underwriter or underwriters thereof shall be designated Electing Holders holding at least a majority in aggregate principal amount of the Registrable Securities to be included in such offering, provided that such designated managing underwriter or underwriters is or are reasonably acceptable to the Company and the Guarantor, (c) each holder of Registrable Securities participating in such underwritten offering agrees to sell such holder’s Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled selecting the managing underwriter or underwriters hereunder and (d) each holder of Registrable Securities participating in such underwritten offering completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. The Company and the Guarantor hereby agree with each holder of Registrable Securities that, to the extent they consent to an underwritten offering hereunder, they will negotiate in good faith and execute all indemnities, underwriting agreements and other documents

 

24


reasonably required under the terms of such underwriting arrangements, including using all commercially reasonable efforts to procure customary legal opinions and auditor “comfort” letters.

8. Rule 144.

(a) Facilitation of Sales Pursuant to Rule 144. The Company and the Guarantor covenant to the holders of Registrable Securities that to the extent they shall be required to do so under the Exchange Act, the Company and the Guarantor shall timely file the reports required to be filed by them under the Exchange Act or the Securities Act (including the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144), and shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144. Upon the request of any holder of Registrable Securities in connection with that holder’s sale pursuant to Rule 144, the Company and the Guarantor shall deliver to such holder written statements as to whether they have complied with such requirements.

(b) Availability of Rule 144 Not Excuse for Obligations Under Section 2. The fact that holders of Registrable Securities may become eligible to sell such Registrable Securities pursuant to Rule 144 shall not (1) cause such Securities to cease to be Registrable Securities or (2) excuse the Company’s and the Guarantor’s obligations set forth in Section 2 of this Agreement, including without limitation the obligations in respect of an Exchange Offer, Shelf Registration and Special Interest.

9. Miscellaneous.

(a) No Inconsistent Agreements. The Company and the Guarantor represent, warrant, covenant and agree that they have not granted, and shall not grant, registration rights with respect to Registrable Securities, Exchange Securities or Securities, as applicable, or any other securities which would be inconsistent with the terms contained in this Agreement.

(b) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if the Company and the Guarantor fail to perform any of their respective obligations hereunder and that the Purchasers and the holders from time to time of the Registrable Securities may be irreparably harmed by any such failure, and accordingly agree that the Purchasers and such holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of the Company and the Guarantor under this Agreement in accordance with the terms and conditions of this Agreement, in any court of the United States or any State thereof having jurisdiction. Time shall be of the essence in this Agreement.

(c) Notices. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly

 

25


given when delivered by hand, if delivered personally, by facsimile or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: (i) If to the Company before the Distribution, to it at Tyco Flow Control International Finance, S.A., c/o Tyco International Management Company, LLC, 9 Roszel Road, Princeton NJ 08540, or if to the Company after the Distribution, to it at Tyco Flow Control International Finance, S.A., c/o Pentair, Inc., 5500 Wayzata Boulevard, Suite 800, Golden Valley MN 55416, (ii) if to the Guarantor before the Distribution, to it at Pentair Ltd., c/o Tyco International Management Company, LLC, 9 Roszel Road, Princeton NJ 08540, or if to the Guarantor after the Distribution, to it at Pentair Ltd., c/o Pentair, Inc., 5500 Wayzata Boulevard, Suite 800, Golden Valley MN 55416 and (iii) if to a holder, to the address of such holder set forth in the security register or other records of the Company, or to such other address as the Company or any such holder may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. For purposes of this Section 9(c), the term “Distribution” shall have the meaning assigned to it in the Purchase Agreement.

(d) Parties in Interest. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto, the holders from time to time of the Registrable Securities and the respective successors and assigns of the foregoing. In the event that any transferee of any holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing or action of any kind, be deemed a beneficiary hereof for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of, and be conclusively deemed to have agreed to be bound by all of the applicable terms and provisions of this Agreement. If the Company shall so request, any such successor, assign or transferee shall agree in writing to acquire and hold the Registrable Securities subject to all of the applicable terms hereof.

(e) Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any holder of Registrable Securities, any director, officer or partner of such holder, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Securities pursuant to the Purchase Agreement, the transfer and registration of Registrable Securities by such holder and the consummation of an Exchange Offer.

(f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

(g) Headings. The descriptive headings of the several Sections and paragraphs of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement.

 

26


(h) Entire Agreement; Amendments. This Agreement and the other writings referred to herein (including the Indenture and the form of Securities) or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument duly executed by the Company and the Guarantor and the holders of at least a majority in aggregate principal amount of the Registrable Securities at the time outstanding. Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(h), whether or not any notice, writing or marking indicating such amendment or waiver appears on such Registrable Securities or is delivered to such holder.

(i) Inspection. For so long as this Agreement shall be in effect, this Agreement and a complete list of the names and addresses of all the record holders of Registrable Securities shall be made available for inspection and copying on any Business Day by any holder of Registrable Securities for proper purposes only (which shall include any purpose related to the rights of the holders of Registrable Securities under the Securities, the Indenture and this Agreement) at the offices of the Company at the address thereof set forth in Section 9(c) and at the office of the Trustee under the Indenture.

(j) Counterparts. This Agreement may be executed by the parties in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument.

(k) Severability . If any provision of this Agreement, or the application thereof in any circumstance, is held to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of such provision in every other respect and of the remaining provisions contained in this Agreement shall not be affected or impaired thereby.

 

27


If the foregoing is in accordance with your understanding, please sign and return to us four counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Purchasers, this letter and such acceptance hereof shall constitute a binding agreement between each of the Purchasers, the Company and the Guarantor. It is understood that your acceptance of this letter on behalf of each of the Purchasers is pursuant to the authority set forth in a form of Agreement among Purchasers, the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof.

 

Very truly yours,
Tyco Flow Control International Finance, S.A.
By  

/s/ Andrea Goodrich

 

Name: Andrea Goodrich

 

Title:   Managing Director

By:  

/s/ Peter Schieser

 

Name: Peter Schieser

 

Title:   Managing Director

Pentair Ltd. (formerly Tyco Flow Control International Ltd.)
By  

/s/ Mark Armstrong

 

Name: Mark Armstrong

 

Title:   Director

 

28


Accepted as of the date hereof:

 

J.P. Morgan Securities LLC
By:  

/s/ Maria Sramek

  Maria Sramek
  Executive Director

Merrill Lynch, Pierce, Fenner & Smith

                      Incorporated

By:  

/s/ Happy Hazelton

  Happy Hazelton
  Managing Director
U.S. Bancorp Investments, Inc.
By:  

/s/ David Wood

 

29


Exhibit A

TYCO FLOW CONTROL INTERNATIONAL FINANCE, S.A.

INSTRUCTION TO DTC PARTICIPANTS

(Date of Mailing)

URGENT - IMMEDIATE ATTENTION REQUESTED

DEADLINE FOR RESPONSE: [DATE]*

The Depository Trust Company ( “DTC” ) has identified you as a DTC Participant through which beneficial interests in Tyco Flow Control International Finance, S.A. (the “Company” ) 1.875% Notes due 2017 and 3.150% Notes due 2022 (collectively the “ Securities ”) are held.

The Company is in the process of registering the Securities under the Securities Act of 1933 for resale by the beneficial owners thereof. In order to have their Securities included in the registration statement, beneficial owners must complete and return the enclosed Notice of Registration Statement and Selling Securityholder Questionnaire.

It is important that beneficial owners of the Securities receive a copy of the enclosed materials as soon as possible as their rights to have the Securities included in the registration statement depend upon their returning the Notice and Questionnaire by [Deadline For Response] . Please forward a copy of the enclosed documents to each beneficial owner that holds interests in the Securities through you. If you require more copies of the enclosed materials or have any questions pertaining to this matter, please contact Tyco Flow Control International Finance, S.A., [Address and Telephone Number of Issuer] .

 

* Not less than 28 calendar days from date of mailing.

 

A-1


TYCO FLOW CONTROL INTERNATIONAL FINANCE, S.A.

NOTICE OF REGISTRATION STATEMENT

AND

SELLING SECURITYHOLDER QUESTIONNAIRE

(DATE)

Reference is hereby made to the Exchange and Registration Rights Agreement (the “Exchange and Registration Rights Agreement” ) between Tyco Flow Control International Finance S.A. (the “Company” ), Pentair Ltd. (the “ Guarantor ”) and the Purchasers named therein. Pursuant to the Exchange and Registration Rights Agreement, the Company has filed or will file with the United States Securities and Exchange Commission (the “Commission” ) a registration statement on Form S-3 (the “Shelf Registration Statement” ) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act” ), of the Company’s 1.875% Notes due 2017 and 3.150% Notes due 2022 (the “Securities” ). A copy of the Exchange and Registration Rights Agreement has been filed as an exhibit to the Shelf Registration Statement and can be obtained from the Commission’s website at www.sec.gov . All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Exchange and Registration Rights Agreement.

Each beneficial owner of Registrable Securities (as defined below) is entitled to have the Registrable Securities beneficially owned by it included in the Shelf Registration Statement. In order to have Registrable Securities included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire ( “Notice and Questionnaire” ) must be completed, executed and delivered to the Company’s counsel at the address set forth herein for receipt ON OR BEFORE [Deadline for Response] . Beneficial owners of Registrable Securities who do not properly complete, execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the Prospectus forming a part thereof for resales of Registrable Securities.

Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related Prospectus.

The term “Registrable Securities” is defined in the Exchange and Registration Rights Agreement.

 

A-2


ELECTION

The undersigned holder (the “Selling Securityholder” ) of Registrable Securities hereby elects to include in the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Securities by the terms and conditions of this Notice and Questionnaire and the Exchange and Registration Rights Agreement, including, without limitation, Section 6 of the Exchange and Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto.

Pursuant to the Exchange and Registration Rights Agreement, the undersigned has agreed to indemnify and hold harmless the Company and the Guarantor, their officers who sign any Shelf Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against certain loses arising out of an untrue statement, or the alleged untrue statement, of a material fact in the Shelf Registration Statement or the related prospectus or the omission, or alleged omission, to state a material fact required to be stated in such Shelf Registration Statement or the related prospectus, but only to the extent such untrue statement or omission, or alleged untrue statement or omission, was made in reliance on and in conformity with the information provided in this Notice and Questionnaire.

Upon any sale of Registrable Securities pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company and Trustee the Notice of Transfer set forth in Appendix A to the Prospectus and as Exhibit B to the Exchange and Registration Rights Agreement.

 

A-3


The Selling Securityholder hereby provides the following information to the Company and the Guarantor and represents and warrants that such information is accurate and complete:

QUESTIONNAIRE

 

(1)   (a)    Full legal name of Selling Securityholder:
    

 

  (b)    Full legal name of registered Holder (if not the same as in (a) above) of Registrable Securities listed in Item (3) below:
    

 

  (c)    Full legal name of DTC Participant (if applicable and if not the same as (b) above) through which Registrable Securities listed in Item (3) below are held:
    

 

(2)   Address for notices to Selling Securityholder:   
    

 

  
    

 

  
    

 

  
     Telephone:  

 

  
     Fax:  

 

  
     Contact Person:  

 

  
     E-mail for Contact Person:  

 

 
(3)    Beneficial Ownership of Securities:
     Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities.
   (a)    Principal amount of Registrable Securities beneficially owned:                                                                                                  
     CUSIP No(s). of such Registrable Securities:                                                                                                                                 
   (b)    Principal amount of Securities other than Registrable Securities beneficially owned:                                                                
    

 

     CUSIP No(s). of such other Securities:                                                                                                                                          
   (c)   

Principal amount of Registrable Securities that the undersigned wishes to be included in the Shelf Registration Statement:                                         

CUSIP No(s). of such Registrable Securities to be included in the Shelf Registration Statement:                                          

(4)    Beneficial Ownership of Other Securities of the Company and the Guarantor:
     Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Company or the Guarantor, other than the Securities listed above in Item (3).

 

A-4


    State any exceptions here:
   

 

   

 

   

 

(5)   Individuals who exercise dispositive powers with respect to the Securities:
    If the Selling Securityholder is not an entity that is required to file reports with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (a “Reporting Company”), then the Selling Securityholder must disclose the name of the natural person(s) who exercise sole or shared dispositive powers with respect to the Securities. Selling Securityholders should disclose the beneficial holders, not nominee holders or other such others of record. In addition, the Commission has provided guidance that Rule 13d-3 of the Securities Exchange Act of 1934 should be used by analogy when determining the person or persons sharing voting and/or dispositive powers with respect to the Securities.
  (a)   Is the holder a Reporting Company?
    Yes                                                 No                                              
    If “No”, please answer Item (5)(b).
  (b)   List below the individual or individuals who exercise dispositive powers with respect to the Securities:
   

 

   

 

   

 

    Please note that the names of the persons listed in (b) above will be included in the Shelf Registration Statement and related Prospectus.
(6)   Relationships with the Company and the Guarantor:
    Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company or the Guarantor (or their respective predecessors or affiliates) during the past three years.
    State any exceptions here:
   

 

   

 

   

 

 

A-5


(7)   Plan of Distribution:
    Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Securities listed above in Item (3) only as follows (if at all): Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities.
    State any exceptions here:
   

 

   

 

   

 

    Note: In no event may such method(s) of distribution take the form of an underwritten offering of Registrable Securities without the prior written agreement of the Company.
(8)   Broker-Dealers:
    The Commission requires that all Selling Securityholders that are registered broker-dealers or affiliates of registered broker-dealers be so identified in the Shelf Registration Statement. In addition, the Commission requires that all Selling Securityholders that are registered broker-dealers be named as underwriters in the Shelf Registration Statement and related Prospectus, even if they did not receive the Registrable Securities as compensation for underwriting activities.
  (a)   State whether the undersigned Selling Securityholder is a registered broker-dealer:
    Yes                                                 No                                              
  (b)   If the answer to (a) is “Yes”, you must answer (i) and (ii) below, and (iii) below if applicable. Your answers to (i) and (ii) below, and (iii) below if applicable, will be included in the Shelf Registration Statement and related Prospectus.

 

A-6


   

(i)     Were the Securities acquired as compensation for underwriting activities?

    Yes                                                 No                                              
    If you answered “Yes”, please provide a brief description of the transaction(s) in which the Securities were acquired as compensation:
   

 

   

 

   

 

   

(ii)    Were the Securities acquired for investment purposes?

    Yes                                                 No                                              
   

(iii)   If you answered “No” to both (i) and (ii), please explain the Selling Securityholder’s reason for acquiring the Securities:

   

 

   

 

   

 

  (c)   State whether the undersigned Selling Securityholder is an affiliate of a registered broker-dealer and, if so, list the name(s) of the broker-dealer affiliate(s):
    Yes                                                 No                                              
   

 

   

 

   

 

  (d)   If you answered “Yes” to question (c) above:
   

(i)     Did the undersigned Selling Securityholder purchase Registrable Securities in the ordinary course of business?

    Yes                                                 No                                              
    If the answer is “No” to question (d)(i), provide a brief explanation of the circumstances in which the Selling Securityholder acquired the Registrable Securities:
   

 

   

 

   

 

 

A-7


   

(ii)     At the time of the purchase of the Registrable Securities, did the undersigned Selling Securityholder have any agreements, understandings or arrangements, directly or indirectly, with any person to dispose of or distribute the Registrable Securities?

    Yes                                                 No                                              
    If the answer is “Yes” to question (d)(ii), provide a brief explanation of such agreements, understandings or arrangements:
   

 

   

 

   

 

    If the answer is “No” to Item (8)(d)(i) or “Yes” to Item (8)(d)(ii), you will be named as an underwriter in the Shelf Registration Statement and the related Prospectus.
(9)   Hedging and short sales:
  (a)   State whether the undersigned Selling Securityholder has or will enter into “hedging transactions” with respect to the Registrable Securities:
    Yes                                                 No                                              
    If “Yes”, provide below a complete description of the hedging transactions into which the undersigned Selling Securityholder has entered or will enter and the purpose of such hedging transactions, including the extent to which such hedging transactions remain in place:
   

 

   

 

   

 

  (b)   Set forth below is Interpretation A.65 of the Commission’s July 1997 Manual of Publicly Available Interpretations regarding short selling:
    “An issuer filed a Form S-3 registration statement for a secondary offering of common stock which is not yet effective. One of the selling shareholders wanted to do a short sale of common stock “against the box” and cover the short sale with registered shares after the effective date. The issuer was advised that the short sale could not be made before the registration statement becomes effective, because the shares underlying the short sale are deemed to be sold at the time such sale is made. There would, therefore, be a violation of Section 5 if the shares were effectively sold prior to the effective date.”

 

A-8


    By returning this Notice and Questionnaire, the undersigned Selling Securityholder will be deemed to be aware of the foregoing interpretation.

*        *        *         *        *

By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Securities Exchange Act of 1934, particularly Regulation M (or any successor rule or regulation).

The Selling Securityholder hereby acknowledges its obligations under the Exchange and Registration Rights Agreement to indemnify and hold harmless the Company and the Guarantor and certain other persons as set forth in the Exchange and Registration Rights Agreement.

In the event that the Selling Securityholder transfers all or any portion of the Registrable Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Exchange and Registration Rights Agreement.

By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (9) above and the inclusion of such information in the Shelf Registration Statement and related Prospectus. The Selling Securityholder understands that such information will be relied upon by the Company and the Guarantor in connection with the preparation of the Shelf Registration Statement and related Prospectus.

In accordance with the Selling Securityholder’s obligation under Section 3(d) of the Exchange and Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect and to provide such additional information that the Company may reasonably request regarding such Selling Securityholder and the intended method of distribution of Registrable Securities in order to comply with the Securities Act. Except as otherwise provided in the Exchange and Registration Rights Agreement, all notices hereunder and pursuant to the Exchange and Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows:

 

  (i)    To the Company:  

 

  
      

 

  
      

 

  
      

 

  
      

 

  

 

A-9


  (ii)    With a copy to:  

 

  
      

 

  
      

 

  
      

 

  
      

 

  

Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company’s counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company, the Guarantor and the Selling Securityholder (with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item (3) above. This Notice and Questionnaire shall be governed in all respects by the laws of the State of New York.

 

A-10


IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Dated:  

 

 

 

Selling Securityholder
(Print/type full legal name of beneficial owner of Registrable Securities)
By:  

 

Name:
Title:

PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY’S COUNSEL AT:

 

 

 

 

 

 

 

 

 

 

 

 

A-11


Exhibit B

NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT

Wells Fargo Bank, National Association

Tyco Flow Control International Finance, S.A.

c/o Wells Fargo Bank, National Association

[Address of Trustee]

Attention: Trust Officer

 

  Re: Tyco Flow Control International Finance, S.A. (the “Company” )

[1.875% Notes due 2017]

[3.150% Notes due 2022]

Dear Sirs:

Please be advised that                              has transferred $         aggregate principal amount of the above-referenced Securities pursuant to an effective Registration Statement on Form [    ] (File No. 333        ) filed by the Company.

We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied and that the above-named beneficial owner of the Securities is named as a “Selling Holder” in the Prospectus dated [date] or in supplements thereto, and that the aggregate principal amount of the Securities transferred are the Securities listed in such Prospectus opposite such owner’s name.

Dated:                     

 

Very truly yours,
 

 

  (Name)
By:  

 

  (Authorized Signature)

 

B-1

Exhibit 10.1

TAX SHARING AGREEMENT

by and among

TYCO INTERNATIONAL LTD.,

TYCO INTERNATIONAL FINANCE S.A.,

PENTAIR LTD.

and

THE ADT CORPORATION,

Dated as of September 28, 2012


TABLE OF CONTENTS

 

         Page  

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

     2   

Section 1.1

 

Definitions

     2   

Section 1.2

 

References; Interpretation

     18   

Section 1.3

 

Effective Time

     19   

ARTICLE II

 

PREPARATION AND FILING OF TAX RETURNS

     19   

Section 2.1

 

Responsibility of Parties to Prepare and File Pre-Distribution Income Tax Returns

     19   

Section 2.2

 

Responsibility of Parties to Prepare and File Straddle Income Tax Returns

     21   

Section 2.3

 

Responsibility of Parties to Prepare and File Post-Distribution Income Tax Returns and Non-Income Tax Returns

     23   

Section 2.4

 

Time of Filing Tax Returns; Manner of Tax Return Preparation

     23   

ARTICLE III

 

RESPONSIBILITY FOR PAYMENT OF TAXES

     23   

Section 3.1

 

Responsibility of Trident for Taxes

     23   

Section 3.2

 

Responsibility of Athens NA for Taxes

     23   

Section 3.3

 

Responsibility of Fountain for Taxes

     24   

Section 3.4

 

Timing of Payments of Taxes

     24   

ARTICLE IV

 

REFUNDS, CARRYBACKS AND AMENDED TAX RETURNS

     24   

Section 4.1

 

Refunds

     24   

Section 4.2

 

Carrybacks

     25   

Section 4.3

 

Amended Tax Returns

     26   

Section 4.4

 

State RAR Returns

     26   

Section 4.5

 

Agreement from Party Administering and Controlling Audit

     27   

ARTICLE V

 

DISTRIBUTION TAXES

     27   

Section 5.1

 

Liability for Distribution Taxes

     27   

Section 5.2

 

Payment for Use of Tax Attributes by Parties at Fault

     28   

Section 5.3

 

Definition of Fault

     28   

Section 5.4

 

Limits on Proposed Acquisition Transactions and Other Transactions During Restricted Period

     28   

Section 5.5

 

Qualified Tax Counsel Advance Conflict Waiver

     30   

Section 5.6

 

IRS Ruling, Non-U.S. Tax Rulings, Tax Representation Letters, and Tax Opinions; Consistency

     30   

Section 5.7

 

Timing of Payment of Taxes

     30   

ARTICLE VI

 

EMPLOYEE BENEFIT MATTERS

     31   

Section 6.1

 

Deferred Compensation Deductions

     31   

ARTICLE VII

 

INDEMNIFICATION

     32   

 

- i -


TABLE OF CONTENTS

(continued)

 

         Page  

Section 7.1

 

Indemnification Obligations of Trident

     32   

Section 7.2

 

Indemnification Obligations of Fountain

     32   

Section 7.3

 

Indemnification Obligations of Athens NA

     32   

Section 7.4

 

Indemnification for Stub Period Taxes and Uncovered Liabilities

     33   

Section 7.5

 

Indemnification for Athens NA Brand/Secondary Brand Transactions

     33   

ARTICLE VIII

 

PAYMENTS

     33   

Section 8.1

 

Payments

     33   

Section 8.2

 

Treatment of Payments Made Pursuant to Tax Sharing Agreement

     34   

Section 8.3

 

Treatment of Payments Made Pursuant to Separation and Distribution Agreements

     35   

Section 8.4

 

Payments Net of Tax Benefit Realized

     35   

ARTICLE IX

 

AUDITS

     35   

Section 9.1

 

Notice

     35   

Section 9.2

 

Pre-Distribution Audits

     36   

Section 9.3

 

Payment of Audit Amounts and Amounts Under Trident 2007 Tax Sharing Agreement

     42   

Section 9.4

 

Transfer Pricing Adjustment

     45   

Section 9.5

 

Correlative Adjustment

     45   

ARTICLE X

 

COOPERATION AND EXCHANGE OF INFORMATION

     46   

Section 10.1

 

Cooperation and Exchange of Information

     46   

Section 10.2

 

Retention of Records

     46   

ARTICLE XI

  ALLOCATION OF TAX ATTRIBUTES, DUAL CONSOLIDATED LOSSES AND OTHER TAX MATTERS      47   

Section 11.1

 

Allocation of Tax Attributes

     47   

Section 11.2

 

Dual Consolidated Losses

     47   

Section 11.3

 

Trident 2007 Tax Sharing Agreement

     47   

Section 11.4

 

Allocation of Tax Items

     48   

Section 11.5

 

Pre-Distribution Tax Attributes

     48   

Section 11.6

 

Other Agreements

     48   

Section 11.7

 

Amounts Received under Other Agreements

     48   

Section 11.8

 

Threshold Base Amount Report

     48   

ARTICLE XII

 

DEFAULTED AMOUNTS

     48   

Section 12.1

 

General

     48   

Section 12.2

 

Subsidiary Funding

     49   

 

- ii -


TABLE OF CONTENTS

(continued)

 

         Page  

ARTICLE XIII

 

DISPUTE RESOLUTION

     49   

Section 13.1

 

Negotiation

     49   

Section 13.2

 

Mediation

     49   

Section 13.3

 

Arbitration

     50   

Section 13.4

 

Arbitration with Respect to Monetary Damages

     50   

Section 13.5

 

Arbitration Period

     51   

Section 13.6

 

Treatment of Negotiations, Mediation, and Arbitration

     51   

Section 13.7

 

Continuity of Service and Performance

     51   

Section 13.8

 

Costs

     51   

Section 13.9

 

Consolidation

     51   

ARTICLE XIV

 

MISCELLANEOUS

     52   

Section 14.1

 

Counterparts; Facsimile Signatures

     52   

Section 14.2

 

Survival

     52   

Section 14.3

 

Notices

     52   

Section 14.4

 

Waivers and Consents

     53   

Section 14.5

 

Amendments

     53   

Section 14.6

 

Assignment

     53   

Section 14.7

 

Successors and Assigns

     54   

Section 14.8

 

Certain Termination and Amendment Rights

     54   

Section 14.9

 

No Circumvention

     54   

Section 14.10

 

Subsidiaries

     54   

Section 14.11

 

Liability of Trident SA

     54   

Section 14.12

 

Third Party Beneficiaries

     54   

Section 14.13

 

Title and Headings

     54   

Section 14.14

 

Exhibits and Schedules

     54   

Section 14.15

 

Governing Law

     55   

Section 14.16

 

Consent to Jurisdiction

     55   

Section 14.17

 

Specific Performance

     55   

Section 14.18

 

Waiver of Jury Trial

     55   

Section 14.19

 

Force Majeure

     56   

Section 14.20

 

Complete Agreement; Construction

     56   

Section 14.21

 

Changes in Law

     56   

Section 14.22

 

Authority

     56   

Section 14.23

 

Severability

     56   

Section 14.24

 

Tax Sharing Agreements

     57   

Section 14.25

 

Exclusivity

     57   

Section 14.26

 

No Duplication; No Double Recovery

     57   

 

- iii -


TABLE OF CONTENTS

 

         Page

Schedules

    

Schedule 1.1(25)

  List of ATOB Entities   
Schedule 1.1(76)(c)   List of U.S. state and local Taxes   
Schedule 1.1(112)   List of Qualified Tax Counsel   
Schedule 1.1(121)   List of Section 355 Entities   
Section 1.1(146)   Certain Payments Excluded from Threshold Base Amount   
Schedule 1.1(148)   List of Transferee Entities   
Schedule 1.1(149)   List of Transferor Entities   
Schedule 2.1(a)   Preparation of Pre-Distribution Income Tax Returns   
Schedule 2.2(a)   Preparation of Straddle Income Tax Returns   
Schedule 9.2(c)(iv)   List of the Documents / Information to be made Available   
Schedule 9.2(e)(ii)   U.S. AMP Internal Costs and Expenses   
Schedule 9.2(g-1)   Form of Power of Attorney   
Schedule 9.2(g-2)   Activities Requiring Signature   


TAX SHARING AGREEMENT

THIS TAX SHARING AGREEMENT (this “ Agreement ”) is made and entered into as of the 28th day of September, 2012, by and among Tyco International Ltd., a corporation limited by shares ( Aktiengesellschaft ) organized under the laws of Switzerland (“ Trident International”), Tyco International Finance S.A., a corporation organized under the laws of Luxembourg (“Trident SA,” and, together with Trident International, “Trident”), The ADT Corporation, a Delaware corporation (“ Athens NA ”), and Pentair Ltd., a corporation limited by shares ( Aktiengesellschaft ) organized under the laws of Switzerland (“ Fountain ”). Each of Trident International, Trident SA, Athens NA and Fountain is sometimes referred to herein as a “ Party ” and collectively, as the “ Parties ”.

W I T N E S S E T H:

WHEREAS, Trident International, acting through its direct and indirect Subsidiaries, currently conducts a number of businesses, including (i) the Athens North American R/SB Business, (ii) the Fountain Business, and (iii) the Trident Retained Business;

WHEREAS, the Board of Directors of Trident International (the “ Board ”) has determined that it is appropriate, desirable and in the best interests of Trident International and its stockholders to separate the Fountain Business from Trident (the “ Fountain Separation ”) and to divest the Fountain Business in the manner contemplated by the Separation and Distribution Agreement by and among Trident International, Fountain and Athens NA dated as of March 27, 2012 (as the same may be amended, restated or otherwise modified from time to time in accordance with its terms, “ Fountain Separation Agreement ”), and the Merger Agreement, dated as of March 27, 2012, among Trident International, Fountain, Panthro Acquisition Co., a Delaware corporation, Panthro Merger Sub, Inc., a Minnesota corporation (“ Merger Sub ”) and Pentair, Inc., a Minnesota corporation (“ Patriot ”) (as the same may be amended, restated or otherwise modified from time to time in accordance with its terms, the “ Merger Agreement ”);

WHEREAS, the Board has determined that it is appropriate, desirable and in the best interests of Trident International and its stockholders to separate from Trident the Athens North American R/SB Business, which shall be owned and conducted, directly or indirectly, by Athens NA (the “ Athens NA Separation ”) pursuant to the Separation and Distribution Agreement by and between Trident International, Trident SA, Athens NA and ADT LLC, an entity organized and existing under the laws of Delaware, dated as of September 26, 2012 (as the same may be amended, restated or otherwise modified from time to time in accordance with its terms, the “ Athens NA Separation Agreement ”);

WHEREAS, in order to effectuate the Fountain Separation and the Athens NA Separation, the Board has determined that it is appropriate, desirable and in the best interests of Trident and its stockholders (i) to enter into a series of transactions whereby (A) Trident and/or one or more members of the Trident Group will, collectively, own all of the Trident Retained Assets and assume (or retain) all of the Trident Retained Liabilities, (B) Athens NA and/or one or more members of the Athens North American R/SB Group will, collectively, own all of the Athens North American R/SB Assets and assume (or retain) all of the Athens North American R/SB Liabilities and (C) Fountain and/or one or more members of the Fountain Group will,

 

- 1 -


collectively, own all of the Fountain Assets and assume (or retain) all of the Fountain Liabilities and (ii) for Trident to distribute to the holders of Trident Common Stock on a pro rata basis (in each case without consideration being paid by such stockholders) (A) all of the outstanding shares of common stock, par value $0.01 per share, of Athens NA (the “ Athens NA Common Stock ”) and (B) all of the outstanding shares of common stock, par value CHF 0.50 per share, of Fountain (the “ Fountain Common Stock ”) (such transactions as they may be amended or modified from time to time, collectively, the “ Plan of Separation ”);

WHEREAS, it is the intention of the Parties that the Athens NA Distribution and the Fountain Distribution pursuant to the Plan of Separation qualify as tax-free to Trident under Section 355(c) and 361(c), respectively, of the Internal Revenue Code of 1986, as amended (the “ Code ”), and as tax-free to holders of Trident Common Stock under Section 355(a) of the Code;

WHEREAS, the parties intend that certain internal transactions undertaken in anticipation of the Athens NA Distribution and the Fountain Distribution will qualify for favorable treatment under the Code; and

WHEREAS, in connection with the Plan of Separation, the Parties desire to set forth their agreement on the rights and obligations with respect to handling and allocating Taxes and related matters.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, provisions and covenants contained in this Agreement, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.1 Definitions . As used in this Agreement, the following terms shall have the following meanings:

(1) “ AAA ” has the meaning set forth in Section 13.2.

(2) “ Acceptance Notice ” has the meaning set forth in Section 9.2(d)(iii).

(3) “ Active Business ” means the business conducted by each of the ATOB Entities as of the date of the applicable Distribution.

(4) “ Administration Vote Notice ” has the meaning set forth in Section 9.2(d)(i).

(5) “ Affiliate ” means, when used with respect to a specified Person, a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such specified Person. For the purposes of this definition, “control,” when used with respect to any specified Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by Contract or otherwise. It is expressly agreed that no Party or member of any Group shall be deemed to be an Affiliate of another Party or member of such other Party’s Group by reason of having one or more directors in common.

 

- 2 -


(6) “ Agreement ” has the meaning set forth in the preamble hereto.

(7) “ Ancillary Agreements ” means any agreement defined as an “Ancillary Agreement” in either the Athens NA Separation Agreement or the Fountain Separation Agreement, except that such term shall not include this Agreement.

(8) “ Assets ” has the meaning set forth in the Separation and Distribution Agreements.

(9) “ Athens Brand/Secondary Brands ” shall mean (A) any Source Indictor to the extent comprising or including (i) the wordmark ADT in any style, design or font, (ii) the shape of an octagon in any shade of the color blue (in the case of (i) and (ii), including but not limited to the Source Indicators set forth on Schedule A to that certain Trademark Agreement by and among ADT Services GmbH (“ ADT Services”) , a company organized under the laws of Switzerland, on the one hand, ADT US Holdings, Inc. (“ ADT US ”), a corporation organized under the laws of Delaware, and, solely for purposes of Section 6.3 therein, Trident and Athens (the “ Trademark Agreement ”), (iii) the phrase ALWAYS THERE, and/or (iv) any one or more of the terms SAFEWATCH, SAFEWATCH CELLGUARD and VIDEOVIEW, and (B) any secondary brands to the extent identified as an “ADT Secondary Brand” or a “Tyco Secondary Brand” by the Trademark Agreement.

(10) “ Athens NA ” has the meaning set forth in the preamble.

(11) “ Athens NA Brand/Secondary Brands ” means all property sold, transferred, or assigned pursuant to (A) the Purchase Agreement of Intellectual Property Rights and Domain Names Relating to Residential Security Business in North America Dated 21 September 2012, 14:15 p.m. Swiss Time by and between ADT Services and Tyco International Services Holding GmbH, a company organized under the laws of Switzerland (“TISH”), and (B) the Assignment Agreement of Intellectual Property Rights and Domain Names Relating to Residential Security Business in North America Dated 21 September 2012 at 14:40 p.m. Swiss Time by and between TISH, Tyco International Holding S.a.r.l., a company organized under the laws of Luxembourg (“TSarl”), and ADT Services, in each case, including, without limitation, the Athens Brand (including certain registrations and applications) in the Athens NA Residential Territory (the “ Athens NA Brand ”) and the ADT Secondary Brands as such secondary brands are defined in the Trademark Agreement.

(12) “ Athens NA Brand/Secondary Brands Transactions ” means, collectively, (i) the assignment of the Athens NA Brand/Secondary Brands by ADT Services to TISH and (ii) the assignment of the Athens NA Brand/Secondary Brands by TISH to TSarl, each in accordance with the Plan of Separation and the agreements described in Section 1.1(11) of this Agreement.

(13) “ Athens NA Brand/Secondary Brands Transactions Tax Contingencies ” means any liability of ADT Services or TISH for Swiss federal or cantonal Taxes arising solely as a result of the Athens NA Brand/Secondary Brands Transactions.

 

- 3 -


(14) “ Athens NA Common Stock ” has the meaning set forth in the recitals hereto.

(15) “ Athens NA Distribution ” has the meaning ascribed to the term “ADT NA Distribution” in the Athens NA Separation Agreement.

(16) “ Athens NA Distribution Date ” has the meaning ascribed to the term “ADT NA Distribution Date” in the Athens NA Separation Agreement.

(17) “ Athens NA Residential Territory ” means Canada, the United States, Puerto Rico and U.S. Virgin Islands.

(18) “ Athens NA Second Sharing Percentage ” means fifty-eight percent (58%).

(19) “ Athens NA Separation Agreement ” has the meaning set forth in the recitals.

(20) “ Athens NA Sharing Percentage ” means twenty-seven and one-half percent (27.5%).

(21) “ Athens North American R/SB Assets ” has the meaning ascribed to the term “ADT North American R/SB Assets” in the Athens NA Separation Agreement.

(22) “ Athens North American R/SB Business ” has the meaning ascribed to the term “ADT North American R/SB Business” in the Athens NA Separation Agreement.

(23) “ Athens North American R/SB Group ” has the meaning ascribed to the term “ADT North American R/SB Group” in the Athens Separation Agreement.

(24) “ Athens North American R/SB Liabilities ” has the meaning ascribed to the term “ADT North American R/SB Liabilities” in the Athens NA Separation Agreement.

(25) “ ATOB Entities” mean the entities listed on Schedule 1.1(25).

(26) “ Audit ” means any audit (including a determination of the status of qualified and non-qualified employee benefit plans), assessment of Taxes, other examination by or on behalf of any Taxing Authority (including notices), application for and negotiation of a voluntary disclosure agreement with a Taxing Authority, proceeding, or appeal of such a proceeding relating to Taxes, whether administrative judicial, including proceedings relating to competent authority determinations initiated by a Party or any of its Subsidiaries, or any reporting obligation arising out of an audit, such as State RAR Returns and other amended Returns.

(27) “ Audit External Advisor ” has the meaning set forth in Section 9.2(c)(iii).

 

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(28) “ Audit Management Party ” means the Party responsible for administering and controlling an Audit pursuant to Section 9.2(a), as may be changed from time to time in accordance with Section 9.2(d).

(29) “ Audit Representative ” means, with respect to each Party, the Chief Tax Officer or such other officer that may be designated by that Party’s Chief Financial Officer from time to time.

(30) “ Bankruptcy ” means, with respect to a Person:

(a) the filing of an application by the Person for, or a consent to, the appointment of a trustee of the Person’s assets;

(b) the filing by the Person of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing the Person’s inability to pay debts as they come due;

(c) a general assignment by such Person for the benefit of creditors;

(d) the filing by the Person of an answer admitting the material allegations of, or the Person’s consenting to, or defaulting in answering a bankruptcy petition filed against the Person in any bankruptcy proceeding; or

(e) the entry of an order, judgment or decree by any court of competent jurisdiction adjudicating the Person bankrupt or appointing a trustee, custodian, receiver or liquidator of such Person’s assets, which order, judgment or decree continues unstayed and in effect for any period of sixty (60) days.

(31) “ BHS ” means Brink’s Home Security Holdings, Inc.

(32) “ Brinks Separation Transaction Tax Contingencies ” means any liability of BHS under the tax sharing agreement between BHS and The Brink’s Company dated October 31, 2008.

(33) “ Broadview Acquisition Transaction ” means the merger of BHS with and into Barricade Merger Sub, Inc. as described in the Agreement and Plan of Merger by and among Trident, Barricade Merger Sub, Inc., BHS, and ADT Security Services, Inc. dated as of January 18, 2010, as amended.

(34) “ Broadview Acquisition Transaction Tax Contingencies ” means any Income Tax liability arising solely as a result of and in respect to the Broadview Acquisition Transaction.

(35) “ Business Day ” means any day that is not a Saturday, a Sunday or any other day on which banks are required or authorized by Law to be closed in The City of New York or Schaffhausen, Switzerland.

 

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(36) “ Canadian Distribution Transaction ” means the transactions pursuant to which ADT Security Services Canada, Inc. will transfer its assets used in the Trident Retained Business to Tyco Fire & Security Canada, Inc.

(37) “ Change of Control ” means the occurrence of any of the following: (i) the direct or indirect sale, transfer or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of a Party and the members of such Party’s Group taken as a whole to any “person” (as that term is used in Section 13(d) of the Exchange Act); (ii) the adoption of a plan relating to the liquidation or dissolution of a Party other than (A) the consolidation with, merger into or transfer of all or part of the properties and assets of any Subsidiary of a Party to such Party or any other Subsidiary of such Party, and (B) the merger of a Party with an Affiliate solely for the purpose of reincorporating (or re-forming) the Party in another jurisdiction; (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as defined above) becomes the Beneficial Owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have “beneficial ownership” of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than fifty percent (50%) of the voting stock of a Party, measured by voting power rather than number of shares; or (iv) a Party consolidates with, or merges with or into, directly or indirectly, any Person, or any Person consolidates with, or merges with or into, a Party, in any such event pursuant to a transaction in which any of the outstanding voting stock of such Party or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the voting stock of such Party outstanding immediately prior to such transaction is converted into or exchanged for voting stock of the surviving or transferee Person constituting a majority of the outstanding shares of such voting stock of such surviving or transferee Person (immediately after giving effect to such issuance).

(38) “ CIT Tax Sharing Agreement ” means the Tax Agreement by and between Trident and CIT Group Inc. dated July 2, 2002.

(39) “ Claimed Deductions ” has the meaning set forth in Section 6.1(a).

(40) “ Claiming Party ” has the meaning set forth in Section 6.1(a).

(41) “ Closing Date ” has the meaning set forth in the Merger Agreement.

(42) “ Code ” has the meaning set forth in the recitals to this Agreement.

(43) “ Common Parent ” means (a) for U.S. federal income tax purposes, the “common parent corporation” of an “affiliated group” (in each case, within the meaning of Section 1504 of the Code) filing a U.S. federal consolidated income tax return, or (b) for state, local or non-U.S. income tax purposes, the common parent (or similar term), which need not be a corporation, of a consolidated, unitary, combined, group, Organschaft or similar group.

(44) “ Correlative Benefit ” means a decrease in a Post-Distribution Tax Period Tax payment obligation by a Party (or its Subsidiaries) or an increase in a Post-Distribution Tax Period Tax benefit of a Party (or its Subsidiaries) that occurs as a direct result of an Audit adjustment pursuant to a Pre-Distribution Shared Tax Audit that results in a payment obligation to such Party by another Party or Parties.

 

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(45) “ Correlative Detriment ” means an increase in a Tax payment obligation by a Party (or its Subsidiaries) or a reduction in a Tax benefit of a Party (or its Subsidiaries) that occurs as a direct result of the Tax position that is the basis for a Refund that is described in clause (3) of Section 4.1(a).

(46) “ Covidien ” means Covidien Ltd., a corporation organized under the laws of Bermuda.

(47) “ Deferred Compensation Deduction ” means an Income Tax deduction arising with respect to (a) the Trident Deferred Compensation Liabilities, the Trident Deferred Stock Units, the Fountain Deferred Compensation Liabilities, the Fountain Deferred Stock Units, the Athens NA Deferred Compensation Liabilities, or the Athens NA Deferred Stock Units; (b) the Trident Options, the Fountain Options or the Athens NA Options, including, without limitation, a deduction arising from disqualifying dispositions relating to prior exercises of stock options issued pursuant to the Trident International Ltd. Employee Stock Purchase Plan; or (c) the Trident Restricted Stock, the Trident Restricted Stock Units, the Trident Performance Share Units, the Fountain Restricted Stock, the Fountain Restricted Stock Units, the Fountain Performance Share Units, the Athens NA Restricted Stock, the Athens NA Restricted Stock Units, or the Athens NA Performance Share Units, as such terms are defined in the Fountain Separation Agreement or the Athens NA Separation Agreement.

(48) “ Dispute ” has the meaning set forth in Section 13.1.

(49) “ Dispute Notice ” has the meaning set forth in Section 13.1.

(50) “ Distribution ” or “ Distributions ” means, individually or collectively:

(a) the Athens NA Distribution,

(b) the Fountain Distribution, and

(c) to the extent not otherwise included in (a) or (b), the actual or deemed distributions described in the IRS Ruling and the Tax Representation Letters that are intended to qualify under Sections 355 and/or 361 of the Code.

(51) “ Distribution Date ” means (i) with respect to Athens NA, the Athens NA Distribution Date and (ii) with respect to Fountain, the Fountain Distribution Date.

(52) “ Distribution Taxes ” means any and all Taxes (a) required to be paid by or imposed on a Party or any of its Affiliates resulting from, or directly arising in connection with, the failure of a Distribution to qualify under Section 355(a) or (c) of the Code or, if applicable, Section 361(c) of the Code, or the application of Section 355(d) or (e) of the Code to the Distributions (or the failure to qualify under or the application of corresponding provisions of the Laws of other jurisdictions); (b) required to be paid by or imposed on a Party or any of its Affiliates resulting from, or directly arising in connection with the failure of the Canadian

 

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Distribution Transaction to qualify for tax-free treatment, in whole or in part; (c) required to be paid by or imposed on a Party or any of its Affiliates resulting from, or directly arising in connection with, the failure of any transaction undertaken in connection with or pursuant to the Plan of Separation to qualify for tax-free treatment, in whole or in part, or (d) required to be paid by Trident as a result of the failure of either the Athens NA Distribution or the Fountain Distribution to qualify for an exemption from withholding tax in Switzerland; but, with respect to each of (a), (b), (c) and (d) above, only to the extent that such qualification or tax-free treatment both (x) was intended by the Parties, as reflected in the Plan of Separation, the IRS Ruling or any Non-U.S. Ruling, or any written advice of a Qualified Tax Advisor shared with all the Parties no more than thirty (30) days after the Closing Date or the Athens NA Distribution Date, whichever is later, and (y) was claimed by one or more of the Parties (or any of their Affiliates) on a Tax Return for a Pre-Distribution Tax Period or a Straddle Tax Period.

(53) “ Due Date ” means the date (taking into account all valid extensions) upon which a Tax Return is required to be filed with or Taxes are required to be paid to a Taxing Authority, whichever is applicable.

(54) “ Effective Time ” has the meaning (i) with respect to the Fountain Distribution, set forth in the Fountain Separation Agreement and (ii) with respect to the Athens NA Distribution, set forth in the Athens NA Separation Agreement.

(55) “ Elected Party ” has the meaning set forth in Section 9.2(d)(iii).

(56) “ Employing Party ” has the meaning set forth in Section 6.1(a).

(57) “ Fault ” has the meaning set forth in Section 5.3.

(58) “ Final Determination ” means the final resolution of liability for any Tax for any taxable period, by or as a result of:

(a) a final decision, judgment, decree or other order by any court of competent jurisdiction that can no longer be appealed;

(b) a final settlement with the IRS, a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of other jurisdictions, which resolves the liability for the Taxes addressed in such agreement for any taxable period;

(c) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered by the jurisdiction imposing the Tax;

(d) a concluded voluntary disclosure agreement with any state, or a comparable agreement under the Laws of other jurisdictions;

(e) any reporting obligation arising out of a final resolution of liability for any Tax such as State RAR Returns or other amended Returns; or

 

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(f) any other final disposition.

(59) “ First Tax Contingency Amount ” means five hundred million dollars ($500,000,000).

(60) “ Flow SpinCo U.S. ” means Trident Fountain US Holding Corporation.

(61) “ Former Athens NA Employee ” has the meaning set forth in the Athens NA Separation Agreement.

(62) “ Former Fountain Employee ” has the meaning set forth in the Fountain Separation Agreement.

(63) “ Former Trident Employee ” has the meaning set forth in the Separation and Distribution Agreements.

(64) “ Fountain ” has the meaning set forth in the recitals to this Agreement.

(65) “ Fountain Assets ” has the meaning set forth in the Fountain Separation Agreement.

(66) “ Fountain Business ” has the meaning set forth in the Fountain Separation Agreement.

(67) “ Fountain Common Stock ” has the meaning set forth in the recitals hereto.

(68) “ Fountain Distribution ” has the meaning set forth in the Fountain Separation Agreement.

(69) “ Fountain Distribution Date ” has the meaning set forth in the Fountain Separation Agreement.

(70) “ Fountain Group ” has the meaning set forth in the Fountain Separation Agreement.

(71) “ Fountain Liabilities ” has the meaning set forth in the Fountain Separation Agreement.

(72) “ Fountain Second Sharing Percentage ” means forty-two percent (42%).

(73) “ Fountain Separation Agreement ” has the meaning set forth in the recitals to this Agreement.

(74) “ Fountain Sharing Percentage ” means twenty percent (20%).

 

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(75) “ Group ” means the Trident Group, the Fountain Group, or the Athens North American R/SB Group.

(76) “ Income Taxes ” mean:

(a) all Taxes based upon, measured by, or calculated with respect to (i) net income or profits (including, but not limited to, any capital gains, minimum tax or any Tax on items of tax preference, but not including sales, use, real, or personal property, gross or net receipts, value added, excise, leasing, transfer or similar Taxes), or (ii) multiple bases (including, but not limited to, corporate franchise, doing business and occupation Taxes) if one or more bases upon which such Tax is determined is described in clause (a)(i) above;

(b) all U.S., state, local or non-U.S. franchise Taxes;

(c) all U.S., state and local Taxes or non-U.S. Taxes not otherwise included in (a) or (b) above that are listed on Schedule 1.1(76)(c) ; and

(d) including in the case of each of (a), (b), and (c) above, any related interest and any penalties, additions to such Tax or additional amounts imposed with respect thereto by any Taxing Authority.

(77) “ Income Tax Returns ” mean all Tax Returns that relate to Income Taxes.

(78) “ Indemnified Party ” means the Party that is or may be entitled pursuant to this Agreement to receive any payments (including reimbursement for Taxes or costs and expenses) from another Party or Parties to this Agreement.

(79) “ Indemnifying Party ” means the Party that is or may be required pursuant to this Agreement to make indemnification or other payments (including reimbursement for Taxes and costs and expenses) to another Party to this Agreement.

(80) “ Initial Audit Management Party ” means Trident.

(81) “ IRS ” means the United States Internal Revenue Service or any successor thereto, including, but not limited to its agents, representatives, and attorneys.

(82) “ IRS Ruling ” means the requests submitted to the IRS for all private letter rulings to be obtained by Trident from the IRS in connection with the Plan of Separation, and any supplemental materials submitted to the IRS relating thereto, and the IRS private letter rulings received by Trident with respect to the Plan of Separation.

(83) “ Law ” means any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, administrative pronouncement, order, requirement or rule of law (including common law), or any income tax treaty.

 

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(84) “ LIBOR ” means an interest rate per annum equal to the applicable three-month London Interbank Offered Rate for deposits in United States dollars published in the Wall Street Journal .

(85) “ Majority of the Parties ” means the consent of at least two of the Parties.

(86) “ McDermott ” means McDermott Will & Emery LLP.

(87) “ Mediation Period ” has the meaning set forth in Section 13.2.

(88) “ Merger ” has the meaning set forth in the Merger Agreement.

(89) “ Merger Agreement ” has the meaning set forth in the recitals.

(90) “ New York Courts ” has the meaning set forth in Section 14.16.

(91) “ Non-Income Tax Returns ” mean all Tax Returns other than Income Tax Returns.

(92) “ Non-U.S. Tax Rulings ” means the requests submitted to the Taxing Authorities in Canada, Switzerland, Puerto Rico, and Luxembourg for all Tax rulings to be obtained by Trident from such Taxing Authorities in connection with the Plan of Separation, and any supplemental materials submitted to the Taxing Authorities relating thereto, and the Tax rulings received by Trident with respect to the Plan of Separation from such Taxing Authorities.

(93) “ Participating Party ” has the meaning set forth in Section 9.2(c)(i).

(94) “ Party ” has the meaning set forth in the preamble.

(95) “ Patriot ” has the meaning set forth in the recitals hereto.

(96) “ Person ” means any natural person, firm, individual, corporation, business trust, joint venture, association, company, limited liability company, partnership, or other organization or entity, whether incorporated or unincorporated, or any governmental entity.

(97) “ Plan of Separation ” has the meaning set forth in the recitals.

(98) “ Post-Distribution Income Tax Returns ” means, collectively, all Income Tax Returns required to be filed by a Party or its Affiliates for a Post-Distribution Tax Period.

(99) “ Post-Distribution Ruling ” has the meaning set forth in Section 5.4.

(100) “ Post-Distribution Tax Period ” means a Tax year beginning and ending after the Distribution Date.

 

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(101) “ Pre-Distribution Income Tax Returns ” means, collectively, all Income Tax Returns required to be filed by a Party or its Affiliates for a Pre-Distribution Tax Period.

(102) “ Pre-Distribution Non-Income or Non-U.S. Tax Audit ” means any Audit of any Party or its Affiliates related to any (a) U.S. federal, state, or local Taxes other than Income Taxes, or (b) any non-U.S. Taxes, in each case with respect to a Tax Return filed, or allegedly required to be filed, for any Pre-Distribution Tax Period or Straddle Tax Period.

(103) “ Pre-Distribution Shared Tax Audit ” means (a) Pre-Distribution U.S. Income Tax Audits; provided , however , that if a Preparing Party takes a position on or after the date of the Fountain Separation Agreement with respect to any item, other than an item related to Distribution Taxes, reflected on a Pre-Distribution Income Tax Return or Straddle Income Tax Return filed on or after the date of the Fountain Separation Agreement and such position is not in accordance with Section 2.1(a)(i) or Section 2.2(a)(i), as applicable, then solely for purposes of Section 9.3(a), such item shall not be treated as covered by a Pre-Distribution Shared Tax Audit to the extent that the liability arising under such Audit with respect to such item exceeds the liability that would have arisen under such Audit with respect to such item if the position with respect to such item had been in accordance with Section 2.1(a)(i) or Section 2.2(a)(i), as applicable; (b) any Audit that includes, or may include, an adjustment that gives rise to a Distribution Tax described in Section 5.1(a); and (c) for the avoidance of doubt, any Audit to which section 9.3(a), (b), (d), or (e) of the Trident 2007 Tax Sharing Agreement applies. For the avoidance of doubt, a Preparing Party shall not be treated as having taken a position on or after the date of the Fountain Separation Agreement to the extent such position is reflected in a draft Tax Return prepared before the date of the Fountain Separation Agreement.

(104) “ Pre-Distribution Tax Period ” means a Tax year beginning and ending on or before the Distribution Date.

(105) “ Pre-Distribution U.S. Income Tax Audit ” means any Audit of any U.S. federal, state, or local Income Tax Return filed, or allegedly required to be filed, for any Pre-Distribution Tax Period or Straddle Tax Period by a Party or its Affiliates; provided , further , that any Audit involving competent authority proceedings and that (a) includes an item related to or arising from an intercompany transfer pricing adjustment under Section 482 of the Code and the Treasury Regulations thereunder, or an analogous provision under U.S. state or local or non-U.S. Law, and (b) involves a Taxing Authority outside of the United States, shall be treated as a Pre-Distribution U.S. Income Tax Audit for purposes of such item solely for purposes of the determination as to whether to proceed to competent authority and for purposes of the related U.S. competent authority proceedings.

(106) “ Pre-2007 Distribution Tax Period ” means a Tax year beginning and ending on or before June 29, 2007, or any Tax year beginning before June 29, 2007, and ending after June 29, 2007.

(107) “ Pre-2007 Distribution Transfer Pricing Tax Audit ” means any Audit of any Party or its Affiliates of any Income Taxes related to or arising from (a) an intercompany transfer pricing adjustment under Section 482 of the Code and the Treasury Regulations

 

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thereunder, or an analogous provision under U.S. state or local or non-U.S. Law, or (b) a determination that the activities of a Party or its Affiliates give rise to a “permanent establishment,” presence, or nexus in any jurisdiction that could subject it to Income Tax in such jurisdiction, in each of (a) and (b), for any Tax year beginning and ending on or before June 29, 2007, or any Tax year beginning before June 29, 2007, and ending after June 29, 2007.

(108) “ Preparing Party ” has the meaning set forth in Section 2.1(a).

(109) “ Prime Rate ” has the meaning set forth in the Separation and Distribution Agreements.

(110) “ Proposed Acquisition Transaction ” means a transaction or series of transactions (or any agreement, understanding, arrangement, or substantial negotiations within the meaning of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, to enter into a transaction or series of related transactions), as a result of which any of the Parties or any of the Section 355 Entities (or any successor thereto) would merge or consolidate with any other Person, or as a result of which any Person or any group of Persons would (directly or indirectly) acquire, or have the right to acquire (through an option or otherwise), from any of the Parties or any of their Affiliates (or any successor thereto) and/or one or more holders of their stock, respectively, any amount of stock of any of the Parties or any of the Section 355 Entities, as the case may be, that would, when combined with any other changes in ownership of the stock of such Party or any of the Section 355 Entities, comprise more than thirty-five percent (35%) of (a) the value of all outstanding stock of such Party or any of the Section 355 Entities as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series, or (b) the total combined voting power of all outstanding stock of such Party or any of the Section 355 Entities as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series. For purposes of determining whether a transaction constitutes an indirect acquisition for purposes of the first sentence of this definition, any recapitalization or other action resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted accordingly by the Parties in good faith.

(111) “ Qualified Tax Advisor ” means any Qualified Tax Counsel or any of PricewaterhouseCoopers LLP or its Affiliates, Deloitte LLP or its Affiliates, Ernst & Young LLP or its Affiliates, or KPMG LLP or its Affiliates.

(112) “ Qualified Tax Counsel ” means any of the law firms listed on Schedule 1.1(112).

(113) “ Refund ” means any refund of Taxes (including any overpayment of Taxes that can be refunded or, alternatively, applied to future Taxes payable), including any interest paid on or with respect to such refund of Taxes; provided , however , that if a refund of Taxes is includible in taxable income based on applicable Tax Law, then the amount of the Refund shall be determined by multiplying (x) the amount of the refund that is required to be

 

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included in taxable income by (y) sixty-two percent (62%); provided , further , that upon any change after the Effective Time in the highest marginal U.S. federal income Tax rate applicable to corporations, the percentage in clause (y) shall be increased or decreased by the amount of the percentage point change in such rate with effect in the same Tax year as the effective date applicable to such change in rate.

(114) “ Replaced Audit Management Party ” has the meaning set forth in Section 9.2(d)(iv).

(115) “ Requesting Party ” has the meaning set forth in Section 5.4.

(116) “ Restricted Period ” means (a) with respect to Trident and Athens NA, the period beginning at the Effective Time of the Fountain Distribution and the Athens NA Distribution, or whichever is earlier, and ending on the two-year anniversary of the day after the Athens NA Distribution Date and the Fountain Distribution Date, or whichever is later, and (b) with respect to Fountain, the period beginning at the Effective Time of the Fountain Distribution and ending on the two-year anniversary of the day after the Fountain Distribution Date.

(117) “ Rules ” has the meaning set forth in Section 13.3.

(118) “ Second Calendar Quarter ” has the meaning set forth in Section 8.1(a)(i).

(119) “ Second Sharing Percentage ” means, with respect to Fountain, the Fountain Second Sharing Percentage, and with respect to Athens NA, the Athens NA Second Sharing Percentage.

(120) “ Second Tax Contingency Amount ” means seven hundred twenty-five million dollars ($725,000,000).

(121) “ Section 355 Entities ” mean the entities listed on Schedule 1.1(121) .

(122) “ Separation and Distribution Agreements ” means the Fountain Separation Agreement and the Athens NA Separation Agreement.

(123) “ Shared Refunds ” has the meaning set forth in Section 4.1(a).

(124) “ Shared Taxes ” means all Taxes the payment of which would be included in the Threshold Base Amount.

(125) “ Sharing Percentages ” means, with respect to Trident, the Trident Sharing Percentage, with respect to Fountain, the Fountain Sharing Percentage, and with respect to Athens NA, the Athens NA Sharing Percentage.

(126) “ Source Indicators ” has the meaning set forth in the Trademark Agreement.

 

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(127) “ Spinco Party ” or “ Spinco Parties ” means, individually or collectively, Fountain and Athens NA.

(128) “ State RAR Returns ” has the meaning set forth in Section 4.4(a).

(129) “ Straddle Income Tax Returns ” means, collectively, all Income Tax Returns required to be filed by a Party or its Affiliates for a Straddle Tax Period.

(130) “ Straddle Tax Period ” means a Tax year beginning before the Distribution Date and ending after the Distribution Date.

(131) “ Stub Period ” means the Tax year or years or portions thereof beginning on the day after the Distribution of Flow SpinCo U.S. by Keystone France Holdings Corp. and ending on the Fountain Distribution Date (regardless of whether the Tax year terminates on the Fountain Distribution Date).

(132) “ Subsidiary ” has the meaning set forth in the Separation and Distribution Agreements.

(133) “ Tax ” or “ Taxes ” whether used in the form of a noun or adjective, means taxes on or measured by income, franchise, gross receipts, sales, use, excise, payroll, personal property, real property, ad-valorem, value-added, leasing, leasing use or other taxes, levies, imposts, duties, charges, or withholdings of any nature. Whenever the term “Tax” or “Taxes” is used it shall include penalties, fines, additions to tax and interest thereon.

(134) “ Tax Attributes ” mean for U.S. federal, state, local, and non-U.S. Income Tax purposes, earnings and profits, tax basis, net operating and capital loss carryovers or carrybacks, alternative minimum Tax credit carryovers or carrybacks, general business credit carryovers or carrybacks, income tax credits or credits against income tax, disqualified interest and excess limitation carryovers or carrybacks, overall foreign losses, research and experimentation credit base periods, and all other items that are determined or computed on an affiliated group basis (as defined in Section 1504(a) of the Code determined without regard to the exclusion contained in Section 1504(b)(3) of the Code), or similar Tax items determined under applicable Tax law.

(135) “ Tax Benefit Realized ” means with respect to a Party and its Subsidiaries an amount equal to the product of (x) any payment made under this Agreement or either of the Separation and Distribution Agreements that is allowable as a deduction for U.S. Income Tax Purposes, and (y) thirty-eight percent (38%); provided , however , upon any change after the Effective Time in the highest marginal U.S. federal income Tax rate applicable to corporations, the percentage in clause (y) shall be increased or decreased by the amount of the percentage point change in such rate with effect in the same Tax year as the effective date applicable to such change in rate.

(136) “ Tax Deposit ” has the meaning set forth in Section 9.3(f).

(137) “ Tax-Free Status ” means the qualification of a Distribution or any other transaction contemplated by the IRS Ruling or any Tax Opinion as a transaction in which

 

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gain or loss is not recognized, in whole or in part, and no amount is included in income, including by reason of Distribution Taxes, for U.S. federal, state, or local income tax purposes (other than intercompany items, excess loss accounts or other items required to be taken into account pursuant to Treasury Regulations promulgated under Section 1502 of the Code) or the qualification of a Distribution or any other transaction contemplated by a Non-U.S. Tax Ruling as a transaction in which gain or loss is not recognized, in whole or in part, and no amount is included in income, including by reason of Distribution Taxes, for purposes of the Tax Laws applicable to such transactions in the relevant jurisdiction.

(138) “ Tax Group ” means any U.S. federal, state, local or non-U.S. affiliated, consolidated, combined, unitary, group relief, Organschaft, or a similar group as determined under applicable Tax Law that files a Tax Return or Tax Returns on a similar group basis.

(139) “ Tax Management Change Event ” has the meaning set forth in Section 9.2(d)(i).

(140) “ Tax Opinions ” means the Tax opinions and memoranda rendered by any Qualified Tax Advisor to Trident or any of its Affiliates in connection with the Plan of Separation.

(141) “ Tax Package ” means: (a) a pro forma Tax Return relating to the operations of a Spinco Party and/or its Subsidiaries that are required to be included in any Tax Group of which such Spinco Party and/or such Subsidiaries is or was a member for one or more days in a Tax year, and (b) all information relating to the operations of a Spinco Party and/or its Subsidiaries that is reasonably necessary to prepare and file the applicable Tax Return required to be filed by any Tax Group of which such Spinco Party or any of its Subsidiaries is or was a member for one or more days in a Tax year.

(142) “ Tax Representation Letter ” means any letter containing representations and covenants delivered by Trident or any of its Affiliates to a Qualified Tax Advisor in connection with a Tax Opinion.

(143) “ Tax Return ” means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, amended tax return, claim for refund, or declaration of estimated tax) required to be supplied to, or filed with, a Taxing Authority by a Party or any member of its Group in connection with the determination, assessment or collection of any Tax or the administration of any Laws, regulations, or administrative requirements relating to any Taxes.

(144) “ Taxing Authority ” means any governmental authority or any subdivision, agency, commission, or authority thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection, or imposition of any Tax (including the IRS).

 

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(145) “ TE ” means TE Connectivity, Ltd., a corporation limited by shares ( Aktiengesellschaft ) organized under the laws of Switzerland, formerly known as Trident Electronics Ltd.

(146) “ Threshold Base Amount ” means at any relevant time the sum of all prior amounts paid by all Parties under Section 5.1(a), Section 9.3(a) and Section 9.3(c), but for the avoidance of doubt not including any amounts paid or required to be paid by one Party to another Party pursuant to such sections (so as to avoid duplication of amounts included herein); provided , however , that such amount shall not include any amount paid with respect to the Brinks Separation Transaction Tax Contingencies, the Broadview Acquisition Transaction Tax Contingencies, the Trident Fountain Chile Transactions Tax Contingencies, Timing Items, Section 7.4, or the items specified on Section 1.1(146) ( up to the amount shown on such schedule); provided , further , that such sum shall be reduced by Shared Refunds actually received by any Party (it being understood by the Parties that such a reduction could result in a Threshold Base Amount that is below zero).

(147) “ Timing Items ” has the meaning set forth in Section 9.3(d).

(148) “ Transferee Entities ” means the entities listed on Schedule 1.1(148) .

(149) “ Transferor Entities ” means the entities listed on Schedule 1.1(149) .

(150) “ Treasury Regulations ” mean the final and temporary (but not proposed) income tax and administrative regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

(151) “ Trident ” has the meaning set forth in the preamble.

(152) “ Trident Common Stock ” has the meaning set forth in the Separation and Distribution Agreements.

(153) “ Trident Fountain Chile Transactions ” means the deemed contribution of all of the issued and outstanding stock of Tyco Flow Control Chile S.A., a corporation organized under the laws of Chile, to Tyco Flow Control Holding Chile LLC, a Delaware limited liability company, through an election pursuant to Treas. Reg. § 301.7701-3 to treat Tyco Flow Control Holding Chile LLC as a corporation for U.S. federal tax purposes, and the distribution by Tyco Fire & Security US Fire Holdings, Inc., a Delaware corporation, of all of the issued and outstanding interests in Tyco Flow Control Holding Chile LLC, to Tyco International Finance Group GmbH, a company organized under the laws of Switzerland.

(154) “ Trident Fountain Chile Transactions Tax Contingencies ” means any Taxes required to be paid by or imposed on a party or any of its Affiliates solely resulting from, or directly arising in connection with, the failure of (i) the Trident Fountain Chile Transactions to qualify as a reorganization described in Section 368(a)(1)(D) of the Code, or (ii) the distribution of Tyco Flow Control Holding Chile LLC by Tyco Fire & Security US Fire Holdings, Inc. to qualify as tax-free under Sections 355(a) and 361(c) of the Code, in either case, only if and to the extent such Taxes are not attributable to the Fault of any Party or any of its Affiliates.

 

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(155) “ Trident Group ” has the meaning set forth in the Separation and Distribution Agreements; provided , however , that the Trident Group shall not include any member of the Athens North American R/SB Group or the Fountain Group.

(156) “ Trident International ” has the meaning set forth in the preamble.

(157) “ Trident Retained Assets ” has the meaning set forth in the Separation and Distribution Agreements.

(158) “ Trident Retained Business ” has the meaning set forth in the Separation and Distribution Agreements.

(159) “ Trident Retained Liabilities ” has the meaning set forth in the Separation and Distribution Agreements.

(160) “ Trident SA ” has the meaning set forth in the preamble.

(161) “ Trident Sharing Percentage ” means fifty-two and one-half percent (52.5%).

(162) “ Trident 2007 Tax Sharing Agreement ” means the tax sharing agreement entered into as of June 29, 2007, by and among Trident, Covidien, and TE, as amended from time to time.

(163) “ Uncovered Liability ” means the excess liability with respect to an item arising under Audit with respect to such item described in the proviso to clause (a) of the definition of “Pre-Distribution Shared Tax Audit.”

(164) “ Unqualified Tax Opinion ” means an unqualified reasoned “will” opinion of Qualified Tax Counsel, which opinion is reasonably acceptable to each of the Parties and upon which each of the Parties may rely to confirm that a transaction (or transactions) will not result in Distribution Taxes. For purposes of this definition, an opinion is reasoned if it describes the reasons for the conclusions, including the facts and analysis supporting the conclusions.

(165) “ U.S. ” means the United States.

(166) “ U.S. Audit Management Party ” means the Audit Management Party with respect to a Pre-Distribution U.S. Income Tax Audit.

Section 1.2 References; Interpretation .

(a) References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. Unless the context otherwise requires, the words “include”, “includes”, and “including” when used in this Agreement shall be deemed to be followed by the phrase “without limitation”. Unless the context otherwise requires, references in this Agreement to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to,

 

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this Agreement. Unless the context otherwise requires, the words “hereof”, “hereby”, and “herein” and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement.

(b) The Parties agree that this Agreement is intended solely to determine the cash tax obligations of the Parties and does not address the manner or method of tax accounting for any item.

Section 1.3 Effective Time .

(a) The Parties acknowledge that the Plan of Separation contemplates a series of interrelated and intermediate internal transactions undertaken preparatory to and in contemplation of the Distributions that must be completed prior to the Effective Time in order to align and properly capitalize the Fountain Business, the Athens North American R/SB Business, and the Trident Retained Business.

(b) Notwithstanding that these interrelated and intermediate internal transactions must be given effect prior to the Distributions, the agreements contained herein, including, but not limited to, the manner in which Taxes are shared amongst the Parties, shall be effective no earlier than and only upon the Effective Time.

ARTICLE II

PREPARATION AND FILING OF TAX RETURNS

Section 2.1 Responsibility of Parties to Prepare and File Pre-Distribution Income Tax Returns .

(a) General . To the extent not previously filed and subject to the rights and obligations of each of the Parties set forth herein, Schedule 2.1(a) sets forth the Parties (each, a “ Preparing Party ”) that are responsible for preparing or causing to be prepared all Pre-Distribution Income Tax Returns and the Parties that are responsible, or whose Affiliate is responsible, pursuant to Section 2.1(b) for providing a Tax Package with respect to such Pre-Distribution Income Tax Returns. The Party responsible, or whose Affiliate is responsible, for filing a Pre-Distribution Income Tax Return under applicable Law shall file or cause to be filed such Pre-Distribution Income Tax Return with the applicable Taxing Authority. Pre-Distribution Income Tax Returns shall be prepared and filed in a manner (i) consistent with (and the Parties and their Affiliates shall not take any position inconsistent with) past practices of the Parties and their Affiliates or supported by an unqualified reasoned “should” or “will” opinion of a Qualified Tax Advisor, unless otherwise modified by a Final Determination or required by applicable Law, the IRS Ruling, the Non-U.S. Tax Rulings, the Tax Representation Letters, or the Tax Opinions; and (ii) to the extent consistent with clause (i), that minimizes the overall amount of Taxes due and payable on Pre-Distribution Income Tax Returns of all of the Parties by cooperating in making such elections or applications for group or other relief or allowances available in the taxing jurisdiction in which the Income Tax Returns are filed. Unless otherwise provided in this Agreement, the Preparing Party is responsible for the costs and expenses associated with such preparation. Payments between a Party or any of its Affiliates and another Party or any of its

 

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Affiliates for reasonable preparation costs and expenses shall be treated as amounts deductible by the paying Party and its Affiliates pursuant to Section 162 of the Code (and any corresponding provision of U.S. state or local or non-U.S. Tax Law), and none of the Parties or any of their Affiliates shall take any position inconsistent with such treatment, except to the extent a Final Determination with respect to the paying entity causes such payment to not be so treated (in which case the payment shall be treated in accordance with such Final Determination).

(b) Tax Package . To the extent not previously provided, each Party other than the Preparing Party shall (at its own cost and expense), to the extent that a Pre-Distribution Income Tax Return includes items of that Party or its Affiliates, prepare and provide or cause to be prepared and provided to the Preparing Party (and make available or cause to be made available to the other Party) a Tax Package relating to that Pre-Distribution Income Tax Return. Such Tax Package shall be provided in a timely manner consistent with the past practices of the Parties and their Affiliates. Schedule 2.1(a) sets forth the Parties that are responsible for providing a Tax Package relating to a Pre-Distribution Income Tax Return. In the event a Party does not fulfill its obligations pursuant to this Section 2.1(b), the Preparing Party shall be entitled, at the sole cost and expense of the defaulting Party, to prepare or cause to be prepared the information required to be included in the Tax Package for purposes of preparing any such Pre-Distribution Income Tax Return.

(c) Procedures Relating to the Preparation and Filing of Pre-Distribution Income Tax Returns .

(i) In the case of Pre-Distribution Income Tax Returns, to the extent not previously filed, no later than thirty (30) days prior to the Due Date of each such Tax Return (reduced to ten (10) days for state or local Pre-Distribution Income Tax Returns), the Preparing Party shall make available or cause to be made available drafts of such Tax Return (together with all related work papers) to each of the other Parties. The other Parties shall have access to any and all data and information necessary for the preparation of all such Pre-Distribution Income Tax Returns and the Parties shall cooperate fully in the preparation and review of such Tax Returns. Subject to the preceding sentence, no later than fifteen (15) days after receipt of such Pre-Distribution Income Tax Returns (reduced to five (5) days for state or local Pre-Distribution Income Tax Returns), each Party shall have a right to object to such Pre-Distribution Income Tax Return (or items with respect thereto) by written notice to the other Parties; such written notice shall contain such disputed item (or items) and the basis for its objection.

(ii) With respect to a Pre-Distribution Income Tax Return submitted by the Preparing Party to the other Parties pursuant to Section 2.1(c)(i), if the other Parties do not object by proper written notice within the time period described, such Pre-Distribution Income Tax Return shall be deemed to have been accepted and agreed upon, and to be final and conclusive, for purposes of this Section 2.1(c)(ii). If a Party does object by proper written notice within such applicable time period, the Parties shall act in good faith to resolve any such dispute as promptly as practicable; provided , however , that, notwithstanding anything to the contrary contained herein, if the Parties have not reached a final resolution with respect to all disputed items for which proper written notice was given within ten (10) days (reduced to two (2) days for

 

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state or local Pre-Distribution Income Tax Returns) prior to the Due Date for such Pre-Distribution Income Tax Return, such Tax Return shall be filed as prepared pursuant to this Section 2.1 (revised to reflect all initially disputed items that the Parties have agreed upon prior to such date).

(iii) In the event that a Pre-Distribution Income Tax Return is filed that includes any disputed item for which proper notice was given pursuant to this Section 2.1(c) that was not finally resolved and agreed upon, such disputed item (or items) shall be resolved in accordance with Article XIII. In the event that the resolution of such disputed item (or items) in accordance with Article XIII with respect to a Pre-Distribution Income Tax Return is inconsistent with such Pre-Distribution Income Tax Return as filed, the Preparing Party (with cooperation from the other Parties) shall, as promptly as practicable, amend such Tax Return to properly reflect the final resolution of the disputed item (or items). In the event that the amount of Taxes shown to be due and owing on a Pre-Distribution Income Tax Return is adjusted as a result of a resolution pursuant to Article XIII, proper adjustment shall be made to the amounts previously paid or required to be paid in accordance with Article III in a manner that reflects such resolution.

Section 2.2 Responsibility of Parties to Prepare and File Straddle Income Tax Returns .

(a) General . Subject to the rights and obligations of each of the Parties set forth herein, Schedule 2.2(a) sets forth the Preparing Party that is responsible for preparing or causing to be prepared all Straddle Income Tax Returns and the Parties that are responsible, or whose Affiliate is responsible, pursuant to Section 2.2(b) for providing a Tax Package with respect to such Straddle Income Tax Returns. Unless otherwise provided in this Agreement, the Preparing Party is responsible for the costs and expenses associated with such preparation. The Party responsible, or whose Affiliate is responsible, for filing a Straddle Income Tax Return under applicable Law shall file or cause to be filed such Straddle Income Tax Return with the applicable Taxing Authority. All Straddle Income Tax Returns shall be prepared and filed in a manner (i) consistent with (and the Parties and their Affiliates shall not take any position inconsistent with) past practices of the Parties and their Affiliates or supported by an unqualified reasoned “should” or “will” opinion of a Qualified Tax Advisor, unless otherwise modified by a Final Determination or required by applicable Law, the IRS Ruling, the Non-U.S. Tax Rulings, the Tax Representation Letters, or the Tax Opinions; and (ii) to the extent consistent with clause (i), that minimizes the overall amount of Taxes due and payable on Straddle Income Tax Returns of all of the Parties by cooperating in making such elections or applications for group or other relief or allowances available in the taxing jurisdiction in which the Income Tax Returns are filed. No Parties shall take any action inconsistent with the assumptions (including items of income, gain, deduction, loss and credit) made in determining all estimated or advance payments of Income Tax on or prior to the Distribution Date, including the applicable filing assumptions listed in Schedule 2.2(a) . Payments between a Party or any of its Affiliates and another Party or any of its Affiliates for reasonable preparation costs and expenses shall be treated as amounts deductible by the paying Party and its Affiliates pursuant to Section 162 of the Code (and any corresponding provision of U.S. state or local or non-U.S. Tax Law), and none of the Parties or any of their Affiliates shall take any position inconsistent with such treatment, except to the extent a Final Determination with respect to the paying entity causes such payment to not be so treated (in which case the payment shall be treated in accordance with such Final Determination).

 

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(b) Tax Package . Each Party other than the Preparing Party shall (at its own cost and expense), to the extent that a Straddle Income Tax Return includes items of that Party or its Affiliates, prepare and provide or cause to be prepared and provided to the Preparing Party (and make available or cause to be made available to the other Party) a Tax Package relating to that Straddle Income Tax Return. Such Tax Package shall be provided in a timely manner consistent with the past practices of the Parties and their Affiliates. Schedule 2.2(a) sets forth the Parties that are responsible for providing a Tax Package relating to a Straddle Income Tax Return. In the event a Party does not fulfill its obligations pursuant to this Section 2.2(b), the Preparing Party shall be entitled, at the sole cost and expense of the defaulting Party, to prepare or cause to be prepared the information required to be included in the Tax Package for purposes of preparing any such Straddle Income Tax Return.

(c) Procedures Relating to the Preparation and Filing of Straddle Income Tax Returns .

(i) In the case of Straddle Income Tax Returns, no later than thirty (30) days prior to the Due Date of each such Tax Return (reduced to ten (10) days for state or local Straddle Income Tax Returns), the Preparing Party shall make available or cause to be made available drafts of such Tax Return (together with all related work papers) to each of the other Parties. The other Parties shall have access to any and all data and information necessary for the preparation of all such Straddle Income Tax Returns and the Parties shall cooperate fully in the preparation and review of such Straddle Income Tax Returns. Subject to the preceding sentence, no later than fifteen (15) days after receipt of such Straddle Income Tax Returns (reduced to five (5) days for state or local Straddle Income Tax Returns), each Party shall have a right to object to such Straddle Income Tax Return (or items with respect thereto) by written notice to the other Parties; such written notice shall contain such disputed item (or items) and the basis for its objection.

(ii) With respect to a Straddle Income Tax Return submitted by the Preparing Party to the other Parties pursuant to Section 2.2(c)(i), if the other Parties do not object by proper written notice within the time period described, such Straddle Income Tax Return shall be deemed to have been accepted and agreed upon, and to be final and conclusive, for purposes of this Section 2.2(c)(ii). If a Party does object by proper written notice within such applicable time period, the Parties shall act in good faith to resolve any such dispute as promptly as practicable; provided , however , that, notwithstanding anything to the contrary contained herein, if the Parties have not reached a final resolution with respect to all disputed items for which proper written notice was given within ten (10) days (reduced to two (2) days for state or local Straddle Income Tax Returns) prior to the Due Date for such Straddle Income Tax Return, such Tax Return shall be filed as prepared pursuant to this Section 2.2 (revised to reflect all initially disputed items that the Parties have agreed upon prior to such date).

(iii) In the event that a Straddle Income Tax Return is filed that includes any disputed item for which proper notice was given pursuant to this Section 2.2(c) that was not finally resolved and agreed upon, such disputed item (or items) shall be resolved in

 

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accordance with Article XIII. In the event that the resolution of such disputed item (or items) in accordance with Article XIII with respect to a Straddle Income Tax Return is inconsistent with such Straddle Income Tax Return as filed, the Preparing Party (with cooperation from the other Parties) shall, as promptly as practicable, amend such Tax Return to properly reflect the final resolution of the disputed item (or items). In the event that the amount of Taxes shown to be due and owing on a Straddle Income Tax Return is adjusted as a result of a resolution pursuant to Article XIII, proper adjustment shall be made to the amounts previously paid or required to be paid by the Parties in accordance with Article III in a manner that reflects such resolution.

Section 2.3 Responsibility of Parties to Prepare and File Post-Distribution Income Tax Returns and Non-Income Tax Returns . The Party or its Affiliate responsible under applicable Law for filing a Post-Distribution Income Tax Return or a Non-Income Tax Return shall prepare and file or cause to be prepared and filed that Tax Return (at that Party’s own cost and expense).

Section 2.4 Time of Filing Tax Returns; Manner of Tax Return Preparation . Each Tax Return shall be filed on or prior to the Due Date for such Tax Return by the Party responsible for filing such Tax Return hereunder. Unless otherwise required by a Taxing Authority pursuant to a Final Determination, the Parties shall prepare and file or cause to be prepared and filed all Tax Returns and take all other actions in a manner consistent with (and shall not take any position inconsistent with) any assumptions, representations, warranties, covenants, and conclusions provided by the Parties (or any of their Subsidiaries) in connection with the Plan of Separation.

ARTICLE III

RESPONSIBILITY FOR PAYMENT OF TAXES

Section 3.1 Responsibility of Trident for Taxes . Except as otherwise provided in this Agreement, Trident shall be liable for and shall pay or cause to be paid the following Taxes:

(a) to the applicable Taxing Authority, any Taxes due and payable on all Pre-Distribution Income Tax Returns that Trident is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.1;

(b) to the applicable Taxing Authority, any Taxes due and payable on all Straddle Income Tax Returns that Trident is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.2; and

(c) to the applicable Taxing Authority, any Taxes due and payable on all Post-Distribution Income Tax Returns and Non-Income Tax Returns that Trident is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.3.

Section 3.2 Responsibility of Athens NA for Taxes . Except as otherwise provided in this Agreement, Athens NA shall be liable for and shall pay or cause to be paid the following Taxes:

(a) to the applicable Taxing Authority, any Taxes due and payable on all Pre-Distribution Income Tax Returns that Athens NA is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.1;

 

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(b) to the applicable Taxing Authority, any Taxes due and payable on all Straddle Income Tax Returns that Athens NA is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.2; and

(c) to the applicable Taxing Authority, any Taxes due and payable on all Post-Distribution Income Tax Returns and Non-Income Tax Returns that Athens NA is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.3.

Section 3.3 Responsibility of Fountain for Taxes . Except as otherwise provided in this agreement, Fountain shall be liable for and shall pay or cause to be paid the following Taxes:

(a) to the applicable Taxing Authority, any Taxes due and payable on all Pre-Distribution Income Tax Returns that Fountain is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.1;

(b) to the applicable Taxing Authority, any Taxes due and payable on all Straddle Income Tax Returns that Fountain is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.2; and

(c) to the applicable Taxing Authority, any Taxes due and payable on all Post-Distribution Income Tax Returns and Non-Income Tax Returns that Fountain is required to file or cause to be filed with such Taxing Authority pursuant to Section 2.3.

Section 3.4 Timing of Payments of Taxes . All Taxes required to be paid or caused to be paid by a Party to a Taxing Authority pursuant to this Article III shall be paid or caused to be paid by such Party on or prior to the Due Date of such Taxes.

ARTICLE IV

REFUNDS, CARRYBACKS AND AMENDED TAX RETURNS

Section 4.1 Refunds .

(a) The Parties shall share Refunds as follows: (1) a Party shall be entitled to all Refunds that relate to Taxes, other than Shared Taxes, for which such Party (or its Subsidiaries) is liable, (2) a Party shall be entitled to Refunds claimed on an originally filed Tax Return that reflect an overpayment of estimated Taxes as compared to the Tax liability reported on such originally filed Tax Return, and (3) except to the extent described in clause (1) or (2), (x) Refunds that are related to or paid in respect of an Income Tax Return the Audit of which would constitute a Pre-Distribution Shared Tax Audit, and (y) for the avoidance of doubt and without duplication, Trident’s share of Refunds for payments of Taxes subject to Section 9.3(c) and received pursuant to the Trident 2007 Tax Sharing Agreement (collectively, a “ Shared Refund ”) shall be shared by the Parties in the following order:

(i) First, to the extent that the Threshold Base Amount on the date that the Refund is received is in excess of the Second Tax Contingency Amount, Trident, Fountain and Athens NA shall share all Shared Refunds to such extent and in the same proportion as their respective Sharing Percentages.

 

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(ii) Second, to the extent that the Threshold Base Amount on the date that the Refund is received is in excess of the First Tax Contingency Amount but less than or equal to the Second Tax Contingency Amount, Fountain and Athens NA shall share all such Shared Refunds to the extent and in the same proportion as their respective Second Sharing Percentages.

(iii) Third, to the extent that the Threshold Base Amount on the date that the Refund is received is less than or equal to the First Tax Contingency Amount, Trident shall be entitled to all Shared Refunds.

For the avoidance of doubt, it is the Parties’ intention that Shared Refunds shall be paid to the Parties in a manner that refunds aggregate payments made under Sections 5.1(a), 9.3(a), and 9.3(c) on a “last in, first out” basis. To the extent that a Party (or any of its Subsidiaries) receives and is entitled to a Refund under Section 4.1(a)(2) all or a portion of which is attributable to payments of estimated Taxes by another Party (or any of its Subsidiaries), the first Party shall pay to such other Party the portion of the Refund attributable to such other Party’s payments of estimated Taxes.

Notwithstanding the foregoing, in the event a Refund is the result of the carryback by a Party (or one of such Party’s Affiliates) of a Tax Attribute generated in a Post-Distribution Tax Period or a Straddle Tax Period to a Pre-Distribution Tax Period or a Straddle Tax Period permitted pursuant to Section 4.2 solely because such carryback cannot result in one or more other Parties (or their Affiliates) being liable for additional Taxes, such Refund shall not be shared with any other Party.

(b) Notwithstanding Section 4.1(a), to the extent a claim for a Refund by a Party is reasonably likely to result in a Correlative Detriment to another Party or Parties, such Refund shall, to the extent actually received by such claiming Party, be paid proportionately to the Party or Parties that are reasonably likely to realize such Correlative Detriment, but only to the extent of such Correlative Detriment.

(c) Any Refund or portion thereof to which a Party is entitled pursuant to this Section 4.1 that is received or deemed to have been received as described below by another Party (or its Subsidiaries) shall be paid by such other Party to such first Party. To the extent a Party (or its Subsidiaries) applies or causes to be applied an overpayment of Taxes as a credit toward or a reduction in Taxes otherwise payable (or a Taxing Authority requires such application in lieu of a Refund) and such Refund, if received, would have been payable by such Party to another Party (or Parties) pursuant to this Section 4.1, such Party shall be deemed to have actually received a Refund to the extent thereof on the date on which the overpayment is applied to reduce Taxes otherwise payable.

(d) For the avoidance of doubt, any reduction of a previously received Refund shall be treated as an additional Tax payable for all purposes of this Agreement.

Section 4.2 Carrybacks . Each of the Parties shall be permitted (but not required) to carryback (or to cause its Affiliates to carryback) a Tax Attribute realized in a Post-Distribution Tax Period or a Straddle Tax Period to a Pre-Distribution Tax Period or a Straddle Tax Period only if such carryback cannot result in one or more other Parties (or their Affiliates) being liable

 

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for additional Taxes. If a carryback could result in one or more other Parties (or their Affiliates) being liable for additional Taxes, such carryback shall be permitted only if all of such Parties consent to such carryback. Notwithstanding anything to the contrary in this Agreement, any Party that has claimed (or caused one or more of its Affiliates to claim) a Tax Attribute carryback, shall be liable for any Taxes that become due and payable as a result of the subsequent adjustment, if any, to the carryback claim; provided , however , if the carryback results in a Refund that is shared or allocated pursuant to Section 4.1(a) or (b), any Taxes arising from and attributable to an adjustment to the claim for such carryback shall be shared or allocated by the applicable Parties, as the case may be, in the same proportion that the Refund was shared by or allocated to each applicable Party.

Section 4.3 Amended Tax Returns .

(a) Subject to Section 4.4 and notwithstanding Section 2.1 and Section 2.2, a Party (or its Subsidiary) that is entitled to file an amended Tax Return for a Pre-Distribution Tax Period or a Straddle Tax Period for members of its Tax Group shall be permitted to prepare and file an amended Tax Return at its own cost and expense; provided , however , that (i) such amended Tax Return shall be prepared in a manner consistent with (and the Parties and their Affiliates shall not take any position inconsistent with) past practices of the Parties and their Affiliates or supported by an unqualified reasoned “should” or “will” opinion of a Qualified Tax Advisor, unless otherwise modified by a Final Determination or required by applicable Law, the IRS Ruling, the Tax Representation Letters, or the Tax Opinions; and (ii) if such amended Tax Return could result in one or more other Parties becoming responsible for a payment of Taxes pursuant to Article III or a payment to a Party pursuant to Article IX, such amended Tax Return shall be permitted only if the consent of such other Parties is obtained. The consent of such other Parties shall not be withheld unreasonably and shall be deemed to be obtained in the event that a Party (or its Subsidiary) is required to file an amended Tax Return as a result of an Audit adjustment that arose in accordance with Article IX.

(b) A Party (or its Subsidiary) that is entitled to file an amended Tax Return for a Post-Distribution Tax Period, shall be permitted to do so at its own cost and expense and without the consent of any Party.

(c) A Party that is permitted (or whose Subsidiary is permitted) to file an amended Tax Return, shall not be relieved of any liability for payments pursuant to this Agreement notwithstanding that another Party consented thereto.

Section 4.4 State RAR Returns .

(a) The Audit Management Party shall be responsible for preparing and filing any and all amended Tax Returns with respect to Pre-Distribution Tax Periods or Straddle Tax Periods required to report the results of an IRS Final Determination to the states (“ State RAR Returns ”). The Audit Management Party shall make available or cause to be made available drafts of such State RAR Returns (together with all related work papers) to each of the other Parties.

 

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(b) The other Parties shall have access to any and all data and information necessary for the preparation of all such State RAR Returns and the Parties shall cooperate fully in the preparation and review of such State RAR Returns. Subject to the preceding sentence, no later than five (5) days after receipt of such State RAR Returns, each Party shall have a right to object only to the calculation of the amount of the payment (but not the basis for the payment) by written notice to the other Parties; such written notice shall contain such disputed item or items and the basis for its objection. If no Party objects by proper written notice to the other Parties within the time period described in this Section 4.4(b), the calculation of the amounts due and owing from each Party shall be deemed to have been accepted and agreed upon, and final and conclusive, for purposes of this Section 4.4(b). If any Party objects by proper written notice to the other Parties within such time period, the Parties shall act in good faith to resolve any such dispute as promptly as practicable in accordance with Article XIII. The Audit Management Party shall file such State RAR Returns and pay applicable Taxes on or prior to the Due Date for such reporting and payment. The other Parties shall reimburse the Audit Management Party for the portion of such payments for which such other Parties are liable pursuant to this Section 4.4(b). In the event that a State RAR Return is filed that includes any disputed item for which proper notice was given pursuant to this Section 4.4 that was not finally resolved and agreed upon, such disputed item (or items) shall be resolved in accordance with Article XIII. In the event that the resolution of such disputed item (or items) in accordance with Article XIII with respect to a State RAR Return is inconsistent with such State RAR Return as filed, the Audit Management Party (with cooperation from the other Parties) shall, as promptly as practicable, amend such State RAR Return to properly reflect the final resolution of the disputed item (or items).

Section 4.5 Agreement from Party Administering and Controlling Audit . Notwithstanding anything to the contrary in this Article IV, any carryback (other than a carryback required by applicable Law) or amended Tax Return and any associated payments of Tax otherwise permitted pursuant to Section 4.2, Section 4.3, and Section 4.4 respectively, shall only be made with the written consent, which shall not be unreasonably withheld, conditioned or delayed, of the Party that would be responsible under Article IX for administering and controlling any Audit that arises with respect to the Tax Return to which the carryback or the amended Tax Return relates, if different from the Party (or its Subsidiary) that is exercising its rights under Section 4.2, Section 4.3, or Section 4.4.

ARTICLE V

DISTRIBUTION TAXES

Section 5.1 Liability for Distribution Taxes . In the event that Distribution Taxes become due and payable to a Taxing Authority pursuant to a Final Determination, then, notwithstanding anything to the contrary in this Agreement:

(a) No Fault . If such Distribution Taxes are not attributable to the Fault of any Party or any of its Affiliates, the responsibility for such Distribution Taxes shall be shared by the Parties in accordance with the provisions in Section 9.3(a) that are applicable to Pre-Distribution Shared Tax Audits.

 

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(b) Fault . If such Distribution Taxes are attributable to the Fault of one or more Parties or any of their Affiliates, the responsibility for such Distribution Taxes shall reside with the Party or Parties at Fault. If more than one Party is at Fault, the responsibility for the Distribution Taxes shall be allocated equally among all of the Parties at Fault.

Section 5.2 Payment for Use of Tax Attributes by Parties at Fault . Notwithstanding Section 5.1, if a Party is at Fault within the meaning of Section 5.3, and such Fault would have resulted in Distribution Taxes becoming due and payable but for the use of the Tax Attributes of one or more other Parties (or their Subsidiaries), the Party at Fault shall pay to each such other Party the amount of Distribution Taxes that did not become due and payable as a result of the use of that other Party’s (or its Subsidiaries’) Tax Attributes. Such payment shall be made by the Party using the Tax Attribute to the other Party. For purposes of computing the amount of the payment under this Section 5.2 for the use of the other Party’s Tax Attributes, the Parties shall assume that the other Party (and each of its Subsidiaries) is subject to an effective tax rate of thirty-eight percent (38%); provided , however , that such effective tax rate shall be adjusted from time to time pursuant to Section 14.21(c) of this Agreement. If more than one Party is at Fault, the responsibility for the payment shall be allocated equally among all of the Parties at Fault.

Section 5.3 Definition of Fault . For purposes of this Agreement, Distribution Taxes shall be deemed to result from the fault (“ Fault ”) of a Party if such Distribution Taxes are directly attributable to, or result from:

(a) any act, or failure or omission to act, by such Party or any of such Party’s Affiliates following the Distributions that results in one or more Parties (or any of their Affiliates) being responsible for such Distribution Taxes pursuant to a Final Determination, regardless of whether such act or failure to act (i) is covered by a Post-Distribution Ruling, Unqualified Tax Opinion, or waiver in accordance with Section 5.4, or (ii) occurs during or after the Restricted Period, or

(b) the direct or indirect acquisition of all or a portion of the stock of such Party or of any of such Party’s Affiliates that is a Section 355 Entity (or any transaction or series of related transactions that is deemed to be such an acquisition for purposes of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder) by any means whatsoever by any person including pursuant to an issuance of stock by such Party or any of its Affiliates.

Section 5.4 Limits on Proposed Acquisition Transactions and Other Transactions During Restricted Period . During the Restricted Period, no Party shall:

(a) enter into any Proposed Acquisition Transaction, approve any Proposed Acquisition Transaction for any purpose, or allow any Proposed Acquisition Transaction to occur, other than the Merger, with respect to any of the Section 355 Entities;

(b) merge or consolidate with any other Person or liquidate or partially liquidate; or approve or allow any merger, consolidation, liquidation, or partial liquidation of any of the Section 355 Entities or the ATOB Entities;

(c) approve or allow the discontinuance, cessation, or sale or other transfer (to an Affiliate or otherwise) of, or a material change in, any Active Business;

 

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(d) approve or allow the sale, issuance, or other disposition (to an Affiliate or otherwise), directly or indirectly, of any share of, or other equity interest or an instrument convertible into an equity interest in, any of the ATOB Entities;

(e) sell or otherwise dispose of more than thirty-five percent (35%) of its consolidated gross or net assets, or approve or allow the sale or other disposition (to an Affiliate or otherwise) of more than thirty-five percent (35%) of the consolidated gross or net assets of any of the Section 355 Entities (in each case, excluding sales in the ordinary course of business and measured based on fair market values as of the date of the applicable Distribution or other transaction);

(f) amend its certificate of incorporation (or other organizational documents), or take any other action or approve or allow the taking of any action, whether through a stockholder vote or otherwise, affecting the voting rights of the stock of such Party, any of the Section 355 Entities, or any of the Transferee Entities;

(g) issue shares of a new class of nonvoting stock or approve or allow any of the Section 355 Entities or the Transferee Entities to issue shares of a new class of nonvoting stock;

(h) purchase, directly or through any Affiliate, any of its outstanding stock after the Distributions, other than through stock purchases meeting the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 (without regard to the effect of Revenue Procedure 2003-48 on Revenue Procedure 96-30);

(i) approve or allow payment of an extraordinary distribution by any of the Transferee Entities to any of the Transferor Entities, or a redemption of shares of any of the Transferee Entities held by any of the Transferor Entities (in the case of any of the Transferee Entities or the Transferor Entities, including any successor thereto);

(j) approve or allow an extraordinary contribution to any of the Section 355 Entities (or any successor thereto) by its shareholder or shareholders (or any successor(s) thereto);

(k) take any action or fail to take any action, or permit any of its Affiliates to take any action or fail to take any action, that is inconsistent with any representation or covenant made in the IRS Ruling or in the Tax Representation Letters, or that is inconsistent with any ruling or opinion in the IRS Ruling or any Tax Opinion; or

(l) take any action or permit any of its Affiliates to take any action that, in the aggregate (taking into account other transactions described in this Section 5.4) would be reasonably likely to jeopardize Tax-Free Status;

provided , however , that a Party (the “ Requesting Party ”) shall be permitted to take such action or one or more actions set forth in the foregoing clauses (a) through (l) if, prior to taking any such actions: (1) if the Requesting Party is Fountain, (A) Fountain or Trident shall have received a favorable private letter ruling from the IRS, or a ruling from another Taxing Authority (a “ Post-Distribution Ruling ”), in form and substance reasonably satisfactory to Athens NA and Trident

 

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that confirms that such action or actions will not result in U.S. federal or state Distribution Taxes, taking into account such actions and any other relevant transactions in the aggregate, or (B) Fountain shall have received an Unqualified Tax Opinion, in form and substance reasonably satisfactory to Athens NA and Trident, that confirms that such action or actions will not result in U.S. federal or state Distribution Taxes, taking into account such actions and any other relevant transactions in the aggregate; (2) if the Requesting Party is Trident or Athens NA, (A) such Requesting Party shall have received a Post-Distribution Ruling(s), in form and substance reasonably satisfactory to the other Parties, that confirms that such action or actions will not result in U.S. federal or state, Puerto Rican or Canadian Distribution Taxes, taking into account such actions and any other relevant transactions in the aggregate, or (B) such Requesting Party shall have received an Unqualified Tax Opinion(s), in form and substance reasonably satisfactory to the other Parties, that confirms that such action or actions will not result in U.S. federal or state, Puerto Rican or Canadian Distribution Taxes, taking into account such actions and any other relevant transactions in the aggregate; or (3) such Requesting Party shall have received a written statement from each of the other Parties that provides that such other Party waives the requirement to obtain a Post-Distribution Ruling or Unqualified Tax Opinion described in this paragraph. The evaluation of a Post-Distribution Ruling or Unqualified Tax Opinion may consider, among other factors, the appropriateness of any underlying assumptions, representations, and covenants made in connection with such Post-Distribution Ruling or Unqualified Tax Opinion. Each Party shall bear its own costs and expenses in connection with securing or evaluating any such Post-Distribution Ruling or Unqualified Tax Opinion.

Section 5.5 Qualified Tax Counsel Advance Conflict Waiver . Unless prohibited by Law or the ethical rules applicable to attorneys, each of the Parties agrees to waive or to cause its Affiliates to waive in advance any conflicts that must be waived in order to permit Qualified Tax Counsel to (i) evaluate whether a Party’s proposed action or actions constitute any of the actions described in clauses (a) through (l) in Section 5.4 or (ii) issue any Unqualified Tax Opinions to be obtained by a Party pursuant to this Article V.

Section 5.6 IRS Ruling, Non-U.S. Tax Rulings, Tax Representation Letters, and Tax Opinions; Consistency . Each Party represents that the information and representations furnished by it in or with respect to the IRS Ruling, the Non-U.S. Tax Rulings, the Tax Representation Letters, and the Tax Opinions are accurate and complete as of the Effective Time. Each Party covenants (1) to use its best efforts, and to cause its Affiliates to use their best efforts, to verify that such information and representations are accurate and complete as of the Effective Time; and (2) if, after the Effective Time, it or any of its Affiliates obtains information indicating, or otherwise becomes aware, that any such information or representations is or may be inaccurate or incomplete, to promptly inform the other Parties. The Parties shall not take any action or fail to take any action, or permit any of their Affiliates to take any action or fail to take any action, that is or is reasonably likely to be inconsistent with the IRS Ruling, the Non-U.S. Tax Rulings, the Tax Representation Letters, or the Tax Opinions.

Section 5.7 Timing of Payment of Taxes . All Distribution Taxes required to be paid or caused to be paid by a Party to a Taxing Authority under applicable Law shall be paid or caused to be paid by such Party on or prior to the Due Date of such Distribution Taxes. All amounts required to be paid by one Party to another Party (including obligations arising under Article VII) pursuant to this Article V shall be paid or caused to be paid by such first Party to such other Party.

 

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ARTICLE VI

EMPLOYEE BENEFIT MATTERS

Section 6.1 Deferred Compensation Deductions .

(a) Entitlement to Deductions . Any Deferred Compensation Deduction arising after the Distribution Date shall be claimed solely by the Party (or the appropriate Affiliate of that Party) that employs the individual with respect to whom such Deferred Compensation Deduction arises at the time that it arises or, if such individual is not then employed by any Party or a Party’s Affiliate, by Trident or its appropriate Affiliate if the individual is a Former Trident Employee, by Fountain or its appropriate Affiliate if the individual is a Former Fountain Employee, or by Athens NA or its appropriate Affiliate if the individual is a Former Athens NA Employee. If, as a result of a Final Determination, a Deferred Compensation Deduction is disallowed in whole or in part to the Party (the “ Employing Party ”) or its Affiliate claiming such Deferred Compensation Deduction pursuant to the preceding sentence, then any other Party (“ Claiming Party ”) or its Affiliates shall at the request of the Employing Party make a claim for all such deductions (“ Claimed Deductions ”); provided , however , that the Employing Party has delivered to the Claiming Party (i) an opinion of counsel in a form satisfactory to the Claiming Party that confirms that the Claimed Deductions should be sustained based on the Final Determination, and (ii) an acknowledgement that the Employing Party will reimburse the Claiming Party for all reasonable expenses incurred by the Claiming Party or any of its Affiliates as a result of claiming the Claimed Deductions. Upon a subsequent Final Determination in favor of the Claiming Party or one or more of its Affiliates for the Claimed Deductions, the Claiming Party shall pay to the Employing Party any Tax Benefit Realized by the Claiming Party or its Affiliates in the taxable year that the Claiming Party or one or more of its Affiliates asserts its claim to the Claimed Deductions.

(b) Withholding and Reporting . The Employing Party that claims (or any Affiliate of which claims) the Deferred Compensation Deduction described in Section 6.1(a) shall be responsible for all applicable Taxes (including, but not limited to, withholding and excise taxes) and shall satisfy, or shall cause to be satisfied, all applicable Tax reporting obligations in respect of the deferred compensation that gives rise to the Deferred Compensation Deduction. The Parties to this Agreement shall reasonably cooperate (and shall cause their Affiliates to reasonably cooperate) so as to permit the Employing Party or its Affiliates claiming such Deferred Compensation Deduction to discharge any applicable Tax withholding and Tax reporting obligations, including the appointment of the Employing Party or one or more of its Affiliates as the withholding and reporting agent if the Employing Party or one or more of its Affiliates is not otherwise required or permitted to withhold and report under applicable Law.

(c) Payment to Issuer for Benefit of Deduction to Employer .

(i) Trident shall pay an amount equal to twenty-five percent (25%) of any Deferred Compensation Deduction claimed by Trident or any of its Affiliates in accordance with Section 6.1(a) (x) to Fountain with respect to stock issued by Fountain and (y) to Athens NA with respect to stock issued by Athens NA.

 

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(ii) Fountain shall pay an amount equal to twenty-five percent (25%) of any Deferred Compensation Deduction claimed by Fountain or any of its Affiliates in accordance with Section 6.1(a) (x) to Trident with respect to stock issued by Trident and (y) to Athens NA with respect to stock issued by Athens NA.

(iii) Athens NA shall pay an amount equal to thirty-eight percent (38%) of any Deferred Compensation Deduction claimed by Athens NA or any of its Affiliates in accordance with Section 6.1(a) (x) to Trident with respect to stock issued by Trident and (y) to Fountain with respect to stock issued by Fountain.

ARTICLE VII

INDEMNIFICATION

Section 7.1 Indemnification Obligations of Trident . Trident shall indemnify Fountain and Athens NA and hold them harmless from and against (without duplication):

(a) all Taxes and other amounts for which the Trident Group is responsible under this Agreement, and

(b) all Taxes and reasonable out-of-pocket costs for advisors and other expenses attributable to a breach of any representation, covenant, or obligation of Trident under this Agreement.

Section 7.2 Indemnification Obligations of Fountain . Fountain shall indemnify Trident and Athens NA and hold them harmless from and against (without duplication):

(a) all Taxes and other amounts for which the Fountain Group is responsible under this Agreement, and

(b) all Taxes and reasonable out-of-pocket costs for advisors and other expenses attributable to a breach of any representation, covenant, or obligation of Fountain under this Agreement.

Section 7.3 Indemnification Obligations of Athens NA . Athens NA shall indemnify Trident and Fountain and hold them harmless from and against (without duplication):

(a) all Taxes and other amounts for which the Athens North American R/SB Group is responsible under this Agreement, and

(b) all Taxes and reasonable out-of-pocket costs for advisors and other expenses attributable to a breach of any representation, covenant or obligation of Athens NA under this Agreement.

 

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Section 7.4 Indemnification for Stub Period Taxes and Uncovered Liabilities .

(a) Trident shall indemnify Fountain and hold it harmless from and against all Taxes due and payable on an originally filed U.S. Income Tax Return of Flow SpinCo U.S. or any of its Subsidiaries with respect to a Stub Period; provided , however that, if such U.S. Income Tax Return is a Straddle Income Tax Return, Trident shall indemnify Fountain only to the extent that such U.S. Income Tax Return is prepared in accordance with Section 2.2(a)(i) and (ii). Fountain shall pay to Trident an amount equal to the excess of the estimated Taxes paid with respect to any Stub Period of Flow SpinCo U.S. or any of its Subsidiaries over the Tax liability reported on the originally filed U.S. Income Tax Return of such entity for such Stub Period.

(b) If an item is not treated as covered by a Pre-Distribution Shared Tax Audit for purposes of Section 9.3(a) to the extent of an Uncovered Liability and the Preparing Party is not the Party required to file the Tax Return the Audit of which results in such Uncovered Liability, then the Preparing Party shall indemnify the filing Party and hold it harmless from and against such Uncovered Liability.

Section 7.5 Indemnification for Athens NA Brand/Secondary Brand Transactions . Athens NA shall indemnify Trident and hold it harmless from and against all Swiss federal or cantonal Taxes due and payable (i) on any Tax Return required to be filed by ADT Services (and its successors) or TISH (and its successors) or (ii) as the result of a Final Determination with respect to such Tax Return, in each case solely with respect to the Athens NA Brand/Secondary Brand Transactions.

ARTICLE VIII

PAYMENTS

Section 8.1 Payments .

(a) General . Unless otherwise provided in this Agreement, in the event that an Indemnifying Party is required to make a payment to an Indemnified Party pursuant to this Agreement:

(i) Aggregate Payments of Less than $10 Million . If such payments are in the aggregate less than $10 million during any three-month period in which the obligation giving rise to the indemnification payment must be satisfied that includes the last month of a calendar quarter and the first two months of the next calendar quarter (the “ Second Calendar Quarter ”), the Indemnified Party shall deliver written notice of the payments to the Indemnifying Party in accordance with Section 14.3 during the third month of the Second Calendar Quarter, and the Indemnifying Party shall be required to make payment to the Indemnified Party within twenty (20) Business Days after the end of the Second Calendar Quarter.

(ii) Payments Equal to or Greater than $10 Million . If such payments are individually or in the aggregate during the calendar quarter equal to or greater than $10 million, the Indemnified Party shall deliver written notice of the payment to the Indemnifying Party in accordance with Section 14.3 at least ten (10) Business Days in advance

 

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of the date or dates on which the obligations giving rise to the indemnification payment must be satisfied (in the case of aggregate payments in excess of $10 million, the earliest date that any such payment must be satisfied), and the Indemnifying Party shall be required to make payment to the Indemnified Party no later than five (5) Business Days after receipt of such notice. The Indemnified Party shall, within one (1) Business Day after the date on which the obligation giving rise to the indemnification payment is satisfied, pay interest to the Indemnifying Party that accrues (at a rate equal to one (1) week LIBOR minus twenty-five (25) basis points) on the amount of such payment from the date of receipt of such payment by the Indemnified Party until the date on which the obligation is satisfied.

(b) Procedural Matters . The written notice delivered to the Indemnifying Party in accordance with Section 14.3 shall show the amount due and owing together with a schedule calculating in reasonable detail such amount (and shall include any relevant Tax Return, statement, bill or invoice related to Taxes, costs, expenses or other amounts due and owing). All payments required to be made by one Party to another Party pursuant to this Section 8.1 shall be made by electronic, same-day wire transfer. Payments shall be deemed made when received. If the Indemnifying Party fails to make a payment to the Indemnified Party within the time period set forth in this Section 8.1, such Indemnifying Party shall not be considered to be in breach of its covenants and obligations established in this Section 8.1 unless and until such failure exists on the date on which the obligation giving rise to the indemnification payment must be satisfied; provided , however , that the Indemnifying Party shall pay to the Indemnified Party (i) interest that accrues (at a rate equal to the Prime Rate plus two hundred (200) basis points) on the amount of such payment from the time that such payment was due to the Indemnified Party until the date that payment is actually made to the Indemnified Party; and (ii) any costs or expenses, including any breakage costs, incurred by the Indemnified Party to secure such payment or to satisfy the Indemnifying Party’s portion of the obligation giving rise to the indemnification payment.

(c) Right of Setoff . It is expressly understood that an Indemnifying Party is hereby authorized to set off and apply any and all amounts required to be paid to an Indemnified Party pursuant to this Section 8.1 against any and all of the obligations of the Indemnified Party to the Indemnifying Party arising under Section 8.1 of this Agreement that are then either due and payable or past due, but only to the extent that such Indemnifying Party has made any demand for payment with respect to such obligations.

Section 8.2 Treatment of Payments Made Pursuant to Tax Sharing Agreement . Unless otherwise required by Law, a Final Determination or this Agreement, for U.S. federal income Tax purposes, any payment made pursuant to this Agreement by:

(a) a Spinco Party to Trident shall be treated as an adjustment to one or more transfers of assets to such Spinco Party by Trident or one or more of Trident’s Subsidiaries (determined immediately prior to the Athens NA Distribution or the Fountain Distribution, whichever is earlier), as applicable, pursuant to the Plan of Separation;

(b) Trident to a Spinco Party shall be treated as an adjustment to one or more transfers to such Spinco Party by Trident or one or more of Trident’s Subsidiaries (determined immediately prior to the Athens NA Distribution or the Fountain Distribution, whichever is earlier), as applicable, pursuant to the Plan of Separation;

 

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(c) a Spinco Party to another Spinco Party shall be treated as (1) first, an adjustment to one or more transfers as described in Section 8.2(a) and (2) second, as a transfer as described in Section 8.2(b); and

in each case, none of the Parties shall take any position inconsistent with such treatment. In the event that a Taxing Authority asserts that a Party’s treatment of a payment pursuant to this Agreement should be other than as required pursuant to this Agreement (ignoring any potential inconsistent or adverse Final Determination), such Party shall use its reasonable best efforts to contest such challenge.

Section 8.3 Treatment of Payments Made Pursuant to Separation and Distribution Agreements . Except as otherwise provided in the Separation and Distribution Agreements and unless otherwise required by a Final Determination or this Article VIII, for U.S. federal Income Tax purposes, payments made pursuant to the Separation and Distribution Agreements shall be treated in accordance with the principles set forth in Section 8.2. Payments made by a Party for costs and expenses relating to Assumed Trident Contingent Liabilities or otherwise pursuant to the Separation and Distribution Agreements shall be treated as amounts deductible by such Party pursuant to Section 162 of the Code (and any corresponding provision of U.S. state or local or non-U.S. Tax Law), and none of the Parties shall take any position inconsistent with such treatment, except to the extent that there is a Final Determination with respect to the paying Party that such payment is not deductible. In the event that a Taxing Authority asserts that a Party’s treatment of a payment pursuant to the Separation and Distribution Agreements should be other than as set forth in this Agreement (ignoring any potential inconsistent or adverse Final Determination), such Party shall use its reasonable best efforts to contest such challenge.

Section 8.4 Payments Net of Tax Benefit Realized . All amounts required to be paid by one Party to another pursuant to this Agreement or the Separation and Distribution Agreements shall be net of the Tax Benefit Realized by the Indemnified Party or its Affiliates.

ARTICLE IX

AUDITS

Section 9.1 Notice . Within fifteen (15) Business Days after a Party or any of its Affiliates receives a written notice from a Taxing Authority (reduced to five (5) Business Days for written notices received from a state or local Taxing Authority) of the existence of an Audit that may require indemnification pursuant to this Agreement, that Party shall notify the other Parties of such receipt and send such notice to the other Parties by delivery in person, by overnight courier service, or by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service). The failure of one Party to notify the other Parties of an Audit shall not relieve such other Party of any liability and/or obligation that it may have under this Agreement, except to the extent that the Indemnifying Party is materially prejudiced by such failure.

 

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Section 9.2 Pre-Distribution Audits .

(a) Determination of Administering Party . Subject to Sections 9.2(b), 9.2(c), and 9.2(d):

(i) The Initial Audit Management Party and its Subsidiaries shall administer and control all Pre-Distribution Shared Tax Audits, Tax Audits related to the Broadview Acquisition Transaction, and Tax Audits related to the Canadian Distribution Transactions.

(ii) All other Audits with respect to a Pre-Distribution Tax Period or a Straddle Tax Period shall be administered and controlled by the Party and its Subsidiaries that would be primarily liable under applicable Law to pay to the applicable Taxing Authority the Taxes resulting from such Audits; provided , however , that if more than one Party is liable under applicable Law for Taxes resulting from such Audit, the controlling Party shall not settle such Audit without the prior written consent of each other Party that would be liable for Taxes resulting from such Audit.

(b) Administration and Control; Cooperation . Subject to Section 9.2(c) and to a Change of Control or a Bankruptcy of the Audit Management Party as provided below, the Audit Management Party shall have absolute authority to make all decisions (determined in its sole discretion) with respect to the administration and control of an Audit described in Section 9.2(a)(i), including the selection of all external advisors. In that regard, the Audit Management Party (i) may in its sole discretion settle or otherwise determine not to continue to contest any issue related to such Audit without the consent of the other Parties, and (ii) shall, as soon as reasonably practicable and prior to settlement of an issue that could cause one or more other Parties to become responsible for Taxes under Section 9.3, notify the Audit Representatives of such other Parties of such settlement. The other Parties shall (and shall cause their Affiliates to) undertake all actions and execute all documents (including an extension of the applicable statute of limitations) that are determined in the sole discretion of the Audit Management Party to be necessary to effectuate such administration and control. The Parties shall act in good faith and use their reasonable best efforts to cooperate fully with each other Party (and their Affiliates) in connection with such Audit and shall provide or cause their Subsidiaries to provide such information to each other as may be necessary or useful with respect to such Audit in a timely manner, identify and provide access to potential witnesses, and other persons with knowledge and other information within its control and reasonably necessary to the resolution of the Audit. Notwithstanding anything to the contrary in this Section 9.2(b) and except with respect to any Pre-2007 Distribution Tax Period, after a Change of Control or a Bankruptcy of the Audit Management Party, the Audit Management Party shall not, prior to the resolution of the vote permitted under Section 9.2(d)(ii) as a result of such Change of Control or Bankruptcy, choose to litigate any issue with respect to an Audit or make any decision to change the forum or jurisdiction with respect to which an issue arising under an Audit is being litigated, without the prior written consent of all of the Parties.

 

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(c) Participation Rights of Parties and Information Sharing with respect to Audits .

(i) Each Party that would be responsible under Section 9.3 for Taxes resulting from an Audit described in Section 9.2(a)(i) (other than the Audit Management Party) (a “ Participating Party ”) shall have limited participation rights as set forth in this Section 9.2(c) with respect to such Audit. Promptly after the Distributions, the Audit Management Party shall arrange for a meeting or conference call that includes all of the Participating Parties to discuss the status of all ongoing Audits. In addition, promptly after notification of an Audit pursuant to Section 9.1, the Audit Management Party shall arrange for a meeting or conference call that includes all of the Participating Parties to plan for the management of such Audit; provided, however, that this requirement shall not apply with respect to notification of an Audit by a U.S. state (or the District of Columbia) of a Pre-Distribution Income Tax Return or a Straddle Income Tax Return. Thereafter, the Participating Parties and the Audit Management Party shall arrange for a meeting or conference call to be held on a monthly basis (or on such other basis as agreed) in order to facilitate regular communication on the status of the Audits. The Participating Parties and the Audit Management Party may determine from time to time to have a separate special meeting to discuss a significant Audit issue. Each Participating Party shall identify any personnel and external advisors who are participating in each of the meetings described above, and shall provide a list of the names of such persons to the Audit Management Party in advance of such meeting.

(ii) Upon the reasonable request of a Participating Party, the Audit Management Party shall make available relevant personnel and external advisors to meet with the Participating Party and its independent auditor in order to review the status of the Audits. The independent auditors of the Participating Parties shall have reasonable access to Audit-related information and personnel. The Participating Parties shall provide the Audit Management Party with reasonable notice of such requested meetings or information.

(iii) Except as provided herein, the Participating Parties shall have no access to the external advisors retained by the Audit Management Party to advise it and its Subsidiaries on matters pertaining to an Audit (“ Audit External Advisor ”) except to the extent that the Audit Management Party reasonably determines that the attendance of an Audit External Advisor at a meeting described in (i) or (ii) above is appropriate. In the event that any such meeting is attended by an Audit External Advisor, the Audit Management Party and the Participating Parties shall have the right to participate in such meeting by telephone or in person. The Audit Management Party shall provide the Participating Parties with notice (including the time and location) of such meeting at least twenty-four (24) hours in advance thereof. Any Participating Party may request a meeting with an Audit External Advisor on matters that are unrelated to the Audit; provided , however , that if the matter involves evaluating Audit-related issues, the requesting Participating Party must give the Audit Management Party and any other Participating Party at least twenty-four (24) hours notice prior to such meeting so that each such Party can elect to participate (failure to respond to the Participating Party’s notice prior to the meeting shall constitute an election to decline participation). No Participating Party shall request an opinion on an Audit-related issue from an Audit External Advisor, except to the extent such Audit-related issue relates to an item in a period other than a Pre-2007 Distribution Tax Period and the Audit Management Party affirmatively declines to obtain such opinion.

(iv) Each Participating Party shall have access to any written documentation in the possession of the Audit Management Party that pertains to the Audit

 

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(including any written summaries of issues that the Audit Management Party has developed in the context of evaluating the financial reporting of the Audit) and the Audit Management Party shall make such information available in the offices of the Audit Management Party; provided , however , that if documentation was prepared solely by or on behalf of a Participating Party, then the documentation must relate to the joint defense of the Audit. Such access shall be provided at such times and in such manner as the Audit Management Party and the Participating Parties agree, but no less frequently than monthly. Copies of the documentation will be made available to the Participating Parties at their sole cost and expense. The Audit Management Party shall undertake to use reasonable efforts to include within the written documentation described above information that is transmitted through electronic means, such as through internet e-mail. Subject to the exceptions listed on Schedule 9.2(c)(iv) , the Audit Management Party shall maintain an internet-based or other electronic document repository system for written documentation related to the Audit, and each of the Participating Parties shall be granted, if so requested, “read only” access to such repository system at such requesting Participating Party’s own cost and expense. Such system shall be managed and controlled by the Audit Management Party and all decisions with respect to the system (including but not limited to the documents to be posted to such system) shall be made by the Audit Management Party in its sole discretion; provided , however , that the U.S. Audit Management Party shall at a minimum post documents that relate to Audits of Trident’s, Athens NA’s and Fountain’s Subsidiaries arising with respect to U.S. federal, state and local Income Taxes in a manner that is consistent with the U.S. Audit Management Party’s document posting practices with respect to such Audits immediately prior to the Distribution Date. An illustrative, but not exclusive, list of the documents and other information to be made available by the Audit Management Party to the Participating Parties is set forth in Schedule 9.2(c)(iv) .

(v) The Participating Parties are encouraged to provide consultation to the Audit Management Party in regards to Audit strategy and shall, upon request of the Audit Management Party, provide such consultation. The Participating Party may elect to employ separate counsel to advise the Participating Party as additional counsel in or in connection with an Audit, but in that event, the fees and expenses of the separate counsel shall be paid solely by the Participating Party. The Audit Management Party shall in good faith consider all advice and other input received from the Participating Parties in connection with their consultations with respect to an Audit. However, the Audit Management Party shall retain the sole authority to make all Audit decisions. In that regard, the Participating Parties and their separate counsels shall not be allowed to participate in any Audit-related meetings other than those described in (i) or (ii) above (unless such a meeting is attended by the personnel of a Participating Party, in which case that Participating Party may attend the meeting but may not actively participate), respond directly to a Taxing Authority conducting the Audit, or in any manner control resolution of the Audit.

(d) Change in Audit Management Party .

(i) Subject to Section 9.2(d)(vi), upon (a) the second anniversary following the Effective Time and annually on each anniversary date thereafter; (b) the expiration of the three (3)-month period following a Change of Control of the Audit Management Party; (c) the expiration of the three (3)-month period following a Bankruptcy of the Audit Management Party; or (d) any point in time at which the Threshold Base Amount has either exceeded the First

 

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Tax Contingency Amount or, following such event, has decreased to an amount below the First Tax Contingency Amount (each of (a), (b), (c) and (d), a “ Tax Management Change Event ”), a Participating Party’s Audit Representative may call for a vote to decide whether the current Audit Management Party should be replaced by another Participating Party by providing written notice of such vote to the other Participating Parties thirty (30) days prior to such Tax Management Change Event (“ Administration Vote Notice ”).

(ii) Within fifteen (15) days after the Audit Management Party and any other Participating Party’s receipt of an Administration Vote Notice, the Audit Management Party’s and any other Participating Party’s Audit Representatives shall meet together (either in person, telephonically or by other electronic means) and discuss any information that is deemed to be relevant to the vote. Thirty (30) days after the Audit Management Party’s and any other Participating Party’s receipt of an Administration Vote Notice, the Board of Directors of the Audit Management Party and any other Participating Party shall submit to each of the other Parties a written vote identifying the one Party that it casts its vote for to be appointed the Audit Management Party.

(iii) In the case of a vote under (ii) above, if a Participating Party other than the current Audit Management Party receives a majority in number of the votes, that Party (the “ Elected Party ”) and its Subsidiaries shall be appointed the new Audit Management Party upon delivery of written acceptance of the appointment to each other Party within five (5) days after the vote (“ Acceptance Notice ”). If the Elected Party delivers the Acceptance Notice, then the Elected Party shall immediately have and assume all of the rights and obligations of the Audit Management Party under this Agreement. Except as provided in Section 9.2(d)(iv), upon delivery of the Acceptance Notice, the Replaced Audit Management Party shall have no further rights or obligations as the Audit Management Party (other than for any expense or cost reimbursements incurred prior to its replacement). If (a) the current Audit Management Party receives a majority in number of votes, (b) no Party receives a majority of the votes cast, or (c) the Elected Party fails to deliver the Acceptance Notice, then the Audit Management Party shall remain the Party then appointed.

(iv) If as a result of a vote under (ii) above, there is a replacement of the then appointed Audit Management Party (the “ Replaced Audit Management Party ”), the Replaced Audit Management Party shall use its reasonable best efforts to transition to the new Audit Management Party the administration and control of the ongoing Audits that the Replaced Audit Management Party was prior to its replacement responsible for administering and controlling pursuant to Section 9.2(a).

(v) The Audit Management Party and each Participating Party has the exclusive right to replace its respective Audit Representative provided that such Audit Representative must be an employee of such Audit Management Party and Participating Party or any of its Affiliates, and in the event of such replacement, the applicable Audit Management Party and Participating Party shall provide written notice of such replacement to the Audit Management Party and the other Participating Parties as applicable.

(vi) Notwithstanding anything to the contrary herein, the Initial Audit Management Party and its Subsidiaries may not be removed until the later to occur of (I)

 

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the termination of the Trident 2007 Tax Sharing Agreement and (II) the incurrence of additional Taxes that are due and payable as a result of a Final Determination with respect to a Pre-Distribution Shared Tax Audit in an amount greater than the First Tax Contingency Amount.

(e) Sharing of Internal and External Costs and Expenses Related to Pre-Distribution Shared Tax Audits .

(i) External Costs and Expenses . All external costs and expenses (including all costs and expenses of calculating Taxes and other amounts payable hereunder) that are incurred by the Audit Management Party with respect to a Pre-Distribution Shared Tax Audit (including any costs and expenses incurred as a result of any reporting obligations that arise out of an Audit, such as the reporting of any Audit adjustments to the various U.S. states) shall be shared in accordance with the Parties’ Sharing Percentages. The Audit Management Party shall provide to the other Parties at the end of each calendar quarter an invoice for each other Party’s share of the external costs (along with supporting invoices received from the external service providers), and each other Party shall remit, within sixty (60) days after receipt of the invoice, payment of its share of the external costs to the Audit Management Party.

(ii) Internal Costs and Expenses . The U.S. Audit Management Party shall estimate the internal costs and expenses (including any costs and expenses incurred as a result of any reporting obligations that arise out of an Audit, such as the reporting of any Audit adjustments to the various U.S. states) that it expects will be incurred by the U.S. Audit Management Party during the period that starts on the Distribution Date and ends on the last day of the 2015 fiscal year and shall provide such estimate on Schedule 9.2(e)(ii) . Each of the other Parties shall pay (or shall cause its Subsidiaries to pay) the U.S. Audit Management Party, within sixty (60) days after the beginning of each fiscal year through 2015, a fixed fee equal to such other Party’s Sharing Percentage multiplied by the internal costs and expenses shown in the estimate provided by the U.S. Audit Management Party on Schedule 9.2(e)(ii) . Prior to the end of fiscal year 2015, the Parties shall renegotiate this fee for succeeding periods. No adjustment shall be made for any difference between the internal costs and expenses estimated by the U.S. Audit Management Party and the amount of such costs and expenses that are actually incurred by the U.S. Audit Management Party. The other Parties acknowledge that they may incur internal costs and expenses related to an Audit that are not reimbursed pursuant to this Agreement and that the only internal costs and expenses that are subject to sharing and reimbursement are the internal costs and expenses incurred by the U.S. Audit Management Party as provided in this Section 9.2(e)(ii).

(iii) Maximum Annual Fountain Share of Costs and Expenses . Notwithstanding anything to the contrary herein, Fountain shall not be required to pay in the aggregate in any year (1) for costs incurred under Section 9.2(e)(i) in connection with the Pre-Distribution Shared Tax Audits related to the U.S. Income Tax Returns for fiscal years 1997 through 2000, more than $1 million or (2) for any other costs incurred under Section 9.2(e)(i) plus any costs incurred under Section 9.2(e)(ii), more than $1 million. To the extent that the annual expenses under this Section 9.2(e) exceed the limitations in the previous sentence, Trident and Athens NA shall share such excess sixty-five and sixty hundred twenty-five thousandths percent (65.625%) and thirty-four and three hundred seventy-five thousandths percent (34.375%), respectively.

 

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(f) Treatment of Costs and Expenses related to Pre-Distribution Shared Tax Audits . Payments borne by the Parties or any of their Subsidiaries for costs and expenses relating to Pre-Distribution Shared Tax Audits shall be treated as amounts deductible by the paying Party (or its Subsidiary) pursuant to Section 162 of the Code (and any corresponding provision of U.S. state or local or non-U.S. Tax Law), and none of the Parties or any of their Subsidiaries shall take any position inconsistent with such treatment, except to the extent that a Final Determination with respect to the paying Party or its Subsidiary causes any such payment to not be so treated.

(g) Power of Attorney/Officer Signature . Each Party hereby appoints (and shall cause its Subsidiaries to appoint) the Audit Management Party (and its designated representatives) as its agent and attorney-in-fact to take the actions the Audit Management Party deems necessary or appropriate to implement the responsibilities of the Audit Management Party under this Agreement. Each Participating Party also shall (or shall cause its Subsidiaries to) execute and deliver to the Audit Management Party a power of attorney, substantially in the form attached hereto as Schedule 9.2(g-1) , and such other documents as are reasonably requested from time to time by the Audit Management Party (or its designee), including, without limitation, a power of attorney with respect to any Participating Party (or a Subsidiary of a Participating Party) that is sold to an unrelated third party by a Participating Party (or by a Subsidiary of a Participating Party) and with respect to which the Audit Management Party has continued Audit responsibilities under this Agreement or the Trident 2007 Tax Sharing Agreement. Such other documents include, but are not limited to, documents signed by an authorized corporate officer of a Participating Party (or a Subsidiary of a Participating Party), where the Audit Management Party determines that a power of attorney is insufficient (in which case such signed documents shall not be withheld) to allow the Audit Management Party to make the necessary or appropriate filings or to take steps necessary or appropriate to the Audit Management Party’s defense, prosecution, or settlement of an Audit under this Agreement; provided , however , that (i) such power of attorney or such other documents shall not expand the rights or powers of such Audit Management Party beyond those provided by this Agreement; (ii) activities conducted under a power of attorney or such other documents are limited to the activities authorized by that power of attorney or such other documents; (iii) a power of attorney or such other documents delivered by a Participating Party to the Audit Management Party can be revoked only with the approval of the Audit Committee of the Board of Directors of the Participating Party to which the power of attorney or such other documents relates; and (iv) a revocation of a power of attorney or such other documents by a Participating Party’s Audit Committee also effects the immediate revocation of all powers of attorney or such other documents granted under, or derived from, the authority of the power of attorney that is revoked by that Participating Party’s Audit Committee. Examples of activities for which the signature of a Participating Party’s authorized representative could be required are set forth on Schedule 9.2(g-2) .

 

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Section 9.3 Payment of Audit Amounts and Amounts Under Trident 2007 Tax Sharing Agreement .

(a) Pre-Distribution Shared Tax Audits . In connection with any Final Determination with respect to a Pre-Distribution Shared Tax Audit:

(i) Trident shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, Fountain, or Athens NA (as the case may be) (x) one hundred percent (100%) of the additional Taxes due and payable as a result of such Final Determination that are attributable to the Trident Fountain Chile Transactions Tax Contingencies, (y) one hundred percent (100%) of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, are less than or equal to the First Tax Contingency Amount, and (z) the Trident Sharing Percentage of the additional taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the Second Tax Contingency Amount.

(ii) Athens NA shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, Trident, or Fountain (as the case may be) (x) one hundred percent (100%) of the additional Taxes due and payable as a result of such Final Determination that are attributable to the Brinks Separation Transaction Tax Contingencies or the Broadview Acquisition Transaction Tax Contingencies, (y) the Athens NA Second Sharing Percentage of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the First Tax Contingency amount and are less than or equal to the Second Tax Contingency Amount, and (z) the Athens NA Sharing Percentage of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the Second Tax Contingency Amount.

(iii) Fountain shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, Trident, or Athens NA (as the case may be) (x) the Fountain Second Sharing Percentage of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the First Tax Contingency Amount and are less than or equal to the Second Tax Contingency Amount, and (y) the Fountain Sharing Percentage of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the Second Tax Contingency Amount.

(b) Pre-Distribution Non-Income or Non-U.S. Tax Audits . In connection with any Final Determination with respect to a Pre-Distribution Non-Income or Non-U.S. Tax Audit:

(i) Trident shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority the Taxes imposed upon the Trident Group as a result of such Final Determination; provided , however , that Trident shall not be liable for any additional Taxes due and payable as a result of such Final Determination that are attributable to the Athens NA Brand Transaction Tax Contingencies.

 

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(ii) Athens NA shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, Trident or Fountain (as the case may be) (i) the Taxes imposed upon the Athens North American R/SB Group as a result of such Final Determination, and (ii) one hundred percent (100%) of the additional Taxes due and payable as a result of such Final Determination that are attributable to the Athens NA Brand Transaction Tax Contingencies.

(iii) Fountain shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority the Taxes imposed upon the Fountain Group as a result of such Final Determination; provided , however , that Fountain shall not be liable for any additional Taxes due and payable as a result of such Final Determination that are attributable to the Athens NA Brand Transaction Tax Contingencies.

(c) Trident 2007 Tax Sharing Agreement . For the avoidance of doubt and without duplication, in connection with any payments by Trident with respect to the Trident 2007 Tax Sharing Agreement (including payments with respect to a Pre-2007 Distribution Transfer Pricing Audit):

(i) Trident shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, Covidien, TE, Fountain, or Athens NA (as the case may be) (x) one hundred percent (100%) of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, are less than or equal to the First Tax Contingency Amount, and (y) the Trident Sharing Percentage of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the Second Tax Contingency Amount.

(ii) Athens NA shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, Covidien, TE, Trident, or Fountain (as the case may be) (x) the Athens NA Second Sharing Percentage of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the First Tax Contingency amount and are less than or equal to the Second Tax Contingency Amount, and (y) the Athens NA Sharing Percentage of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the Second Tax Contingency Amount.

(iii) Fountain shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, Covidien, TE, Trident, or Athens NA (as the case may be) (x)

 

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the Fountain Second Sharing Percentage of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the First Tax Contingency Amount and are less than or equal to the Second Tax Contingency Amount, and (y) the Fountain Sharing Percentage of the additional Taxes due and payable as a result of such Final Determination that are attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, but only to the extent such additional Taxes, when added to the Threshold Base Amount, exceed the Second Tax Contingency Amount.

(d) Timing Items . Notwithstanding anything to the contrary herein, no Party shall be required to make a payment to any other Party for any additional Taxes due and payable by such other Party as a result of a Final Determination that are attributable to a Pre-Distribution Shared Tax Audit to the extent such payment is reasonably likely to result in a Correlative Benefit to such other Party (a “ Timing Item ”). If more than one Party is reasonably likely to realize such Correlative Benefit, then the Party required to make the payment to such other Parties shall reduce the payments to such other Parties in proportion to the Correlative Benefit reasonably likely to be realized by such other Parties.

(e) Payment Procedures . In connection with any Audit that results in an amount to be paid pursuant to Section 9.3(a), (b), or (c), the Audit Management Party shall, within thirty (30) Business Days following a final resolution of such Audit, submit in writing to the other Parties a preliminary determination (calculated and explained in detail reasonably sufficient to enable the Parties to fully understand the basis for such determination and to permit such Parties and their Affiliates to satisfy their financial reporting requirements) of the portion of such amount to be paid by each of the Parties pursuant to Section 9.3(a), (b), or (c), as applicable. Each of the Parties and its Affiliates shall have access to all data and information necessary to calculate such amounts and the Parties and their Affiliates shall cooperate fully in the determination of such amounts. Within twenty (20) Business Days following the receipt by a Party of the information described in this Section 9.3(e), such Party shall have the right to object only to the calculation of the amount of the payment (but not the basis for the payment) by written notice to the other Parties; such written notice shall contain such disputed item or items and the basis for its objection. If no Party objects by proper written notice to the other Parties within the time period described in this Section 9.3(e), the calculation of the amounts due and owing from each Party shall be deemed to have been accepted and agreed upon, and final and conclusive, for purposes of this Section 9.3(e). If any Party objects by proper written notice to the other Parties within such time period, the Parties shall act in good faith to resolve any such dispute as promptly as practicable in accordance with Article XIII. The Party or its Affiliate responsible for paying to the applicable Taxing Authority under applicable Law amounts owed pursuant to a Final Determination shall make such payments to such Taxing Authority prior to the due date for such payments. The other Parties shall reimburse the paying Party for the portion of such payments for which such other Parties are liable pursuant to this Section 9.3. The time periods specified above for submitting a preliminary determination and objecting may be shortened to a time period determined by a Majority of the Parties if these Parties ascertain that such shortened time period is necessary to meet the Audit obligations of the Parties and their Affiliates.

 

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(f) Advance Payment of Taxes . In the event that: (i) the Audit Management Party decides to contest the position of a Taxing Authority taken with respect to a Pre-Distribution Shared Tax Audit in a forum or jurisdiction that requires the prepayment or deposit of the Taxes (or security for the Taxes) in order to contest the Taxes determined by the Taxing Authority to be due and payable, or (ii) the Audit Management Party determines in good faith that it is in the best interest of the Parties to make a prepayment or deposit of Taxes with the IRS in respect of a Pre-Distribution U.S. Income Tax Audit in accordance with the procedures required by the IRS to suspend the accrual of interest on a potential underpayment of Taxes, including but not limited to a cash deposit or a deposit in the nature of a cash bond (each of (i) and (ii), a “ Tax Deposit ”), then, in either case (as applicable), each of the other Parties must pay to the Audit Management Party its portion of such Tax Deposit determined in accordance with this Section 9.3, and the Audit Management Party shall promptly remit such Tax Deposit to the applicable Taxing Authority in accordance with such Taxing Authority’s Tax prepayment or deposit procedures, as applicable; provided , however , if (i) the Threshold Base Amount exceeds the First Tax Contingency Amount and (ii) any Party’s portion of such Tax Deposit exceeds $100 million, the Parties shall only be obligated to pay their portions of such Tax Deposit if a Majority of the Parties votes in favor of the Audit Management Party’s decision to make the Tax Deposit. Each of the Parties shall deliver its written vote to the Audit Management Party within ten (10) days of its receipt of written notice of the Audit Management Party’s decision regarding a Tax Deposit and the amount of the required prepayment or deposit. A recoupment of all or a portion of a prepayment or deposit of Taxes resulting from a Final Determination shall be paid to the Party or Parties that contributed to such prepayment or deposit, in proportion to such contributions. No Party shall be liable to any other Party in the event that a Final Determination does not allow for the recovery of all or a portion of a prepayment or deposit.

Section 9.4 Transfer Pricing Adjustment . To the extent that Fountain or Athens NA owes any amount under Sections 9.3(a) or (c) as a result of any Audit involving transfer pricing and that includes an item related to or arising from an intercompany transfer pricing adjustment under Section 482 of the Code and the Treasury Regulations thereunder, or an analogous provision under U.S. state and local or non-U.S. Law, and also involves a Taxing Authority outside of the United States, Fountain and Athens NA shall be entitled to share, to the same extent, in any Tax benefit arising out of any competent authority relief provided by such Taxing Authority.

Section 9.5 Correlative Adjustment . If as a result of a Final Determination, a Party or its Affiliate becomes entitled to an increase of an item of deduction, loss, or credit (or a reduction of an item of income or gain) that is included in a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, and another Party or its Affiliate suffers a correlative disallowance of an item of deduction, loss or credit (or an increase of an item of income or gain) that is included in a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date, the former Party shall pay any amount it actually realizes as a result of the Tax benefit to the latter Party, but only to the extent of the latter Party’s detriment.

 

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ARTICLE X

COOPERATION AND EXCHANGE OF INFORMATION

Section 10.1 Cooperation and Exchange of Information . The Parties shall each cooperate fully (and each shall cause its respective Affiliates to cooperate fully) and in a timely manner (considering the other Party’s normal internal processing or reporting requirements) with all reasonable requests from another Party hereto, or from an agent, representative, or advisor to such Party, in connection with the preparation and filing of Tax Returns, claims for Refund, Audits, determinations of Tax Attributes and the calculation of Taxes or other amounts required to be paid hereunder, and any applicable financial reporting requirements of a Party or its Affiliates, in each case, related or attributable to or arising in connection with Taxes or Tax Attributes of any of the Parties or their respective Subsidiaries covered by this Agreement. Such cooperation shall include, without limitation:

(a) the retention until the expiration of the applicable statute of limitations or, if later, until the expiration of all relevant Tax Attributes (in each case taking into account all waivers and extensions), and the provision upon request, of Tax Returns of the Parties and their respective Subsidiaries for periods up to and including the Distribution Date, books, records (including information regarding ownership and Tax basis of property), documentation, and other information relating to such Tax Returns, including accompanying schedules, related work papers, and documents relating to rulings or other determinations by Taxing Authorities;

(b) the execution of any document that may be necessary or reasonably helpful in connection with any Audit of any of the Parties or their respective Subsidiaries, or the filing of a Tax Return or Refund claim of the Parties or any of their respective Subsidiaries (including the signature of an officer of a Party or its Subsidiary);

(c) the use of the Party’s reasonable best efforts to obtain any documentation and provide additional facts, insights or views as requested by another Party that may be necessary or reasonably helpful in connection with any of the foregoing (including without limitation any information contained in Tax or other financial information databases); and

(d) the use of the Party’s reasonable best efforts to obtain any Tax Returns (including accompanying schedules, related work papers, and documents), documents, books, records, or other information that may be necessary or helpful in connection with any Tax Returns of any of the Parties or their Affiliates.

Each Party shall make its and its Subsidiaries’ employees and facilities available on a reasonable and mutually convenient basis in connection with the foregoing matters. Except for costs and expenses otherwise allocated among the Parties pursuant to this Agreement, including costs incurred under Article II and Article IX, and except for copying costs, which shall be shared equally by the Parties, no reimbursement shall be made for costs and expenses incurred by the Parties as a result of cooperating pursuant to this Section 10.1.

Section 10.2 Retention of Records . Subject to Section 10.1, if any of the Parties or their respective Subsidiaries intends to dispose of any documentation (including, without

 

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limitation, documentation that is being retained pursuant to IRS guidelines, such as Revenue Procedure 98-25 and Revenue Procedure 97-22) relating to the Taxes of the Parties or their respective Subsidiaries for which another Party to this Agreement may be responsible pursuant to the terms of this Agreement (including, without limitation, Tax Returns, books, records, documentation, and other information, accompanying schedules, related work papers, and documents relating to rulings or other determinations by Taxing Authorities), such Party shall provide or cause to be provided written notice to the other Parties describing the documentation to be destroyed or disposed of sixty (60) Business Days prior to taking such action. The other Parties may arrange to take delivery of the documentation described in the notice at their expense during the succeeding sixty (60)-day period.

ARTICLE XI

ALLOCATION OF TAX ATTRIBUTES, DUAL CONSOLIDATED LOSSES AND OTHER TAX MATTERS

Section 11.1 Allocation of Tax Attributes . Each Party shall make its own determination as to the existence and the amount of the Tax Attributes to which it is entitled after the Effective Time; provided , however , that such determination shall be made in a manner that is (a) reasonably consistent with the past practices of the Parties; (b) in accordance with the rules prescribed by applicable Law, including the Code and the Treasury Regulations; (c) consistent with the IRS Ruling, the Tax Representation Letters, and the Tax Opinions; and (d) reasonably determined by the Party to minimize the aggregate cash Tax liability of the Parties for all Pre-Distribution Tax Periods and the portion of all Straddle Tax Periods ending on the Distribution Date. Each Party agrees to provide the other Parties with all of the information supporting the Tax Attribute determinations made by that Party pursuant to this Section 11.1.

Section 11.2 Dual Consolidated Losses . The Parties agree to (and if necessary shall cause their Subsidiaries to) comply with the requirements of Treasury Regulations Sections 1.1503(d)-6(f)(2)(iii), 1.1503(d)-8(b)(4), and 1.1503-2(g)(2)(iv)(B), as applicable, with respect to any “dual consolidated loss” (within the meaning of Section 1503(d) of the Code and Treasury Regulations Sections 1.1503(d)-1(b)(5) and 1.1503-2(c)(5)) that one or more of the Parties (or their Subsidiaries) is reasonably likely to be required to include in income as a result of the Plan of Separation; and if any dual consolidated loss that was incurred prior to the Effective Time is required to be included in the income of any Party (or its Subsidiaries) because the Parties failed or were unable to comply with such requirements, the Parties shall share all Taxes that become due and payable for a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date in accordance with their Sharing Percentages.

Section 11.3 Trident 2007 Tax Sharing Agreement .

(a) Any payment received by Trident from another Party to the Trident 2007 Tax Sharing Agreement pursuant to sections 9.3(a), (b) or (c) thereof, shall be treated as a Refund for all purposes.

(b) Athens NA and Fountain agree to take or refrain from taking, and agree to cause each member of its Group to take or refrain from taking, any and all actions reasonably requested by Trident that would preserve, exercise or contravene, as the case may be, Trident’s rights and obligations under the Trident 2007 Tax Sharing Agreement.

 

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Section 11.4 Allocation of Tax Items . All determinations (whether for purposes of preparing Tax Returns or for purposes of determining a Party’s responsibility for Taxes under this Agreement) regarding the allocation of Tax items between the portion of a Straddle Tax Period that ends on the Distribution Date and the portion of such Straddle Tax Period that begins the day after the Distribution Date shall be made pursuant to the principles of Treasury Regulations Section 1.1502-76(b) or of a corresponding provision under the Laws of the applicable taxing jurisdiction; provided , further , that Tax items may be ratably allocated to the extent provided by and pursuant to the principles of Treasury Regulations Section 1.1502-76(b)(2)(ii). Any such allocation of Tax items shall initially be determined by Trident. To the extent that Athens NA or Fountain disagrees with such determination, the dispute shall be resolved pursuant to the provisions of Article XIII.

Section 11.5 Pre-Distribution Tax Attributes . In determining the amount of Taxes due and payable with regard to a Final Determination, each Party agrees to take any and all actions necessary or helpful, including but not limited to making elections or seeking allowances or group relief, in order to minimize the amount of Taxes that would otherwise be due and payable by a Party (or its Subsidiaries) as a result of such Final Determination.

Section 11.6 Other Agreements . Except with respect to the Trident 2007 Tax Sharing Agreement, and notwithstanding anything to the contrary in this Agreement, the responsibility of the Parties with respect to the Ancillary Agreements shall be determined in accordance with the Separation and Distribution Agreements.

Section 11.7 Amounts Received under Other Agreements . Any amounts received by Trident with respect to the CIT Tax Agreement are for the sole benefit of Trident and shall not be shared.

Section 11.8 Threshold Base Amount Report . On a quarterly basis or as otherwise agreed by the Parties, Trident shall prepare and deliver to the other Parties a schedule documenting the sum of all payments, Refunds or other amounts included in the most current determination of the Threshold Base Amount.

ARTICLE XII

DEFAULTED AMOUNTS

Section 12.1 General . In the event that one or more Parties defaults on its obligation to pay Distribution Taxes for which it is liable pursuant to Article V to another Party, then each non-defaulting Party shall be required to pay an equal portion of such Distribution Taxes to such other Party; provided , however , that no payment obligation shall exist under this Section 12.1 with respect to Distribution Taxes that are attributable to the Fault of one or more Parties; provided , further , that any payment of Distribution Taxes by a non-defaulting Party pursuant to this Section 12.1 shall in no way release the defaulting Party from its obligations to pay such Distribution Taxes and any non-defaulting Party may exercise any available legal remedies

 

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available against such defaulting Party; provided , further , that interest shall accrue on any such payment by a non-defaulting Party at a rate per annum equal to the then applicable Prime Rate plus four percent (4%), or the maximum legal rate, whichever is lower. In connection with the foregoing, it is expressly understood that any defaulting Party’s rights to any amounts to be received by such defaulting Party hereunder may be used via a right of offset to satisfy, in whole or in part, the obligations of such defaulting Party to pay the Distribution Taxes (and obligations for Assumed Trident Contingent Liabilities as such term is defined for purposes of the Separation and Distribution Agreement) that are borne by the non-defaulting Parties; such rights of offset shall be applied in favor of the non-defaulting Party or Parties in proportion to the additional amounts paid by any such non-defaulting Party or Parties.

Section 12.2 Subsidiary Funding . Without limitation of the Parties’ rights and obligations otherwise set forth in this Agreement and provided that no other Party has defaulted on any of its obligations pursuant to this Agreement, each Party agrees to provide or cause to be provided such funding as is necessary to ensure that its respective Subsidiaries are able to satisfy their respective Tax liabilities to a Taxing Authority that arise as a result of a Final Determination under Section 9.3 of this Agreement, including any such Tax liabilities that, upon default by a Party’s Subsidiary, may result in another Party’s Subsidiary paying or being required to pay the defaulted Tax liabilities to a Taxing Authority.

ARTICLE XIII

DISPUTE RESOLUTION

Section 13.1 Negotiation . In the event of a controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement or the transactions contemplated hereby, including any claim based on contract, tort, statute or constitution (“ Dispute ”), the general counsels of the relevant Parties (or such other executive officers designated by the relevant Party) shall negotiate for a reasonable period of time to settle such Dispute; provided , however , that such reasonable period shall not, unless otherwise agreed by the relevant Parties in writing, exceed forty-five (45) days from the date of receipt by a party of written notice of such Dispute (“ Dispute Notice ”); provided , further , that in the event of any arbitration in accordance with Section 13.3 hereof, the relevant Parties shall not assert the defenses of statute of limitations and laches arising during the period beginning after the date of receipt of the Dispute Notice, and any contractual time period or deadline under this Agreement to which such Dispute relates occurring after the Dispute Notice is received shall not be deemed to have passed until such Dispute has been resolved. If the general counsels of the relevant Parties (or such other executive officers designated by the relevant Party) are unable to resolve the Dispute within forty-five (45) days from the receipt by a party (or Parties) of a Dispute Notice (or within a different period agreed to by the relevant Parties in writing), the Dispute shall be resolved in accordance with Section 13.2 or Section 13.3, as the case may be.

Section 13.2 Mediation . If, within forty-five (45) days after receipt by a Party of a Dispute Notice, the Parties have not succeeded in negotiating a resolution of the Dispute, the Parties agree to submit the Dispute at the earliest possible date to mediation conducted in accordance with the Commercial Mediation Rules of the American Arbitration Association

 

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(“ AAA ”), and to bear equally the costs of the mediation. The Parties agree to participate in good faith in the mediation and negotiations related thereto for a period of thirty (30) days or such longer period as they may mutually agree following the initial mediation session (the “ Mediation Period ”).

Section 13.3 Arbitration . If the Dispute has not been resolved for any reason after the Mediation Period, such Dispute shall be determined, at the request of any relevant Party, by arbitration conducted in New York City, in accordance with the then-existing Commercial Arbitration Rules of the AAA, except as modified herein (the “ Rules ”). There shall be three arbitrators. If there are only two Parties to the arbitration, each Party shall appoint one arbitrator within twenty (20) days of receipt by respondent of a copy of the demand for arbitration. The two Party-appointed arbitrators shall have twenty (20) days from the appointment of the second arbitrator to agree on a third arbitrator who shall chair the arbitral tribunal. If there are three Parties to the arbitration, such Parties shall each appoint one arbitrator within twenty (20) days of receipt by respondent of a copy of the demand for arbitration. Any arbitrator not timely appointed by the Parties under this Section 13.3 shall be appointed by the AAA in accordance with the listing, ranking and striking method in the Rules, and in any such procedure, each Party shall be given a limited number of strikes, excluding strikes for cause. Any controversy concerning whether a Dispute is arbitrable, whether arbitration has been waived, whether a Party to or assignee of this Agreement is bound to arbitrate, or as to the interpretation, applicability or enforceability of this Article XIII shall be determined by the arbitrators. In resolving any Dispute, the Parties intend that the arbitrators shall apply applicable Tax Laws and the substantive Laws of the State of New York, without regard to any choice of Law principles thereof that would mandate the application of the Laws of another jurisdiction. The Parties intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable, and any award rendered by the arbitrators shall be final and binding on the Parties. The Parties agree to comply and cause the members of their applicable Group to comply with any award made in any such arbitration proceedings and agree to enforcement of or entry of judgment upon such award, in any court of competent jurisdiction, including but not limited to (a) the Supreme Court of the State of New York, New York County, or (b) the United States District Court for the Southern District of New York. The arbitrators shall be entitled, if appropriate, to award any remedy in such proceedings in accordance with the terms of this Agreement and applicable Law, including monetary damages, specific performance and all other forms of legal and equitable relief; provided , however , the arbitrators shall not be entitled to award punitive, exemplary, treble or any other form of non-compensatory damages unless in connection with indemnification for a third-party claim (and in such a case, only to the extent awarded in such third-party claim).

Section 13.4 Arbitration with Respect to Monetary Damages . In the event the Dispute involves (a) valuation of a liability under this Agreement, (b) an amount in controversy in a Dispute, or (c) an amount of damages following a determination of liability, the arbitration shall proceed in the following manner: Each Party shall submit to the arbitrators and exchange with each other, on a schedule to be determined by the arbitrators, a proposed valuation, amount or damages, as the case may be, together with a statement, including all supporting documents or other evidence upon which it relies, setting forth such Party’s explanation as to why its proposal is reasonable and appropriate. The arbitrators, within fifteen (15) days of receiving such proposals and supporting documents, shall choose between the proposals and shall be limited to awarding only one of the proposals submitted.

 

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Section 13.5 Arbitration Period . Any arbitration proceeding shall be concluded in a maximum of six (6) months from the commencement of the arbitration. The Parties involved in the proceeding may agree in writing to extend the arbitration period if necessary to appropriately resolve the Dispute.

Section 13.6 Treatment of Negotiations, Mediation, and Arbitration . Without limiting the provisions of the Rules, unless otherwise agreed in writing by or among the relevant Parties or permitted by this Agreement, the relevant Parties shall keep, and shall cause the members of their applicable Group to keep, confidential all matters relating to any negotiation, mediation, conference, arbitration, discussion, or arbitration award pursuant to this Article XIII, and any such negotiation, mediation, conference, arbitration, or discussion shall be treated as compromise and settlement negotiations for purposes of Rule 408 of the Federal Rules of Evidence and comparable state rules; provided , however , that such matters may be disclosed (i) to the extent reasonably necessary in any proceeding brought to enforce the award or for entry of a judgment upon the award and (ii) to the extent otherwise required by Law or stock exchange. Nothing said or disclosed, nor any document produced, in the course of any negotiations, conferences, and discussions that is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration. Nothing contained herein is intended to or shall be construed to prevent any Party from applying to any court of competent jurisdiction for interim measures or other provisional relief in connection with the subject matter of any Disputes. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitral tribunal shall have full authority to grant provisional remedies and to direct the Parties to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any party to respect the arbitral tribunal’s orders to that effect.

Section 13.7 Continuity of Service and Performance . Unless otherwise agreed in writing, the Parties will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article XIII with respect to all matters not subject to such dispute resolution.

Section 13.8 Costs . Except as otherwise may be provided in this Agreement, the costs of any arbitration pursuant to this Article XIII shall be borne by the losing Party or Parties in such proportion as the arbitrator or arbitrators determine based on the facts and circumstances.

Section 13.9 Consolidation . The arbitrators may consolidate an arbitration under this Agreement with any arbitration arising under or relating to the Ancillary Agreements or any other agreement between the Parties entered into pursuant hereto, as the case may be, if the subject of the Disputes thereunder arise out of or relate essentially to the same set of facts or transactions. Such consolidated arbitration shall be determined by the arbitrator appointed for the arbitration proceeding that was commenced first in time.

 

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ARTICLE XIV

MISCELLANEOUS

Section 14.1 Counterparts; Facsimile Signatures . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties. For purposes of this Agreement, facsimile signatures shall be deemed originals.

Section 14.2 Survival . Except as otherwise contemplated by this Agreement or any Ancillary Agreement, all covenants and agreements of the Parties contained in this Agreement and each Ancillary Agreement shall survive the Distribution Date and remain in full force and effect in accordance with their applicable terms; provided , however , that all indemnification for Taxes shall survive until ninety (90) days following the expiration of the applicable statute of limitations (taking into account all extensions thereof), if any, of the Tax that gave rise to the indemnification; provided , further , that, in the event that notice for indemnification has been given within the applicable survival period, such indemnification shall survive until such time as such claim is finally resolved.

Section 14.3 Notices . All notices, requests, claims, demands, and other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service), or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 14.3):

To Trident International:

Tyco International Ltd.

c/o Tyco International Management Co.

9 Roszel Road

Princeton, New Jersey 08540

Attn:    General Counsel

Facsimile: (609) 720-4208

To Trident SA:

Tyco International Finance S.A.

c/o Tyco International Management Co.

9 Roszel Road

Princeton, New Jersey 08540

Attn:    General Counsel

Facsimile: (609) 720-4208

 

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To Fountain:

Pentair, Inc.

5500 Wayzata Boulevard, Suite 800

Golden Valley, Minnesota

Attn:    Angela D. Lageson

Facsimile: (763) 656-5403

with copies to (which shall not constitute notice):

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, New York 10019

Attn:    Stephen L. Gordon

Facsimile: (212) 474-3700

and to:

Foley & Lardner LLP

777 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

Attn:    Benjamin F. Garmer, III

Facsimile: (414) 297-4900

To Athens NA:

The ADT Corporation

One Town Center Road

Boca Raton, Florida 33486

Attn:    General Counsel

Facsimile: (561) 988-3719

Section 14.4 Waivers and Consents . The failure of any Party to require strict performance by any other Party of any provision in this Agreement will not waive or diminish that Party’s right to demand strict performance thereafter of that or any other provision hereof. Any consent required or permitted to be given by any Party to the other Parties under this Agreement shall be in writing and signed by the Party giving such consent and shall be effective only against such Party (and its Group).

Section 14.5 Amendments . Subject to the terms of Section 14.8, this Agreement may not be modified or amended except by an agreement in writing signed by each of the Parties.

Section 14.6 Assignment . Except as otherwise provided for in this Agreement, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party without the prior written consent of the other Parties (not to be unreasonably withheld or delayed), and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void; provided , however , that a Party may assign this Agreement

 

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in connection with a merger transaction in which such Party is not the surviving entity or the sale by such Party of all or substantially all of its Assets; provided , further , that the surviving entity of such merger or the transferee of such Assets shall agree in writing, reasonably satisfactory to the other Parties, to be bound by the terms of this Agreement as if named as a “Party” hereto.

Section 14.7 Successors and Assigns . The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns; provided , however , that in no event shall a Party’s right to vote on a matter set forth herein be construed to permit any duplication of a Party’s vote by a successor, assignee, or other transferee. The Parties acknowledge that it is their intention to permit no more than three (3) parties to vote on any matter set forth herein.

Section 14.8 Certain Termination and Amendment Rights . This Agreement may not be terminated except by written consent of each of the Parties.

Section 14.9 No Circumvention . The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any member of any such Party’s Group to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement, the Separation and Distribution Agreements or any Ancillary Agreement (including adversely affecting the rights or ability of any Party to successfully pursue indemnification or payment pursuant to the provisions of this Agreement).

Section 14.10 Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party on and after the Distribution Date.

Section 14.11 Liability of Trident SA . Each of the Parties acknowledges and agrees that (i) Trident SA shall be primarily liable for and shall satisfy all obligations of Trident to Athens NA under this Agreement, without right of contribution, reimbursement, or compensation from Trident International; and (ii) Trident SA shall have no liability to Fountain under this Agreement; provided, however, that clause (ii) shall not reduce or relieve Trident’s obligations to Fountain under this Agreement to any extent.

Section 14.12 Third Party Beneficiaries . This Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

Section 14.13 Title and Headings . Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

Section 14.14 Exhibits and Schedules . The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Nothing in the Exhibits or Schedules constitutes an admission of any liability

 

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or obligation of any member of the Athens North American R/SB Group, Fountain Group or Trident Group or any of their respective Affiliates to any third party, nor, with respect to any third party, an admission against the interests of any member of the Athens NA Group, Fountain Group or Trident Group or any of their respective Affiliates.

Section 14.15 Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of New York, without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

Section 14.16 Consent to Jurisdiction . Subject to the provisions of Article XIII, each of the Parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York (the “ New York Courts ”), for the purposes of any suit, action, or other proceeding to compel arbitration or for provisional relief in aid of arbitration in accordance with Article XIII or to prevent irreparable harm, and to the non-exclusive jurisdiction of the New York Courts for the enforcement of any award issued thereunder. Each of the Parties further agrees that service of any process, summons, notice, or document by U.S. registered mail to such Party’s respective address set forth above shall be effective service of process for any action, suit, or proceeding in the New York Courts with respect to any matters to which it has submitted to jurisdiction in this Section 14.16. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit, or proceeding arising out of this Agreement or the transactions contemplated hereby in the New York Courts, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

Section 14.17 Specific Performance . The Parties agree that irreparable damage would occur in the event that the provisions of this Agreement were not performed in accordance with their specific terms. Accordingly, it is hereby agreed that the Parties shall be entitled to an injunction or injunctions to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at Law or in equity.

Section 14.18 Waiver of Jury Trial . EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 14.17.

 

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Section 14.19 Force Majeure . No Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.

Section 14.20 Complete Agreement; Construction . This Agreement, including the Exhibits and Schedules, and the Ancillary Agreements shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter. The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted.

Section 14.21 Changes in Law .

(a) Any reference to a provision of the Code, Treasury Regulations, or a Law of another jurisdiction shall include a reference to any applicable successor provision or Law.

(b) If, due to any change in applicable Law or regulations or their interpretation by any court of Law or other governing body having jurisdiction subsequent to the date hereof, performance of any provision of this Agreement or any transaction contemplated hereby shall become impracticable or impossible, the Parties hereto shall use their commercially reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision.

(c) To the extent any provision of this Agreement references an effective Tax rate, such rate shall be adjusted to the extent of, and with concurrent effective date as, any change in such Tax rate under applicable Law.

Section 14.22 Authority . Each of the Parties hereto represents to each of the other Parties that (a) it has the corporate power (corporate or otherwise) and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other action, (c) it has duly and validly executed and delivered this Agreement, and (d) this Agreement is a legal, valid, and binding obligation, enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium, or other similar Laws affecting creditors’ rights generally and general equity principles.

Section 14.23 Severability . If any provision of this Agreement or the application of any such provision to any Person or circumstance shall be held invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other provision hereof. The Parties shall engage in good faith negotiations to replace any provision that is declared invalid, illegal, or unenforceable with a valid, legal, and enforceable provision, the economic effect of which comes as close as possible to that of the invalid, illegal, or unenforceable provision which it replaces.

 

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Section 14.24 Tax Sharing Agreements . All Tax sharing, indemnification and similar agreements, written or unwritten, as between any of the Parties or their respective Subsidiaries, on the one hand, and any other Party or its respective Subsidiaries, on the other hand (other than this Agreement or in any other Ancillary Agreement), shall be or shall have been terminated as of the Distribution Date and, after the Distribution Date, none of such Parties (or their Subsidiaries) to any such Tax sharing, indemnification or similar agreement shall have any further rights or obligations under any such agreement.

Section 14.25 Exclusivity . Except as specifically set forth in the Separation and Distribution Agreements or any Ancillary Agreement, all matters related to Taxes or Tax Returns of the Parties and their respective Subsidiaries shall be governed exclusively by this Agreement. In the event of a conflict between this Agreement, the Separation and Distribution Agreements or any Ancillary Agreement with respect to such matters, this Agreement shall govern and control.

Section 14.26 No Duplication; No Double Recovery . Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation, or recovery with respect to any matter arising out of the same facts and circumstances.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed the day and year first above written.

 

TYCO INTERNATIONAL LTD.
By:  

/s/ John S. Jenkins

Name:   John S. Jenkins
Title:   Vice President and Secretary
TYCO INTERNATIONAL FINANCE S.A.
By:  

/s/ Andrea Goodrich

Name:  

Andrea Goodrich

Title:  

Director

THE ADT CORPORATION
By:  

/s/ N. David Bleisch

Name:   N. David Bleisch
Title:   Vice President and Secretary
PENTAIR LTD.
By:  

/s/ John S. Jenkins

Name:   John S. Jenkins
Title:  

Director

SIGNATURE PAGE TO TAX SHARING AGREEMENT

Exhibit 99.1

DESCRIPTION OF PENTAIR LTD. CAPITAL STOCK

The following is a summary of the material terms of the share capital of Pentair Ltd. (“New Pentair”) and certain provisions of its articles of association and organizational regulations. This summary does not purport to be complete and is qualified in its entirety by reference to the applicable provisions of the Swiss Code of Obligations and to New Pentair’s articles of association and organizational regulations filed as Exhibits 3.1 and 3.2, respectively, to its Current Report on Form 8-K on September 28, 2012.

Capital Structure

Issued Share Capital

New Pentair has one class of share capital consisting of registered shares and has issued approximately 213 million registered shares with a nominal value per share of CHF 0.50, of which approximately 3 million are treasury shares. Excluding these treasury shares, approximately 47.5% of New Pentair’s shares are held by former Pentair shareholders and approximately 52.5% of New Pentair’s shares are held by Tyco International Ltd. (“Tyco”) shareholders who received New Pentair shares as a result of the spin-off of New Pentair from Tyco immediately prior to the Merger.

New Pentair’s shares rank pari passu with each other in all respects, including with respect to entitlements to dividends, liquidation proceeds and preemptive rights.

Authorized Share Capital

New Pentair’s board of directors is authorized, without additional shareholder approval, to increase New Pentair’s share capital at any time until September 14, 2014, through issuance of new shares in one or several steps, by a maximum amount of 50% of the share capital registered in the commercial register. During each two-year period subsequent to such date, authorized share capital will be available to New Pentair’s board of directors for issuance of additional registered shares only to the extent that shareholders have reauthorized such share capital at a general meeting of shareholders.

New Pentair’s board of directors will determine the time of the issuance, the issue price, the manner in which the new registered shares have to be paid, the date from which the new registered shares carry the right to dividends and, subject to the provisions of New Pentair’s articles of association, the conditions for the exercise of preemptive rights and the allotment of preemptive rights that have not been exercised. New Pentair’s board of directors may allow preemptive rights that are not exercised to expire, or it may place such rights or registered shares, the preemptive rights of which have not been exercised, at market conditions or use them otherwise in the interest of New Pentair.

In an authorized capital increase, New Pentair’s shareholders will have preemptive rights to obtain newly issued registered shares in an amount proportional to the par value of the registered shares they already hold. New Pentair’s board of directors, however, may withdraw or limit these preemptive rights in certain circumstances as set forth in New Pentair’s articles of association. For further details on these circumstances, see “—Preemptive Rights and Advance Subscription Rights.”

Conditional Share Capital

The board of directors from time to time may authorize New Pentair to issue bonds (including convertible bonds and bonds with options), notes, options, warrants or other securities in each case that represent a right to exchange, convert or exercise the security for New Pentair shares (collectively, “Rights”). New Pentair’s articles of association permit the issuance of shares in connection with the exercise of such Rights without obtaining additional shareholder approval, up to a maximum aggregate amount of 50% of the share capital registered in the commercial register. A specific number of shares, which are referred to collectively as “Conditional Share Capital,” are allotted in the articles of association to two categories: (a) shares issued through the exercise of Rights granted to third parties or shareholders in connection with bonds, notes, options, warrants and other similar securities issued by New Pentair or one of its subsidiaries in national or international capital markets or pursuant to contractual obligations of New Pentair, its subsidiaries or any of their respective predecessors and (b) shares issued through the exercise of options and other similar Rights granted to members of the board of directors, members of the executive management, employees, contractors, consultants or other persons providing services to New Pentair or any of New Pentair’s subsidiaries or affiliates.

Other Classes or Series of Shares

New shares with increased voting rights may not be issued without a shareholder resolution passed by at least two-thirds of the shares represented at the general meeting of shareholders.

Preemptive Rights and Advance Subscription Rights

Under the Swiss Code of Obligations (the “Swiss Code”), other than in the instances covered above under “—Authorized Share Capital,” and “—Conditional Share Capital,” the prior approval of a general meeting of shareholders is required to authorize the issuance of registered shares. Shareholders generally will have preemptive rights in relation to such registered shares in proportion to the respective par values of their holdings. In addition, shareholders generally have advance subscription rights in relation to conversion, option, exchange, warrant or similar rights for the subscription of shares in connection with convertible bonds, notes, options, warrants or other similar securities convertible or exercisable for shares in proportion to the respective par values of their holdings.


Shareholders with the affirmative vote of at least two-thirds of the shares represented at the general meeting of shareholders may withdraw or limit preemptive rights for valid reasons, such as a merger or an acquisition, or for any of the reasons authorizing New Pentair’s board of directors to withdraw or limit preemptive rights of shareholders in the context of an authorized capital increase as described below. Shareholders also may withdraw or limit advance subscription rights for similar valid reasons, including for financing or refinancing purposes or for any of the reasons authorizing New Pentair’s board of directors to withdraw or limit advance subscription rights of shareholders in the context of a conditional capital increase as described below.

To the extent that the general meeting of shareholders has approved the creation of authorized or conditional capital, New Pentair’s articles of association authorize the board of directors to withdraw or limit preemptive and advance subscription rights for valid reasons to New Pentair’s board of directors in the circumstances described below under “—Limitation of Rights with Respect to Authorized Share Capital” and “—Limitation of Rights with Respect to Conditional Share Capital.”

Limitation of Rights with Respect to Authorized Share Capital

When issuing registered shares from authorized capital, New Pentair’s board of directors may withdraw or limit preemptive rights:

 

   

if the issue price of the new registered shares is determined by reference to the market price; or

 

   

for the acquisition of an enterprise, part(s) of an enterprise or participations, or for the financing or refinancing of any such transactions, or for the financing of new investment plans of New Pentair; or

 

   

for purposes of broadening the shareholder constituency of New Pentair in certain financial or investor markets, for purposes of the participation of strategic partners, or in connection with the listing of new shares on domestic or foreign stock exchanges; or

 

   

for purposes of granting an over-allotment option (including options with respect to any security convertible into shares, such as convertible debt securities or otherwise) of up to 20% of the total number of shares in a placement or sale of shares to the respective initial purchaser(s) or underwriter(s); or

 

   

for the participation of members of the board of directors, members of the executive management, employees, contractors, consultants or other persons performing services for the benefit of New Pentair or any of its subsidiaries or affiliates; or

 

   

(i) following a person becoming, and for so long as to the knowledge of the board of directors such person remains, a beneficial owner (as defined in the articles of association) of shares in excess of 10% of the share capital registered in the commercial register without having submitted to the other shareholders a takeover offer that is recommended by the board of directors, or (ii) for the defense of an actual, threatened or potential unsolicited takeover bid, in relation to which the board of directors, upon consultation with an independent financial adviser retained by it, has not recommended to the shareholders acceptance on the basis that the board of directors has not found the takeover bid to be fair to the shareholders.

Limitation of Rights with Respect to Conditional Share Capital

Conditional Share Capital for Financing Purposes

In connection with the issuance of bonds, notes, warrants or other financial instruments or contractual obligations convertible into or exercisable or exchangeable for New Pentair shares, the preemptive rights of shareholders are excluded and New Pentair’s board of directors may restrict or exclude advance subscription rights (i) if the issuance is for purposes of financing or refinancing the acquisition of a company or business, part of a business, or a new investment by New Pentair or its subsidiaries (in equity or otherwise), (ii) if the issuance occurs in the national or international capital markets or through a private placement or (iii) (x) following a person becoming, and for so long as to the knowledge of the board of directors such person remains, a beneficial owner (as defined in the articles of association) of shares in excess of 10% of the share capital registered in the commercial register without having submitted to the other shareholders a takeover offer that is recommended by the board of directors, or (y) for the defense of an actual, threatened or potential takeover bid, in relation to which the Board of Directors, upon consultation with an independent financial advisor has not recommended to the shareholders acceptance on the basis that the board of directors has not found the takeover bid to be fair to the shareholders.

If the advance subscription rights are restricted or excluded:

 

   

the respective financial instruments must be placed or entered into at market conditions;

 

   

the instruments or obligations may be converted, exercised or exchanged during a maximum period of 30 years; and

 

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the conversion, exchange or exercise price, if any, for the instrument or obligation must be set with reference to the market conditions prevailing at the date on which the instrument or obligation is issued or entered into.

Conditional Share Capital for Employee Participation Purpo se. The preemptive rights and the advance subscription rights of shareholders are excluded with respect to shares issued from New Pentair’s conditional share capital to directors, employees, contractors, consultants or other persons providing services to New Pentair or any of its subsidiaries.

Dividends

Under Swiss law, dividends may be paid out only if the corporation has sufficient distributable profits from the previous fiscal year, or the corporation has distributable reserves, each as evidenced by the audited annual parent company statutory balance sheet. Distributable reserves are generally booked either as “free reserves” or as “contributed surplus” (contributions received from shareholders) in the “reserve from capital contributions” ( Gesetzliche Reserve aus Kapitaleinlagen) . Any distribution of dividends must be approved by an absolute majority of the shares represented in person or by proxy at a general meeting of shareholders. Although New Pentair’s board of directors may propose a dividend distribution to New Pentair’s shareholders, no dividend can be paid out without a shareholder resolution approving it. Payments out of registered share capital—the aggregate par value of a company’s registered shares—must be made by way of a capital reduction. See “—Reduction of Share Capital.”

Under the Swiss Code New Pentair’s net assets must be greater than the sum of its nominal share capital, the “general reserve” (20% of New Pentair’s nominal share capital) and the reserve for treasury shares before any distribution may be made. Under current practice, any excess amount of net assets is generally available for distribution to the shareholders. If such distribution is made out of “contributed surplus,” no Swiss Withholding tax will apply. Swiss corporations generally must maintain a separate parent company “statutory” balance sheet in Swiss francs for the purpose of determining the amounts available for the return of capital to shareholders, or a distribution of dividends. A special audit report must confirm that a dividend proposal made to shareholders conforms with the requirements of the Swiss Code and New Pentair’s articles of association.

New Pentair intends to declare any dividend in U.S. dollars subject to a cap defined in Swiss francs. The deduction from New Pentair’s reserve, which is required to be made in Swiss francs, is typically determined based on the U.S. dollar/CHF exchange rate in effect at the relevant times.

Repurchases of Registered Shares

The Swiss Code limits a corporation’s ability to hold or repurchase its own registered shares. New Pentair and its subsidiaries may only repurchase shares to the extent that sufficient distributable reserves are available, as described under “—Dividends.” The aggregate par value of New Pentair’s registered shares held by New Pentair and its subsidiaries may not exceed 10% of New Pentair’s registered share capital. New Pentair may repurchase its registered shares beyond the statutory limit of 10%, however, if such a repurchase is approved by a shareholder resolution passed at a general meeting and the repurchased shares are dedicated for cancellation. Any registered shares so repurchased will then be cancelled at the next general meeting upon the approval of an absolute majority of the shares represented in person or by proxy at such general meeting. Repurchased registered shares held by New Pentair or its subsidiaries do not carry any voting rights at a general meeting of shareholders and typically do not receive the economic benefits generally associated with the shares.

Reduction of Share Capital

Capital distributions in the form of a distribution of cash or property may result in a reduction of New Pentair’s nominal share capital recorded in the commercial register. Such a capital reduction requires the approval of an absolute majority of the shares represented in person or by proxy at a general meeting of shareholders. A special audit report must confirm that creditors’ claims remain fully covered despite the reduction to the nominal share capital recorded in the commercial register. Upon approval of the nominal share capital reduction, the board of directors must give public notice of the resolution three times in the Swiss Official Gazette of Commerce and notify creditors that they may request, within two months of the third publication, satisfaction of, or security for, their claims.

General Meetings of Shareholders and Voting Rights

General Meetings of Shareholders

The general meeting of shareholders is New Pentair’s supreme corporate body. Ordinary and extraordinary shareholders’ meetings may be held. The following powers are vested exclusively in the shareholders’ meeting:

 

   

adoption and amendment of New Pentair’s articles of association;

 

   

election and removal of members of the board of directors and the auditors;

 

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approval of the annual business report, the stand-alone statutory financial statements and the combined financial statements;

 

   

payments of dividends and any other distributions of capital to shareholders, excluding share repurchases below 10% of the registered share capital, to the extent that sufficient freely distributable reserves are available;

 

   

discharge of the members of the board of directors from liability for business conduct during the previous fiscal year to the extent such conduct is known to the shareholders; and

 

   

any other resolutions that are submitted to a general meeting of shareholders pursuant to law, New Pentair’s articles of association or by voluntary submission by the board of directors, unless a matter is within the exclusive competence of the board of directors pursuant to the Swiss Code.

Under the Swiss Code and New Pentair’s articles of association, New Pentair must hold an annual, ordinary general meeting of shareholders within six months after the end of its fiscal year for the purpose of approving the annual financial statements and the annual business report and for conducting the annual election of directors for the class whose term has expired. Annual general meetings of shareholders may be convened by the board of directors or, under certain circumstances, by the auditors. A general meeting of shareholders can be held anywhere.

The invitation to general meetings must be published in the Swiss Official Gazette of Commerce at least 20 calendar days prior to the relevant general meeting of shareholders. The notice of a meeting must state the items on the agenda, the proposals of the board of directors and the shareholders who requested that a shareholders’ meeting be held or that an item be included on the agenda and, in case of elections, the names of the nominated candidates. No resolutions may be passed at a shareholders’ meeting concerning agenda items for which proper notice was not given, except for proposals made during a shareholders’ meeting to convene an extraordinary shareholders’ meeting or to initiate a special investigation. No prior notice will be required to bring motions related to items already on the agenda or for the discussion of matters as to which no resolution will be taken.

A special general meeting of shareholders may be called upon the resolution of New Pentair’s board of directors or, under certain circumstances, by the auditors. In addition, New Pentair’s board of directors is required to convene a special general meeting of shareholders if so resolved by the general meeting of shareholders, or if so requested by shareholders holding an aggregate of at least 10% of the shares with voting rights specifying the items for the agenda and their proposals, or if it appears from the parent company annual statutory balance sheet that half of New Pentair’s share capital and reserves are not covered by New Pentair’s assets. In the latter case, New Pentair’s board of directors must immediately convene an extraordinary general meeting of shareholders and propose financial restructuring measures.

Under New Pentair’s articles of association and the Swiss Code, any holder of record of shares with a par value of at least 1 million Swiss francs may request that an item be included on the agenda of a general meeting of shareholders and may nominate one or more directors for election. A request for inclusion of an item on the agenda or a nomination of a director must be in writing, must specify the items and proposals and must be submitted in accordance with certain advance notice procedures set forth in New Pentair’s articles of association.

Under the Swiss Code, a general meeting of shareholders for which a notice of meeting has been duly published may not be adjourned without publishing a new notice of meeting.

New Pentair’s annual report and auditors’ report must be made available for inspection by the shareholders at New Pentair’s place of incorporation no later than 20 days prior to the meeting. Each shareholder is entitled to request immediate delivery of a copy of these documents free of charge. Shareholders of record will be notified of this in writing.

Voting

Each registered share carries one vote at a general meeting of shareholders. Voting rights may be exercised by shareholders registered in the share register or by a duly appointed proxy of a registered shareholder or nominee, which proxy need not be a shareholder. New Pentair’s articles of association contain a provision regarding voting rights that is customary for Swiss companies. This provision provides that, to be able to exercise voting rights, holders of shares must apply to New Pentair for registration in its share register ( Aktienregister ) as shareholders with voting rights. Registered holders of shares may obtain the form of declaration from New Pentair’s transfer agent, which is Wells Fargo Bank, N.A. (“Wells Fargo”). In order to exercise their voting rights, subject to exceptions granted by the board of directors, shareholders will be required to disclose their name and address and that they have acquired their shares in their name and for their account. Persons not expressly declaring themselves to be holding shares for their own account will not be registered as shareholders with voting rights. A person or legal entity that directly or indirectly, formally, constructively or beneficially owns or otherwise controls voting rights with respect to 20% or more of the registered share capital recorded in the Commercial Register will be entered in the Commercial Register as a shareholder with voting rights equal to 20% of registered shares less one share only (the “Cap”). Those associated through capital, voting power, joint management or in any other way, or joining for the acquisition of shares are considered as one shareholder, or nominee. Certain exceptions exist with regard to the registration of and the voting by nominees. Failing registration (in person or through a proxy) as shareholders with voting rights,

 

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shareholders may not participate in, or vote at, New Pentair’s shareholders’ meetings, but will be entitled to dividends, preemptive rights and liquidation proceeds. Only shareholders that are registered as shareholders with voting rights on the relevant record date are permitted to participate in and vote at a general shareholders’ meeting. A beneficial owner will not be allowed to cast votes in excess of the Cap. Shareholders holding their shares through a bank, broker or other nominee will not automatically be registered as shareholders in New Pentair’s share register. If any such shareholder wishes to be registered in New Pentair’s share register, such shareholder should contact the bank, broker or other nominee through which it holds shares. If any such shareholder wishes to exercise its voting rights, such shareholder should follow the instructions provided by such bank, broker or other nominee or, absent instructions, contact such bank, broker or other nominee for instructions.

Treasury shares, whether owned by New Pentair or one of New Pentair’s majority-owned subsidiaries, are not entitled to vote at general meetings of shareholders.

Pursuant to New Pentair’s articles of association, the shareholders generally pass resolutions by the affirmative vote of holders of an absolute majority of shares represented and entitled to be voted with respect to the relevant resolution or election at a general meeting of shareholders. Abstentions will be included in the calculation of the number of shares represented at the meeting for purposes of determining whether a quorum has been achieved and in the number of shares entitled to vote on a matter. Broker non-votes will also be included in the calculation of the number of shares represented at the meeting for purposes of determining whether a quorum has been achieved but will not be included in determining the number of shares represented at the meeting and entitled to be voted with respect to the relevant resolution or election. A broker non-vote occurs when shares held by a broker, bank or other nominee are represented at the meeting, but the nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular matter. Such nominees may exercise discretion in voting on routine matters, but may not exercise discretion and therefore may not vote on non-routine matters including on the election of directors.

With respect to the election of directors, each holder of registered shares entitled to vote at the election has the right to vote, in person or by proxy, the number of registered shares held by him for as many persons as there are directors to be elected. Directors are elected by the affirmative vote of a majority of the votes cast (in person or by proxy) at the general meeting of shareholders. At any election in which the Chairman determines that the number of persons properly nominated to serve as directors exceeds the number of directors to be elected, directors are elected by the affirmative vote of a plurality of the votes cast (in person or by proxy) at the general meeting of shareholders. Abstentions and broker non-votes shall not be included in the calculation of votes cast with respect to such election. A “plurality” means that the individual who receives the largest number of votes cast for a board seat is elected to that board seat. New Pentair’s articles of association do not provide for cumulative voting for the election of directors. New Pentair’s board of directors is divided into three classes, with each class serving a three-year term. The classes must be substantially equivalent in size.

The acting chair may direct that elections be held by use of an electronic voting system. Electronic resolutions and elections will be considered equal to resolutions and elections taken by way of a written ballot.

Supermajority Voting

The Swiss Code and/or New Pentair’s articles of association require the affirmative vote of at least two-thirds of the shares represented (in person or by proxy) at a general meeting of shareholders to approve the following matters:

 

   

a change of the company purpose;

 

   

the creation of shares with privileged voting rights;

 

   

a change to the articles regarding share registration and the Cap;

 

   

the restriction of the transferability of registered shares;

 

   

the waiver, reduction or withdrawal of restrictions upon the transfer of registered shares;

 

   

an increase of capital, authorized or subject to a condition;

 

   

an increase of capital out of equity, against contribution in kind, or for the purpose of acquisition of assets and the granting of special benefits;

 

   

the limitation or withdrawal of pre-emptive rights;

 

   

a change of the domicile of New Pentair;

 

   

the liquidation of New Pentair;

 

   

the removal with or without cause of a serving director;

 

   

a change in the size of the Board of Directors, without recommendation of the Board of Directors;

 

   

the merger, demerger or conversion of New Pentair; and

 

   

the conversion of registered shares into bearer shares and vice versa.

 

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The approval of at least 75% of the shares represented at the general meeting of shareholders will be required to approve the following matters:

 

   

a change to the timing of the general meeting;

 

   

a change to the article regarding the rights of shareholders to propose agenda items for general meetings of shareholders;

 

   

a change to the article regarding voting rights (other than the Cap);

 

   

a change to the article regarding the passage of resolutions and election of directors at general meetings of shareholders;

 

   

a change to the length of terms of board members;

 

   

a change to the organization of the board of directors;

 

   

a change to the duties of directors;

 

   

a change to the procedures for the dissolution or liquidation of New Pentair;

 

   

an amendment to the articles with regard to changing the voting requirement to remove a director or change the size of the board; and

 

   

an amendment to the articles with regard to changing the supermajority requirements.

Swiss law also imposes a two-thirds supermajority voting requirement in connection with the sale of “all or substantially all of the assets” of a corporation. See “—Other Rights and Share Information—Compulsory Acquisitions; Appraisal Rights.” The same supermajority voting requirements apply to resolutions with respect to transactions governed by the Swiss Federal Act on Mergers, Demergers, Transformations and the Transfer of Assets (the “Merger Act”). Furthermore, the Merger Act requires an affirmative vote of 90% of the outstanding registered shares for so-called “cash-out” or “squeeze-out” mergers. In these limited circumstances, an acquirer controlling 90% of the outstanding registered shares may acquire shares of minority shareholders of the corporation in exchange for compensation other than shares of the acquiring company, for instance, cash or securities of a parent corporation of the acquirer or shares of another corporation.

New York Stock Exchange Voting Requirements

In addition to shareholder approvals required by Swiss law and the articles of association, the NYSE requires a majority shareholder vote with at least 50% of shares represented for certain matters, including:

 

   

the approval of equity compensation plans (or amendments to such plans);

 

   

the issuance of shares equal to or in excess of 20% of the voting power of the shares outstanding before the issuance of such shares (subject to certain exceptions, such as public offerings for cash and certain bona fide private placements);

 

   

certain issuances of shares to related parties; and

 

   

issuances of shares that would result in a change of control.

Presence Quorum for General Meetings

New Pentair’s articles of association provide that all resolutions and elections made at a shareholders’ meeting require the presence, in person or by proxy, of a majority corresponding to a half plus one of all shares entitled to vote, with abstentions and broker non-votes being regarded as present for purposes of establishing a quorum of shareholders.

Other Rights and Share Information

Inspection of Books and Records

Under the Swiss Code, a shareholder has a right to inspect the share register with regard to his own shares and otherwise to the extent necessary to exercise his shareholder rights. No other person has a right to inspect the share register. The books and correspondence of a Swiss corporation may be inspected with the express authorization of the general meeting of shareholders or by resolution of the board of directors and subject to the safeguarding of New Pentair’s business secrets. At a general meeting of shareholders, any shareholder may request information from the board of directors concerning New Pentair’s affairs. Shareholders also may ask the auditors questions regarding their audit of the company. The board of directors and the auditors must answer shareholders’ questions to the extent necessary for the exercise of shareholders’ rights and subject to prevailing business secrets or other material interests of the corporation.

Special Investigation

If the shareholders’ inspection and information rights as outlined above prove to be insufficient, any shareholder may propose to the general meeting of shareholders that specific facts be examined by a special commissioner in a special investigation. If the general meeting of shareholders approves the proposal, New Pentair or any shareholder, within 30 calendar days after the general meeting of shareholders, may request the court at New Pentair’s registered office to appoint a special commissioner. If the general meeting of shareholders rejects the request, one or more shareholders representing at least 10% of the share capital or holders of registered shares in an aggregate par value of at least two million Swiss francs may request the court to appoint a special commissioner. The court may

 

6


issue such an order if the petitioners can demonstrate that the board of directors, any member of the board or an officer infringed the law or New Pentair’s articles of association and thereby damaged New Pentair or New Pentair’s shareholders. The costs of the investigation generally would be allocated to New Pentair and only in exceptional cases to the requesting shareholders.

Compulsory Acquisitions; Appraisal Rights

Business combinations and other transactions that are binding on all shareholders are governed by the Merger Act. A statutory merger or demerger requires that at least two-thirds of the registered votes in each case as represented (in person or by proxy) at a general meeting, vote in favor of the transaction. Under the Merger Act, a “demerger” may take two forms:

 

   

a legal entity may divide all of its assets and transfer such assets to other legal entities, with the shareholders of the transferring entity receiving equity securities in the acquiring entities and the transferring entity dissolving upon deregistration in the commercial register; or

 

   

a legal entity may transfer all or a portion of its assets to other legal entities, with the shareholders of the transferring entity receiving equity securities in the acquiring entities.

If a transaction under the Merger Act receives all of the necessary consents, all shareholders are compelled to participate in the transaction. See “—General Meetings of Shareholders and Voting Rights.”

Swiss corporations may be acquired through the direct acquisition of their share capital. With respect to corporations limited by shares, the Merger Act permits a “cash-out” or “squeeze-out” merger if the acquirer controls 90% of the outstanding registered shares. In these limited circumstances, minority shareholders of the corporation being acquired may be compensated in a form other than through shares of the acquiring corporation, for instance, through cash or securities of a parent corporation of the acquiring corporation or of another corporation. For business combinations effected in the form of a statutory merger or demerger and subject to Swiss law, the Merger Act provides that, if the equity rights have not been adequately preserved or compensation payments in the transaction are unreasonable, a shareholder may request the competent court to determine a reasonable amount of compensation.

In addition, under Swiss law, the sale of substantially all of the corporation’s assets will require a resolution of the general meeting of shareholders passed by holders of at least two-thirds of the shares represented (in person or by proxy) at a general meeting of shareholders. Whether or not a shareholder resolution is required depends on the particular transaction, including whether the following test is satisfied:

 

   

the corporation sells a core part of its business, without which it is economically impracticable or unreasonable to continue to operate the remaining business;

 

   

the corporation’s assets, after the divestment, are not invested in accordance with the corporation’s statutory business purpose; and

 

   

the proceeds of the divestment are not earmarked for reinvestment in accordance with the corporation’s business purpose but, instead, are intended for distribution to shareholders or for financial investments unrelated to the corporation’s business.

Transactions with Interested Shareholders

Under Swiss law, there generally is no prohibition of business combinations with interested shareholders. In certain circumstances, however, shareholders and members of the board of directors of Swiss corporations, as well as certain persons associated with them, must refund any payments they receive that are not made on an arm’s length basis.

Corporate Governance

In addition to articles of association, Swiss corporations enact organizational rules in the form of organizational regulations which further define the tasks and duties of the board of directors and executive management.

Duration; Dissolution; Rights upon Liquidation

New Pentair’s duration is unlimited. New Pentair may be dissolved at any time with the approval of shareholders holding at least two-thirds of the registered votes as represented (in person or by proxy) at a general meeting. Dissolution by court order is possible if New Pentair becomes bankrupt, or for cause at the request of shareholders holding at least 10% of New Pentair’s registered share capital. Under Swiss law, any surplus arising out of liquidation, after the settlement of all claims of all creditors, will be distributed to shareholders in proportion to the paid-up par value of registered shares held, subject to Swiss withholding tax requirements.

 

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Uncertificated Shares

New Pentair is authorized to issue registered shares in certificated or uncertificated form. New Pentair intends to use only uncertificated shares in accordance with article 973c of the Swiss Code ( Wertrechte ). Share certificates will not be available for individual physical delivery but a shareholder may at any time request an attestation of the number of shares held by it, as reflected in the share register.

No Sinking Fund

The registered shares have no sinking fund provisions.

No Redemption and Conversion

The registered shares are not convertible into shares of any other class or series or subject to redemption either by New Pentair or by the holder of the shares.

Transfer and Registration of Shares

Subject to the voting rights limitations described above, New Pentair does not intend to impose any restrictions applicable to the transfer of New Pentair’s registered shares. So long as the shares constitute intermediated securities within the meaning of FISA, shares may be transferred by crediting the relevant transferred shares to a securities account of the transferee or as otherwise permitted under applicable law.

New Pentair’s share register is initially being kept by Wells Fargo. The share register reflects only record owners of New Pentair’s shares. Beneficial owners of shares who hold shares through a nominee may exercise their shareholders’ rights through the intermediation of such nominee. See also “—Voting.” Swiss law does not recognize fractional share interests.

Notices

In accordance with New Pentair’s articles of association, notices to shareholders are validly made by publication in the Swiss Official Gazette ( Schweizerisches Handelsamtsblatt ).

Conflict of Interests

Swiss law does not have a general provision on conflict of interest. However, the Swiss Code contains a provision that requires board members and executive officers to safeguard the interest of a company and, in this connection, imposes a duty of loyalty on its board members and executive officers. The duty of loyalty is generally understood to disqualify a director or senior officer of a company from participation in decisions that directly affect such director or officer. A company’s directors and officers are personally liable to the company for breach of this provision. In addition, the Swiss Code contains provisions under which directors and officers engaged in the management of a company are liable to the company, each shareholder and the company’s creditors for damages caused by an intentional or negligent violation of their duties.

New Pentair’s board members will be required to declare if they are a party to, or otherwise interested in, any contract, transaction or other arrangement with New Pentair, or in which New Pentair is otherwise interested, and if they are a director or officer of, or employed by, or a party to any contract or transaction or other arrangement with, or otherwise interested in, any company or other person promoted by New Pentair or in which New Pentair is interested. In such a case, the director is required to observe certain notice requirements and receive the approval or authorization of a majority of the disinterested members of the board of directors.

Borrowing Power

Neither Swiss law nor New Pentair’s articles of association restrict in any way New Pentair’s power to borrow and raise funds. The decision to borrow funds is made by or upon delegation by New Pentair’s board of directors; no shareholders’ resolution is generally required in relation to any such borrowing.

Limitation of Liability and Indemnification

New Pentair’s articles of association provide that it will indemnify and hold harmless, to the fullest extent permitted by Swiss law, the existing and former members of the board of directors and officers from and against all costs, charges, losses, damages and expenses actually incurred in connection with any threatened, pending or completed actions, suits or proceedings—whether civil, criminal, administrative or investigative—by reason of the fact that such individual was a director or officer; provided, however, that this indemnity shall not extend to any matter in which any of said persons is found, in a final judgment or decree of a court or governmental or administrative authority of competent jurisdiction not subject to appeal, to have committed an intentional or grossly negligent breach of his statutory duties as a member of the board of directors or officer.

 

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New Pentair maintains insurance to reimburse New Pentair’s directors and officers and those of New Pentair’s subsidiaries for charges and expenses incurred by them for wrongful acts claimed against them by reason of their being or having been directors or officers of New Pentair or any of New Pentair’s subsidiaries.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling New Pentair pursuant to the foregoing provisions or otherwise, New Pentair has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

Transfer Agent and Registrar

The transfer agent and registrar for New Pentair’s common shares is Wells Fargo.

Listing

New Pentair’s common shares are listed on the New York Stock Exchange under the trading symbol “PNR.”

 

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Exhibit 99.2

INDEX TO COMBINED FINANCIAL STATEMENTS

TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

 

     Page  

Audited Combined Financial Statements

  

Report of Independent Registered Public Accounting Firm

     F-3   

Combined Statements of Operations for the fiscal years ended September 30, 2011, September  24, 2010 and September 25, 2009

     F-4   

Combined Balance Sheets as of September 30, 2011 and September 24, 2010

     F-5   

Combined Statements of Cash Flows for the fiscal years ended September 30, 2011, September  24, 2010 and September 25, 2009

     F-6   

Combined Statements of Parent Company Equity for the fiscal years ended September  30, 2011, September 24, 2010 and September 25, 2009

     F-7   

Notes to Combined Financial Statements

     F-8   

Schedule II—Valuation and Qualifying Accounts

     F-46   

INDEX TO COMBINED INTERIM FINANCIAL STATEMENTS

TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

 

     Page  
Unaudited Combined Financial Statements       

Combined Statements of Operations for the nine months ended June 29, 2012 and June  24, 2011 (Unaudited)

     F-47   

Combined Balance Sheets as of June 29, 2012 and September 30, 2011 (Unaudited)

     F-48   

Combined Statements of Cash Flows for the nine months ended June 29, 2012 and June  24, 2011 (Unaudited)

     F-49   

Combined Statements of Parent Company Equity for the nine months ended June 29, 2012 and June  24, 2011 (Unaudited)

     F-50   

Notes to Combined Financial Statements (Unaudited)

     F-51   

 

F-1


INDEX TO FINANCIAL STATEMENTS

PENTAIR, INC. AND SUBSIDIARIES

 

     Page  

Audited Consolidated Financial Statements

  

Report of Independent Registered Public Accounting Firm

     F-70   

Consolidated Statements of Income for the fiscal years ended December 31, 2011, December  31, 2010 and December 31, 2009

     F-71   

Consolidated Balance Sheets as of December 31, 2011 and December 31, 2010

     F-72   

Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2011  December 31, 2010 and December 31, 2009

     F-73   

Consolidated Statements of Change in Shareholders’ Equity for the fiscal years ended December  31, 2011, December 31, 2010 and December 31, 2009

     F-74   

Notes to Consolidated Financial Statements

     F-77   

Schedule II—Valuation and Qualifying Accounts

     F-119   

INDEX TO INTERIM FINANCIAL STATEMENTS

PENTAIR, INC. AND SUBSIDIARIES

 

     Page  

Unaudited Condensed Consolidated Financial Statements

  

Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2012 and July 2, 2011 (unaudited)

     F-120   

Condensed Consolidated Balance Sheets as of June 30, 2012, December 31, 2011 and July  2, 2011 (Unaudited)

     F-121   

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and July  2, 2011 (Unaudited)

     F-122   

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2012 and July 2, 2011 (Unaudited)

     F-123   

Notes to Unaudited Consolidated Financial Statements

     F-124   

 

F-2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Tyco International Ltd. Board of Directors:

We have audited the accompanying combined balance sheet of Tyco Flow Control International Ltd. and the Flow Control Business of Tyco International Ltd. (the “Company”) as of September 30, 2011 and September 24, 2010 and the related combined statements of operations, parent company equity, and of cash flows for each of the three fiscal years in the period ended September 30, 2011. Our audits also included the financial statement schedule listed in the Index at page F-1. The combined financial statements include the accounts of Tyco Flow Control International Ltd. and the Flow Control Business of Tyco International Ltd. (“Tyco”), which are under the common ownership, control and oversight of Tyco. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 combined financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2011 and September 24, 2010, and the results of its operations and its cash flows for each of the three fiscal years in the period ended September 30, 2011, 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 combined financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the combined financial statements, the Company is comprised of the assets and liabilities used in managing and operating the Company. The combined financial statements also include allocations from Tyco. These allocations may not be reflective of the actual level of assets, liabilities, or costs which would have been incurred had the Company operated as a separate entity apart from Tyco.

DELOITTE & TOUCHE LLP

New York, New York

June 19, 2012

 

F-3


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

COMBINED STATEMENTS OF OPERATIONS

Fiscal Years Ended September 30, 2011, September 24, 2010 and September 25, 2009

 

     2011     2010     2009  
     ($ in millions)  

Net revenue

   $ 3,648      $ 3,381      $ 3,492   

Cost of revenue

     2,478        2,251        2,259   
  

 

 

   

 

 

   

 

 

 

Gross profit

     1,170        1,130        1,233   

Selling, general and administrative expenses

     825        772        767   

Goodwill impairment

     35        —          —     

Restructuring, asset impairment and divestiture charges, net (see Notes 2 and 3)

     4        27        15   
  

 

 

   

 

 

   

 

 

 

Operating income

     306        331        451   

Interest income

     11        5        7   

Interest expense

     (52     (55     (66

Other income, net

     —          1        —     
  

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     265        282        392   

Income tax expense

     (112     (98     (159
  

 

 

   

 

 

   

 

 

 

Income from continuing operations

     153        184        233   

Income from discontinued operations, net of income taxes

     172        17        29   
  

 

 

   

 

 

   

 

 

 

Net income

     325        201        262   

Less: noncontrolling interest in subsidiaries net income

     1        —          —     
  

 

 

   

 

 

   

 

 

 

Net income attributable to Parent Company Equity

   $ 324      $ 201      $ 262   
  

 

 

   

 

 

   

 

 

 

Amounts attributable to Parent Company Equity:

      

Income from continuing operations

   $ 152      $ 184      $ 233   

Income from discontinued operations

     172        17        29   
  

 

 

   

 

 

   

 

 

 

Net income attributable to Parent Company Equity

   $ 324      $ 201      $ 262   
  

 

 

   

 

 

   

 

 

 

 

See Notes to Audited Combined Financial Statements

 

F-4


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

COMBINED BALANCE SHEETS

As of September 30, 2011 and September 24, 2010

 

     2011      2010  
     ($ in millions)  

Assets

  

Current Assets:

     

Cash and cash equivalents

   $ 122       $ 146   

Accounts receivable trade, less allowance for doubtful accounts of $23 and $35, respectively

     716         608   

Inventories

     772         644   

Prepaid expenses and other current assets

     180         115   

Deferred income taxes

     79         73   

Assets held for sale

     —           322   
  

 

 

    

 

 

 

Total current assets

     1,869         1,908   

Property, plant and equipment, net

     607         499   

Goodwill

     2,137         1,908   

Intangible assets, net

     127         66   

Other assets

     404         301   
  

 

 

    

 

 

 

Total Assets

   $ 5,144       $ 4,682   
  

 

 

    

 

 

 

Liabilities and Parent Company Equity

     

Current Liabilities:

     

Current maturities of long-term debt, including allocated debt of nil and $98, respectively (see Note 7)

   $ —         $ 98   

Accounts payable

     336         299   

Accrued and other current liabilities

     532         459   

Liabilities held for sale

     —           99   
  

 

 

    

 

 

 

Total current liabilities

     868         955   

Long-term debt, including allocated debt of $859 and $671, respectively (see Note 7)

     876         689   

Other liabilities

     388         401   
  

 

 

    

 

 

 

Total Liabilities

     2,132         2,045   
  

 

 

    

 

 

 

Commitments and contingencies (see Note 11)

     

Redeemable noncontrolling interest (see Note 15)

     93         —     
  

 

 

    

 

 

 

Parent Company Equity:

     

Parent company investment

     2,430         2,050   

Accumulated other comprehensive income

     489         587   
  

 

 

    

 

 

 

Total Parent Company Equity

     2,919         2,637   
  

 

 

    

 

 

 

Total Liabilities, Redeemable Noncontrolling Interest and Parent Company Equity

   $ 5,144       $ 4,682   
  

 

 

    

 

 

 

 

 

See Notes to Audited Combined Financial Statements

 

F-5


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

COMBINED STATEMENTS OF CASH FLOWS

Fiscal Years Ended September 30, 2011, September 24, 2010 and September 25, 2009

 

     2011     2010     2009  
     ($ in millions)  

Cash Flows From Operating Activities:

      

Net income attributable to Parent Company Equity

   $ 324      $ 201      $ 262   

Noncontrolling interest in subsidiaries net income

     1        —          —     

Income from discontinued operations, net of income taxes

     (172     (17     (29
  

 

 

   

 

 

   

 

 

 

Income from continuing operations

     153        184        233   

Adjustments to reconcile net cash provided by (used in) operating activities:

      

Depreciation and amortization

     72        67        63   

Goodwill impairment

     35        —          —     

Non-cash compensation expense

     12        12        11   

Deferred income taxes

     21        (37     27   

Provision for losses on accounts receivable and inventory

     3        17        26   

Other non-cash items

     (8     (1     4   

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:

      

Accounts receivable

     (91     52        (30

Inventories

     (94     25        92   

Prepaid expenses and other current assets

     (21     23        29   

Accounts payable

     28        16        (107

Accrued and other liabilities

     (12     10        10   

Income taxes payable

     32        41        35   

Deferred revenue

     10        (2     39   

Other

     21        (19     (56
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     161        388        376   
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by discontinued operating activities

     (8     20        36   
  

 

 

   

 

 

   

 

 

 

Cash Flows From Investing Activities:

      

Capital expenditures

     (82     (98     (100

Proceeds from sale of fixed assets

     3        7        4   

Acquisition of businesses, net of cash acquired

     (303     (104     (3

Divestiture of businesses, net of cash divested

     35        —          —     

Other

     6        3        1   
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (341     (192     (98
  

 

 

   

 

 

   

 

 

 

Net cash provided by discontinued investing activities

     258        3        65   
  

 

 

   

 

 

   

 

 

 

Cash Flows From Financing Activities:

      

Repayments of current maturities of long-term debt

     (66     (2     —     

Allocated debt activity

     91        (110     109   

Change in due (from) to Tyco and affiliates

     (96     75        (49

Change in parent company investment

     (22     (270     (513

Transfers from discontinued operations

     250        23        101   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     157        (284     (352
  

 

 

   

 

 

   

 

 

 

Net cash used in discontinued financing activities

     (250     (23     (101
  

 

 

   

 

 

   

 

 

 

Effect of currency translation on cash

     (1     5        1   

Net decrease in cash and cash equivalents

     (24     (83     (73

Cash and cash equivalents at beginning of year

     146        229        302   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 122      $ 146      $ 229   
  

 

 

   

 

 

   

 

 

 

Supplementary Cash Flow Information:

      

Interest paid

   $ 48      $ 50      $ 62   

Income taxes paid, net of refunds

     58        93        98   

See Notes to Audited Combined Financial Statements

 

F-6


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

COMBINED STATEMENTS OF PARENT COMPANY EQUITY

Fiscal Years Ended September 30, 2011, September 24, 2010 and September 25, 2009

 

     Parent
Company
Investment
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Parent
Company
Equity
 
     ($ in millions)  

Balance as of September 26, 2008

   $ 2,231      $ 648      $ 2,879   

Comprehensive income:

      

Net income attributable to Parent Company Equity

     262          262   

Currency translation

       16        16   

Retirement plans, net of income tax expense of $1

       (12     (12
      

 

 

 

Total comprehensive income

         266   

Net transfers to Parent

     (433       (433

Cumulative effect of adopting a new accounting principle, net of income tax expense of nil and $3 (see Note 12)

     (1     8        7   
  

 

 

   

 

 

   

 

 

 

Balance as of September 25, 2009

     2,059        660        2,719   

Comprehensive income:

      

Net income attributable to Parent Company Equity

     201          201   

Currency translation

       (68     (68

Retirement plans, net of income tax benefit of $1

       (5     (5
      

 

 

 

Total comprehensive income

         128   

Net transfers to Parent

     (210       (210
  

 

 

   

 

 

   

 

 

 

Balance as of September 24, 2010

     2,050        587        2,637   

Comprehensive income:

      

Net income attributable to Parent Company Equity

     324          324   

Currency translation

       (96     (96

Retirement plans net of income tax benefit of nil

       (2     (2
      

 

 

 

Total comprehensive income

         226   

Net transfers from Parent

     56          56   
  

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2011

   $ 2,430      $ 489      $ 2,919   
  

 

 

   

 

 

   

 

 

 

 

 

See Notes to Audited Combined Financial Statements

 

F-7


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Spin-Off —On September 19, 2011, Tyco International Ltd. announced that its board of directors approved a plan to separate Tyco International Ltd. (“Tyco” or “Parent”) into three separate, publicly traded companies (the “Spin-Off”), identifying Tyco Flow Control International Ltd. and the Flow Control Business of Tyco International (the “Company” or “Flow Control”) as one of those three companies. The Spin-Off is expected to be completed by the end of the third calendar quarter of 2012 through a tax-free pro rata distribution of all of the equity interest in the flow control business. Upon completion of the Spin-Off, Tyco Flow Control International Ltd. will become the parent of the Company.

Completion of the proposed Spin-Off is subject to certain conditions, including final approval by the Tyco Board of Directors and shareholders, receipt of tax opinions and rulings and the filing and effectiveness of registration statements with the Securities and Exchange Commission (“SEC”). The Spin-Off will also be subject to the completion of any necessary financing.

Basis of Presentation —The Combined Financial Statements include the operations, assets and liabilities of Tyco Flow Control International Ltd., the entity that will be used to effect the separation from Tyco. The Combined Financial Statements also include the combined operations, assets and liabilities of the Flow Control Business of Tyco which are comprised of the legal entities that will be owned by Tyco Flow Control International Ltd. at the time of the Spin-Off. The Combined Financial Statements have been prepared in United States dollars (“USD”) and in accordance with generally accepted accounting principles in the United States (“GAAP”). Unless otherwise indicated, references to 2011, 2010 and 2009 are to Flow Control’s fiscal years ending September 30, 2011, September 24, 2010 and September 25, 2009, respectively.

Additionally, the Combined Financial Statements do not necessarily reflect what the Company’s combined results of operations, financial position and cash flows would have been had the Company operated as an independent, publicly traded company during the periods presented. To the extent that an asset, liability, revenue or expense is directly associated with the Company, it is reflected in the accompanying Combined Financial Statements. General corporate overhead, debt and related interest expense have been allocated by Tyco to the Company. Management believes such allocations are reasonable; however, they may not be indicative of the actual results of the Company had the Company been operating as an independent, publicly traded company for the periods presented or the amounts that will be incurred by the Company in the future. Note 7 (“Debt”) provides further information regarding debt related allocations and Note 8 (“Related Party Transactions”) provides further information regarding allocated expenses.

The Company has a 52 or 53-week fiscal year that ends on the last Friday in September. Fiscal year 2011 was a 53-week year. Fiscal years 2010 and 2009 were 52-week years.

The Company operates and reports financial and operating information in the following three reportable segments:

 

   

Valves & Controls – Designs, manufactures and markets valves, actuators and controls providing products, services and solutions throughout the energy and process industries.

 

   

Thermal Controls – Provides complete heat management solutions for heat tracing, floor heating, snow melting and de-icing, fire and performance wiring, specialty heating and sensing for industrial commercial and residential use.

 

   

Water & Environmental Systems – Designs, manufactures, installs and services products and environmental instrumentation relating to water and wastewater systems and air applications.

The Company also provides general corporate services to our segments and these costs are reported as Corporate.

 

F-8


The Company conducts business through its operating subsidiaries. All intercompany transactions have been eliminated. The results of companies acquired or disposed of during the year are included in the Combined Financial Statements from the effective date of acquisition or up to the date of disposal. See Notes 2 (“Divestitures”) and 4 (“Acquisitions”). References to the segment data are to the Company’s continuing operations.

Use of Estimates —The preparation of the Combined Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and reported amounts of revenue and expenses. Significant estimates in these Combined Financial Statements include restructuring charges, allowances for doubtful accounts receivable, estimates of future cash flows associated with asset impairments, useful lives for depreciation and amortization, loss contingencies (including legal, environmental and asbestos reserves), insurance reserves, net realizable value of inventories, estimated contract revenue and related costs, income taxes and tax valuation allowances and pension and postretirement employee benefit expenses. Actual results could differ materially from these estimates.

Revenue Recognition —Revenue from the sales of products is recognized at the time title and risks and rewards of ownership pass. This is generally when the products reach the free-on-board shipping point, the sales price is fixed and determinable and collection is reasonably assured.

Contract sales for construction-related projects are recorded primarily under the percentage-of-completion method. Profits recognized on contracts in process are based upon estimated contract revenue and related total cost of the project at completion. The extent of progress toward completion is generally measured based on the ratio of actual cost incurred to total estimated cost at completion. Revisions to cost estimates as contracts progress have the effect of increasing or decreasing profits each period. Provisions for anticipated losses are made in the period in which they become determinable.

Provisions for certain rebates, sales incentives, trade promotions, product returns and discounts to customers are accounted for as reductions in determining sales in the same period the related sales are recorded. These provisions are based on terms of arrangements with direct, indirect and other market participants. Rebates are estimated based on sales terms, historical experience and trend analysis.

Accounts receivable and other long-term receivables included retainage provisions of $10 million as of September 30, 2011 and $9 million as of September 24, 2010. There were no amounts unbilled as of both September 30, 2011 and September 24, 2010. As of September 30, 2011, the retainage provision included $9 million that is expected to be collected during fiscal year 2012.

Research and Development —Research and development (R&D) expenditures, which amounted to $18 million, $18 million and $11 million for 2011, 2010 and 2009, respectively, are expensed when incurred and are included in cost of revenue. R&D expenses include salaries, direct costs incurred and building and overhead expenses.

Advertising —Advertising costs, which amounted to $8 million, $6 million and $6 million for 2011, 2010 and 2009, respectively, are expensed when incurred and are included in selling, general and administrative expenses.

Acquisition and Integration Costs —Acquisition and integration costs are expensed when incurred and are included in selling, general and administrative expenses.

Translation of non-U.S. Currency —For the Company’s non-U.S. subsidiaries that account in a functional currency other than U.S. dollars, assets and liabilities are translated into U.S. dollars using period-end exchange rates. Revenue and expenses are translated at the average exchange rates in effect during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income in the Combined Statement of Parent Company Equity.

 

F-9


Gains and losses resulting from non-U.S. currency transactions are reflected in selling, general and administrative expenses.

Cash and Cash Equivalents —All highly liquid investments with original maturities of three months or less from the time of purchase are considered to be cash equivalents.

Allowance for Doubtful Accounts —The allowance for doubtful accounts receivable reflects the best estimate of probable losses inherent in Flow Control’s receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence.

Inventories —Inventories are recorded at the lower of cost (primarily first-in, first-out) or market value. The Company provides a reserve for estimated inventory obsolescence or unmarketable inventory equal to the difference between the cost of inventory and estimated fair value based on assumptions of future demand and market conditions. The Company ages its inventory with no recent demand and applies various valuation factors based on the length of time since the last demand from customers for such material.

Property, Plant and Equipment, Net —Property, plant and equipment, net is recorded at cost less accumulated depreciation. Depreciation expense for 2011, 2010 and 2009 was $65 million, $62 million and $60 million, respectively. Maintenance and repair expenditures are charged to expense when incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets as follows:

 

Buildings and related improvements    Up to 50 years

Leasehold improvements

  

Lesser of remaining term of the lease or economic useful life

Other machinery, equipment and furniture and fixtures

  

2 to 21 years

Long-Lived Asset Impairments —The Company reviews long-lived assets, including property, plant and equipment and amortizable intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. The Company performs undiscounted operating cash flow analyses to determine if impairment exists. For purposes of recognition and measurement of an impairment for assets held for use, the Company groups assets and liabilities at the lowest level for which cash flows are separately identified. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

Goodwill and Indefinite-Lived Intangible Asset Impairments —Goodwill and indefinite-lived intangible assets are assessed for impairment annually and more frequently if triggering events occur. See Note 6 (“Goodwill and Intangible Assets”). In performing these assessments, management relies on various factors, including operating results, business plans, economic projections, anticipated future cash flows, comparable transactions and other market data. There are inherent uncertainties related to these factors which require judgment in applying them to the testing of goodwill and indefinite-lived intangible assets for impairment. The Company performs its annual impairment tests for goodwill and indefinite-lived intangible assets on the first day of the fourth quarter of each year.

When testing for goodwill impairment, the Company first compares the fair value of a reporting unit with its carrying amount. Fair value for the goodwill impairment test is determined utilizing a discounted cash flow analysis based on the Company’s future budgets discounted using market participants’ weighted-average cost of capital and market indicators of terminal year cash flows. Other valuation methods are used to corroborate the discounted cash flow method. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered potentially impaired and further tests are performed to measure the amount of impairment loss. In the

 

F-10


second step of the goodwill impairment test, the Company compares the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess of the carrying amount of goodwill over its implied fair value. The implied fair value of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination is determined. The Company allocates the fair value of a reporting unit to all of the assets and liabilities of that unit, including intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities represents the implied fair value of goodwill.

Parent Company Investment —Parent company investment in the Combined Balance Sheets represents Tyco’s historical investment in the Company, the Company’s accumulated net earnings after taxes and the net effect of transactions with and allocations from Tyco. Note 8 (“Related Party Transactions”) provides additional information regarding the allocation to the Company of various expenses incurred by Tyco.

Product Warranty —The Company records estimated product warranty costs at the time of sale. Products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly and appropriately maintained. Standard product warranties are implicit in our sales. However, in certain of our businesses, customers may negotiate additional warranties as an element of the purchase contract or as a separately purchased component. The warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor and in certain instances estimated property damage.

Environmental Costs —The Company is subject to laws and regulations relating to protecting the environment. It provides for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. See Note 11 (“Commitments and Contingencies”).

Income Taxes For purposes of the Company’s Combined Financial Statements, income tax expense and deferred tax balances have been recorded as if it filed tax returns on a stand-alone basis separate from Tyco (“Separate Return Method”). The Separate Return Method applies the accounting guidance for income taxes to the stand-alone financial statements as if the Company was a separate taxpayer and a stand-alone enterprise for the periods presented. The calculation of income taxes for the Company on a separate return basis requires a considerable amount of judgment and use of both estimates and allocations. Historically, the Company has largely operated within Tyco’s group of legal entities, including several U.S. consolidated tax groups, various non-U.S. tax groups and stand alone non-U.S. subsidiaries. In certain instances, tax losses and credits utilized by the Company within the Tyco group of entities may not be available to the Company going forward. In other instances, tax losses or credits generated by Tyco’s other businesses will be available to the Company going forward after the Distribution.

In determining taxable income for the Company’s Combined Financial Statements, the Company must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense.

In evaluating the Company’s ability to recover its deferred tax assets the Company considers all available evidence, positive and negative, including its past operating results, the existence of cumulative losses in the most recent years and its forecast of future taxable income. In estimating future taxable income, the Company develops assumptions including the amount of future pre-tax income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates it is using to manage the underlying businesses.

 

F-11


The Company currently has recorded valuation allowances that it will maintain until it is more-likely-than-not the deferred tax assets will be realized. The Company’s income tax expense recorded in the future may be reduced to the extent of decreases in our valuation allowances. The realization of our remaining deferred tax assets is primarily dependent on future taxable income in the appropriate jurisdiction. Any reduction in future taxable income including but not limited to any future restructuring activities may require that the Company record an additional valuation allowance against its deferred tax assets. An increase in the valuation allowance could result in additional income tax expense in such period and could have a significant impact on the Company’s future earnings.

The tax carryforwards reflected in the Company’s Combined Financial Statements are calculated on a hypothetical stand-alone income tax return basis. The tax carryforwards include net operating losses and tax credits. The Company’s post spin-off tax carryforwards will be different than those reflected in the Company’s Combined Financial Statements.

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management records the affect of a tax rate or law change on the Company’s deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on the Company’s results of operations, financial condition or cash flows.

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. These tax liabilities are reflected net of related tax loss carryforwards. The Company adjusts these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the tax liabilities. If the Company’s estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determine the liabilities are no longer necessary. For purposes of the Company’s Combined Financial Statements, these estimated tax liabilities have been computed on a separate return basis.

Asbestos-Related Contingencies and Insurance Receivables —The Company and certain of its subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. The Company’s estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is predominantly based on claim experience over the past five years, and a projection which covers claims expected to be filed, including related defense costs, over the next seven years on an undiscounted basis. Due to the high degree of uncertainty regarding the pattern and length of time over which claims will be made and then settled or litigated, the Company uses multiple estimation methodologies based on varying scenarios of potential outcomes to estimate the range of loss. The Company has concluded that estimating the liability beyond the seven year period will not provide a reasonable estimate, as these uncertainties increase significantly as the projection period lengthens. However, it is possible claims will be received beyond the seven year period.

In connection with the recognition of liabilities for asbestos-related matters, the Company records asbestos-related insurance recoveries that are probable. The Company’s estimate of asbestos-related insurance recoveries represents estimated amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In determining the amount of insurance recoverable, the Company considers a number of factors, including available insurance, allocation methodologies, solvency and creditworthiness of the insurers.

Insurable Liabilities —The Company insures workers’ compensation, property, product, general and auto liabilities through a wholly owned subsidiary of Tyco, a captive insurance company, which retains the risk of

 

F-12


loss. The captive’s policies covering these risks are deductible reimbursement policies. Tyco has insurance for losses in excess of the captive insurance company policies’ limits through third-party insurance companies.

These insurance costs have been allocated to the Company on a specific identification basis by Tyco. Management believes the allocations are reasonable; however, they may not be indicative of the actual insurance costs of the Company had the Company been operating as an independent, stand-alone entity for the periods presented. See Note 8 (“Related Party Transactions”).

Recently Issued Accounting Pronouncements —In June 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance for the presentation of comprehensive income. The guidance amended the reporting of Other Comprehensive Income (“OCI”) by eliminating the option to present OCI as part of the Combined Statements of Parent Company Equity. The amendment will not impact the accounting for OCI, but only its presentation in the Company’s Combined Financial Statements. The guidance requires that items of net income and OCI be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements which include total net income and its components, consecutively followed by total OCI and its components to arrive at total comprehensive income. In December 2011, the FASB issued authoritative guidance to defer the effective date for those aspects of the guidance relating to the presentation of reclassification adjustments out of accumulated other comprehensive income by component. The guidance must be applied retrospectively and is effective for the Company in the first quarter of fiscal year 2013, with early adoption permitted. The Company is currently assessing the timing of its adoption of the guidance.

In September 2011, the FASB issued authoritative guidance which expanded and enhanced the existing disclosures related to multi-employer pension and other postretirement benefit plans. The amendments require additional quantitative and qualitative disclosures to provide more detailed information including the significant multi-employer plans in which the Company participates, the level of the Company’s participation and contributions, and the financial health and indication of funded status, which will provide users of financial statements with a better understanding of the employer’s involvement in multi-employer benefit plans. The guidance must be applied retrospectively and is effective for the Company for the fiscal year 2012 annual period, with early adoption permitted. The Company is currently assessing the timing of its adoption of the guidance along with what impact, if any, the guidance will have on its annual disclosures.

In September 2011, the FASB issued authoritative guidance which amends the process of testing goodwill for impairment. The guidance permits an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not, defined as having a likelihood of more than fifty percent, that the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performing the traditional two step goodwill impairment test is unnecessary. If an entity concludes otherwise, it would be required to perform the first step of the two step goodwill impairment test. If the carrying amount of the reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test. However, an entity has the option to bypass the qualitative assessment in any period and proceed directly to step one of the impairment test. The guidance is effective for the Company for interim and annual impairment testing beginning in the first quarter of fiscal year 2013, with early adoption permitted. The Company is currently assessing the timing of its adoption of the guidance.

2. DIVESTITURES

From time to time, the Company may dispose of businesses that do not align with its long-term strategy.

Fiscal Year 2011

On July 22, 2011, the Company sold its Israeli water business which was part of the Company’s Water & Environmental Systems segment. The sale was completed for approximately $35 million in cash proceeds and a

 

F-13


$7 million pre-tax gain was recorded within restructuring, asset impairment and divestiture charges, net in the Company’s Combined Statements of Operations.

On September 30, 2010, the Company sold its European water business which was part of the Company’s Water & Environmental Systems segment. The sale was completed for approximately $264 million in cash proceeds, net of $7 million of cash divested on sale, and a pre-tax gain of $174 million was recorded, which was largely exempt from tax. The gain was recorded in income from discontinued operations, net of income taxes in the Company’s Combined Statements of Operations.

Fiscal Year 2010

During fiscal year 2010, the Company completed the sale of its KD Valves business which was part of the Company’s Valves & Controls segment. The sale was completed for approximately $9 million in cash proceeds, net of $2 million of cash divested on sale, and a pre-tax gain of $1 million was recorded. The gain was recorded in income from discontinued operations, net of income taxes in the Company’s Combined Statements of Operations. Additionally, during the third quarter of 2010, the Company approved a plan to sell its European water business, which subsequently closed on September 30, 2010 as discussed in fiscal year 2011 above. These businesses met the held for sale and discontinued operations criteria and were included in discontinued operations for all periods presented.

Fiscal Year 2009

In July 2008, the Company substantially completed the sale of its Infrastructure Services business, which met the criteria to be presented as discontinued operations. In order to complete the sale of the remaining Infrastructure Services businesses, Earth Tech Brasil Ltda. (“ET Brasil”), the Earth Tech UK businesses and certain assets in China, the Company was required to obtain consents and approvals to transfer the legal ownership of the businesses and assets. By the fourth quarter of fiscal year 2009, the Company received all the necessary consents and approvals to transfer the legal ownership of the businesses and assets and received cash proceeds of $61 million. As a result of the fiscal year 2009 dispositions, a net pre-tax gain of $33 million was recorded in income from discontinued operations, net of income taxes in the Company’s Combined Statements of Operations for the year ended September 25, 2009.

During fiscal year 2009, the Company completed the sale of its Manibs business, which was part of the Company’s Water & Environmental Systems segment. The sale was completed for approximately $2 million of cash proceeds and a pre-tax loss of $5 million was recorded in income from discontinued operations, net of income taxes in the Company’s Combined Statements of Operations. The Company also completed the sale of its Nu Torque business, which was part of the Company’s Valves & Controls segment. The sale was completed for approximately $5 million of cash proceeds and a pre-tax loss of $1 million was recorded in income from discontinued operations, net of income taxes in the Company’s Combined Statements of Operations. Both business met the held for sale and discontinued operations criteria and were included in discontinued operations for all periods presented.

Financial information related to discontinued operations is as follows ($ millions):

 

     2011     2010     2009  

Net revenue

   $ 3      $ 330      $ 373   
  

 

 

   

 

 

   

 

 

 

Pre-tax (loss) income from discontinued operations

   $ (5   $ 28      $ 18   

Pre-tax income (loss) on sale of discontinued operations

     173        (1     20   

Income tax benefit (expense)

     4        (10     (9
  

 

 

   

 

 

   

 

 

 

Income from discontinued operations, net of income taxes

   $ 172      $ 17      $ 29   
  

 

 

   

 

 

   

 

 

 

 

F-14


There were no material pending divestitures as of September 30, 2011. Balance sheet information for material pending divestitures as of September 24, 2010 was as follows ($ in millions):

 

     2010  

Accounts receivable, net

   $ 70   

Inventories

     71   

Prepaid expenses and other current assets

     11   

Property, plant and equipment, net

     59   

Goodwill and intangible assets, net

     105   

Other assets

     6   
  

 

 

 

Total assets

   $ 322   
  

 

 

 

Accounts payable

     43   

Accrued and other current liabilities

     32   

Other liabilities

     24   
  

 

 

 

Total liabilities

   $ 99   
  

 

 

 

3. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES, NET

From time to time, the Company will initiate various restructuring actions which result in employee severance, facility exit and other restructuring costs as are described below.

The Company recorded restructuring and asset impairment charges, net by program and classified these in the Combined Statement of Operations as follows ($ in millions):

 

     For the Year Ended
September 30,
2011
    For the Year Ended
September 24,
2010
    For the Year Ended
September 25,
2009
 

2011 program

   $ 11      $ —        $ —     

2009 program

     (1     27        18   
  

 

 

   

 

 

   

 

 

 

Total restructuring and asset impairment charges, net

   $ 10      $ 27      $ 18   
  

 

 

   

 

 

   

 

 

 

Charges reflected in cost of revenue

   $ —        $ 1      $ 3   

Charges (credits) reflected in selling, general and administrative (“SG&A”)

     (1     (1     —     

Charges reflected in restructuring, asset impairment and divestiture charges, net

     11        27        15   

 

F-15


2011 Program

Restructuring and asset impairment charges, net, during the year ended September 30, 2011 are as follows ($ in millions):

 

     For the Year Ended September 30, 2011  
     Employee
Severance
and
Benefits
     Facility
Exit
and
Other
Charges
     Charges
Reflected
in
SG&A
    Total  

Valves & Controls

   $ 3       $ 3       $ (1   $ 5   

Thermal Controls

     2         —           —          2   

Water & Environmental Systems

     4         —           —          4   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 9       $ 3       $ (1   $ 11   
  

 

 

    

 

 

    

 

 

   

 

 

 

The rollforward of the reserves from September 24, 2010 to September 30, 2011 is as follows ($ in millions):

 

Balance as of September 24, 2010

   $  —   

Charges

     13   

Reversals

     (1

Utilization

     (6
  

 

 

 

Balance as of September 30, 2011

   $ 6   
  

 

 

 

Restructuring reserves for businesses that have met the held for sale criteria are included in liabilities held for sale on the Combined Balance Sheets and excluded from the table above. See Note 2 (“Divestitures”).

2009 Program

Restructuring and asset impairment charges, net, during the years ended September 30, 2011, September 24, 2010 and September 25, 2009 related to the restructuring actions identified during fiscal year 2010 and 2009 are as follows ($ in millions):

 

                                                                                    
     For the Year Ended September 30, 2011  
     Employee
Severance
and
Benefits
    Facility Exit
and Other
Charges
     Charges
Reflected  in

Cost
of Revenue
     Charges
Reflected in
SG&A
    Total  

Valves & Controls

   $ (1   $ —         $ —         $ —        $ (1

Thermal Controls

     —          —           —           —          —     

Water & Environmental Systems

     —          —           —           —          —     

Corporate

     —          —           —           —          —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ (1   $ —         $ —         $ —        $ (1
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     For the Year Ended September 24, 2010  
     Employee
Severance
and
Benefits
    Facility Exit
and Other
Charges
     Charges
Reflected in
Cost
of Revenue
     Charges
Reflected in
SG&A
    Total  

Valves & Controls

   $ 11      $ 7       $ —         $ (1   $ 17   

Thermal Controls

     2        1         —           —          3   

Water & Environmental Systems

     3        —           —           —          3   

Corporate

     3        —           1         —          4   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 19      $ 8       $ 1       $ (1   $ 27   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

F-16


     For the Year Ended September 25, 2009  
     Employee
Severance
and
Benefits
     Facility Exit
and Other
Charges
    Charges
Reflected in
Cost
of Revenue
     Total  

Valves & Controls

   $ 5       $ 4      $ —         $ 9   

Thermal Controls

     3         —          —           3   

Water & Environmental Systems

     2         2        —           4   

Corporate

     2         (3     3         2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 12       $ 3      $ 3       $ 18   
  

 

 

    

 

 

   

 

 

    

 

 

 

Restructuring and asset impairment charges, net, incurred cumulative to date from initiation of the 2009 Program are as follows ($ in millions):

 

                                                                                    
     Employee
Severance
and
Benefits
     Facility Exit
and Other
Charges
    Charges
Reflected in
Cost
of Revenue
     Charges
Reflected in
SG&A
    Total  

Valves & Controls

   $ 15       $ 11      $ —         $ (1   $ 25   

Thermal Controls

     5         1        —           —          6   

Water & Environmental Systems

     5         2        —           —          7   

Corporate

     5         (3     4         —          6   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 30       $ 11      $ 4       $ (1   $ 44   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The rollforward of the reserves from September 24, 2010 to September 30, 2011 is as follows ($ in millions):

 

                

Balance as of September 24, 2010

   $  12   

Charges

     3   

Reversals

     (4

Utilization

     (9
  

 

 

 

Balance as of September 30, 2011

   $ 2   
  

 

 

 

Restructuring reserves for businesses that have met the held for sale criteria are included in liabilities held for sale on the Combined Balance Sheets and excluded from the table above. See Note 2 (“Divestitures”).

Total Restructuring Reserves

As of September 30, 2011 and September 24, 2010, restructuring reserves related to all programs were included in the Company’s Combined Balance Sheets as follows ($ in millions):

 

     As of
September 30, 2011
     As of
September 24, 2010
 

Accrued and other current liabilities

   $ 8       $ 12   

4. ACQUISITIONS

Fiscal Year 2011

During the year ended September 30, 2011, cash paid for acquisitions included in continuing operations totaled $303 million, net of cash acquired of $1 million, which primarily related to the acquisition of KEF Holdings Ltd. (“KEF”). On June 29, 2011, the Company’s Valves & Controls segment acquired a 75% equity

 

F-17


interest in privately-held KEF, a vertically integrated valve manufacturer in the Middle East for approximately $295 million, net of cash acquired of $1 million.

In connection with the acquisition of KEF during the year ended September 30, 2011, the Company acquired $64 million of debt, substantially all of which was paid as of September 30, 2011. In accordance with the terms and conditions of the KEF acquisition agreement, beginning the first full fiscal quarter following the third anniversary of the KEF acquisition date, the Company has the right to acquire and the noncontrolling interest stakeholder has the right to sell to the Company the remaining 25% equity interest for the greater of $100 million or a multiple of KEF’s average earnings before income taxes, depreciation and amortization (“EBITDA”) for the prior twelve consecutive fiscal quarters. As the right to sell is exercisable by the noncontrolling interest stakeholder, the remaining 25% equity interest has been accounted for as a redeemable noncontrolling interest. See Note 15 (“Redeemable Noncontrolling Interest”).

Fiscal Year 2010

During the year ended September 24, 2010, cash paid for acquisitions included in continuing operations totaled $104 million, net of cash acquired of $1 million. These acquisitions were made by the Company’s Valves & Controls segment, which acquired two Brazilian valve companies, including Hiter Industria e Comercio de Controle Termo- Hidraulico Ltda (“Hiter”), a valve manufacturer which serves a variety of industries including the oil & gas, chemical and petrochemical markets.

Fiscal Year 2009

During the year ended September 25, 2009, cash paid for acquisitions included in continuing operations totaled $3 million, net of cash acquired of $1 million.

5. INCOME TAXES

The Company’s operating results have been included in Tyco’s various consolidated U.S. federal and state income tax returns, as well as included in many of Tyco’s tax filings for non-U.S. jurisdictions. For purposes of the Company’s Combined Financial Statements, income tax expense and deferred tax balances have been recorded as if it filed tax returns on a stand-alone basis separate from Tyco. Additionally, the carve-out financial statements reflect the Company as having the same historic structure of Tyco as a Swiss based company. At the time of the proposed Spin-Off, the Company will be Swiss domiciled. The Separate Return Method applies the accounting guidance for income taxes to the stand-alone financial statements as if the Company was a separate taxpayer and a stand-alone enterprise for the periods presented.

Tyco Flow Control International Ltd. a holding company and Swiss resident, is exempt from cantonal and communal income tax in Switzerland, but is subject to Swiss federal income tax. At the federal level, qualifying net dividend income and net capital gains on the sale of qualifying investments in subsidiaries are exempt from Swiss federal income tax. Consequently, Tyco Flow Control International Ltd. expects dividends from its subsidiaries and capital gains from sales of investments in its subsidiaries to be exempt from Swiss federal income tax.

The Company conducts operations through its various subsidiaries in a number of countries throughout the world. Income (loss) from continuing operations before income taxes is as follows ($ in millions):

 

                                                  
     2011      2010      2009  

Swiss

   $ 33       $ 34       $ (17

Non-Swiss

     232         248         409   
  

 

 

    

 

 

    

 

 

 

Total

   $ 265       $ 282       $ 392   
  

 

 

    

 

 

    

 

 

 

 

F-18


The current and deferred components of the income tax provision for the years ended September 30, 2011, September 24, 2010 and September 25, 2009 are as follows ($ in millions):

 

                                
     2011     2010     2009  

Current income tax provision

   $ 91      $ 135      $ 132   

Deferred income tax provision (benefit)

     21        (37     27   
  

 

 

   

 

 

   

 

 

 

Income tax expense

   $ 112      $ 98      $ 159   
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     42.3     34.8     40.6
  

 

 

   

 

 

   

 

 

 

The reconciliation between the effective tax rate on income from continuing operations and the Swiss Holding Company statutory tax rate of 7.83% for the years ended September 30, 2011, September 24, 2010 and September 25, 2009 are as follows ($ in millions):

 

                                                  
     2011     2010     2009  

Tax at the statutory tax rate

   $ 21      $ 22      $ 31   

Increases (decreases) in taxes due to:

      

Taxes on earnings subject to rates different than the Swiss rate

     64        67        112   

Nondeductible charges

     19        10        16   

Nondeductible goodwill impairment

     11        —          —     

Other, net

     (3     (1     —     
  

 

 

   

 

 

   

 

 

 

Provision for income taxes

   $ 112      $ 98      $ 159   
  

 

 

   

 

 

   

 

 

 

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax asset as of September 30, 2011 and September 24, 2010 are as follows ($ in millions):

 

                                 
     2011     2010  

Deferred tax assets:

    

Goodwill

   $ 198      $ 173   

Accrued liabilities and reserves

     60        70   

Tax loss and credit carryforwards

     81        87   

Postretirement benefits

     25        27   

Inventories

     35        34   

Other

     24        7   
  

 

 

   

 

 

 
   $ 423      $ 398   
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Property, plant and equipment

     (10     (7

 

                                 
     2011     2010  

Intangible assets

     (56     (51

Other

     (19     —     
  

 

 

   

 

 

 
   $ (85   $ (58
  

 

 

   

 

 

 

Net deferred tax asset before valuation allowance

     338        340   

Valuation allowance

     (261     (230
  

 

 

   

 

 

 

Net deferred tax asset

   $ 77      $ 110   
  

 

 

   

 

 

 

The goodwill deferred tax asset relates to a prior internal restructuring which resulted in a step up in tax goodwill with no change in book goodwill. The Company’s contribution to Tyco’s tax losses and tax credits on a separate return basis has been included in these Combined Financial Statements. In certain instances, tax losses

 

F-19


and tax credits generated by Tyco’s other businesses will be available to the Company after the Distribution. As of September 30, 2011, the Company had $404 million of net operating loss carryforwards in certain non-U.S. jurisdictions. Of these, $350 million have no expiration, and the remaining $54 million will expire in future years through 2030. In the U.S., there were no material federal and approximately $67 million of state net operating loss carryforwards as of September 30, 2011, which will expire in future years through 2030.

The valuation allowance for deferred tax assets of $261 million and $230 million as of September 30, 2011 and September 24, 2010, respectively, relate principally to the uncertainty of the utilization of certain non-U.S. deferred tax assets. The goodwill deferred tax asset has a full valuation allowance against it. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets on the Company’s Combined Balance Sheets.

As of September 30, 2011 and September 24, 2010, the Company had unrecognized tax benefits of $36 million and $35 million, respectively, of which $34 million and $33 million, if recognized, would affect the effective tax rate. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The Company had accrued interest and penalties related to the unrecognized tax benefits of $11 million and $8 million as of September 30, 2011 and September 24, 2010, respectively. The Company recognized $3 million, nil and $3 million of income tax expense for interest and penalties related to unrecognized tax benefits for the periods ended September 30, 2011, September 24, 2010 and September 25, 2009, respectively.

A rollforward of unrecognized tax benefits as of September 30, 2011, September 24, 2010 and September 25, 2009 is as follows (in millions):

 

                                
     2011     2010     2009  

Balance as of beginning of year

   $ 35      $ 45      $ 70   

Additions based on tax positions related to the current year

     —          2        8   

Additions based on tax positions related to prior years

     3        12        7   

Reductions based on tax positions related to prior years

     (1     (20     (36

Reductions related to settlements

     —          —          (1

Reductions related to lapse of the applicable statute of limitations

     —          (4     (4

Currency translation adjustments

     (1     —          1   
  

 

 

   

 

 

   

 

 

 

Balance as of end of year

   $ 36      $ 35      $ 45   
  

 

 

   

 

 

   

 

 

 

Substantially all of the reductions based on tax positions related to prior years for the periods ending September 24, 2010 and September 25, 2009 relate to reserve releases for which no tax benefit resulted. The Company does not anticipate the total amount of the unrecognized tax benefits to change significantly within the next twelve months.

Many of the Company’s uncertain tax positions relate to tax years that remain subject to audit by the taxing authorities in the U.S. federal, state and local or foreign jurisdictions. Open tax years in significant jurisdictions are as follows:

 

Jurisdiction

   Years
Open To  Audit

Australia

   2004 – 2011

Canada

   2002 – 2011

France

   1999 – 2011

Germany

   1998 – 2011

Italy

   2004 – 2011

Switzerland

   2002 – 2011

United States

   1997 – 2011

 

F-20


Undistributed Earnings of Subsidiaries

Except for earnings that are currently distributed, no additional material provision has been made for U.S. or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries, since the earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or the Company has concluded that no additional tax liability will arise as a result of the distribution of such earnings. A liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries.

Tax Sharing Agreement and Other Income Tax Matters

In connection with the Spin-Off from Tyco, Tyco Flow Control International Ltd. expects to enter into a tax sharing agreement with Tyco and The ADT Corporation (the “2012 Tax Sharing Agreement”) that will govern the rights and obligations of Tyco Flow Control International Ltd., Tyco and The ADT Corporation for certain pre-Distribution tax liabilities, including Tyco’s obligations under the tax sharing agreement among Tyco, Covidien Ltd. (“Covidien”) and TE Connectivity Ltd. (“TE Connectivity”) entered into in 2007 (the “2007 Tax Sharing Agreement”). Tyco Flow Control International Ltd. expects that the 2012 Tax Sharing Agreement will provide that Tyco Flow Control International Ltd., Tyco and The ADT Corporation will share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to Tyco Flow Control International Ltd.’s, Tyco’s and The ADT Corporation’s U.S. and certain non-U.S. income tax returns, and (ii) payments required to be made by Tyco with respect to the 2007 Tax Sharing Agreement (collectively, “Shared Tax Liabilities”). Tyco will be responsible for the first $500 million of Shared Tax Liabilities. Tyco Flow Control International Ltd. and The ADT Corporation will share 42% and 58%, respectively, of the next $225 million of Shared Tax Liabilities. Tyco Flow Control International Ltd., The ADT Corporation and Tyco will share 20%, 27.5% and 52.5%, respectively, of Shared Tax Liabilities above $725 million.

In the event the Distribution, The ADT Corporation Spin-Off, or certain internal transactions undertaken in connection therewith were determined to be taxable as a result of actions taken after the Distribution by Tyco Flow Control International Ltd., The ADT Corporation or Tyco, the party responsible for such failure would be responsible for all taxes imposed on Tyco Flow Control International Ltd., The ADT Corporation or Tyco as a result thereof. Taxes resulting from the determination that the Distribution, The ADT Corporation Spin-Off, or any internal transaction is taxable are referred to herein as “Distribution Taxes.” If such failure is not the result of actions taken after the Distribution by Tyco Flow Control International Ltd., The ADT Corporation or Tyco, then Tyco Flow Control International Ltd., The ADT Corporation and Tyco would be responsible for any Distribution Taxes imposed on Tyco Flow Control International Ltd., The ADT Corporation or Tyco as a result of such determination in the same manner and in the same proportions as the Shared Tax Liabilities. The ADT Corporation will have sole responsibility for any income tax liability arising as a result of Tyco’s acquisition of Brink’s Home Security Holdings, Inc. (“BHS”) in May 2010, including any liability of BHS under the tax sharing agreement between BHS and The Brink’s Company dated October 31, 2008 (collectively, the “BHS Tax Liabilities”). Costs and expenses associated with the management of these Shared Tax Liabilities, Distribution Taxes and BHS Tax Liabilities will generally be shared 20% by Tyco Flow Control International Ltd., 27.5% by The ADT Corporation and 52.5% by Tyco. Tyco Flow Control International Ltd. will be responsible for all of our own taxes that are not shared pursuant to the 2012 Tax Sharing Agreement’s sharing formulae. In addition, Tyco and The ADT Corporation are responsible for their tax liabilities that are not subject to the 2012 Tax Sharing Agreement’s sharing formulae.

The 2012 Tax Sharing Agreement is also expected to provide that, if any party were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no party’s fault, each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the 2012 Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, Tyco Flow Control

 

F-21


International Ltd. could be legally liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, Tyco Flow Control International Ltd. may be obligated to pay amounts in excess of our agreed-upon share of Tyco Flow Control International Ltd.’s, Tyco’s and The ADT Corporation’s tax liabilities.

6. GOODWILL AND INTANGIBLE ASSETS

Annually, in the fiscal fourth quarter, and more frequently if triggering events occur, the Company tests goodwill for impairment by comparing the fair value of each reporting unit with its carrying amount. Fair value for each reporting unit is determined utilizing a discounted cash flow analysis based on the Company’s forecast cash flows discounted using an estimated weighted-average cost of capital of market participants. A market approach is utilized to corroborate the discounted cash flow analysis performed at each reporting unit. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered potentially impaired. In determining fair value, management relies on and considers a number of factors, including operating results, business plans, economic projections, anticipated future cash flow, comparable market transactions (to the extent available), other market data and the Company’s overall market capitalization.

In the first quarter of 2011, the Company changed its reporting units of its Water & Environmental Systems segment. As a result, the Company assessed the recoverability of the long-lived assets of each of the segment’s two reporting units. The Company concluded that the carrying amounts of its long-lived assets were recoverable. Subsequently, the Company performed the first step of the goodwill impairment test for the reporting units of our Water & Environmental Systems segment.

To perform the first step of the goodwill impairment test, the Company compared the carrying amounts of the reporting units to their estimated fair values. Fair value for each reporting unit was determined utilizing a discounted cash flow analysis based on forecast cash flows (including estimated underlying revenue and operating income growth rates) discounted using an estimated weighted-average cost of capital of market participants. The results of the first step of the goodwill impairment test indicated there was a potential impairment of goodwill in the Systems reporting unit only, as the carrying amount of the reporting unit exceeded its respective fair value. As a result, the Company performed the second step of the goodwill impairment test for this reporting unit by comparing the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit’s goodwill. The results of the second step of the goodwill impairment test indicated that the implied goodwill amount was less than the carrying amount of goodwill for the Systems reporting unit. Accordingly, the Company recorded a non-cash impairment charge of $35 million which was recorded in goodwill impairment in the Company’s Combined Statement of Operations for the quarter ended December 24, 2010.

There were no goodwill impairments as a result of performing the Company’s 2011, 2010 and 2009 annual impairment tests.

 

F-22


The changes in the carrying amount of goodwill by segment for 2011 and 2010 are as follows ($ in millions):

 

     As of
September 24,
2010
     Acquisitions/
Purchase
Accounting
Adjustments
     Impairments     Divestitures     Currency
Translation
Adjustments
     As of
September 30,
2011
 

Valves & Controls

               

Gross Goodwill

   $ 1,281       $ 249       $ —        $ —        $ 15       $ 1,545   

Impairments

     —           —           —          —          —           —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Carrying Amount of Goodwill

     1,281         249         —          —          15         1,545   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Thermal Controls

               

Gross Goodwill

     307         —           —          —          6         313   

Impairments

     —           —           —          —          —           —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Carrying Amount of Goodwill

     307         —           —          —          6         313   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Water & Environmental Systems

               

Gross Goodwill

     320         3         —          (14     5         314   

Impairments

     —           —           (35     —          —           (35
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Carrying Amount of Goodwill

     320         3         (35     (14     5         279   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

TOTAL

               

Gross Goodwill

     1,908         252         —          (14     26         2,172   

Impairments

     —           —           (35     —          —           (35
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Carrying Amount of Goodwill

   $ 1,908       $ 252       $ (35   $ (14   $ 26       $ 2,137   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

     As of
September

25, 2009
     Acquisitions/
Purchase
Accounting
Adjustments
     Divestitures     Currency
Translation
Adjustments
    As of
September

24, 2010
 

Valves & Controls

            

Gross Goodwill

   $ 1,243       $ 77       $ (5   $ (34   $ 1,281   

Impairments

     —           —           —          —          —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

     1,243         77         (5     (34     1,281   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Thermal Controls

            

Gross Goodwill

     315         —           —          (8     307   

Impairments

     —           —           —          —          —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

     315         —           —          (8     307   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Water & Environmental Systems

            

Gross Goodwill

     435         —           (99     (16     320   

Impairments

     —           —           —          —          —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

     435         —           (99     (16     320   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL

            

Gross Goodwill

     1,993         77         (104     (58     1,908   

Impairments

     —           —           —          —          —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

   $ 1,993       $ 77       $ (104   $ (58   $ 1,908   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

F-23


Fiscal year 2011 and 2010 Intangible Assets

The Company tests indefinite-lived intangible assets for impairment at the same time it tests goodwill. There were no indefinite-lived intangible asset impairments in fiscal year 2011, 2010 and 2009.

The following table sets forth the gross carrying amounts and accumulated amortization of the Company’s intangible assets as of September 30, 2011 and September 24, 2010.

 

     September 30, 2011      September 24, 2010  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Gross
Carrying
Amount
     Accumulated
Amortization
 

Amortizable:

           

Contracts and related customer relationships

   $ 87       $ 5       $ 28       $ 2   

Intellectual property

     89         50         81         49   

Other

     6        5        7         5  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 182       $ 60       $ 116       $ 56   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-Amortizable

   $ 5          $ 6      
  

 

 

       

 

 

    

Intangible asset amortization expense for 2011, 2010 and 2009 was $7 million, $5 million and $3 million, respectively. As of September 30, 2011, the weighted-average amortization period for contracts and related customer relationships, intellectual property, other and total intangible assets were 11 years, 27 years, 26 years and 16 years, respectively.

The estimated aggregate amortization expense on intangible assets is expected to be approximately $15 million for 2012, $11 million for 2013, $10 million for 2014, $10 million for 2015, $10 million for 2016 and $66 million for 2017 and thereafter.

7. DEBT

Debt as of September 30, 2011 and September 24, 2010 is as follows ($ in millions):

 

     September 30,
2011
     September 24,
2010
 

Current maturities of long-term debt:

     

Allocated debt

   $ —         $ 98   

 

     September 30,
2011
     September 24,
2010
 

Long-term debt:

     

Allocated debt

     859         671   

Capital lease obligations

     17         18   
  

 

 

    

 

 

 

Total long-term debt

     876         689   
  

 

 

    

 

 

 

Total debt

   $ 876       $ 787   
  

 

 

    

 

 

 

Tyco used a centralized approach to cash management and financing of its operations excluding debt directly incurred by any of its businesses, such as capital lease obligations. Accordingly, Tyco’s consolidated debt and related interest expense, exclusive of amounts incurred directly by the Company, have been allocated to the Company based on an assessment of the Company’s share of external debt using historical data. Interest expense was allocated in the same proportions as debt and includes the impact of interest rate swap agreements

 

F-24


designated as fair value hedges. For fiscal year 2011, 2010 and 2009, Tyco has allocated to the Company interest expense of $50 million, $53 million and $61 million, respectively. The fair value of the Company’s allocated debt was $996 million and $894 million as of September 30, 2011 and September 24, 2010, respectively. The fair value of its debt was allocated in the same proportions as Tyco’s external debt. In addition, cash paid for interest was allocated in the same proportion as Tyco’s external debt, which is presented on the Combined Statements of Cash Flows.

Management believes the allocation basis for debt and interest expense is reasonable based on an assessment of historical data. However, these amounts may not be indicative of the actual amounts that the Company would have incurred had the Company been operating as an independent, publicly-traded company for the periods presented. The Company expects to issue third-party debt based on an anticipated initial post-separation capital structure for the Company. The amount of debt which could be incurred may materially differ from the amounts presented herein.

8. RELATED PARTY TRANSACTIONS

Cash Management — Tyco used a centralized approach to cash management and financing of operations. The Company’s cash was available for use and was regularly “swept” by Tyco at its discretion. Transfers of cash both to and from Tyco are included within parent company investment on the Combined Statements of Parent Company Equity. The main components of the net transfers (to)/from Parent are cash pooling and general financing activities, cash transfers for acquisitions, divestitures, investments and various allocations from Tyco.

Trade Activity —Accounts receivable includes $3 million and $4 million of receivables from Tyco and its affiliates as of September 30, 2011 and September 24, 2010, respectively. These amounts primarily relate to sales of certain products which totaled $17 million, $16 million and $18 million for fiscal year 2011, 2010 and 2009, respectively, and associated cost of revenue of $12 million, $9 million and $11 million for fiscal year 2011, 2010 and 2009, respectively.

Service and Lending Arrangement with Tyco Affiliates— The Company has various debt and cash pool agreements with Tyco affiliates, which are executed outside of the normal Tyco centralized approach to cash management and financing of operations. Other assets include $122 million and $35 million of receivables from Tyco affiliates as of September 30, 2011 and September 24, 2010, respectively. Accrued and other current liabilities include $32 million and nil of payables to Tyco affiliates as of September 30, 2011 and September 24, 2010, respectively. Other liabilities include $41 million and $80 million of payables to Tyco affiliates as of September 30, 2011 and September 24, 2010, respectively.

Additionally, the Company, Tyco and its affiliates pay for expenses on behalf of each other. Accrued and other current liabilities include $11 million and $10 million of payables to Tyco and its affiliates as of September 30, 2011 and September 24, 2010, respectively.

Interest Income and Interest Expense —The Company recognized $1 million, $2 million and $4 million of interest expense and $5 million, nil and $2 million of interest income associated with the lending arrangements with Tyco affiliates during fiscal year 2011, 2010 and 2009, respectively.

Debt and Related Items —The Company was allocated a portion of Tyco’s consolidated debt and interest expense. Note 7 (“Debt”) provides further information regarding these allocations.

Insurable Liabilities —From fiscal year 2009 through fiscal year 2011, the Company was insured for workers’ compensation, property, general and auto liabilities by a captive insurance company that was wholly-owned by Tyco. The Company was insured for product liability by the captive insurance company from fiscal year 2010 through fiscal year 2011. Tyco has insurance for losses in excess of the captive insurance company policies’ limits through third-party insurance companies. The Company paid a premium in each year to

 

F-25


obtain insurance coverage during these periods. Premiums expensed by the Company were $9 million, $11 million and $11 million in 2011, 2010 and 2009, respectively, and are included in the selling, general and administrative expenses in the Combined Statements of Operations.

The Company maintains liabilities related to workers’ compensation, property, general, product and auto liabilities. As of September 30, 2011 and September 24, 2010, the Company maintained liabilities reflected in the Combined Balance Sheets of $21 million and $19 million, respectively, for both periods, with an offsetting insurance asset of the same amount due from Tyco.

Allocated Expenses —The Company was allocated corporate overhead expenses from Tyco for corporate related functions based on the relative proportion of either the Company’s headcount or net revenue to Tyco’s consolidated headcount or net revenue. Corporate overhead expenses primarily related to centralized corporate functions, including finance, treasury, tax, legal, information technology, internal audit, human resources and risk management functions. During fiscal year 2011, 2010 and 2009, the Company was allocated $52 million, $54 million and $55 million, respectively, of general corporate expenses incurred by Tyco which are included within selling, general and administrative expenses in the Combined Statements of Operations.

Management believes the assumptions and methodologies underlying the allocations of general corporate overhead from Tyco are reasonable. However, such expenses may not be indicative of the actual results of the Company had the Company been operating as an independent, publicly traded company or the amounts that will be incurred by the Company in the future. As a result, the financial information herein may not necessarily reflect the combined financial position, results of operations and cash flows of the Company in the future or what it would have been had the Company been an independent, publicly traded company during the periods presented.

Transaction with Tyco’s Directors —During fiscal year 2011, 2010 and 2009, the Company engaged in commercial transactions in the normal course of business with companies where Tyco’s Directors were employed and served as officers. During each of these periods, the Company’s purchases from such companies aggregated less than one percent of combined net revenue.

9. GUARANTEES

In certain situations, Tyco has guaranteed the Company’s performance to third parties or has provided financial guarantees for financial commitments of the Company. Tyco and the Company intend to obtain releases from these guarantees in connection with the Spin-Off. In situations where the Company and Tyco are unable to obtain a release, the Company will indemnify Tyco for any losses it suffers as a result of such guarantees.

In disposing of assets or businesses, the Company often provides representations, warranties and indemnities to cover various risks including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. The Company does not have the ability to reasonably estimate the potential liability from such indemnities due to the inchoate nature and unknown future of such potential liabilities. However, the Company has no reason to believe that these uncertainties would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

In the normal course of business, the Company is liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company’s financial position, results of operations or cash flows.

As of September 30, 2011, the Company had total outstanding letters of credit and bank guarantees of approximately $285 million.

 

F-26


The Company records estimated product warranty costs at the time of sale. See Note 1 (“Basis of Presentation and Summary of Significant Accounting Policies”).

The changes in the carrying amount of the Company’s warranty accrual from September 24, 2010 to September 30, 2011 were as follows ($ in millions):

 

Balance as of September 24, 2010

   $ 20   

Warranties issued

     6   

Changes in estimates

     (2

Settlements

     (6
  

 

 

 

Balance as of September 30, 2011

   $ 18   
  

 

 

 

10. FINANCIAL INSTRUMENTS

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, debt and derivative financial instruments. The fair value of cash and cash equivalents, accounts receivable and accounts payable approximated book value as of September 30, 2011 and September 24, 2010. The fair value of derivative financial instruments was not material to any of the periods presented. See Note 7 (“Debt”) for information relating to the fair value of debt.

Derivative Instruments

In the normal course of business, the Company is exposed to market risk arising from changes in currency exchange rates and commodity prices. The Company uses derivative financial instruments to manage exposures to non-U.S. currency and commodity price risks. The Company’s objective for utilizing derivative financial instruments is to manage these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company does not use derivative financial instruments for trading or speculative purposes.

All derivative financial instruments are reported on the Combined Balance Sheet at fair value with changes in the fair value of the derivative financial instruments recognized currently in the Company’s Combined Statement of Operations. The derivative financial instruments and impact of such changes in the fair value of the derivative financial instruments was not material to the Combined Balance Sheets as of September 30, 2011 and September 24, 2010 or Combined Statements of Operations and Statements of Cash Flows for the years ended September 30, 2011, September 24, 2010 and September 25, 2009.

Non-U.S. Currency Exposures

The Company manages non-U.S. currency exchange rate risk through the use of derivative financial instruments comprised principally of forward contracts on non-U.S. currencies which are not designated as hedging instruments for accounting purposes. The objective of the derivative instruments is to minimize the income statement impact and potential variability in cash flows associated with intercompany loans and accounts receivable, accounts payable and forecasted transactions that are denominated in certain non-U.S. currencies. As of September 30, 2011 and September 24, 2010, the total gross notional amount of the Company’s non-U.S. exchange contracts was $70 million and $43 million, respectively.

As an independent, publicly traded company, the Company may enter into additional hedge contracts in order to manage its foreign exchange risk associated with its internal financing structure.

Commodity Exposures

During fiscal year 2011 and 2010, the Company entered into commodity swaps for copper which are not designated as hedging instruments for accounting purposes. These swaps did not have a material impact on the Company’s financial position, results of operations or cash flows.

 

F-27


11. COMMITMENTS AND CONTINGENCIES

Following is a schedule of minimum lease payments for non-cancelable leases as of September 30, 2011 ($ in millions):

 

     Operating
Leases
     Capital
Leases
 

Fiscal 2012

   $ 27       $ 2   

Fiscal 2013

     23         2   

Fiscal 2014

     17         2   

Fiscal 2015

     11         3   

Fiscal 2016

     8         4   

Thereafter

     21         5   
  

 

 

    

 

 

 

Total minimum lease payments

   $ 107       $ 18   
  

 

 

    

 

 

 

Less: amount representing interest

        1   
     

 

 

 

Total minimum lease payments less amount representing interest

      $ 17   
     

 

 

 

Rental expense under facility, vehicle and equipment operating leases was $59 million, $50 million and $42 million for 2011, 2010 and 2009, respectively.

The Company also has purchase obligations related to commitments to purchase certain goods and services. As of September 30, 2011, such obligations were as follows: $248 million in 2012, $3 million in 2013 and $1 million in 2014.

Environmental Matters

The Company is involved in environmental remediation and legal proceedings related to its current business and, pursuant to certain indemnification obligations, related to a formerly owned business (Mueller). The Company is responsible, or alleged to be responsible, for ongoing environmental investigation and remediation of sites in several countries. These sites are in various stages of investigation and/or remediation and at some of these sites its liability is considered de minimis. The Company has received notification from the U.S. Environmental Protection Agency (“EPA”), and from similar state and non-U.S. environmental agencies, that several sites formerly or currently owned and/or operated by the Company, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where the Company has been identified as a potentially responsible party under U.S. federal, state and/or non-U.S. environmental laws and regulations.

The Company’s accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. It can be difficult to estimate reliably the final costs of investigation and remediation due to various factors. In the Company’s opinion, the total amount accrued is appropriate based on facts and circumstances as currently known. Based upon the Company’s experience, current information regarding known contingencies and applicable laws, the Company concluded that it is probable that it would incur remedial costs in the range of approximately $7 million to $20 million as of September 30, 2011. As of September 30, 2011, the Company concluded that the best estimate within this range is approximately $11 million, of which $8 million is included in accrued and other current liabilities and $3 million is included in other liabilities in the Combined Balance Sheet. The Company does not anticipate that these environmental conditions will have a material adverse effect on its combined financial position, results of operations or cash flows. However, unknown conditions or new details about existing conditions may give rise to environmental liabilities that could have a material adverse effect on the Company in the future.

 

F-28


Asbestos Matters

The Company and certain of its subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. These cases typically involve product liability claims based primarily on allegations of the manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third-parties. Each case typically names between dozens to hundreds of corporate defendants. While the Company has observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma-related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. The Company’s strategy has been, and continues to be, to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, the Company cannot predict the extent to which it will be successful in resolving lawsuits in the future.

As of September 30, 2011, there were approximately 1,400 lawsuits pending against the Company, its subsidiaries or entities for which the Company has assumed responsibility. Each lawsuit typically includes several claims, and the Company had approximately 2,000 claims outstanding as of September 30, 2011. This amount is not adjusted for claims that are not actively being prosecuted, identified incorrect defendants, or duplicated other actions, which would ultimately reflect the Company’s current estimate of the number of viable claims made against it, its affiliates, or entities for which it has assumed responsibility in connection with acquisitions or divestitures.

Annually, the Company performs an analysis with the assistance of outside counsel and other experts to update its estimated asbestos-related assets and liabilities. Due to a high degree of uncertainty regarding the pattern and length of time over which claims will be made and then settled or litigated, the Company uses multiple estimation methodologies based on varying scenarios of potential outcomes to estimate the range of loss. The Company’s estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is predominantly based on claim experience over the past five years, and a projection which covers claims expected to be filed, including related defense costs, over the next seven years on an undiscounted basis. The Company has concluded that estimating the liability beyond the seven year period will not provide a reasonable estimate, as these uncertainties increase significantly as the projection period lengthens. The Company’s estimate of asbestos-related insurance recoveries represents estimated amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In determining the amount of insurance recoverable, the Company considers a number of factors, including available insurance, allocation methodologies, solvency and creditworthiness of the insurers.

On a quarterly basis, the Company re-evaluates the assumptions used to perform the annual analysis and records an expense as necessary to reflect changes in its estimated liability and related insurance asset. As of September 30, 2011, the Company’s estimated net liability of $3 million was recorded within the Company’s Combined Balance Sheet as a liability for pending and future claims and related defense costs of $27 million, and separately as an asset for insurance recoveries of $24 million. Similarly, as of September 24, 2010, the Company’s estimated net liability of $5 million was recorded within the Company’s Combined Balance Sheet as a liability for pending and future claims and related defense costs of $25 million, and separately as an asset for insurance recoveries of $20 million.

The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on currently available information as well as estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the resolution of coverage issues with insurance carriers, amount of insurance and the solvency risk with respect to the Company’s insurance carriers. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company’s liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from

 

F-29


jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. Management believes that its asbestos-related reserves as of September 30, 2011 are appropriate. However, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company’s calculations vary significantly from actual results.

Income Tax Matters

As discussed above in Note 5 (“Income Taxes – Tax Sharing Agreement and Income Tax Matters”) the 2012 Tax Sharing Agreement will govern the rights and obligations of Tyco Flow Control International Ltd., Tyco and The ADT Corporation for certain tax liabilities with respect to periods or portions thereof ending on or before the date of the Distribution. Tyco Flow Control International Ltd. is responsible for all of its own taxes that are not shared pursuant to the 2012 Tax Sharing Agreement’s sharing formulae. In addition, Tyco and The ADT Corporation are responsible for their tax liabilities that are not subject to the 2012 Tax Sharing Agreement’s sharing formulae.

With respect to years prior to and including the 2007 separation of Covidien and TE Connectivity by Tyco, tax authorities have raised issues and proposed tax adjustments that are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement and which may require Tyco to make a payment to a taxing authority, Covidien or TE Connectivity. Tyco has recorded a liability of $436 million as of September 30, 2011 which it has assessed and believes is adequate to cover the payments that Tyco may be required to make under the 2007 Tax Sharing Agreement. Tyco is reviewing and contesting certain of the proposed tax adjustments.

With respect to adjustments raised by the IRS, although Tyco has resolved a substantial number of these adjustments, a few significant items remain open with respect to the audit of the 1997 through 2004 years. As of the date hereof, Tyco has not been able to resolve certain open items, which primarily involve the treatment of certain intercompany debt issued during the period, through the IRS appeals process. As a result, Tyco expects to litigate these matters once it receives the requisite statutory notices from the IRS, which is likely to occur within the next six months. However, the ultimate resolution of these matters is uncertain and could result in Tyco being responsible for a greater amount than it expects under the 2007 Tax Sharing Agreement. To the extent Tyco Flow Control International Ltd. is responsible for any Shared Tax Liability or Distribution Tax, there could be a material adverse impact on its financial position, results of operations, cash flows or its effective tax rate in future reporting periods.

Compliance Matters

As disclosed in Tyco’s periodic filings, Tyco has received and responded to various allegations and other information that certain improper payments were made by Tyco’s subsidiaries (including subsidiaries of the Company) in recent years. Tyco has reported to the Department of Justice (“DOJ”) and the SEC the investigative steps and remedial measures that Tyco has taken in response to these and other allegations and its internal investigations, including retaining outside counsel to perform a baseline review of Tyco’s policies, controls and practices with respect to compliance with the Foreign Corrupt Practices Act (“FCPA”). Tyco has continued to investigate and make periodic progress reports to these agencies regarding Tyco’s compliance efforts and Tyco’s follow-up investigations, including, as appropriate, briefings concerning additional instances of potential improper conduct identified by Tyco in the course of Tyco’s ongoing compliance activities. In February 2010, Tyco initiated discussions with the DOJ and SEC aimed at resolving these matters, including matters that pertain to subsidiaries of the Company. These discussions remain ongoing. The Company has recorded its best estimate of potential loss related to these matters. However, it is possible that this estimate may differ from the ultimate loss determined in connection with the resolution of this matter, and the Company may be required to pay material fines, consent to injunctions on future conduct, consent to the imposition of a compliance monitor or suffer other criminal or civil penalties or adverse impacts, including being subject to lawsuits brought by private litigants, each of which may have a material adverse effect on its financial position, results of operations or cash flows.

 

F-30


In addition to the matters described above, from time to time, the Company is subject to disputes, administrative proceedings and other claims arising out of the normal conduct of its business. These matters generally relate to disputes arising out of the use or installation of its products, product liability litigation, personal injury claims, commercial and contract disputes and employment related matters. On the basis of information currently available to it, management does not believe that existing proceedings and claims will have a material impact on the Company’s Combined Financial Statements. However, litigation is unpredictable, and the Company could incur judgments or enter into settlements for current or future claims that could adversely affect its financial statements.

12. RETIREMENT PLANS

The Company measures its retirement plans as of its fiscal year end. The following disclosures exclude the impact of plans which are immaterial individually and in the aggregate.

Defined Benefit Pension Plans —The Company has a number of noncontributory defined benefit retirement plans covering certain of its U.S. and non-U.S. employees, designed in accordance with legal requirements and conventional practices in the countries concerned. Net periodic pension benefit cost is based on periodic actuarial valuations which use the projected unit credit method of calculation and is charged to the Combined Statements of Operations on a systematic basis over the expected average remaining service lives of current participants. Contribution amounts are determined based on local regulations and the advice of professionally qualified actuaries in the countries concerned. The benefits under the defined benefit plans are based on various factors, such as years of service and compensation levels of participation.

The net periodic benefit cost for the Company’s material U.S. defined pension plans was nil, $1 million and nil for 2011, 2010 and 2009, respectively. The Company’s Combined Balance Sheets include U.S. defined benefit plan obligations of $8 million and $7 million and fair value of plan assets of $5 million and $5 million as of September 30, 2011 and September 24, 2010, respectively. In addition, the Company recorded a net actuarial loss of $3 million within accumulated other comprehensive income included in the Combined Statements of Parent Company Equity as of both September 30, 2011 and September 24, 2010 with respect to U.S. defined benefit plans. The net unfunded position of $3 million and $2 million is included in noncurrent liabilities in the Company’s Combined Balance Sheets as of September 30, 2011 and September 24, 2010, respectively. The Company did not make material contributions to its U.S. defined benefit plans and does not anticipate making any material required or voluntary contributions during 2012. Benefit payments with respect to U.S. defined benefit plans, including those amounts to be paid and reflecting future expected service, are not expected to be material for 2012.

The following disclosure pertains to the Company’s material non-U.S. defined benefit pension plans. The net periodic benefit cost for the Company’s material non-U.S. defined benefit pension plans for 2011, 2010 and 2009 is as follows ($ in millions):

 

     2011     2010     2009  

Service cost

   $ 3      $ 4      $ 7   

Interest cost

     13        13        13   

Expected return on plan assets

     (13     (12     (11

Amortization of net actuarial loss

     2        5        2   

Plan settlements, curtailments and special termination benefits

     (1     (4     (1
  

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 4      $ 6      $ 10   
  

 

 

   

 

 

   

 

 

 

Weighted-average assumptions used to determine net periodic pension cost during the year:

      

Discount rate

     4.9     5.4     6.1

Expected return on plan assets

     7.0     6.8     6.8

Rate of compensation increase

     3.4     4.2     4.4

During fiscal year 2010, the Company froze pension plan benefits for certain of its defined benefit arrangements in the United Kingdom, which resulted in the Company recognizing a curtailment gain of

 

F-31


approximately $3 million in selling, general and administrative expenses within the Combined Statement of Operations. For inactive plans the Company amortizes its actuarial gains and losses over the average remaining life expectancy of the pension plan participants.

The estimated net actuarial loss for non-U.S. pension benefit plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is expected to be $2 million.

The change in benefit obligations, the change in plan assets and the amount recognized on the Combined Balance Sheets for the Company’s non-U.S. defined benefit plans as of September 30, 2011 and September 24, 2010 are as follows ($ in millions):

 

     2011     2010  

Change in benefit obligations:

    

Benefit obligations as of beginning of year

   $ 259      $ 251   

Service cost

     3        4   

Interest cost

     13        13   

Plan amendments

     (1     1   

Actuarial loss / (gain)

     (5     12   

Benefits and administrative expenses paid

     (11     (10

Plan settlements, curtailments and special termination benefits

     (3     (3

Currency translation adjustments

     —          (9
  

 

 

   

 

 

 

Benefit obligations as of end of year

   $ 255      $ 259   
  

 

 

   

 

 

 

Change in plan assets:

    

Fair value of plan assets as of beginning of year

   $ 184      $ 171   

Actual return on plan assets

     4        17   

Employer contributions

     14        15   

Plan settlements, curtailments and special termination benefits

     (4     (3

Benefits and administrative expenses paid

     (11     (10

Currency translation adjustments

     (1     (6
  

 

 

   

 

 

 

Fair value of plan assets as of end of year

   $ 186      $ 184   
  

 

 

   

 

 

 

Funded status

   $ (69   $ (75
  

 

 

   

 

 

 

Net amount recognized

   $ (69   $ (75
  

 

 

   

 

 

 

 

F-32


The Company adopted the measurement date provisions of the authoritative guidance for the employers’ accounting for defined benefit pension and other postretirement plans on September 27, 2008. As a result, the Company measured its plan assets and benefit obligations on September 26, 2008 and adjusted its opening balances of parent company investment and accumulated other comprehensive income for the change in net periodic benefit cost and fair value, respectively, from the previously used measurement date of August 31, 2008. The adoption of the measurement date provisions resulted in a net decrease to parent company investment of $1 million, net of an income tax benefit of nil, and a net increase to accumulated other comprehensive income of $8 million, net of income tax expense of $3 million.

 

     2011     2010  

Amounts recognized in the Combined Balance Sheets consist of:

    

Current liabilities

   $ (2   $ (4

Non-current liabilities

     (67     (71
  

 

 

   

 

 

 

Net amount recognized

   $ (69   $ (75
  

 

 

   

 

 

 

Amounts recognized in accumulated other comprehensive income (before income taxes) consist of:

    

Prior service cost

   $ —        $ (1

Net actuarial loss

     (69     (66
  

 

 

   

 

 

 

Total loss recognized

   $ (69   $ (67
  

 

 

   

 

 

 

Weighted-average assumptions used to determine pension benefit obligations at year end:

    

Discount rate

     5.1     4.9

Rate of compensation increase

     3.0     3.4

The accumulated benefit obligation for the Company’s non-U.S. plans as of September 30, 2011 and September 24, 2010 was $250 million and $254 million, respectively.

The accumulated benefit obligation and fair value of plan assets for non-U.S. pension plans with accumulated benefit obligations in excess of plan assets were $241 million and $177 million, respectively, as of September 30, 2011 and $245 million and $175 million, respectively, as of September 24, 2010.

The aggregate benefit obligation and fair value of plan assets for non-U.S. pension plans with benefit obligations in excess of plan assets were $246 million and $177 million, respectively, as of September 30, 2011 and $250 million and $175 million, respectively, as of September 24, 2010.

In determining the expected return on plan assets, the Company considers the relative weighting of plan assets by asset class, historical performance of asset classes over long-term periods, asset class performance expectations as well as current and future economic conditions.

The Company’s investment strategy for its pension plans is to manage the plans on a going-concern basis. Current investment policy is to maintain an adequate level of diversification while maximizing the return on assets, subject to a prudent level of portfolio risk, for the purpose of enhancing the security of benefits for participants as well as providing adequate liquidity to meet immediate and future benefit payment requirements. In addition, local regulations and local financial considerations are factors in determining the appropriate investment strategy in each country. Various asset allocation strategies are in place for non-U.S. pension plans, with a weighted-average target allocation of 50% to equity securities, 47% to debt securities and 3% to other asset classes, including real estate and cash equivalents.

 

F-33


Non-U.S. pension plans had the following weighted-average asset allocations:

 

     2011     2010  

Asset Category:

    

Equity securities

     51     57

Debt securities

     43     37

Cash and cash equivalents

     6     6
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

Tyco’s common shares are not a direct investment of the Company’s pension funds, but may be held through investment funds. The aggregate amount of such securities would not be considered material relative to the total fund assets.

The Company evaluates its defined benefit plans’ asset portfolios for the existence of significant concentrations of risk. Types of investment concentration risks that are evaluated include, but are not limited to, concentrations in a single entity, industry, country and individual fund manager. As of September 30, 2011, there were no significant concentrations of risk in the Company’s defined benefit plan assets.

The Company’s plan assets are accounted for at fair value. Authoritative guidance for fair value measurements establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, the level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value of assets and their placement within the fair value hierarchy levels. The three levels of the fair value hierarchy are summarized as follows:

 

   

Level 1—inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities which are accessible as of the measurement date.

 

   

Level 2—inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and model-derived valuations for the asset or liability that are derived principally from or corroborated by market data for which the primary inputs are observable, including forward interest rates, yield curves, credit risk and exchange rates.

 

   

Level 3—inputs for the valuations are unobservable and are based on management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques such as option pricing models and discounted cash flow models.

The Company’s asset allocations by level within the fair value hierarchy as of September 30, 2011 and September 24, 2010 are presented in the table below for the Company’s material non-U.S. defined benefit plans.

 

     September 30, 2011  

($ in millions)

   Level 1      Level 2      Total  

Equity securities:

        

U.S. equity securities

   $ 16       $ 27       $ 43   

Non-U.S. equity securities

     11         37         48   

Fixed income securities:

        

Government and government agency securities

     5         34         39   

Corporate debt securities

     —           46         46   

Mortgage and other asset-backed securities

     —           7         7   

Cash and cash equivalents

     3         —           3   
  

 

 

    

 

 

    

 

 

 

Total

   $ 35       $ 151       $ 186   
  

 

 

    

 

 

    

 

 

 

 

F-34


     September 24, 2010  

($ in millions)

   Level 1      Level 2      Total  

Equity securities:

        

U.S. equity securities

   $ 24       $ 21       $ 45   

Non-U.S. equity securities

     16         39         55   

Fixed income securities:

        

Government and government agency securities

     3         30         33   

Corporate debt securities

     —           35         35   

Mortgage and other asset-backed securities

     —           11         11   

Cash and cash equivalents

     5         —           5   
  

 

 

    

 

 

    

 

 

 

Total

   $ 48       $ 136       $ 184   
  

 

 

    

 

 

    

 

 

 

Equity securities consist primarily of publicly traded U.S. and non-U.S. equities. Publicly traded securities are valued at the last trade or closing price reported in the active market in which the individual securities are traded. Certain equity securities are held within commingled funds which are valued at the unitized net asset value (“NAV”) or percentage of the net asset value as determined by the custodian of the fund. These values are based on the fair value of the underlying net assets owned by the fund.

Fixed income securities consist primarily of government and agency securities, corporate debt securities and mortgage and other asset-backed securities. When available, fixed income securities are valued at the closing price reported in the active market in which the individual security is traded. Government and agency securities and corporate debt securities are valued using the most recent bid prices or occasionally the mean of the latest bid and ask prices when markets are less liquid. Asset-backed securities including mortgage backed securities are valued using broker/dealer quotes when available. When quotes are not available, fair value is determined utilizing a discounted cash flow approach, which incorporates other observable inputs such as cash flows, underlying security structure and market information including interest rates and bid evaluations of comparable securities. Certain fixed income securities are held within commingled funds which are valued unitizing NAV determined by the custodian of the fund. These values are based on the fair value of the underlying net assets owned by the fund.

Cash and cash equivalents consist primarily of short-term commercial paper, bonds and other cash or cash-like instruments including settlement proceeds due from brokers, stated at cost, which approximates fair value.

The following tables set forth a summary of non-U.S. pension plan assets valued using NAV or its equivalent as of September 30, 2011 and September 24, 2010 ($ in millions):

 

     September 30, 2011

Investment ($ in millions)

   Fair
Value
     Redemption
Frequency
   Redemption
Notice

Period

U.S. equity securities

   $ 18       Daily    1 day

Non-U.S. equity securities

     8       Daily, Semi-monthly    1 day, 5 days

Government and government agency securities

     15       Daily    1 day

Corporate debt securities

     15       Daily    1 day, 2 days,
3 days

Mortgage and other asset-backed securities

     3       Daily    1 day, 3 days
  

 

 

       
   $ 59         
  

 

 

       

 

F-35


     September 24, 2010

Investment ($ in millions)

   Fair
Value
    Redemption
Frequency
   Redemption
Notice

Period

U.S. equity securities

   $ 13      Daily    1 day

Non-U.S. equity securities

     10      Semi-monthly, Monthly    5 days, 15 days

Government and government agency securities

     12      Daily    1 day

Corporate debt securities

     14      Daily    1 day, 2 days

Mortgage and other asset-backed securities

     4      Daily    1 day
  

 

 

      
   $ 53        
  

 

 

      

The strategy of the Company’s investment managers with regard to the investments valued using NAV or its equivalent is to either match or exceed relevant benchmarks associated with the respective asset category. None of the investments valued using NAV or its equivalent contain any redemption restrictions or unfunded commitments.

During 2011, the Company contributed $14 million to its non-U.S. pension plans, which represented the Company’s minimum required contributions to its pension plans for fiscal year 2011.

The Company’s funding policy is to make contributions in accordance with the laws and customs of the various countries in which it operates and to make discretionary voluntary contributions from time-to-time. The Company anticipates that it will contribute at least the minimum required to its pension plans in 2012 of $15 million for non-U.S. plans.

Benefit payments for the Company’s non-U.S. plans, including those amounts to be paid and reflecting future expected service as appropriate, are expected to be paid as follows ($ in millions):

 

2012

   $  10   

2013

     12   

2014

     13   

2015

     13   

2016

     12   

2017 - 2021

     72   

The Company also participates in a number of multi-employer defined benefit plans on behalf of certain employees. Pension expense related to multi-employer plans was not material for 2011, 2010 and 2009.

Defined Contribution Retirement Plans —The Company maintains through Tyco several defined contribution retirement plans, which include 401(k) matching programs, as well as qualified and nonqualified profit sharing and share bonus retirement plans. Expense for the defined contribution plans is computed as a percentage of participants’ compensation and was $7 million for 2011, 2010 and 2009. The Company also maintains through Tyco an unfunded Supplemental Executive Retirement Plan (“SERP”). This plan is nonqualified and restores the employer match that certain employees lose due to IRS limits on eligible compensation under the defined contribution plans. The expense related to the SERP was not material for 2011, 2010 and 2009.

Deferred Compensation Plans–– The Company has nonqualified deferred compensation plans maintained by Tyco, which permit eligible employees to defer a portion of their compensation. A record keeping account is set up for each participant and the participant chooses from a variety of measurement funds for the deemed investments of their accounts. The measurement funds correspond to a number of funds in the company’s 401(k)

 

F-36


plans and the account balance fluctuates with the investment on those funds. Deferred compensation liabilities were $20 million as of both September 30, 2011 and September 24, 2010. Deferred compensation expense was not material for 2011, 2010 and 2009.

Postretirement Benefit Plans —The Company generally does not provide postretirement benefits other than pensions for its employees. However, certain acquired operations provide these benefits to employees who were eligible at the date of acquisition, and a small number of U.S. operations provide ongoing eligibility for such benefits. Net periodic postretirement benefit cost was not material for 2011, 2010 and 2009. The Company’s Combined Balance Sheets include postretirement benefit obligations of $16 million and $18 million as of September 30, 2011 and September 24, 2010, respectively. In addition, the Company recorded a net actuarial gain of $5 million within accumulated other comprehensive income included in the Combined Statements of Parent Company Equity as of both September 30, 2011 and September 24, 2010.

The Company does not expect to make any material contributions to its postretirement benefit plans in 2012. Benefit payments, including those amounts to be paid and reflecting future expected service are not expected to be material for fiscal year 2012 and thereafter.

13. SHARE PLANS

As of September 24, 2011, all stock options, restricted stock units, performance share units and other stock-based awards (collectively “awards”) held by the Company employees were granted under the Tyco 2004 Stock and Incentive Plan (the “2004 Plan”) or other Tyco equity incentive plans. The 2004 plan is administered by the Compensation and Human Resources Committee of the Board of Directors of Tyco, which consists exclusively of independent directors and provides for the awards.

Total share-based compensation cost recognized during 2011, 2010 and 2009 was $12 million, $12 million and $11 million, respectively, all of which is included in selling, general and administrative expenses in the Combined Statements of Operations. The Company has recognized a related tax benefit of $3 million associated with its share-based compensation arrangements for the years ended 2011, 2010 and 2009.

The grant-date fair value of each option grant is estimated using the Black-Scholes option pricing model. The fair value is amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of Tyco International’s stock and measures for a set of peer companies of Tyco. The average expected life is based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. The expected annual dividend per share was based on Tyco International’s expected dividend rate. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The compensation expense recognized is net of estimated forfeitures. Forfeitures are estimated based on voluntary termination behavior, as well as an analysis of actual share option forfeitures.

The weighted-average assumptions Tyco International used in the Black-Scholes option pricing model for 2011, 2010 and 2009 are as follows:

 

     2011     2010     2009  

Expected stock price volatility

     33     34     32

Risk free interest rate

     1.23     2.38     2.62

Expected annual dividend per share

   $ 0.84      $ 0.80      $ 0.80   

Expected life of options (years)

     5.1        5.2        5.0   

The weighted-average grant-date fair values of options granted during 2011, 2010 and 2009 was $9.07, $9.03 and $7.00, respectively. The total intrinsic value of options exercised during 2011, 2010 and 2009 was

 

F-37


$4 million, $2 million and nil, respectively. The related excess cash tax benefit classified as a financing cash inflow for 2011, 2010 and 2009 was not material.

Share option activity for the Company’s employees as of September 30, 2011, and changes during the year then ended is presented below:

 

     Shares     Weighted-
Average
Exercise Price
     Weighted-
Average
Remaining
Contractual
Term (in years)
     Aggregate
Intrinsic
Value ($ in
millions)
 

Outstanding as of September 24, 2010

     3,333,914      $ 44.64         

Granted

     399,840        37.38         

Exercised

     (428,255     35.01         

Expired

     (631,899     65.33         

Forfeited

     (84,097     34.10         

Net transfers (1)

     (142,356     42.18         
  

 

 

         

Outstanding as of September 30, 2011

     2,447,147        40.23         5.3       $ 11   

Vested and unvested expected to vest as of September 30, 2011

     2,373,171        40.38         5.2         11   

Exercisable as of September 30, 2011

     1,610,677        43.13         3.7         6  

 

(1)  

Net transfers of shares relate to the share options associated with employees transferring between the Company and another Tyco entity while maintaining their Tyco share options.

As of September 30, 2011, there was $4 million of total unrecognized compensation cost related to non-vested options granted. The cost is expected to be recognized over a weighted-average period of 2.3 fiscal years.

Employee Stock Purchase Plans — Tyco’s Employee Stock Purchase Plan (“ESPP”) was suspended indefinitely during the quarter ended September 25, 2009. Prior to that date, substantially all full-time employees of Tyco’s U.S. subsidiaries and employees of certain qualified non-U.S. subsidiaries were eligible to participate in the ESPP. Eligible employees authorized payroll deductions to be made for the purchase of shares. Tyco matched a portion of the employee contribution by contributing an additional 15% of the employee’s payroll deduction. All shares purchased under the plan were purchased on the open market by a designated broker.

Under Tyco’s “Save as You Earn” (“SAYE”) Plan, eligible employees in the United Kingdom were granted options to purchase shares at the end of three years of service at 85% of the market price at the time of grant. Options under the SAYE Plan are generally exercisable after a period of three years and expire six months after the date of vesting. The SAYE Plan provided for a maximum of 10 million common shares to be issued. All of the shares purchased under the SAYE Plan were purchased on the open market. The SAYE Plan was approved on November 3, 1999 for a ten year period and expired according to its terms on November 3, 2009. The International Benefits Oversight Committee of Tyco has not approved any additional grants since the last annual grant on October 9, 2008 and it has not applied for approval of a replacement for the SAYE Plan at this time.

Share option activity under Tyco’s U.K. SAYE plan for the Company’s employees as of September 30, 2011, and changes during the year then ended is presented below:

 

     Shares     Weighted-  Average
Exercise

Price
     Weighted-
Average
Remaining
Contractual
Term (in years)
     Aggregate
Intrinsic
Value ($ in
millions)
 

Outstanding as of September 24, 2010

     22,277      $ 36.07         

Exercised

     (12,391     37.21         

Expired

     (1,030     36.16         

Forfeited

     (757     34.89         
  

 

 

         

Outstanding as of September 30, 2011

     8,099        34.41         0.5         ––     

Vested and unvested expected to vest as of September 30, 2011

     8,022        34.41         0.5         ––     

 

F-38


The grant-date-fair value of each option grant under the SAYE plan is estimated using the Black-Scholes option pricing model. Assumptions for expected volatility, the average expected life, the risk-free rate, as well as the expected annual dividend per share were made using the same methodology as previously described under Share Options .

The weighted-average grant-date fair values of options granted under the SAYE Plan during 2009 were $3.47. There were no options granted under the SAYE Plan during 2011 and 2010. The total intrinsic value of options exercised during 2011, 2010 and 2009 were not material. The related excess cash tax benefit classified as a financing cash inflow for 2011, 2010 and 2009 was not material. As of September 30, 2011, total unrecognized compensation cost related to non-vested options granted under the SAYE Plan was not material. The remaining cost is expected to be recognized in the first quarter of fiscal year 2012.

Restricted Stock Units and Performance Share Units —Restricted stock units are granted subject to certain restrictions. Conditions of vesting are determined at the time of grant under the 2004 Plan. Restrictions on the award generally lapse upon normal retirement, if more than twelve months from the grant date, and death or disability of the employee.

The fair market value of restricted units, both time vesting and those subject to specific performance criteria, are expensed over the period of vesting. Restricted share units that vest based upon passage of time generally vest over a period of four years. The fair value of restricted share units is determined based on the closing market price of Tyco’s shares on the grant date. Restricted share units that vest dependent upon attainment of various levels of performance that equal or exceed targeted levels generally vest in their entirety three years from the grant date. The fair value of performance share units is determined based on the Monte Carlo valuation model. The compensation expense recognized for restricted share units is net of estimated forfeitures.

Recipients of restricted stock units have no voting rights and receive dividend equivalent units (“DEUs”). Recipients of performance share units have no voting rights and may receive DEUs depending on the terms of the grant.

Share option activity of Tyco’s restricted stock units and performance share units for the Company’s employees as of September 30, 2011 and changes during the year then ended is presented in the tables below:

 

Non-vested Restricted Share Units

   Shares     Weighted-average
Grant-Date

Fair Value

Non-vested as of September 24, 2010

     540,198     $35.42

Granted

     241,808      37.39

Vested

     (217,618   39.09

Forfeited

     (56,144   34.89

Net transfers (1)

     (25,555   36.02
  

 

 

   

Non-vested as of September 30, 2011

     482,689      34.82
  

 

 

   

 

(1)  

Net transfers of shares relate to the above restricted share awards associated with employees transferring between the Company and another Tyco entity while maintaining their Tyco share awards.

 

F-39


The weighted-average grant-date fair value of restricted stock units granted during 2011, 2010 and 2009 was $37.39, $34.08 and $29.02, respectively. The total fair value of restricted stock units vested during 2011, 2010 and 2009 was $8 million, $7 million and $9 million, respectively.

 

Non-vested Performance Share Units

   Shares     Weighted-average
Grant-Date

Fair Value
 

Non-vested as of September 24, 2010

     173,440     $ 34.17   

Granted

     59,040       41.95  

Forfeited

     (19,074     35.15  

Net transfers (1)

     (27,584     37.58   
  

 

 

   

Non-vested as of September 30, 2011

     185,822       35.99  
  

 

 

   

 

(1)  

Net transfers of shares relate to the above performance share units associated with employees transferring between the Company and another Tyco entity while maintaining their Tyco share awards.

The weighted-average grant-date fair value of performance share units granted during 2011, 2010 and 2009 was $41.95, $41.76 and $27.84, respectively. No performance share units vested during fiscal year 2011, 2010 or 2009.

As of September 30, 2011, there was $11 million of total unrecognized compensation cost related to both non-vested restricted stock units and performance shares. The cost is expected to be recognized over a weighted-average period of 2.2 fiscal years.

Impact of the Spin-Off – Prior to the Distribution, the Company’s Board of Directors is expected to adopt, with the approval of Tyco as its sole shareholder, the establishment of stock incentive plans providing for future awards to the Company employees.

Prior to Distribution, performance share units will convert into restricted stock units based on performance achieved on or about the closing date. Following the Distribution, all equity awards (other than restricted stock units granted prior to October 12, 2011) held by the Company’s active employees will convert into like-kind equity awards of the Company. With respect to restricted stock units granted prior to October 12, 2011, such awards will convert into like-kind equity awards of the three separately traded companies resulting from the Spin-Off. All equity awards held by former employees of the Company will convert into equity awards of the three separately traded companies resulting from Spin-Off. All equity awards will be converted at equivalent value determined using the intrinsic value method. The original vesting provisions will remain in effect for all equity awards.

 

F-40


14. ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income are as follows ($ in millions):

 

     Currency
Translation
Adjustments (1)
    Retirement Plans     Accumulated Other
Comprehensive
Income (Loss)
 

Balance as of September 26, 2008

   $ 704      $ (56   $ 648   

Cumulative effect of adopting a new accounting principle (see Note 12)

     —          11        11   

Pre-tax current period change

     (5     (11     (16

Divestiture of businesses

     21        —          21   

Income tax expense

     —          (4     (4
  

 

 

   

 

 

   

 

 

 

Balance as of September 25, 2009

     720        (60     660   

Pre-tax current period change

     (64     (6     (70

Divestiture of businesses

     (4     —          (4

Income tax benefit

     —          1        1   
  

 

 

   

 

 

   

 

 

 

Balance as of September 24, 2010

     652        (65     587   

Pre-tax current period change

     35        (2     33   

Divestiture of businesses

     (131     —          (131
  

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2011

   $ 556      $ (67   $ 489   
  

 

 

   

 

 

   

 

 

 

 

(1)  

During the years ended September 30, 2011, September 24, 2010 and September 25, 2009, $131 million of cumulative translation gain, $4 million of cumulative translation gain and $21 million of cumulative translation loss, respectively, were transferred from currency translation adjustments as a result of the sale of non-U.S. entities. Of these amounts, $126 million, $4 million and $21 million, respectively, are included in income from discontinued operations, net of income taxes in the Combined Statements of Operations.

Other

The Company had $1.2 billion of intercompany loans designated as permanent in nature as of September 30, 2011 and September 24, 2010, respectively. For the years ended September 30, 2011, September 24, 2010 and September 25, 2009, the Company recorded $18 million and $3 million of cumulative translation gain, and $5 million of cumulative translation loss, respectively, through accumulated other comprehensive income related to these loans.

15. REDEEMABLE NONCONTROLLING INTEREST

As described in Note 4 (“Acquisitions”), on June 29, 2011, the Company acquired a 75% ownership interest in KEF within the Company’s Valves & Controls segment. The remaining 25% interest is held by a noncontrolling interest stakeholder. In connection with the acquisition of KEF, the Company and the noncontrolling interest stakeholder have a call and put arrangement, respectively, for the Company to acquire the remaining 25% ownership interest at a price equal to the greater of $100 million or a multiple of KEF’s average EBITDA for the prior twelve consecutive fiscal quarters. The arrangement becomes exercisable beginning the first full fiscal quarter following the third anniversary of the KEF closing date of June 29, 2011. Noncontrolling interests with redemption features, such as the arrangement described above, that are not solely within the Company’s control are considered redeemable noncontrolling interests. The Company accretes changes in the redemption value through noncontrolling interest in subsidiaries net income attributable to the noncontrolling interest over the period from the date of issuance to the earliest redemption date. Redeemable noncontrolling interest is considered to be temporary equity and is therefore reported in the mezzanine section between liabilities and equity on the Company’s Combined Balance Sheet at the greater of the initial carrying amount increased or decreased for the noncontrolling interest’s share of net income or loss or its redemption value.

 

F-41


The rollforward of redeemable noncontrolling interest as of September 30, 2011 is as follows:

 

         2011      

Balance as of September 24, 2010

     $—     

Acquisition of redeemable noncontrolling interest as of June 29, 2011

     92   

Net loss

     (2

Adjustments to redemption value

     3   
  

 

 

 

Balance as of September 30, 2011

     $93   
  

 

 

 

During the years ended September 24, 2010 and September 25, 2009, the Company did not have redeemable noncontrolling interest.

16. COMBINED SEGMENT DATA

Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company, from time to time, may realign businesses and management responsibility within its operating segments based on considerations such as opportunity for market or operating synergies and/or to more fully leverage existing capabilities and enhance development for future products and services. Selected information by segment is presented in the following tables ($ in millions):

 

     2011      2010      2009  

Net revenue (1)

        

Valves & Controls

   $ 2,215       $ 1,990       $ 2,279   

Thermal Controls

     734         603         576   

Water & Environmental Systems

     699         788         637   
  

 

 

    

 

 

    

 

 

 

Total

   $ 3,648       $ 3,381       $ 3,492   
  

 

 

    

 

 

    

 

 

 

 

(1)  

Revenue by operating segment excludes intercompany transactions. No single customer represents more than 10% of net revenue.

 

     2011     2010     2009  

Operating income (loss):

      

Valves & Controls

   $ 277      $ 248      $ 372   

Thermal Controls

     107        74        79   

Water & Environmental Systems (1)

     16        100        87   

Corporate

     (94     (91     (87
  

 

 

   

 

 

   

 

 

 

Total

   $ 306      $ 331      $ 451   
  

 

 

   

 

 

   

 

 

 

 

(1)  

Operating income includes a goodwill impairment charge of $35 million for the year ended September 30, 2011.

 

F-42


Depreciation and amortization and capital expenditures by segment for the years ended September 30, 2011, September 24, 2010 and September 25, 2009 are as follows ($ in millions):

 

     2011      2010      2009  

Depreciation and amortization:

        

Valves & Controls

   $ 41       $ 40       $ 38   

Thermal Controls

     10         10         9   

Water & Environmental Systems

     18         16         14   

Corporate

     3         1         2   
  

 

 

    

 

 

    

 

 

 

Total

   $ 72       $ 67       $ 63   
  

 

 

    

 

 

    

 

 

 

 

     2011      2010      2009  

Capital expenditures, net:

        

Valves & Controls

   $ 40       $ 58       $ 62   

Thermal Controls

     7         16         13   

Water & Environmental Systems

     12         13         12   

Corporate

     20         4         9   
  

 

 

    

 

 

    

 

 

 

Total

   $ 79       $ 91       $ 96   
  

 

 

    

 

 

    

 

 

 

Total assets by segment as of September 30, 2011, September 24, 2010 and September 25, 2009 are as follows ($ in millions):

 

     2011      2010      2009  

Total Assets:

        

Valves & Controls

   $ 3,376       $ 2,609       $ 2,730   

Thermal Controls

     664         587         602   

Water & Environmental Systems

     789         889         955   

Corporate

     315         275         296   

Assets held for sale

     —           322         263   
  

 

 

    

 

 

    

 

 

 
   $ 5,144       $ 4,682       $ 4,846   
  

 

 

    

 

 

    

 

 

 

Net revenue by geographic area for the years ended September 30, 2011, September 24, 2010 and September 25, 2009 is as follows ($ in millions):

 

     2011      2010      2009  

Net Revenue (1) :

        

Asia-Pacific

   $ 1,377       $ 1,380       $ 1,302   

Europe, Middle East and Africa

     1,136         1,008         1,175   

United States

     780         706         774   

Other Americas

     355         287         241   
  

 

 

    

 

 

    

 

 

 
   $ 3,648       $ 3,381       $ 3,492   
  

 

 

    

 

 

    

 

 

 

 

(1)  

Revenue is attributed to individual countries based on the reporting entity that records the transaction.

 

F-43


Long-lived assets by geographic area as of September 30, 2011, September 24, 2010 and September 25, 2009 are as follows ($ in millions):

 

     2011      2010      2009  

Long-lived assets (1) :

        

Asia-Pacific

   $ 329       $ 286       $ 266   

Europe, Middle East and Africa

     258         169         179   

United States

     102         138         110   

Other Americas

     29         30         23   

Corporate

     30         13         10   
  

 

 

    

 

 

    

 

 

 
   $ 748       $ 636       $ 588   
  

 

 

    

 

 

    

 

 

 

 

(1)  

Long-lived assets are comprised primarily of property, plant and equipment and exclude goodwill, other intangible assets, deferred taxes and other shared assets.

17. SUPPLEMENTAL COMBINED BALANCE SHEET INFORMATION

Selected supplemental Combined Balance Sheet information as of September 30, 2011 and September 24, 2010 is as follows ($ in millions):

 

     2011      2010  

Deferred income tax asset

   $ 92       $ 84   

Other

     312         217   
  

 

 

    

 

 

 

Other assets

   $ 404       $ 301   
  

 

 

    

 

 

 

Accrued payroll and payroll related costs

   $ 169       $ 170   

Customer advances

     89         80   

Deferred income tax liability

     26         5   

Income taxes payable

     11         10   

Other

     237         194   
  

 

 

    

 

 

 

Accrued and other current liabilities

   $ 532       $ 459   
  

 

 

    

 

 

 

Long-term pension and postretirement liabilities

   $ 90       $ 95   

Deferred income tax liability

     68         43   

Income taxes payable

     24         20   

Other

     206         243   
  

 

 

    

 

 

 

Other liabilities

   $ 388       $ 401   
  

 

 

    

 

 

 

18. INVENTORY

Inventories consisted of the following ($ in millions):

 

     September 30,
2011
   September 24,
2010

Purchased materials and manufactured parts

   $347    $283

Work in process

   130    92

Finished goods

   295    269
  

 

  

 

Inventories

   $772    $644
  

 

  

 

Inventories are recorded at the lower of cost (primarily first-in, first-out) or market value.

 

F-44


19. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following ($ in millions):

 

     September 30,
2011
    September 24,
2010
 

Land

   $ 97      $ 88   

Buildings and leasehold improvements

     346        271   

Machinery and equipment

     860        793   

Property under capital leases (1)

     2        2   

Construction in progress

     41        54   

Accumulated depreciation (2)

     (739     (709
  

 

 

   

 

 

 

Property, plant and equipment, net

   $ 607      $ 499   
  

 

 

   

 

 

 

 

(1)  

Property under capital leases consists primarily of buildings.

(2)  

Accumulated amortization of capital lease assets was $1 million and nil as of September 30, 2011 and September 24, 2010, respectively.

20. SUBSEQUENT EVENT

The Company has evaluated subsequent events through the time it issued its financial statements on June 19, 2012.

Consistent with its annual equity compensation practices, on October 12, 2011, Tyco granted the Company’s employees 0.3 million share options with a weighted-average grant-date fair value of $12.40 per share at the date of grant. Additionally, Tyco granted 0.2 million and 0.1 million restricted stock units and performance share units with a fair value of $44.32 and $49.42 per share on the date of grant, respectively.

On March 28, 2012, the Company announced that it entered into a definitive agreement to combine its flow control business with Pentair in a tax-free, all-stock merger (“the Merger”), immediately following the spin off of the flow control business. Upon completion of the Merger, which has been unanimously approved by the Boards of both companies, Tyco shareholders are expected to own approximately 52.5% of the common shares of the combined company and Pentair shareholders are expected to own approximately 47.5%. Completion of the separation transactions, including the Merger, is subject to the approval of the distributions by Tyco shareholders, the approval of the Merger by Pentair shareholders, regulatory approvals and customary closing conditions.

 

F-45


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

($ in millions)

 

Description

   Balance at
Beginning of
Year
     Additions
Charged to
Income/
(Reversals)
    Divestitures
and Other
     Deductions     Balance at
End of Year
 

Accounts Receivable:

            

Year Ended September 25, 2009

   $ 29       $ 9      $ 1       $ (6   $ 33   

Year Ended September 24, 2010

     33         5        —           (3     35   

Year Ended September 30, 2011

     35         (1     1         (12     23   

 

F-46


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

COMBINED STATEMENTS OF OPERATIONS

For the Nine Months Ended June 29, 2012

and June 24, 2011

(Unaudited)

 

     June 29,
2012
    June 24,
2011
 
     ($ in millions)  

Net revenue

   $ 2,907      $ 2,564   

Cost of revenue

     1,963        1,721   
  

 

 

   

 

 

 

Gross profit

     944        843   

Selling, general and administrative expenses

     646        595   

Goodwill impairment

     —          35   

Restructuring, asset impairments and divestiture charges, net (see Note 3)

     19        9   
  

 

 

   

 

 

 

Operating income

     279        204   

Interest income

     9        9   

Interest expense

     (38     (36
  

 

 

   

 

 

 

Income from continuing operations before income taxes

     250        177   

Income tax expense

     (97     (79
  

 

 

   

 

 

 

Income from continuing operations

     153        98   

Income from discontinued operations, net of income taxes

     —          168   
  

 

 

   

 

 

 

Net income

     153        266   

Less: noncontrolling interest in subsidiaries net income

     2        —     
  

 

 

   

 

 

 

Net income attributable to Parent Company Equity

   $ 151      $ 266   
  

 

 

   

 

 

 

Amounts attributable to Parent Company Equity :

    

Income from continuing operations

   $ 151      $ 98   

Income from discontinued operations

     —          168   
  

 

 

   

 

 

 

Net income attributable to Parent Company Equity

   $ 151      $ 266   
  

 

 

   

 

 

 

 

See Notes to Unaudited Combined Financial Statements

 

F-47


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

COMBINED BALANCE SHEETS

As of June 29, 2012 and September 30, 2011

(Unaudited)

 

     June 29,      September 30,  
     2012      2011  
     ($ in millions)  

Assets

  

Current Assets:

     

Cash and cash equivalents

   $ 224       $ 122   

Accounts receivable trade, less allowance for doubtful accounts of $22 and $23, respectively

     692         716   

Inventories

     864         772   

Prepaid expenses and other current assets

     182         180   

Deferred income taxes

     79         79   
  

 

 

    

 

 

 

Total current assets

     2,041         1,869   

Property, plant and equipment, net

     622         607   

Goodwill

     2,089         2,137   

Intangible assets, net

     114         127   

Other assets

     385         404   
  

 

 

    

 

 

 

Total Assets

   $ 5,251       $ 5,144   
  

 

 

    

 

 

 

Liabilities and Parent Company Equity

     

Current Liabilities:

     

Current maturities of long-term debt, including allocated debt of nil and nil, respectively (see Note 7)

   $ —         $ —     

Accounts payable

     361         336   

Accrued and other current liabilities

     519         532   
  

 

 

    

 

 

 

Total current liabilities

     880         868   

Long-term debt, including allocated debt of $886 and $859, respectively (see
Note 7)

     901         876   

Other liabilities

     441         388   
  

 

 

    

 

 

 

Total Liabilities

     2,222         2,132   
  

 

 

    

 

 

 

Commitments and contingencies (see Note 10)

     

Redeemable noncontrolling interest (see Note 12)

     95         93   
  

 

 

    

 

 

 

Parent Company Equity:

     

Parent company investment

     2,584         2,430   

Accumulated other comprehensive income

     350         489   
  

 

 

    

 

 

 

Total Parent Company Equity

     2,934         2,919   
  

 

 

    

 

 

 

Total Liabilities, Redeemable Noncontrolling Interest and Parent Company Equity

   $ 5,251       $ 5,144   
  

 

 

    

 

 

 

See Notes to Unaudited Combined Financial Statements

 

F-48


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

COMBINED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 29, 2012 and June 24, 2011

(Unaudited)

 

     For the Nine Months Ended  
         June 29,    
2012
        June 24,    
2011
 
     ($ in millions)  

Cash Flows From Operating Activities:

    

Net income attributable to Parent Company Equity

   $ 151      $ 266   

Noncontrolling interest in subsidiaries net income

     2        —     

Income from discontinued operations, net of income taxes

     —          (168
  

 

 

   

 

 

 

Income from continuing operations

     153        98   

Adjustments to reconcile net cash provided by (used in) operating activities:

    

Depreciation and amortization

     62        50   

Goodwill impairment

     —          35   

Deferred income taxes

     97        79   

Provision for losses on accounts receivable and inventory

     8        1   

Other non-cash items

     14        9   

Changes in assets and liabilities, net of the effects of acquisitions and divestitures:

    

Accounts receivable

     —          (37

Inventories

     (141     (103

Prepaid expenses and other current assets

     (1     (19

Accounts payable

     42        35   

Accrued and other liabilities

     (14     (23

Income taxes payable

     (28     (44

Deferred revenue

     2        7   

Other

     (25     (17
  

 

 

   

 

 

 

Net cash provided by operating activities

     169        71   
  

 

 

   

 

 

 

Net cash used in discontinued operating activities

     —          (11
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Capital expenditures

     (86     (52

Proceeds from sale of fixed assets

     5        3   

Acquisition of businesses, net of cash acquired

     —          (7

Other

     3        4   
  

 

 

   

 

 

 

Net cash used in investing activities

     (78     (52
  

 

 

   

 

 

 

Net cash provided by discontinued investing activities

     —          259   
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Repayments of long-term debt

     (1     2   

Allocated debt activity

     27        26   

Change in due to (from) Tyco and affiliates

     (2     (70

Change in parent company investment

     (10     (261

Transfers from discontinued operations

     —          248   
  

 

 

   

 

 

 

Net cash used in financing activities

     14        (55
  

 

 

   

 

 

 

Net cash used in discontinued financing activities

       (248
  

 

 

   

 

 

 

Effect of currency translation on cash

     (3     7   

Net increase (decrease) in cash and cash equivalents

     102        (29

Cash and cash equivalents at beginning of year

     122        146   
  

 

 

   

 

 

 

Cash and cash equivalents at end of year

   $ 224      $ 117   
  

 

 

   

 

 

 

See Notes to Unaudited Combined Financial Statements

 

F-49


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

COMBINED STATEMENTS OF PARENT COMPANY EQUITY

For the Nine Months Ended June 29, 2012 and June 24, 2011

(Unaudited)

 

     Parent
Company
Investment
    Accumulated
Other
Comprehensive
Income
    Total Parent
Company
Equity
 
     ($ in millions)  

Balance as of September 24, 2010

   $ 2,050      $ 587      $ 2,637   

Comprehensive income:

      

Net income attributable to Parent Company Equity

     266          266   

Currency translation

       87        87   

Retirement plans

       1        1   
      

 

 

 

Total comprehensive income

         354   

Net transfers to Parent

     (277       (277
  

 

 

   

 

 

   

 

 

 

Balance as of June 24, 2011

   $ 2,039      $ 675      $ 2,714   
  

 

 

   

 

 

   

 

 

 
     Parent
Company
Investment
    Accumulated
Other
Comprehensive
Income (Loss)
    Total Parent
Company
Equity
 
     ($ in millions)  

Balance as of September 30, 2011

   $ 2,430      $ 489      $ 2,919   

Comprehensive income:

      

Net income attributable to Parent Company Equity

     151          151   

Currency translation

       (140     (140

Retirement plans

       1        1   
      

 

 

 

Total comprehensive income

         12   

Net transfers from Parent

     3          3   
  

 

 

   

 

 

   

 

 

 

Balance as of June 29, 2012

   $ 2,584      $ 350      $ 2,934   
  

 

 

   

 

 

   

 

 

 

See Notes to Unaudited Combined Financial Statements

 

F-50


TYCO FLOW CONTROL INTERNATIONAL LTD. AND THE FLOW CONTROL

BUSINESS OF TYCO INTERNATIONAL LTD.

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Spin-Off/ Merger —On September 19, 2011, Tyco International Ltd. announced that its Board of Directors approved a plan to separate Tyco International Ltd. (“Tyco” or “Parent”) into three separate, publicly traded companies (the “Spin-Off”), identifying Tyco Flow Control International Ltd. and the Flow Control Business of Tyco International (the “Company” or “Flow Control”), as one of those three companies. On March 28, 2012, Tyco announced that it entered into a definitive agreement to combine the Company with Pentair, Inc. (“Pentair”) in a tax-free, all-stock merger (“the Merger”), immediately following the spin-off of the flow control business. Upon completion of the Merger, which has been unanimously approved by the Boards of both companies, Tyco shareholders are expected to own approximately 52.5% of the combined company and Pentair shareholders are expected to own approximately 47.5%.

Completion of the separation transactions, including the Merger, is subject to the approval of the distributions by Tyco shareholders, the approval of the Merger by Pentair shareholders, regulatory approvals and customary closing conditions. The distributions, the merger and related transactions are collectively referred to herein as the “2012 Separation”. The Spin-Off is expected to be completed by the end of the third calendar quarter of 2012 through a tax-free pro rata distribution of all of the equity interest in the flow control business. Upon completion of the Spin-Off, Tyco Flow Control International Ltd. will become the publicly traded company holding all of the Flow Control and Pentair assets.

Basis of Presentation —The Combined Financial Statements include the operations, assets and liabilities of Tyco Flow Control International Ltd., the entity that will be used to effect the separation from Tyco. The Combined Financial Statements also include the combined operations, assets and liabilities of the Flow Control Business of Tyco which are comprised of the legal entities that will be owned by Tyco Flow Control International Ltd. at the time of the Spin-Off. The Combined Financial Statements have been prepared in United States dollars (“USD”), in accordance with generally accepted accounting principles in the United States (“GAAP”). The Combined Financial Statements included herein are unaudited, but in the opinion of management, such financial statements include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods. The results reported in these Combined Financial Statements should not be taken as indicative of results that may be expected for the entire year. These financial statements should be read in conjunction with the Company’s audited Combined Financial Statements included elsewhere in this registration statement.

Additionally, the Combined Financial Statements do not necessarily reflect what the Company’s combined results of operations, financial position and cash flows would have been had the Company operated as an independent, publicly traded company during the periods presented. To the extent that an asset, liability, revenue or expense is directly associated with the Company, it is reflected in the accompanying Combined Financial Statements. General corporate overhead, debt and related interest expense have been allocated by Tyco to the Company. Management believes such allocations are reasonable; however, they may not be indicative of the actual results of the Company had the Company been operating as an independent, publicly traded company for the periods presented or amounts that will be incurred by the Company in the future. Note 7 (“Debt”) provides further information regarding debt related allocations and Note 8 (“Related Party Transactions”) provides further information regarding allocated expenses.

References in the notes to the Combined Financial Statements to 2012 and 2011 are to the Company’s nine month fiscal periods ended June 29, 2012 and June 24, 2011, respectively, unless otherwise indicated.

The Company has a 52 or 53-week fiscal year that ends on the last Friday in September. Fiscal year 2012 will be a 52-week year, whereas fiscal year 2011 was a 53-week year.

 

F-51


Recently Issued Accounting Pronouncements —In June 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance for the presentation of comprehensive income. The guidance amended the reporting of Other Comprehensive Income (“OCI”) by eliminating the option to present OCI as part of the Combined Statements of Parent Company Equity. The amendment will not impact the accounting for OCI, but only its presentation in the Company’s Combined Financial Statements. The guidance requires that items of net income and OCI be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements which include total net income and its components, consecutively followed by total OCI and its components to arrive at total comprehensive income. In December 2011, the FASB issued authoritative guidance to defer the effective date for those aspects of the guidance relating to the presentation of reclassification adjustments out of accumulated other comprehensive income by component. The guidance must be applied retrospectively and is effective for the Company in the first quarter of fiscal year 2013.

In September 2011, the FASB issued authoritative guidance which expanded and enhanced the existing disclosures related to multi-employer pension and other postretirement benefit plans. The amendments require additional quantitative and qualitative disclosures to provide more detailed information including the significant multi-employer plans in which the Company participates, the level of the Company’s participation and contributions and the financial health and indication of funded status, which will provide users of financial statements with a better understanding of the employer’s involvement in multi-employer benefit plans. The guidance must be applied retrospectively and is effective for the Company for the fiscal year 2012 annual period, with early adoption permitted. The Company is currently assessing what impact, if any, the guidance will have on its annual disclosures.

In September 2011, the FASB issued authoritative guidance which amends the process of testing goodwill for impairment. The guidance permits an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not, defined as having a likelihood of more than fifty percent, that the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performing the traditional two step goodwill impairment test is unnecessary. If an entity concludes otherwise, it would be required to perform the first step of the two step goodwill impairment test. If the carrying amount of the reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test. However, an entity has the option to bypass the qualitative assessment in any period and proceed directly to step one of the impairment test. The guidance is effective for the Company for interim and annual impairment testing beginning in the first quarter of fiscal year 2013.

2. DIVESTITURES

The Company has continued to assess the strategic fit of its various businesses and has pursued divestiture of certain businesses which do not align with its long-term strategy.

Divestitures

Fiscal Years 2012 and 2011

During the third quarter of fiscal 2012, the Company sold assets of its Thermal Control Germany business. The sale was completed for approximately $1 million in cash proceeds and a pre-tax loss of $6 million was recorded in restructuring, asset impairments and divestiture charges (gain), net in the Company’s Combined Statements of Operations.

The Company did not dispose of any businesses during the nine months ended June 24, 2011.

 

F-52


Discontinued Operations

Fiscal Year 2012

During the nine months ended June 29, 2012, there were no businesses which met the criteria to be presented as discontinued operations.

Fiscal Year 2011

On September 30, 2010, the Company sold its European water business, which was part of the Company’s Water and Environmental systems business. The sale was completed for approximately $264 million in cash proceeds, net of $7 million of cash divested on sale, and a pre-tax gain of $171 million was recorded, which was largely exempt from tax. The gain was recorded in income from discontinued operations, net of income taxes in the Company’s Combined Statement of Operations.

Net revenue, pre-tax loss from discontinued operations, pre-tax income on sale of discontinued operations, income tax benefit and income from discontinued operations, net of income taxes are as follows ($ millions):

 

     For the
Nine Months Ended
 
     June 24, 2011  

Net revenue

   $ 3   
  

 

 

 

Pre-tax loss from discontinued operations

   $ (5

Pre-tax income on sale of discontinued operations

     171   

Income tax benefit

     2   
  

 

 

 

Income from discontinued operations, net of income taxes

   $ 168   
  

 

 

 

There were no material pending divestitures as of June 29, 2012 and September 30, 2011.

3. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES, NET

From time to time, the Company will initiate various restructuring actions which result in employee severance, facility exit and other restructuring costs as described below.

The Company recorded restructuring and asset impairment charges, net by program and classified these in the Combined Statement of Operations as follows ($ in millions):

 

     For the Nine
Months Ended
June 29, 2012
     For the Nine
Months Ended
June 24, 2011
 

2012 actions

   $ 13       $ —     

2011 program

     —           8   

2009 program

     —           —     
  

 

 

    

 

 

 

Total restructuring and asset impairmencharges, net

   $ 13       $ 8   
  

 

 

    

 

 

 

Charges reflected in selling, general and administrative (“SG&A”)

   $ —         $ (1

Charges reflected in restructuring, asset impairment and divestiture charges, net

   $ 13       $ 9   

 

F-53


2012 Actions

Restructuring and asset impairment charges, net, during the nine months ended June 29, 2012 are as follows ($ in millions):

 

     For the Nine Months Ended June 29, 2012  
     Employee
Severance and
Benefits
     Facility and
Other Charges
     Total  

Valves & Controls

   $ 1       $ 1       $ 2   

Thermal Controls

     1         —           1   

Water & Environmental Systems

     6         4         10   
  

 

 

    

 

 

    

 

 

 

Total

   $ 8       $ 5       $ 13   
  

 

 

    

 

 

    

 

 

 

The rollforward of the reserves from September 30, 2011 to June 29, 2012 is as follows ($ in millions):

 

Balance as of September 30, 2011

   $ —     

Charges

     13   

Utilization

     (3
  

 

 

 

Balance as of June 29, 2012

   $ 10   
  

 

 

 

2011 Program

Restructuring and asset impairment charges, net, during the nine months ended June 29, 2012 and June 24, 2011 are as follows ($ in millions):

 

     For the Nine Months Ended June 29,
2012
 
     Employee
Severance  and
Benefits
    Facility Exit
and Other
Charges
     Total  

Valves & Controls

   $ —        $ 1       $ 1   

Thermal Controls

     (1     —           (1
  

 

 

   

 

 

    

 

 

 

Total

   $ (1   $ 1       $ —     
  

 

 

   

 

 

    

 

 

 

 

     For the Nine Months Ended June 24, 2011  
     Employee
Severance
and
Benefits
     Facility Exit
and  Other
Charges
     Charges

Reflected  in
SG&A
    Total  

Valves & Controls

   $ 2       $ 2       $ (1   $ 3   

Thermal Controls

     2         —           —          2   

Water & Environmental Systems

     3         —           —          3   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 7       $ 2       $ (1   $ 8   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

F-54


Restructuring and asset impairment charges, net, incurred cumulative to date from initiation of the 2011 Program are as follows ($ in millions):

 

     Employee
Severance
and
Benefits
     Facility Exit
and Other
Charges
     Charges
Reflected in
SG&A
    Total  

Valves & Controls

   $ 3       $ 4       $ (1   $ 6   

Thermal Controls

     1         —           —          1   

Water & Environmental Systems

     4         —           —          4   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 8       $ 4       $ (1   $ 11   
  

 

 

    

 

 

    

 

 

   

 

 

 

The rollforward of the reserves from September 30, 2011 to June 29, 2012 is as follows ($ in millions):

 

Balance as of September 30, 2011

   $ 6   

Charges

     1   

Reversals

     (1

Utilization

     (2
  

 

 

 

Balance as of June 29, 2012

   $ 4   
  

 

 

 

2009 Program

The Company continues to maintain restructuring reserves related to the 2009 program. The total amount of these reserves were $1 million and $2 million as of June 29, 2012 and September 30, 2011, respectively. Restructuring charges during the nine months ended June 29, 2012 and June 24, 2011 were immaterial. The decrease in the reserves is primarily due to cash utilization of $1 million.

Restructuring and asset impairment charges, net, incurred cumulative to date from initiation of the 2009 Program are as follows ($ in millions):

 

     Employee
Severance
and
Benefits
     Facility Exit
and Other
Charges
    Charges
Reflected in
Cost of
Revenue
     Charges
Reflected in
SG&A
    Total  

Valves & Controls

   $ 15       $ 11      $ —         $ (1   $ 25   

Thermal Controls

     5         1        —           —          6   

Water & Environmental Systems

     5         2        —           —          7   

Corporate

     5         (3     4         —          6   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 30       $ 11      $ 4       $ (1   $ 44   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Restructuring Reserves

As of June 29, 2012 and September 30, 2011, restructuring reserves related to all programs were included in the Company’s Combined Balance Sheets as follows ($ in millions):

 

     As of
June 29,
2012
     As of
September 30,
2011
 

Accrued and other current liabilities

   $ 15       $ 8   

 

F-55


4. ACQUISITIONS

Fiscal Year 2012

During the nine months ended June 29, 2012, there were no acquisitions made by the Company.

Fiscal Year 2011

During the nine months ended June 24, 2011, cash paid for acquisitions included in continuing operations totaled $7 million. The acquisition of Supavac was made by the Company’s Water and Environmental segment. Supavac is a leading manufacturer of vacuum loading solids pumps for management of concentrates and residues.

5. INCOME TAXES

The Company’s operating results have been included in Tyco’s various consolidated U.S. federal and state income tax returns, as well as included in many of Tyco’s tax filings for non-U.S. jurisdictions. For purposes of the Company’s Combined Financial Statements, income tax expense and deferred tax balances have been recorded as if it filed tax returns on a stand-alone basis separate from Tyco. Additionally, the carve-out financial statements reflect the Company as having the same historic structure of Tyco as a Swiss based company. At the time of the proposed Spin-Off, the Company will be Swiss domiciled. The Separate Return method applies the accounting guidance for income taxes to the stand-alone financial statements as if the Company was a separate taxpayer and a stand-alone enterprise for the periods presented.

Tyco Flow Control International Ltd. a holding company and Swiss resident, is exempt from cantonal and communal income tax in Switzerland, but is subject to Swiss federal income tax. At the federal level, qualifying net dividend income and net capital gains on the sale of qualifying investments in subsidiaries are exempt from Swiss federal income tax. Consequently, Tyco Flow Control International Ltd. expects dividends from its subsidiaries and capital gains from sales of investments in its subsidiaries to be exempt from Swiss federal income tax.

Many of the Company’s uncertain tax positions relate to tax years that remain subject to audit by the taxing authorities in U.S. federal, state and local or foreign jurisdictions. Open tax years in significant jurisdictions are as follows:

 

Jurisdiction

   Years
Open To Audit
 

Australia

     2004—2011   

Canada

     2002—2011   

France

     2008—2011   

Germany

     1998—2011   

Italy

     2004—2011   

Switzerland

     2002—2011   

United States

     1997—2011   

The unrecognized tax benefits were reduced by $5 million during the nine months ended June 29, 2012, primarily as a result of audit settlements. The Company does not anticipate the total amount of the unrecognized tax benefits to change significantly within the next twelve months.

At each balance sheet date, management evaluates whether it is more likely than not that the Company’s deferred tax assets will be realized and if sufficient future taxable income will be available by assessing current period and projected operating results and other pertinent data. As of June 29, 2012, the Company had recorded deferred tax assets of $127 million, which is comprised of $429 million of gross deferred tax assets net of $302 million valuation allowances.

 

F-56


Undistributed Earnings of Subsidiaries

Except for earnings that are currently distributed, no additional material provision has been made for U.S. or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to investments in subsidiaries, since the earnings are expected to be permanently reinvested, the investments are essentially permanent in duration, or the Company has concluded that no additional tax liability will arise as a result of the distribution of such earnings. A liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings or the basis differences related to investments in subsidiaries.

Tax Sharing Agreement and Other Income Tax Matters

In connection with Tyco Flow Control International Ltd.’s separation from Tyco, Tyco Flow Control International Ltd. expects to enter into a tax sharing agreement with Tyco and The ADT Corporation (the “2012 Tax Sharing Agreement”) that will govern the rights and obligations of Tyco Flow Control International Ltd., Tyco and The ADT Corporation for certain pre-Distribution tax liabilities, including Tyco’s obligations under the tax sharing agreement that Tyco, Covidien Public Limited Company (“Covidien”) and TE Connectivity Ltd. (“TE Connectivity”) entered into in 2007 (the “2007 Tax Sharing Agreement”). Tyco Flow Control International Ltd. expects that the 2012 Tax Sharing Agreement will provide that Tyco Flow Control International Ltd., Tyco and The ADT Corporation will share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to Tyco Flow Control International Ltd.’s, Tyco’s and The ADT Corporation’s U.S. and certain non-U.S. income tax returns, and (ii) payments required to be made by Tyco in respect to the 2007 Tax Sharing Agreement (collectively, “Shared Tax Liabilities”).

In the event the Distribution, the spin-off of The ADT Corporation, or certain internal transactions undertaken in connection therewith were determined to be taxable as a result of actions taken after the Distribution by Tyco Flow Control International Ltd., The ADT Corporation or Tyco, the party responsible for such failure would be responsible for all taxes imposed on Tyco Flow Control International Ltd., The ADT Corporation or Tyco as a result thereof. Taxes resulting from the determination that the Distribution, the spin-off of The ADT Corporation, or any internal transaction is taxable are referred to herein as “Distribution Taxes.” If such failure is not the result of actions taken after the Distribution by Tyco Flow Control International Ltd., The ADT Corporation or Tyco, then Tyco Flow Control International Ltd., The ADT Corporation and Tyco would be responsible for any Distribution Taxes imposed on Tyco Flow Control International Ltd., The ADT Corporation or Tyco as a result of such determination in the same manner and in the same proportions as the Shared Tax Liabilities. The ADT Corporation will have sole responsibility for any income tax liability arising as a result of Tyco’s acquisition of Brink’s Home Security Holdings, Inc. (“BHS”) in May 2010, including any liability of BHS under the tax sharing agreement between BHS and The Brink’s Company dated October 31, 2008 (collectively, the “BHS Tax Liabilities”). Costs and expenses associated with the management of these Shared Tax Liabilities, Distribution Taxes and BHS Tax Liabilities will generally be shared 20% by Tyco Flow Control International Ltd., 27.5% by The ADT Corporation and 52.5% by Tyco. Tyco Flow Control International Ltd. is responsible for all of its own taxes that are not shared pursuant to the 2012 Tax Sharing Agreement’s sharing formulae. In addition, Tyco and The ADT Corporation are responsible for their tax liabilities that are not subject to the 2012 Tax Sharing Agreement’s sharing formulae.

The 2012 Tax Sharing Agreement is also expected to provide that, if any party were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no party’s fault, each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the 2012 Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, Tyco Flow Control International Ltd. could be legally liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, Tyco Flow Control International Ltd. may be obligated to pay amounts in excess of our agreed-upon share of its, Tyco’s and The ADT Corporation’s tax liabilities.

 

F-57


6. GOODWILL AND INTANGIBLE ASSETS

Annually, in the fiscal fourth quarter, and more frequently if triggering events occur, the Company tests goodwill for impairment by comparing the fair value of each reporting unit with its carrying amount. Fair value for each reporting unit is determined utilizing a discounted cash flow analysis based on the Company’s forecast cash flows discounted using an estimated weighted-average cost of capital of market participants. A market approach is utilized to corroborate the discounted cash flow analysis performed at each reporting unit. If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered potentially impaired. In determining fair value, management relies on and considers a number of factors, including operating results, business plans, economic projections, anticipated future cash flow, comparable market transactions (to the extent available), other market data and the Company’s overall market capitalization.

In the first quarter of 2011, the Company changed its reporting units of its Water & Environmental Systems segment. As a result, the Company assessed the recoverability of the long-lived assets of each of the segment’s two reporting units. The Company concluded that the carrying amounts of its long-lived assets were recoverable. Subsequently, the Company performed the first step of the goodwill impairment test for the reporting units of our Water & Environmental Systems segment.

To perform the first step of the goodwill impairment test, the Company compared the carrying amounts of the reporting units to their estimated fair values. Fair value for each reporting unit was determined utilizing a discounted cash flow analysis based on forecast cash flows (including estimated underlying revenue and operating income growth rates) discounted using an estimated weighted-average cost of capital of market participants. The results of the first step of the goodwill impairment test indicated there was a potential impairment of goodwill in the Systems reporting unit only, as the carrying amount of the reporting unit exceeded its respective fair value. As a result, the Company performed the second step of the goodwill impairment test for this reporting unit by comparing the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit’s goodwill. The results of the second step of the goodwill impairment test indicated that the implied goodwill amount was less than the carrying amount of goodwill for the Systems reporting unit. Accordingly, the Company recorded a non-cash impairment charge of $35 million which was recorded in goodwill impairment in the Company’s Combined Statement of Operations for the nine months ended June 24, 2011.

The changes in the carrying amount of goodwill by segment are as follows ($ in millions):

 

     As of
September 30,
2011
    Acquisitions/
Purchase
Accounting
Adjustments
    Divestitures     Currency
Translation
    As of
June 29,
2012
 

Valves & Controls

          

Gross Goodwill

   $ 1,545      $ (1     —        $ (33   $ 1,511   

Impairments

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

     1,545        (1     —          (33     1,511   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Thermal Controls

          

Gross Goodwill

     313        —          (1     (7     305   

Impairments

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

     313        —          (1     (7     305   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Water & Environmental Systems

          

Gross Goodwill

     314        —          —          (6     308   

Impairments

     (35     —          —          —          (35
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

     279        —          —          (6     273   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

          

Gross Goodwill

     2,172        (1     (1     (46     2,124   

Impairments

     (35     —          —          —          (35
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

   $ 2,137      $ (1   $ (1   $ (46   $ 2,089   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-58


    As of
September 24,
2010
    Acquisitions/
Purchase
Accounting
Adjustments
    Impairments     Divestitures     Currency
Translation
    As of
September 30,
2011
 

Valves & Controls

           

Gross Goodwill

  $ 1,281      $ 249      $ —        $ —        $ 15      $ 1,545   

Impairments

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

    1,281        249        —          —          15        1,545   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Thermal Controls

           

Gross Goodwill

    307        —          —          —          6        313   

Impairments

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

    307        —          —          —          6        313   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Water & Environmental Systems

           

Gross Goodwill

    320        3        —          (14     5        314   

Impairments

    —          —          (35     —          —          (35
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

    320        3        (35     (14     5        279   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

           

Gross Goodwill

    1,908        252        —          (14     26        2,172   

Impairments

    —          —          (35     —          —          (35
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying Amount of Goodwill

  $ 1,908      $ 252      $ (35   $ (14   $ 26      $ 2,137   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth the gross carrying amounts and accumulated amortization of the Company’s intangible assets as of June 29, 2012 and September 30, 2011.

 

     June 29, 2012      September 30, 2011  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Gross
Carrying
Amount
     Accumulated
Amortization
 

Amortizable:

           

Contracts and related customer relationships

   $ 85       $ 14       $ 87       $ 5   

Intellectual property

     74         37         89         50   

Other

     6         5         6         5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 165       $ 56       $ 182       $ 60   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-Amortizable

   $ 5          $ 5      
  

 

 

       

 

 

    

Intangible asset amortization expense for the nine months ended June 29, 2012 and June 24, 2011 was $11 million and $3 million, respectively. As of June 29, 2012, the weighted-average amortization period for contracts and related customer relationships, intellectual property, other and total intangible assets were 11 years, 27 years, 26 years and 17 years, respectively.

The estimated aggregate amortization expense on intangible assets is expected to be approximately $3 million for the remainder of 2012, $11 million for 2013, $10 million for 2014, $10 million for 2015, $10 million for 2016 and $65 million for 2017 and thereafter.

 

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7. DEBT

Debt as of June 29, 2012 and September 30, 2011 is as follows ($ in millions):

 

     June 29,
2012
     September 30,
2011
 

Current maturities of long-term debt:

     

Allocated debt

   $ —         $ —     
  

 

 

    

 

 

 

Long-term debt:

     

Allocated debt

     886         859   

Capital lease obligations

     15         17   
  

 

 

    

 

 

 

Total long-term debt

     901         876   
  

 

 

    

 

 

 

Total debt

   $ 901       $ 876   
  

 

 

    

 

 

 

Tyco used a centralized approach to cash management and financing of its operations excluding debt directly incurred by any of its businesses, such as capital lease obligations. Accordingly, Tyco’s consolidated debt and related interest expense, exclusive of amounts incurred directly by the Company, have been allocated to the Company based on an assessment of the Company’s share of external debt using historical data. Interest expense was allocated in the same proportions as debt and includes the impact of interest rate swap agreements designated as fair value hedges. For the nine months ended June 29, 2012 and June 24, 2011, Tyco has allocated to the Company interest expense of $37 million and $34 million, respectively. The fair value of the Company’s allocated debt was $1,049 million and $996 million as of June 29, 2012 and September 30, 2011, respectively. The fair value of its debt was allocated in the same proportions as Tyco’s external debt.

Management believes the allocation basis for debt and interest expense is reasonable based on an assessment of historical data. However, these amounts may not be indicative of the actual amounts that the Company would have incurred had the Company been operating as an independent, publicly-traded company for the periods presented. The Company or an affiliate expects to issue third-party debt based on an anticipated initial post-separation capital structure for the Company. The amount of debt which could be issued may materially differ from the amounts presented herein.

8. RELATED PARTY TRANSACTIONS

Cash Management —Tyco used a centralized approach to cash management and financing of operations. The Company’s cash was available for use and was regularly “swept” by Tyco at its discretion. Transfers of cash both to and from Tyco are included within parent company investment on the Combined Statements of Parent Company Equity. The main components of the net transfers (to)/from Parent are cash pooling and general financing activities, cash transfers for acquisitions, divestitures, investments and various allocations from Tyco.

Trade Activity —Accounts receivable includes $2 million and $3 million of receivables from Tyco affiliates as of June 29, 2012 and September 30, 2011, respectively. These amounts primarily relate to sales of certain products which totaled $8 million and $14 million for the nine months ended June 29, 2012 and June 24, 2011, respectively, and associated cost of revenue of $6 million and $11 million for the nine months ended June 29, 2012 and June 24, 2011, respectively.

Service and Lending Arrangement with Tyco Affiliates— The Company has various debt and cash pool agreements with Tyco affiliates, which are executed outside of the normal Tyco centralized approach to cash management and financing of operations. Other assets include $114 million and $122 million of receivables from Tyco affiliates as of June 29, 2012 and September 30, 2011, respectively. Accrued and other current liabilities include $32 million of payables to Tyco affiliates as of both June 29, 2012 and September 30, 2011, respectively. Other liabilities include $31 million and $41 million of payables to Tyco affiliates as of June 29, 2012 and September 30, 2011, respectively.

 

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Additionally, the Company, Tyco and its affiliates pay for expenses on behalf of each other. Accrued and other current liabilities include $13 million and $11 million of payables to Tyco and its affiliates as of June 29, 2012 and September 30, 2011, respectively.

Interest Income, Net —The Company recognized nil and $1 million of interest expense and $5 million and $4 million of interest income associated with the lending arrangements with Tyco affiliates for the nine months ended June 29, 2012 and June 24, 2011, respectively.

Debt and Related Items— The Company was allocated a portion of Tyco’s consolidated debt and interest expense. Note 7 (“Debt”) provides further information regarding these allocations.

Insurable Liabilities —In fiscal year 2011 and fiscal year 2012, the Company was insured for workers’ compensation, property, product, general and auto liabilities by a captive insurance company that was wholly-owned by Tyco. Tyco has insurance for losses in excess of the captive insurance company policies’ limits through third-party insurance companies. The Company paid a premium in each year to obtain insurance coverage during these periods. Premiums expensed by the Company were $5 million and $7 million for the nine months ended June 29, 2012 and June 24, 2011, respectively. These amounts are included in the selling, general and administrative expenses in the Combined Statements of Operations for the nine months ended June 29, 2012 and June 24, 2011.

The Company maintains liabilities related to workers’ compensation, property, product, general and auto liabilities. As of June 29, 2012 and September 30, 2011, the Company had recorded $5 million and $5 million, respectively, in accrued and other current liabilities and $15 million and $16 million, respectively, in other liabilities in the Combined Balance Sheets with offsetting insurance assets of the same amount due from Tyco.

Allocated Expenses —The Company was allocated corporate overhead expenses from Tyco for corporate related functions based on the relative proportion of either the Company’s headcount or net revenue to Tyco’s consolidated headcount or net revenue. Corporate overhead expenses primarily related to centralized corporate functions, including finance, treasury, tax, legal, information technology, internal audit, human resources and risk management functions. During the nine months ended June 29, 2012 and June 24, 2011, the Company was allocated $34 million and $41 million, respectively, of general corporate expenses incurred by Tyco. These amounts are included within selling, general and administrative expenses in the Combined Statements of Operations for the nine months ended June 29, 2012 and June 24, 2011.

Management believes the assumptions and methodologies underlying the allocations of general corporate overhead from Tyco are reasonable. However, such expenses may not be indicative of the actual results of the Company had the Company been operating as an independent, publicly traded company or the amounts that will be incurred by the Company in the future. As a result, the financial information herein may not necessarily reflect the combined financial position, results of operations and cash flows of the Company in the future or what it would have been had the Company been an independent, publicly traded company during the periods presented.

9. FINANCIAL INSTRUMENTS

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, debt and derivative financial instruments. The fair value of cash and cash equivalents, accounts receivable and accounts payable approximated book value as of June 29, 2012. The fair value of derivative financial instruments was not material to any of the periods presented. See Note 7 (“Debt”) for the information relating to the fair value of debt.

 

F-61


10. COMMITMENTS AND CONTINGENCIES

Environmental Matters

The Company is involved in environmental remediation and legal proceedings related to its current business and, pursuant to certain indemnification obligations, related to a formerly owned business (Mueller). The Company is responsible, or alleged to be responsible, for ongoing environmental investigation and remediation of sites in several countries. These sites are in various stages of investigation and/or remediation and at some of these sites its liability is considered de minimis. The Company has received notification from the U.S. Environmental Protection Agency (“EPA”), and from similar state and non-U.S. environmental agencies, that several sites formerly or currently owned and/or operated by the Company, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where the Company has been identified as a potentially responsible party under U.S. federal, state and/or non-U.S. environmental laws and regulations.

The Company’s accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. It can be difficult to estimate reliably the final costs of investigation and remediation due to various factors. In the Company’s opinion, the total amount accrued is appropriate based on facts and circumstances as currently known. Based upon the Company’s experience, current information regarding known contingencies and applicable laws, the Company concluded that it is probable that it would incur remedial costs in the range of approximately $10 million to $33 million as of June 29, 2012. As of June 29, 2012, the Company concluded that the best estimate within this range is approximately $14 million, of which $9 million is included in accrued and other current liabilities and $5 million is included in other liabilities in the Combined Balance Sheet. The Company does not anticipate that these environmental conditions will have a material adverse effect on its combined financial position, results of operations or cash flows. However, unknown conditions or new details about existing conditions may give rise to environmental liabilities that could have a material adverse effect on the Company in the future.

Asbestos Matters

The Company and certain of its subsidiaries along with numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third-parties. Each case typically names between dozens to hundreds of corporate defendants. While the Company has observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma-related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. The Company’s strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, the Company cannot predict the extent to which it will be successful in resolving lawsuits in the future.

As of June 29, 2012, there were approximately 1,600 lawsuits pending against the Company, its subsidiaries or entities for which the Company had assumed responsibility. Each lawsuit typically includes several claims, and the Company has approximately 2,200 claims outstanding as of June 29, 2012. This amount is not adjusted for claims that are not actively being prosecuted, identified incorrect defendants, or duplicated other actions, which would ultimately reflect the Company’s current estimate of the number of viable claims made against it, its affiliates, or entities for which it has assumed responsibility in connection with acquisitions or divestitures.

Annually, during the Company’s third quarter, the Company performs an analysis with the assistance of outside counsel and other experts to update its estimated asbestos-related assets and liabilities. In addition, on a

 

F-62


quarterly basis, the Company re-evaluates the assumptions used to perform the annual analysis and records an expense as necessary to reflect changes in its estimated liability and related insurance asset. The Company’s estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is based on the Company’s historical claim experience, and estimates of the number and resolution cost of potential future claims that may be filed. The Company’s legal strategy for resolving claims also impacts these estimates. The Company considers various trends and developments in evaluating the period of time (the look-back period) over which historical claim and settlement experience is used to estimate and value claims reasonably projected to be made in the future during a defined period of time (the look-forward period). As part of the Company’s annual valuation process in the third quarter of fiscal 2012, the Company determined that a look-back period of three years was more appropriate than a five-year period because the Company has experienced a higher and more consistent level of claims activity and settlement costs in the past three years. As a result, the Company believes a three year look-back period is more representative of future claim and settlement activity than the five year period it previously used. The Company also revised its look-forward period from seven years to fifteen years. The Company’s decision to revise its look-forward period was primarily based on improvements in the consistency of observable data and the Company’s more extensive experience with asbestos claims since the look-forward period was originally established in 2005. The Company believes it can make a more reliable estimate of pending and future claims beyond seven years. The Company believes valuation of pending claims and future claims to be filed over the next fifteen years produces a reasonable estimate of its asbestos liability, which it records in the consolidated financial statements on an undiscounted basis.

The Company’s estimate of asbestos-related insurance recoveries represents estimated amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In determining the amount of insurance recoverable, the Company considers a number of factors, including available insurance, allocation methodologies, and the solvency and creditworthiness of insurers.

As a result of the activity described above, the Company recorded a net charge of $13 million during the quarter ended June 29, 2012. As of June 29, 2012, the Company’s estimated net liability of $12 million was recorded within the Company’s Combined Balance Sheet as a liability for pending and future claims and related defense costs of $76 million, and separately as an asset for insurance recoveries of $64 million. Similarly, as of September 30, 2011, the Company’s estimated net liability of $3 million was recorded within the Company’s Combined Balance Sheet as a liability for pending and future claims and related defense costs of $27 million, and separately as an asset for insurance recoveries of $24 million.

The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on the Company’s strategies for resolving its asbestos claims and currently available information as well as estimates and assumptions. Key variables and assumptions include the number and type of new claims that are filed each year, the average cost of resolution of claims, the resolution of coverage issues with insurance carriers, amount of insurance and the solvency risk with respect to the Company’s insurance carriers. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the later portion of the projection period. Other factors that may affect the Company’s liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company’s calculations vary significantly from actual results.

Income Tax Matters

As discussed above in Note 5 (“Income Taxes”), the 2012 Tax Sharing Agreement will govern the rights and obligations of Tyco Flow Control International Ltd., Tyco and The ADT Corporation for certain tax liabilities with respect to periods or portions thereof ending on or before the date of the Distribution. Tyco Flow Control International Ltd. is responsible for all of its own taxes that are not shared pursuant to the 2012 Tax

 

F-63


Sharing Agreement’s sharing formulae. In addition, Tyco and The ADT Corporation are responsible for their tax liabilities that are not subject to the 2012 Tax Sharing Agreement’s sharing formulae.

With respect to years prior to and including the 2007 separation of Covidien and TE Connectivity by Tyco, tax authorities have raised issues and proposed tax adjustments that are generally subject to the sharing provisions of the 2007 Tax Sharing Agreement and which may require Tyco to make a payment to a taxing authority, Covidien or TE Connectivity. Tyco has recorded a liability of $406 million as of June 29, 2012 which it has assessed and believes is adequate to cover the payments that Tyco may be required to make under the 2007 Tax Sharing Agreement. Tyco is reviewing and contesting certain of the proposed tax adjustments.

With respect to adjustments raised by the IRS, although Tyco has resolved a substantial number of these adjustments, a few significant items remain open with respect to the audit of the 1997 through 2004 years. As of the date hereof, it is unlikely that Tyco will be able to resolve all the open items, which primarily involve the treatment of certain intercompany debt issued during the period, through the IRS appeals process. As a result, Tyco expects to litigate these matters once it receives the requisite statutory notices from the IRS, which may occur as soon as within the next three months. However, the ultimate resolution of these matters is uncertain and could result in Tyco being responsible for a greater amount than it expects under the 2007 Tax Sharing Agreement. To the extent Tyco Flow Control International Ltd., is responsible for any Shared Tax Liability or Distribution Tax, there could be a material adverse impact on its financial position, results of operations, cash flows or its effective tax rate in future reporting periods.

Compliance Matters

As disclosed in Tyco’s periodic filings, Tyco has received and responded to various allegations and other information that certain improper payments were made by Tyco’s subsidiaries (including subsidiaries of the Company) in recent years. Tyco has reported to the Department of Justice (“DOJ”) and the SEC the investigative steps and remedial measures that Tyco has taken in response to these and other allegations and Tyco’s internal investigations, including retaining outside counsel to perform a baseline review of Tyco’s policies, controls and practices with respect to compliance with the Foreign Corrupt Practices Act (“FCPA”). Tyco has continued to investigate and make periodic progress reports to these agencies regarding Tyco’s compliance efforts and Tyco’s follow-up investigations, including, as appropriate, briefings concerning additional instances of potential improper conduct identified by Tyco in the course of Tyco’s ongoing compliance activities. In February 2010, Tyco initiated discussions with the DOJ and SEC aimed at resolving these matters, including matters that pertain to subsidiaries of the Company. These discussions remain ongoing. The Company has recorded its best estimate of potential loss related to these matters. However, it is possible that this estimate may differ from the ultimate loss determined in connection with the resolution of this matter, and the Company may be required to pay material fines, consent to injunctions on future conduct, consent to the imposition of a compliance monitor, or suffer other criminal or civil penalties or adverse impacts, including being subject to lawsuits brought by private litigants, each of which may have a material adverse effect on its financial position, results of operations or cash flows.

In addition to the matters described above, from time to time, the Company is subject to disputes, administrative proceedings and other claims arising out of the normal conduct of its business. These matters generally relate to disputes arising out of the use or installation of its products, product liability litigation, personal injury claims, commercial and contract disputes and employment related matters. On the basis of information currently available to it, management does not believe that existing proceedings and claims will have a material impact on the Company’s Combined Financial Statements. However, litigation is unpredictable, and the Company could incur judgments or enter into settlements for current or future claims that could adversely affect its financial statements.

 

F-64


11. RETIREMENT PLANS

Defined Benefit Pension Plans —The Company sponsors a number of retirement plans. The following disclosures exclude the impact of plans which are not material individually and in the aggregate. The net periodic benefit cost for the Company’s material U.S. defined pension plans were not material for the nine months ended June 29, 2012 and June 24, 2011.

The following disclosure pertains to the Company’s material non-U.S. defined benefit pension plans. The net periodic benefit cost for the Company’s material non-U.S. defined pension plans is as follows ($ in millions):

 

     For the Nine Months Ended  
     June 29,
2012
    June 24,
2011
 

Service cost

   $ 3      $ 3   

Interest cost

     10        9   

Expected return on plan assets

     (10     (9

Amortization of net actuarial loss

     1        1   

Settlement gain recognized..

     —          (1
  

 

 

   

 

 

 

Net periodic benefit cost

   $ 4      $ 3   
  

 

 

   

 

 

 

The estimated net actuarial loss for non-U.S. pension benefit plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the current fiscal year is expected to be $2 million.

The Company’s funding policy is to make contributions in accordance with the laws and customs of the various countries in which it operates and to make discretionary voluntary contributions from time-to-time. The Company anticipates that it will contribute at least the minimum required to its pension plans in fiscal year 2012 of $15 million for non-U.S. plans. During the nine months ended June 29, 2012, the Company made required contributions of $13 million to its non-U.S. pension plans.

Postretirement Benefit Plans —Net periodic benefit cost was not material for both periods.

12. REDEEMABLE NONCONTROLLING INTEREST

Noncontrolling interests with redemption features, such as put options, that are not solely within the Company’s control are considered redeemable noncontrolling interests. The Company accretes changes in the redemption value through noncontrolling interest in subsidiaries net income attributable to the noncontrolling interest over the period from the date of issuance to the earliest redemption date. Redeemable noncontrolling interest is considered to be temporary equity and is therefore reported in the mezzanine section between liabilities and equity on the Company’s Combined Balance Sheet at the greater of the initial carrying amount increased or decreased for the noncontrolling interest’s share of net income or loss or its redemption value.

Redeemable noncontrolling interest primarily relates to the Company’s acquisition of a 75% ownership interest in KEF Holdings Ltd. (“KEF”) in the fourth quarter of fiscal 2011. The remaining 25% interest is held by a noncontrolling interest stakeholder. In connection with the acquisition of KEF, the Company and the noncontrolling interest stakeholder have a call and put arrangement, respectively, for the Company to acquire the remaining 25% ownership which becomes exercisable beginning the first full fiscal quarter following the third anniversary of the KEF closing date of June 29, 2011.

 

F-65


The rollforward of redeemable noncontrolling interest from September 30, 2011 to June 29, 2012 is as follows ($ in millions):

 

Balance as of September 30, 2011

   $  93   

Net loss

     (3

Adjustments to redemption value

     5   
  

 

 

 

Balance as of June 29, 2012

   $ 95   
  

 

 

 

13. SHARE PLANS

During the quarter ended December 30, 2011, Tyco issued its annual share-based compensation grants to the Company’s employees. The total number of awards issued was approximately 0.6 million, of which 0.3 million were share options, 0.2 million were restricted unit awards and 0.1 million were performance share unit awards. The options and restricted stock units vest in equal annual installments over a period of 4 years, and the performance share unit awards vest after a period of 3 years based on the level of attainment of the applicable performance metrics of Tyco, which are determined by the Compensation and Human Resources Committee of Tyco’s Board of Directors. The weighted-average grant-date fair value of the share options, restricted unit awards and performance share unit awards was $12.40, $44.32 and $49.42, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 36%, a risk free interest rate of 1.46%, an expected annual dividend per share of $1.00 and an expected option life of 5.7 years.

During the quarter ended December 24, 2010, Tyco issued its annual share-based compensation grants to the Company’s employees. The total number of awards issued was approximately 0.7 million, of which 0.4 million were share options, 0.2 million were restricted unit awards and 0.1 million were performance share unit awards. The options and restricted stock units vest in equal annual installments over a period of 4 years, and the performance share unit awards vest after a period of 3 years based on the level of attainment of the applicable performance metrics of Tyco, which are determined by the Compensation and Human Resources Committee of Tyco’s Board of Directors. The weighted-average grant-date fair value of the share options, restricted unit awards and performance share unit awards was $9.05, $37.29 and $41.95, respectively. The weighted-average assumptions used in the Black-Scholes option pricing model included an expected stock price volatility of 33%, a risk free interest rate of 1.22%, an expected annual dividend per share of $0.84 and an expected option life of 5.1 years.

14. ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income are as follows ($ in millions):

 

     Currency
Translation
Adjustments (1)
    Retirement
Plans
    Accumulated
Other
Comprehensive
Income (Loss)
 

Balance as of September 24, 2010

   $ 652      $ (65   $ 587   

Pre-tax current period change

     213        1        214   

Divestiture of businesses

     (126     —          (126
  

 

 

   

 

 

   

 

 

 

Balance as of June 24, 2011

   $ 739      $ (64   $ 675   
  

 

 

   

 

 

   

 

 

 
     Currency
Translation
Adjustments (1)
    Retirement
Plans
    Accumulated
Other
Comprehensive
Income (Loss)
 

Balance as of September 30, 2011

   $ 556      $ (67   $ 489   

Pre-tax current period change

     (140     1        (139
  

 

 

   

 

 

   

 

 

 

Balance as of June 29, 2012

   $ 416      $ (66   $ 350   
  

 

 

   

 

 

   

 

 

 

 

F-66


 

(1)

During the nine months ended June 29, 2012 and June 24, 2011, nil and $126 million of cumulative translation gain, respectively, were transferred from currency translation adjustments as a result of the sale of non-U.S. entities. Of these amounts, nil and $126 million, respectively, are included in income from discontinued operations, net of income taxes in the Combined Statements of Operations.

Other

The Company had $1.0 billion and $1.2 billion of intercompany loans designated as permanent in nature as of June 29, 2012 and September 30, 2011, respectively. For the nine months ended June 29, 2012 and June 24, 2011, the Company recorded a $20 million cumulative translation loss and an $87 million cumulative translation gain, respectively, through accumulated other comprehensive income related to these loans.

15. COMBINED SEGMENT DATA

Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company, from time to time, may realign businesses and management responsibility within its operating segments based on considerations such as opportunity for market or operating synergies and/or to more fully leverage existing capabilities and enhance development for future products and services. Selected information by segment is presented in the following tables ($ in millions):

 

     For the Nine Months
Ended
 
     June 29,
2012
     June 24,
2011
 

Net revenue (1)

     

Valves & Controls

   $ 1,771       $ 1,552   

Thermal Controls

     612         517   

Water & Environmental Systems

     524         495   
  

 

 

    

 

 

 

Net revenue

   $ 2,907       $ 2,564   
  

 

 

    

 

 

 

 

(1)

Revenue by operating segment excludes intercompany transactions. No single customer represents more than 10% of net revenue.

 

     For the Nine Months
Ended
 
     June 29,
2012
    June 24,
2011
 

Operating income (loss)

    

Valves & Controls

   $ 224      $ 184   

Thermal Controls

     99        78   

Water & Environmental Systems (1)

     33        3   

Corporate

     (77     (61
  

 

 

   

 

 

 

Operating income

   $ 279      $ 204   
  

 

 

   

 

 

 

 

(1)

Operating income includes a goodwill impairment charge of $35 million for the nine months ended June 24, 2011.

 

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16. INVENTORY

Inventories consisted of the following ($ in millions):

 

     June 29,
2012
     September 30,
2011
 

Purchased materials and manufactured parts

   $ 392       $ 347   

Work in process

     136         130   

Finished goods

     336         295   
  

 

 

    

 

 

 

Inventories

   $ 864       $ 772   
  

 

 

    

 

 

 

Inventories are recorded at the lower of cost (primarily first-in, first-out) or market value.

17. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following ($ in millions):

 

     June 29,
2012
    September 30,
2011
 

Land

   $ 96      $ 97   

Buildings and leasehold improvements

     325        346   

Machinery and equipment

     863        860   

Property under capital leases (1)

     1        2   

Construction in progress

     74        41   

Accumulated depreciation (2)

     (737     (739
  

 

 

   

 

 

 

Property, plant and equipment, net

   $ 622      $ 607   
  

 

 

   

 

 

 

 

(1)  

Property under capital leases consists primarily of buildings.

(2)  

Accumulated amortization of capital lease assets was nil and $1 million as of June 29, 2012 and September 30, 2011.

18. GUARANTEES

In certain situations, Tyco has guaranteed the Company’s performance to third parties or has provided financial guarantees for financial commitments of the Company. Tyco and the Company intend to obtain releases from these guarantees in connection with the Spin-Off. In situations where the Company and Tyco are unable to obtain a release, the Company will indemnify Tyco for any losses it suffers as a result of such guarantees.

In disposing of assets or businesses, the Company often provides representations, warranties and indemnities to cover various risks including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities and unidentified tax liabilities and legal fees related to periods prior to disposition. The Company does not have the ability to reasonably estimate the potential liability due to the inchoate and unknown nature of these potential liabilities. However, the Company has no reason to believe that these uncertainties would have a material adverse effect on the Company’s financial position, results of operations or cash flows.

In the normal course of business, the Company is liable for contract completion and product performance. In the opinion of management, such obligations will not significantly affect the Company’s financial position, results of operations or cash flows.

 

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The changes in the carrying amount of the Company’s warranty accrual from September 30, 2011 to June 29, 2012 were as follows ($ in millions):

 

Balance as of September 30, 2011

   $ 18   

Warranties issued

     5   

Change in estimates

     (1

Settlements

     (4

Currency translation adjustment

     (1
  

 

 

 

Balance as of June 29, 2012

   $ 17   
  

 

 

 

19. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the time it issued its financial statements on August 17, 2012.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Pentair, Inc.

We have audited the accompanying consolidated balance sheets of Pentair, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at page F-2. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and 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 Pentair, Inc. and subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, 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, present fairly, in all material respects, the information set forth therein.

 

LOGO

Minneapolis, Minnesota

February 21, 2012

 

F-70


Pentair, Inc. and Subsidiaries

Consolidated Statements of Income

 

     Years Ended December 31  
In thousands, except per-share data    2011     2010     2009  

Net sales

   $ 3,456,686      $ 3,030,773      $ 2,692,468   

Cost of goods sold

     2,382,964        2,100,133        1,907,333   
  

 

 

   

 

 

   

 

 

 

Gross profit

     1,073,722        930,640        785,135   

Selling, general and administrative

     626,527        529,329        507,303   

Research and development

     78,158        67,156        57,884   

Goodwill impairment

     200,520        —          —     
  

 

 

   

 

 

   

 

 

 

Operating income

     168,517        334,155        219,948   

Other (income) expense:

      

Equity (income) losses of unconsolidated subsidiaries

     (1,898     (2,108     1,379   

Loss on early extinguishment of debt

     —          —          4,804   

Interest income

     (1,432     (1,263     (999

Interest expense

     60,267        37,379        42,117   
  

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes and noncontrolling interest

     111,580        300,147        172,647   

Provision for income taxes

     73,059        97,200        56,428   
  

 

 

   

 

 

   

 

 

 

Income from continuing operations

     38,521        202,947        116,219   

Loss on disposal of discontinued operations, net of tax

     —          (626     (19
  

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     38,521        202,321        116,200   

Noncontrolling interest

     4,299        4,493        707   
  

 

 

   

 

 

   

 

 

 

Net income attributable to Pentair, Inc.

   $ 34,222      $ 197,828      $ 115,493   
  

 

 

   

 

 

   

 

 

 

Net income from continuing operations attributable to Pentair, Inc.

   $ 34,222      $ 198,454      $ 115,512   
  

 

 

   

 

 

   

 

 

 

Earnings per common share attributable to Pentair, Inc.

      

Basic

      

Continuing operations

   $ 0.35      $ 2.02      $ 1.19   

Discontinued operations

     —          (0.01     —     
  

 

 

   

 

 

   

 

 

 

Basic earnings per common share

   $ 0.35      $ 2.01      $ 1.19   
  

 

 

   

 

 

   

 

 

 

Diluted

      

Continuing operations

   $ 0.34      $ 2.00      $ 1.17   
  

 

 

   

 

 

   

 

 

 

Discontinued operations

     —          (0.01     —     
  

 

 

   

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.34      $ 1.99      $ 1.17   
  

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

      

Basic

     98,233        98,037        97,415   

Diluted

     99,753        99,294        98,522   

 

 

See accompanying notes to consolidated financial statements.

 

F-71


Pentair, Inc. and Subsidiaries

Consolidated Balance Sheets

 

     December 31,
2011
    December 31,
2010
 
     In thousands, except share and per-share data  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 50,077      $ 46,056   

Accounts and notes receivable, net of allowances of $39,111 and $36,343, respectively

     569,204        516,905   

Inventories

     449,863        405,356   

Deferred tax assets

     60,899        56,349   

Prepaid expenses and other current assets

     107,792        44,631   
  

 

 

   

 

 

 

Total current assets

     1,237,835        1,069,297   

Property, plant and equipment, net

     387,525        329,435   

Other assets

    

Goodwill

     2,273,918        2,066,044   

Intangibles, net

     592,285        453,570   

Other

     94,750        55,187   
  

 

 

   

 

 

 

Total other assets

     2,960,953        2,574,801   
  

 

 

   

 

 

 

Total assets

   $ 4,586,313      $ 3,973,533   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current liabilities

    

Short-term borrowings

   $ 3,694      $ 4,933   

Current maturities of long-term debt

     1,168        18   

Accounts payable

     294,858        262,357   

Employee compensation and benefits

     109,361        107,995   

Current pension and post-retirement benefits

     9,052        8,733   

Accrued product claims and warranties

     42,630        42,295   

Income taxes

     14,547        5,964   

Accrued rebates and sales incentives

     37,009        33,559   

Other current liabilities

     129,522        80,942   
  

 

 

   

 

 

 

Total current liabilities

     641,841        546,796   

Other liabilities

    

Long-term debt

     1,304,225        702,521   

Pension and other retirement compensation

     248,615        209,859   

Post-retirement medical and other benefits

     31,774        30,325   

Long-term income taxes payable

     26,470        23,507   

Deferred tax liabilities

     188,957        169,198   

Other non-current liabilities

     97,039        86,295   
  

 

 

   

 

 

 

Total liabilities

     2,538,921        1,768,501   

Commitments and contingencies

    

Shareholders’ equity

    

Common shares par value $0.16 2/3; 98,622,564 and 98,409,192 shares issued and outstanding, respectively

     16,437        16,401   

Additional paid-in capital

     488,843        474,489   

Retained earnings

     1,579,290        1,624,605   

Accumulated other comprehensive income

     (151,241     (22,342

Noncontrolling interest

     114,063        111,879   
  

 

 

   

 

 

 

Total shareholders’ equity

     2,047,392        2,205,032   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,586,313      $ 3,973,533   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

F-72


Pentair, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

     Year Ended  
     December 31,
2011
    December 31,
2010
    December 31,
2009
 
     In thousands  

Operating activities

      

Net income before noncontrolling interest

   $ 38,521      $ 202,321      $ 116,200   

Adjustments to reconcile net income to net cash provided by (used for) operating activities

      

Loss on disposal of discontinued operations

     —          626        19   

Equity (income) losses of unconsolidated subsidiaries

     (1,898     (2,108     1,379   

Depreciation

     66,235        57,995        64,823   

Amortization

     41,897        26,184        40,657   

Deferred income taxes

     (5,583     29,453        30,616   

Stock compensation

     19,489        21,468        17,324   

Goodwill impairment

     200,520        —          —     

Excess tax benefits from stock-based compensation

     (3,310     (2,686     (1,746

Loss on sale of assets

     933        466        985   

Changes in assets and liabilities, net of effects of business acquisitions and dispositions

      

Accounts and notes receivable

     1,348        (62,344     11,307   

Inventories

     18,263        (44,495     66,684   

Prepaid expenses and other current assets

     10,032        2,777        16,202   

Accounts payable

     (24,330     55,321        (13,822

Employee compensation and benefits

     (20,486     27,252        (22,431

Accrued product claims and warranties

     (1,984     8,068        (7,440

Income taxes

     10,084        1,791        1,972   

Other current liabilities

     10,921        561        (21,081

Pension and post-retirement benefits

     (24,596     (43,024     (39,607

Other assets and liabilities

     (15,830     (9,250     (2,141
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) continuing operations

     320,226        270,376        259,900   

Net cash provided by (used for) operating activities of discontinued operations

     —          —          (1,531
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     320,226        270,376        258,369   

Investing activities

      

Capital expenditures

     (73,348     (59,523     (54,137

Proceeds from sale of property and equipment

     1,310        358        1,208   

Acquisitions, net of cash acquired

     (733,105     —          —     

Divestitures

     —          —          1,567   

Other

     (2,943     (1,148     (3,224
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     (808,086     (60,313     (54,586

Financing activities

      

Net short-term borrowings

     (1,239     2,728        2,205   

Proceeds from long-term debt

     1,421,602        703,641        580,000   

Repayment of long-term debt

     (832,147     (804,713     (730,304

Debt issuance costs

     (8,973     (50     (50

Excess tax benefits from stock-based compensation

     3,310        2,686        1,746   

Stock issued to employees, net of shares withheld

     13,322        9,941        8,247   

Repurchases of common stock

     (12,785     (24,712     —     

Dividends paid

     (79,537     (75,465     (70,927

Distribution to noncontrolling interest

     —          (4,647     —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     503,553        (190,591     (209,083

Effect of exchange rate changes on cash and cash equivalents

     (11,672     (6,812     (648

Change in cash and cash equivalents

     4,021        12,660        (5,948

Cash and cash equivalents, beginning of period

     46,056        33,396        39,344   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 50,077      $ 46,056      $ 33,396   
  

 

 

   

 

 

   

 

 

 

 

F-73


Pentair, Inc.

Consolidated Statements of Change in Shareholders’ Equity

 

    Common shares     Additional
paid-in
capital
    Retained
earnings
    Accumulated
other
comprehensive
income (loss)
    Total
Pentair,
Inc.
    Non-controlling
interest
    Total     Comprehensive
income (loss)
attributable to
Pentair, Inc.
 
    Number     Amount                
    In thousands, except share and per-share data  

Balance—December 31, 2008

    98,276,919      $ 16,379      $ 451,241      $ 1,457,676      $ (26,615   $ 1,898,681      $ 121,388      $ 2,020,069     

Net income

          115,493          115,493        707        116,200      $ 115,493   

Change in cumulative translation adjustment

            43,371        43,371        (7,843     35,528        43,371   

Adjustment in retirement liability, net of $164 tax

            256        256          256        256   

Changes in market value of derivative financial instruments, net of ($2,323) tax

            3,585        3,585          3,585        3,585   
                 

 

 

 

Comprehensive income (loss)

                  $ 162,705   
                 

 

 

 

Cash dividends—$0.72 per common share

          (70,927       (70,927       (70,927  

Tax benefit of stock compensation

        1,025            1,025          1,025     

Exercise of stock options, net of 124613 shares tendered for payment

    433,533        72        7,639            7,711          7,711     

Issuance of restricted shares, net of cancellations

    24,531        4        516            520          520     

Amortization of restricted shares

        7,190            7,190          7,190     

Shares surrendered by employees to pay taxes

    (79,477     (13     (1,867         (1,880       (1,880  

Stock compensation

        7,063            7,063          7,063     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Balance—December 31, 2009

    98,655,506      $ 16,442      $ 472,807      $ 1,502,242      $ 20,597      $ 2,012,088      $ 114,252      $ 2,126,340     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

F-74


    Common shares     Additional
paid-in
capital
    Retained
earnings
    Accumulated
other
comprehensive
income (loss)
    Total
Pentair,
Inc.
    Non-controlling
interest
    Total     Comprehensive
income (loss)
attributable to
Pentair, Inc.
 
    Number     Amount                
    In thousands, except share and per-share data  

Net income

          197,828          197,828        4,493        202,321      $ 197,828   

Change in cumulative translation adjustment

            (30,487     (30,487     (2,219     (32,706     (30,487

Adjustment in retirement liability, net of $(8,159) tax

            (12,762     (12,762       (12,762     (12,762

Changes in market value of derivative financial instruments, net of $229 tax

            310        310          310        310   
                 

 

 

 

Comprehensive income (loss)

                  $ 154,889   
                 

 

 

 

Cash dividends—$0.76 per common share

          (75,465       (75,465       (75,465  

Tax benefit of stock compensation

        2,171            2,171          2,171     

Distribution to noncontrolling interest

                (4,647     (4,647  

Share repurchase

    (726,777     (121     (24,591         (24,712       (24,712  

Exercise of stock options, net of 27,177 shares tendered for payment

    651,331        109        14,817            14,926          14,926     

Issuance of restricted shares, net of cancellation

    (4,122     (1     707            706          706     

Amortization of restricted shares

        3,538            3,538          3,538     

Shares surrendered by employees to pay taxes

    (166,746     (28     (5,663         (5,691       (5,691  

Stock compensation

        10,703            10,703          10,703     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Balance—December 31, 2010

    98,409,192      $ 16,401      $ 474,489      $ 1,624,605      $ (22,342   $ 2,093,153      $ 111,879      $ 2,205,032     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

F-75


    Common shares     Additional
paid-in
capital
    Retained
earnings
    Accumulated
other
comprehensive
income (loss)
    Total
Pentair,
Inc.
    Non-controlling
interest
    Total     Comprehensive
income (loss)
attributable to
Pentair, Inc.
 
    Number     Amount                
    In thousands, except share and per-share data  

Net income

          34,222          34,222        4,299        38,521      $ 34,222   

Change in cumulative translation adjustment

            (91,591     (91,591     (2,115     (93,706     (91,591

Adjustment in retirement liability, net of ($26,650) tax

            (41,683     (41,683       (41,683     (41,683

Changes in market value of derivative financial instruments, net of $2,884 tax

            4,375        4,375          4,375        4,375   
                 

 

 

 

Comprehensive income (loss)

                  $ (94,677
                 

 

 

 

Tax benefit of stock compensation

        3,868            3,868          3,868     

Cash dividends—$0.80 per common share

          (79,537       (79,537       (79,537  

Share repurchase

    (397,126     (66     (12,719         (12,785       (12,785  

Exercise of stock options, net of 182,270 shares tendered for payment

    657,616        110        14,598            14,708          14,708     

Issuance of restricted shares, net of cancellations

    28,603        5        1,470            1,475          1,475     

Amortization of restricted shares

        1,006            1,006          1,006     

Shares surrendered by employees to pay taxes

    (75,721     (13     (2,785         (2,798       (2,798  

Stock compensation

        8,916            8,916          8,916     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Balance—December 31, 2011

    98,622,564      $ 16,437      $ 488,843      $ 1,579,290      $ (151,241   $ 1,933,329      $ 114,063      $ 2,047,392     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

F-76


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

1. Summary of Significant Accounting Policies

Fiscal year

Our fiscal year ends on December 31. We report our interim quarterly periods on a 13-week basis ending on a Saturday.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of Pentair and all subsidiaries, both U.S. and non-U.S., that we control. Intercompany accounts and transactions have been eliminated. Investments in companies of which we own 20% to 50% of the voting stock or have the ability to exercise significant influence over operating and financial policies of the investee are accounted for using the equity method of accounting and as a result, our share of the earnings or losses of such equity affiliates is included in the Consolidated Statements of Income.

Use of estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that could differ from those estimates. The critical accounting policies that require our most significant estimates and judgments include:

 

the assessment of recoverability of long-lived assets, including goodwill and indefinite-life intangibles; and

 

accounting for pension benefits, because of the importance in making the estimates necessary to apply these policies.

Revenue recognition

Generally, we recognize revenue when it is realized or realizable and has been earned. Revenue is recognized when persuasive evidence of an arrangement exists; shipment or delivery has occurred (depending on the terms of the sale); our price to the buyer is fixed or determinable; and collectability is reasonably assured.

Generally, there is no post-shipment obligation on product sold other than warranty obligations in the normal and ordinary course of business. In the event significant post-shipment obligations were to exist, revenue recognition would be deferred until substantially all obligations were satisfied.

Percentage of completion

Revenue from certain long-term contracts is recognized over the contractual period under the percentage-of-completion (POC) method of accounting. Under this method, sales and gross profit are recognized as work is performed based on the relationship between the actual costs incurred and the total estimated costs at completion. Changes to the original estimates may be required during the life of the contract and such estimates are reviewed on a regular basis. Sales and gross profit are adjusted using the cumulative catch-up method for revisions in estimated total contract costs and contract values. These reviews have not resulted in adjustments that were significant to our results of operations. Estimated losses are recorded when identified. Claims against customers are recognized as revenue upon settlement.

 

F-77


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

We record costs and earnings in excess of billings on uncompleted contracts within Prepaid expenses and other current assets and billings in excess of costs and earnings on uncompleted contracts within Other current liabilities in the Consolidated Balance Sheets. Amounts included in Prepaid expenses and other current assets related to these contracts were $54.7 million and $0 at December 31, 2011 and 2010, respectively. Amounts included in Other current liabilities related to these contracts were $17.7 million and $0 at December 31, 2011 and 2010, respectively.

Sales returns

The right of return may exist explicitly or implicitly with our customers. Generally, our return policy allows for customer returns only upon our authorization. Goods returned must be product we continue to market and must be in salable condition. Returns of custom or modified goods are normally not allowed. At the time of sale, we reduce revenue for the estimated effect of returns. Estimated sales returns include consideration of historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer and a projection of this experience into the future.

Pricing and sales incentives

We record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the later of the date revenue is recognized or the incentive is offered. Sales incentives given to our customers are recorded as a reduction of revenue unless we (1) receive an identifiable benefit for the goods or services in exchange for the consideration and (2) we can reasonably estimate the fair value of the benefit received. The following represents a description of our pricing arrangements, promotions and other volume-based incentives:

Pricing arrangements

Pricing is established up front with our customers and we record sales at the agreed-upon net selling price. However, one of our businesses allows customers to apply for a refund of a percentage of the original purchase price if they can demonstrate sales to a qualifying original equipment manufacturer (“OEM”) customer. At the time of sale, we estimate the anticipated refund to be paid based on historical experience and reduce sales for the probable cost of the discount. The cost of these refunds is recorded as a reduction in gross sales.

Promotions

Our primary promotional activity is what we refer to as cooperative advertising. Under our cooperative advertising programs, we agree to pay the customer a fixed percentage of sales as an allowance that may be used to advertise and promote our products. The customer is generally not required to provide evidence of the advertisement or promotion. We recognize the cost of this cooperative advertising at the time of sale. The cost of this program is recorded as a reduction in gross sales.

Volume-based incentives

These incentives involve rebates that are negotiated up front with the customer and are redeemable only if the customer achieves a specified cumulative level of sales or sales increase. Under these incentive programs, at the time of sale, we reforecast the anticipated rebate to be paid based on forecasted sales levels. These forecasts are updated at least quarterly for each customer and sales are reduced for the anticipated cost of the rebate. If the forecasted sales for a customer changes, the accrual for rebates is adjusted to reflect the new amount of rebates expected to be earned by the customer.

 

F-78


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Shipping and handling costs

Amounts billed to customers for shipping and handling are recorded in Net sales in the accompanying Consolidated Statements of Income. Shipping and handling costs incurred by Pentair for the delivery of goods to customers are included in Cost of goods sold in the accompanying Consolidated Statements of Income.

Research and development

We conduct research and development (“R&D”) activities in our own facilities, which consist primarily of the development of new products, product applications and manufacturing processes. We expense R&D costs as incurred. R&D expenditures during 2011, 2010 and 2009 were $78.2 million, $67.2 million and $57.9 million, respectively.

Cash equivalents

We consider highly liquid investments with original maturities of three months or less to be cash equivalents.

Trade receivables and concentration of credit risk

We record an allowance for doubtful accounts, reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, current trends, aging of accounts receivable and periodic credit evaluations of our customers’ financial condition. We generally do not require collateral. No customer receivable balances exceeded 10% of total net receivable balances as of December 31, 2011 and December 31, 2010.

Inventories

Inventories are stated at the lower of cost or market with substantially all costed using the first-in, first-out (“FIFO”) method and with an insignificant amount of inventories located outside the United States costed using a moving average method which approximates FIFO.

Property, plant and equipment

Property, plant and equipment is stated at historical cost. We compute depreciation by the straight-line method based on the following estimated useful lives:

 

     Years  

Land improvements

     5 to 20   

Buildings and leasehold improvements

     5 to 50   

Machinery and equipment

     3 to 15   

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 cost and related accumulated depreciation are removed from the accounts and any related gains or losses are included in income.

We review the recoverability of long-lived assets to be held and used, such as property, plant and equipment, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is recognized for the difference between estimated fair value and carrying value. Impairment

 

F-79


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

losses on long-lived assets held for sale are determined in a similar manner, except that fair values are reduced for the cost to dispose of the assets. The measurement of impairment requires us to estimate future cash flows and the fair value of long-lived assets. There was no impairment charge recorded related to long-lived assets.

Goodwill and identifiable intangible assets

Goodwill

Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.

Goodwill is tested at least annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is performed using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill. If the estimated fair value is less than the carrying amount of the reporting unit there is an indication that goodwill impairment exists and a second step must be completed in order to determine the amount of the goodwill impairment, if any, that should be recorded. In the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.

The fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations. This non-recurring fair value measurement is a “Level 3” measurement under the fair value hierarchy described below.

In developing our discounted cash flow analysis, assumptions about future revenues and expenses, capital expenditures and changes in working capital, are based on our annual operating plan and long-term business plan for each of our reporting units. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, changes in raw material prices and growth expectations for the industries and end markets we participate in. These assumptions are determined over a five year long-term planning period. The five year growth rates for revenues and operating profits vary for each reporting unit being evaluated. Revenues and operating profit beyond 2018 are projected to grow at a perpetual growth rate between 3.0% and 3.5%.

Discount rate assumptions for each reporting unit take into consideration our assessment of risks inherent in the future cash flows of the respective reporting unit and our weighted-average cost of capital. We utilized discount rates ranging from 12.6% to 14% in determining the discounted cash flows in our fair value analysis.

In estimating fair value using the market approach, we identify a group of comparable publicly-traded companies for each operating segment that are similar in terms of size and product offering. These groups of comparable companies are used to develop multiples based on total market-based invested capital as a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA). We determine our estimated values by applying these comparable EBITDA multiples to the operating results of our reporting units. The ultimate fair value of each reporting unit is determined considering the results of both valuation methods.

Impairment charge

In the fourth quarter of 2011, we completed our annual goodwill impairment review. As a result, we recorded a pre-tax non-cash impairment charge of $200.5. This represents impairment of goodwill in our Residential

 

F-80


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Filtration reporting unit, part of Water & Fluid Solutions. The impairment charge resulted from changes in our forecasts in light of economic conditions prevailing in these markets and due to continued softness in the end-markets served by residential water treatment components.

Identifiable intangible assets

Our primary identifiable intangible assets include trade marks and trade names, patents, non-compete agreements, proprietary technology and customer relationships. Identifiable intangibles with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. We completed our annual impairment test during the fourth quarter for those identifiable assets not subject to amortization. There was no impairment charge recorded in 2011 or 2010 for identifiable intangible assets. An impairment charge of $11.3 million was recorded in 2009, related to trade names. These charges were recorded in Selling, general and administrative in our Consolidated Statements of Income.

The impairment test consists of a comparison of the fair value of the trade name with its carrying value. Fair value is measured using the relief-from-royalty method. This method assumes the trade name has value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. This non-recurring fair value measurement is a “Level 3” measurement under the fair value hierarchy described below.

At December 31, 2011 our goodwill and intangible assets were approximately $2,866 million and represented approximately 62.5% of our total assets. If we experience further declines in sales and operating profit or do not meet our operating forecasts, we may be subject to future impairments. Additionally, changes in assumptions regarding the future performance of our businesses, increases in the discount rate used to determine the discounted cash flows of our businesses or significant declines in our stock price or the market as a whole could result in additional impairment indicators. Because of the significance of our goodwill and intangible assets, any future impairment of these assets could have a material adverse effect on our financial results.

Equity and cost method investments

We have investments that are accounted for using the equity method. Our proportionate share of income or losses from investments accounted for under the equity method is recorded in the Consolidated Statements of Income. We write down or write off an investment and recognize a loss when events or circumstances indicate there is impairment in the investment that is other-than-temporary. This requires significant judgment, including assessment of the investees’ financial condition and in certain cases the possibility of subsequent rounds of financing, as well as the investees’ historical and projected results of operations and cash flows. If the actual outcomes for the investees are significantly different from projections, we may incur future charges for the impairment of these investments.

We have a 50% investment in FARADYNE Motors LLC (“FARADYNE”), a joint venture with Xylem, Inc. (fka ITT Water Technologies, Inc) that designs, develops and manufactures submersible pump motors. We do not consolidate the investment in our consolidated financial statements as we do not have a controlling interest over the investment. There were investments in and loans to FARADYNE of $6.0 million and $6.1 million at December 31, 2011 and December 31, 2010, respectively, which is net of our proportionate share of the results of their operations.

 

F-81


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Investments for which we do not have significant influence are accounted for under the cost method. At December 31, 2011 and 2010 the aggregate balance of these investments was $6.9 million and $3.8 million, respectively.

Income taxes

We use the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in our tax provision in the period of change. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Environmental

We recognize environmental clean-up liabilities on an undiscounted basis when a loss is probable and can be reasonably estimated. Such liabilities generally are not subject to insurance coverage. The cost of each environmental clean-up is estimated by engineering, financial and legal specialists based on current law. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that, where applicable, other potentially responsible parties (“PRPs”) will be able to fulfill their commitments at the sites where Pentair may be jointly and severally liable. The process of estimating environmental clean-up liabilities is complex and dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, the uncertainty as to what remedy and technology will be required and the outcome of discussions with regulatory agencies and other PRPs at multi-party sites. In future periods, new laws or regulations, advances in clean-up technologies and additional information about the ultimate clean-up remedy that is used could significantly change our estimates. Accruals for environmental liabilities are included in Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheets.

Insurance subsidiary

We insure certain general and product liability, property, workers’ compensation and automobile liability risks through our regulated wholly-owned captive insurance subsidiary, Penwald Insurance Company (“Penwald”). Reserves for policy claims are established based on actuarial projections of ultimate losses. As of December 31, 2011 and 2010, reserves for policy claims were $44.3 million ($13.3 million included in Accrued product claims and warranties and $31.0 million included in Other non-current liabilities ) and $49.0 million ($12.0 million included in Accrued product claims and warranties and $37.0 million included in Other non-current liabilities ), respectively.

Stock-based compensation

We account for stock-based compensation awards on a fair value basis. The estimated grant date fair value of each option award is recognized in income on an accelerated basis over the requisite service period (generally the vesting period). The estimated fair value of each option award is calculated using the Black-Scholes option-pricing model. From time to time, we have elected to modify the terms of the original grant. These modified grants are accounted for as a new award and measured using the fair value method, resulting in the inclusion of

 

F-82


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

additional compensation expense in our Consolidated Statements of Income. Restricted share awards and units are recorded as compensation cost on a straight-line basis over the requisite service periods based on the market value on the date of grant.

Earnings per common share

Basic earnings per share are computed by dividing net income attributable to Pentair, Inc., by the weighted-average number of common shares outstanding. Diluted earnings per share are computed by dividing net income attributable to Pentair, Inc., by the weighted-average number of common shares outstanding including the dilutive effects of common stock equivalents. The dilutive effects of stock options and restricted stock awards and units increased weighted average common shares outstanding by 1,519 thousand, 1,257 thousand and 1,107 thousand in 2011, 2010 and 2009, respectively.

Stock options excluded from the calculation of diluted earnings per share because the exercise price was greater than the average market price of the common shares were 2,140 thousand, 3,711 thousand and 5,283 thousand in 2011, 2010 and 2009, respectively.

Derivative financial instruments

We recognize all derivatives, including those embedded in other contracts, as either assets or liabilities at fair value in our Consolidated Balance Sheets. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated and is effective as a cash-flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income (“OCI”) and are recognized in the Consolidated Statements of Income when the hedged item affects earnings. If the underlying hedged transaction ceases to exist or if the hedge becomes ineffective, all changes in fair value of the related derivatives that have not been settled are recognized in current earnings. For a derivative that is not designated as or does not qualify as a hedge, changes in fair value are reported in earnings immediately.

We use derivative instruments for the purpose of hedging interest rate and currency exposures, which exist as part of ongoing business operations. We do not hold or issue derivative financial instruments for trading or speculative purposes. All other contracts that contain provisions meeting the definition of a derivative also meet the requirements of and have been designated as, normal purchases or sales. Our policy is not to enter into contracts with terms that cannot be designated as normal purchases or sales. From time to time, we may enter in to short duration foreign currency contracts to hedge foreign currency risks.

Fair value measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

Level 1:  Valuation is based on observable inputs such as quoted market prices (unadjusted) for identical assets or liabilities in active markets.

Level 2:  Valuation is based on inputs such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3:  Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

 

F-83


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Foreign currency translation

The financial statements of subsidiaries located outside of the U.S. are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resultant translation adjustments are included in Accumulated other comprehensive income (loss) (“AOCI”), a separate component of shareholders’ equity.

New accounting standards

In May 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance to improve the consistency of fair value measurement and disclosure requirements between US GAAP and International Financial Reporting Standards. The provisions of this guidance change certain of the fair value principles related to the highest and best use premise, the consideration of blockage factors and other premiums and discounts, and the measurement of financial instruments held in a portfolio and instruments classified within shareholders’ equity. Further, the guidance provides additional disclosure requirements surrounding Level 3 fair value measurements, the uses of nonfinancial assets in certain circumstances and identification of the level in the fair value hierarchy used for assets and liabilities which are not recorded at fair value, but where fair value is disclosed. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011. We are evaluating the potential impact of adoption.

In June 2011, the FASB issued authoritative guidance surrounding the presentation of comprehensive income, with an objective of increasing the prominence of items reported in OCI. This guidance provides entities with the option to present the total of comprehensive income, the components of net income and the components of OCI in either a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, entities must present on the face of the financial statement, items reclassified from OCI to net income in the section of the financial statement where the components of net income and OCI are presented, regardless of the option selected to present comprehensive income. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The FASB subsequently deferred the effective date of certain provisions of this standard pertaining to the reclassification of items out of accumulated other comprehensive income, pending the issuance of further guidance on that matter. We believe that the adoption of this guidance will not have a material impact on our financial condition or results of operations.

In September 2011, the FASB issued an amendment to an existing accounting standard, which provides entities an option to perform a qualitative assessment to determine whether further impairment testing on goodwill is necessary. Specifically, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We believe that the adoption of this guidance will not have a material impact on our financial condition or results of operations.

Subsequent events

In connection with preparing the audited consolidated financial statements for the year ended December 31, 2011, we have evaluated subsequent events for potential recognition and disclosure through the date of this filing.

 

F-84


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

2. Acquisitions

In May 2011, we acquired as part of Water & Fluid Solutions, the CPT division of privately held Norit Holding B.V. for $715.3 million (€502.7 million translated at the May 12, 2011 exchange rate). CPT’s results of operations have been included in our consolidated financial statements since the date of acquisition. CPT is a global leader in membrane solutions and clean process technologies in the high growth water and beverage filtration and separation segments. CPT provides sustainable purification systems and solutions for desalination, water reuse, industrial applications and beverage segments that effectively address the increasing challenges of clean water scarcity, rising energy costs and pollution. CPT’s product offerings include innovative ultrafiltration and nanofiltration membrane technologies, aseptic valves, CO 2 recovery and control systems and specialty pumping equipment. Based in the Netherlands, CPT has broad sales diversity with the majority of 2011 and 2010 revenues generated in European Union and Asia-Pacific countries.

The fair value of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value acquired over the identifiable assets acquired and liabilities assumed is reflected as goodwill. Goodwill recorded as part of the purchase price allocation was $451.8 million, none of which is tax deductible. Identifiable intangible assets acquired as part of the acquisition were $197.2 million, including definite-lived intangibles, such as customer relationships and proprietary technology with a weighted average amortization period of approximately 10 years.

The total purchase price has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:

 

(in thousands)

      

Accounts and notes receivable

   $ 70,038  

Inventories

     60,382  

Deferred tax assets

     4,926  

Prepaid expenses and other current assets

     40,252  

Property, plant and equipment

     69,010  

Goodwill

     451,809  

Intangibles

     197,231  

Accounts payable

     (41,061

Income taxes

     (3,937

Other current liabilities

     (59,229

Long-term debt

     (17,041

Deferred tax liabilities

     (57,069
  

 

 

 

Purchase price

   $ 715,311  
  

 

 

 

CPT’s net sales and income from continuing operations for the period from the acquisition date to December 31, 2011 were $234.1 million and $2.4 million, respectively, and include $13.2 million of non-recurring expenses for acquisition date fair value adjustments related to inventory and customer backlog.

 

F-85


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

The following pro forma consolidated condensed financial results of operations are presented as if the acquisitions described above had been completed at the beginning of the comparable period:

 

     Years ended December 31  

In thousands, except share and per-share data

   2011      2010  

Pro forma net sales

   $ 3,578,462      $ 3,329,812  

Pro forma income from continuing operations

     49,363        177,867  

Loss on disposal of discontinued operations, net of tax

     —           (626

Pro forma net income from continuing operations attributable to Pentair, Inc.

     45,064        173,375  

Pro forma earnings per common share—continuing operations

     

Basic

   $ 0.46      $ 1.77  

Diluted

   $ 0.45      $ 1.75  

Weighted average common shares outstanding

     

Basic

     98,233        98,037  

Diluted

     99,753        99,294  

The 2010 unaudited pro forma net income was adjusted to include the impact of approximately $12.9 million in non-recurring items related to acquisition date fair value adjustments to inventory and customer backlog. The 2011 unaudited pro forma net income was adjusted to exclude the impact of these items. Acquisition-related transaction costs of approximately $8.0 million associated with the CPT acquisition were excluded from the pro forma net income in the 2011 period presented and included in the 2010 period presented.

These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on acquisition debt. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

In January 2011 we acquired as part of Water & Fluid Solutions, all of the outstanding shares of capital stock of Hidro Filtros do Brasil (“Hidro Filtros”) for cash of $14.9 million and a note payable of $2.1 million. The Hidro Filtros results of operations have been included in our consolidated financial statements since the date of acquisition. Hidro Filtros is a leading manufacturer of water filters and filtering elements for residential and industrial applications operating in Brazil and neighboring countries. Goodwill recorded as part of the purchase price allocation was $10.1 million, none of which is tax deductible. Identified intangible assets acquired as part of the acquisition were $6.3 million including definite-lived intangibles, primarily customer relationships of $5.5 million, with an estimated life of 13 years. The proforma impact of this acquisition was deemed to be not material.

Additionally, during 2011, we completed other small acquisitions with purchase prices totaling $4.6 million, consisting of $2.9 million in cash and $1.7 million as a note payable, adding to Water & Fluid Solutions. Total goodwill recorded as part of the purchase price allocation was $4.3 million, none of which is tax deductible. The proforma impact of these acquisitions was deemed to be not material.

Total transaction costs related to acquisition activities for the year ended December 31, 2011 were $8.2 million, which were expensed as incurred and recorded in Selling, general and administrative in our Consolidated Statements of Income.

 

F-86


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

3. Discontinued Operations

In 2010, we were notified of a product recall required by our former Tools Group (which was sold to Black and Decker Corporation in 2004 and treated as a discontinued operation). Under the terms of the sale agreement we are liable for a portion of the product recall costs. We recorded a liability of $3.2 million ($2.0 million net of tax) in 2010 representing our estimate of the potential cost for products sold prior to the date of sale of the Tools Group associated with this recall. In addition, we received the remaining escrow balances from our sale of Lincoln Industrial of approximately $0.5 million, and we reversed tax reserves of approximately $1.0 million due to the expiration of various statues of limitations.

4. Restructuring

During 2011, we announced and initiated certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. These initiatives included the reduction in hourly and salaried headcount of approximately 210 employees, which included 160 in Water & Fluid Solutions and 50 in Technical Products.

Restructuring related costs included in Selling, general and administrative expenses on the Consolidated Statements of Income include costs for severance and other restructuring costs as follows:

 

     Years Ended December 31  

In thousands

   2011          2010          2009  

Severance and related costs

   $ 11,500      $ —         $ 11,160  

Contract termination costs

     —           —           2,030  

Asset impairment and other restructuring costs

     1,500        —           4,050  
  

 

 

    

 

 

    

 

 

 

Total restructuring costs

   $ 13,000      $ —         $ 17,240  
  

 

 

    

 

 

    

 

 

 

Total restructuring costs related to Water & Fluid Solutions and Technical Products were $11.0 million and $2.0 million, respectively, for year ended December 31, 2011.

Restructuring accrual activity recorded on the Consolidated Balance Sheets is summarized as follows:

 

     Years Ended December 31  

In thousands

   2011     2010  

Beginning balance

   $ 3,994     $ 14,509  

Costs incurred

     11,500       —     

Cash payments and other

     (2,689     (10,515
  

 

 

   

 

 

 

Ending balance

   $ 12,805     $ 3,994  
  

 

 

   

 

 

 

 

F-87


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

5. Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the year ended December 31, 2011 and December 31, 2010 by segment were as follows:

 

In thousands

   December 31, 2010      Acquisitions/
divestitures
     Foreign currency
translation/other
    December 31, 2011  

Water & Fluid Solutions

   $ 1,784,100      $ 466,182      $ (255,501   $ 1,994,781  

Technical Products

     281,944        —           (2,807     279,137  
  

 

 

    

 

 

    

 

 

   

 

 

 

Consolidated Total

   $ 2,066,044      $ 466,182      $ (258,308   $ 2,273,918  
  

 

 

    

 

 

    

 

 

   

 

 

 

In thousands

   December 31, 2009      Acquisitions/
divestitures
     Foreign currency
translation/other
    December 31, 2010  

Water & Fluid Solutions

   $ 1,802,913      $ —         $ (18,813   $ 1,784,100  

Technical Products

     285,884        —           (3,940     281,944  
  

 

 

    

 

 

    

 

 

   

 

 

 

Consolidated Total

   $ 2,088,797      $ —         $ (22,753   $ 2,066,044  
  

 

 

    

 

 

    

 

 

   

 

 

 

In 2011, the acquired goodwill in Water & Fluid Solutions is primarily related to the acquisition of CPT. In 2011, we recorded an impairment charge of $200.5 million in Water & Fluid Solutions which is included in “Foreign currency translation/other” above. Accumulated goodwill impairment losses were $200.5 million and $0 as of December 31, 2011 and December 31, 2010, respectively.

The detail of intangible assets consisted of the following:

 

     2011      2010  

In thousands

   Gross
carrying
amount
     Accumulated
amortization
    Net      Gross
carrying
amount
     Accumulated
amortization
    Net  

Finite-life intangibles

               

Patents

   $ 5,896      $ (4,038   $ 1,858      $ 15,469      $ (12,695   $ 2,774  

Proprietary technology

     128,841        (39,956     88,885        74,176        (29,862     44,314  

Customer relationships

     358,410        (109,887     248,523        282,479        (82,901     199,578  

Trade names

     1,515        (530     985        1,532        (383     1,149  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total finite-life intangibles

   $ 494,662      $ (154,411   $ 340,251      $ 373,656      $ (125,841   $ 247,815  

Indefinite-life intangibles

               

Trade names

     252,034        —          252,034        205,755        —          205,755  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total intangibles, net

   $ 746,696      $ (154,411   $ 592,285      $ 579,411      $ (125,841   $ 453,570  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Intangible asset amortization expense in 2011, 2010 and 2009 was approximately $41.9 million, $24.5 million and $27.3 million, respectively.

In 2009 we recorded an impairment charge to write down trade name intangible assets of $11.3 million in Water & Fluid Solutions .

The estimated future amortization expense for identifiable intangible assets during the next five years is as follows:

 

                                                                                    

In thousands

   2012      2013      2014      2015      2016  

Estimated amortization expense

   $ 38,828      $ 38,663      $ 38,296      $ 38,018      $ 37,079  

 

F-88


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

6. Supplemental Balance Sheet Information

 

In thousands

   2011      2010  

Inventories

     

Raw materials and supplies

   $ 219,487      $ 223,482  

Work-in-process

     47,707        37,748  

Finished goods

     182,669        144,126  
  

 

 

    

 

 

 

Total inventories

   $ 449,863      $ 405,356  
  

 

 

    

 

 

 

Property, plant and equipment

     

Land and land improvements

   $ 41,111      $ 36,484  

Buildings and leasehold improvements

     244,246        212,168  

Machinery and equipment

     692,930        598,554  

Construction in progress

     40,251        33,841  
  

 

 

    

 

 

 

Total property, plant and equipment

     1,018,538        881,047  

Less accumulated depreciation and amortization

     631,013        551,612  
  

 

 

    

 

 

 

Property, plant and equipment, net

   $ 387,525      $ 329,435  
  

 

 

    

 

 

 

7. Supplemental Cash Flow Information

The following table summarizes supplemental cash flow information:

 

In thousands

   2011      2010      2009  

Interest payments

   $ 54,516      $ 37,083      $ 43,010  

Income tax payments

     64,389        55,991        8,719  

8. Accumulated Other Comprehensive Income (Loss)

Components of accumulated other comprehensive income (loss) consists of the following:

 

In thousands

   2011     2010  

Retirement liability adjustments, net of tax

   $ (112,893   $ (71,210

Cumulative translation adjustments

     (33,407     58,184  

Market value of derivative financial instruments, net of tax

     (4,941     (9,316
  

 

 

   

 

 

 

Accumulated other comprehensive income (loss)

   $ (151,241   $ (22,342
  

 

 

   

 

 

 

 

F-89


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

9. Debt

Debt and the average interest rates on debt outstanding are summarized as follows:

 

In thousands

   Average
interest rate
December 31, 2011
    Maturity
(Year)
     December
31, 2011
    December
31, 2010
 

Commercial paper

     1.26     2016      $ 3,497     $ —     

Revolving credit facilities

     2.04     2016        168,500       97,500  

Private placement—fixed rate

     5.65     2013 -2017         400,000       400,000  

Private placement—floating rate

     0.99     2012 -2016         205,000       205,000  

Public—fixed rate

     5.00     2021        500,000       —     

Capital lease obligations

     3.72     2025        15,788       —     

Other

     3.04     2012 -2021         16,302       4,972  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total debt, including current portion

          1,309,087       707,472  

Less: Current maturities

          (1,168     (18

Short-term borrowings

          (3,694     (4,933
       

 

 

   

 

 

 

Long-term debt

        $ 1,304,225     $ 702,521  
       

 

 

   

 

 

 

In May 2011, we completed a public offering of $500 million aggregate principal amount of our 5.00% Senior Notes due 2021 (the “Notes”). The Notes are guaranteed by certain of our wholly-owned domestic subsidiaries that are also guarantors under our primary bank credit facility. We used the net proceeds from the offering of the Notes to finance in part the CPT acquisition.

In April 2011, we entered into a Fourth Amended and Restated Credit Agreement (the “Credit Facility”). The Credit Facility replaced our previous $800 million revolving credit facility. The Credit Facility creates an unsecured, committed credit facility of up to $700 million, with multi-currency sub facilities to support investments outside the U.S. The Credit Facility expires on April 28, 2016. Borrowings under the Credit Facility currently bear interest at the rate of London Interbank Offered Rate (“LIBOR”) plus 1.75%. Interest rates and fees on the Credit Facility will vary based on our credit ratings. We used borrowings under the Credit Facility to fund a portion of the CPT acquisition and to fund ongoing operations.

Total availability under our existing Credit Facility was $528.0 million as of December 31, 2011, which was limited to $480.3 million by the leverage ratio financial covenant in the credit agreement.

Our debt agreements contain certain financial covenants, the most restrictive of which is a leverage ratio (total consolidated indebtedness, as defined, over consolidated net income before interest, taxes, depreciation, amortization and non-cash compensation expense, as defined) that may not exceed 3.5 to 1.0 as of the last date of each of our fiscal quarters thereafter. We were in compliance with all financial covenants in our debt agreements as of December 31, 2011.

In addition to the Credit Facility, we have various other credit facilities with an aggregate availability of $74.2 million, of which $14.1 million was outstanding at December 31, 2011. Borrowings under these credit facilities bear interest at variable rates.

We have $105 million of outstanding private placement debt maturing in May 2012. We classified this debt as long-term as of December 31, 2011 as we have the intent and ability to refinance such obligation on a long-term basis under the Credit Facility.

In March 2009, we announced the redemption of all of our remaining outstanding $133.9 million aggregate principal of our 7.85% Senior Notes due 2009. These notes were redeemed on April 15, 2009 at a redemption

 

F-90


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

price of $1,035.88 per $1,000 of principal outstanding plus accrued interest thereon. As a result of this transaction, we recognized a loss of $4.8 million on early extinguishment of debt in the second quarter of 2009. The loss included the write off of $0.1 million in unamortized deferred financing fees in addition to recognition of $0.3 million in previously unrecognized swap gains and cash paid of $5.0 million related to the redemption and other costs associated with the purchase.

Debt outstanding at December 31, 2011 matures on a calendar year basis as follows:

 

In thousands

   2012      2013      2014      2015      2016      Thereafter      Total  

Contractual debt obligation maturities

   $ 3,694      $ 200,620      $ —         $ —         $ 288,985      $ 800,000      $ 1,293,299  

Capital lease obligations

     1,168        1,168        1,168        1,168        1,168        9,948        15,788  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total maturities

   $ 4,862      $ 201,788      $ 1,168      $ 1,168      $ 290,153      $ 809,948      $ 1,309,087  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As part of the CPT acquisition, we assumed a capital lease obligation related to land and buildings. As of December 31, 2011 we had a cost of $22.7 million, and accumulated amortization of $5.1 million, all of which are included in Property, plant and equipment on the Consolidated Balance Sheets.

The present value of future minimum lease payments is the total future minimum lease payments of $17.9 million less the imputed interest of $2.1 million.

10. Derivatives and Financial Instruments

Cash-flow hedges

In August 2007, we entered into a $105 million interest rate swap agreement with a major financial institution to exchange variable rate interest payment obligations for a fixed rate obligation without the exchange of the underlying principal amounts in order to manage interest rate exposures. The effective date of the swap was August 30, 2007. The swap agreement has a fixed interest rate of 4.89% and expires in May 2012. The fixed interest rate of 4.89% plus the .50% interest rate spread over LIBOR results in an effective fixed interest rate of 5.39%. The fair value of the swap was a liability of $1.7 million and $6.4 million at December 31, 2011 and December 31, 2010, respectively and was recorded in AOCI on the Consolidated Balance Sheets.

In September 2005, we entered into a $100 million interest rate swap agreement with several major financial institutions to exchange variable-rate interest payment obligations for fixed-rate obligations without the exchange of the underlying principal amounts in order to manage interest rate exposures. The effective date of the fixed-rate swap was April 25, 2006. The swap agreement has a fixed interest rate of 4.68% and expires in July 2013. The fixed interest rate of 4.68% plus the .60% interest rate spread over LIBOR results in an effective fixed interest rate of 5.28%. The fair value of the swap was a liability of $6.3 million and $9.4 million at December 31, 2011 and December 31, 2010, respectively and was recorded in AOCI on the Consolidated Balance Sheets.

The variable to fixed interest rate swaps are designated as cash-flow hedges. The fair value of these swaps are recorded as assets or liabilities on the Consolidated Balance Sheets. Unrealized income/expense is included in AOCI and realized income/expense and amounts due to/from swap counterparties, are included in earnings. We realized incremental interest expense resulting from the swaps of $9.3 million and $9.2 million at December 31, 2011 and December 31, 2010, respectively.

The variable to fixed interest rate swaps are designated as and are effective as cash-flow hedges. The fair value of these swaps are recorded as assets or liabilities on the Consolidated Balance Sheets, with changes in their fair value included in OCI. Derivative gains and losses included in OCI are reclassified into earnings at the time the related interest expense is recognized or the settlement of the related commitment occurs.

 

F-91


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Failure of one or more of our swap counterparties would result in the loss of any benefit to us of the swap agreement. In this case, we would continue to be obligated to pay the variable interest payments per the underlying debt agreements which are at variable interest rates of 3 month LIBOR plus .50% for $105 million of debt and 3 month LIBOR plus .60% for $100 million of debt. Additionally, failure of one or all of our swap counterparties would not eliminate our obligation to continue to make payments under our existing swap agreements if we continue to be in a net pay position.

At December 31, 2011 and 2010, our interest rate swaps are carried at fair value measured on a recurring basis. Fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy.

Foreign currency contract

In March 2011, we entered into a foreign currency option contract to reduce our exposure to fluctuations in the euro related to the planned CPT acquisition. The contract had a notional amount of €286.0 million, a strike price of 1.4375 and a maturity date of May 13, 2011. In May 2011, we sold the foreign currency option contract for $1.0 million. The net cost of $2.1 million is recorded in Selling, general and administrative on the Consolidated Statements on Income.

At December 31, 2010 we had a euro to U.S. dollar contract that expired on January 7, 2011 with a notional amount of $132.5 million. The fair value of the contract was an asset of $1.2 million.

We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative instruments. Our objective in holding derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates.

Fair value of financial instruments

In April 2011, as part of our planned debt issuance to fund the CPT acquisition, we entered into interest rate swap contracts to hedge movement in interest rates through the expected date of closing for a portion of the expected fixed rate debt offering. The swaps had a notional amount of $400 million with an average interest rate of 3.65%. In May 2011, upon the sale of the Notes, the swaps were terminated at a cost of $11.0 million. Because we used the contracts to hedge future interest payments, this amount is recorded in Prepaid expenses and other current assets within the Consolidated Balance Sheets and will be amortized as interest exposure over the life of the Notes.

The recorded amounts and estimated fair values of long-term debt, excluding the effects of derivative financial instruments and the recorded amounts and estimated fair value of those derivative financial instruments were as follows:

 

     2011      2010  

In thousands

   Recorded
amount
     Fair
value
     Recorded
amount
     Fair
value
 

Total debt, including current portion

           

Variable rate

   $ 406,978      $ 406,978      $ 307,433      $ 307,433  

Fixed rate

     902,109        954,053        400,039        438,492  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,309,087      $ 1,361,031      $ 707,472      $ 745,925  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

F-92


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

The following methods were used to estimate the fair values of each class of financial instrument measured on a recurring basis:

 

   

short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts and notes payable and variable-rate debt) — recorded amount approximates fair value because of the short maturity period;

 

   

long-term fixed-rate debt, including current maturities — fair value is based on market quotes available for issuance of debt with similar terms, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance; and

 

   

interest rate swaps and foreign currency contract agreements — fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance.

Financial assets and liabilities measured at fair value on a recurring basis were as follows:

 

In thousands

   Fair value
December 31,
2011
    (Level 1)      (Level 2)     (Level 3)  

Cash-flow hedges

   $ (8,034   $ —         $ (8,034   $ —     

Foreign currency contract

     (99     —           (99     —     

Deferred compensation plan (1)

     22,987       22,987        —          —     

In thousands

   Fair value
December 31,
2010
    (Level 1)      (Level 2)     (Level 3)  

Cash-flow hedges

   $ (15,768   $ —         $ (15,768   $ —     

Foreign currency contract

     1,183       —           1,183       —     

Deferred compensation plan (1)

     24,126       24,126        —          —     

 

 

(1)  

Deferred compensation plan assets include mutual funds and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees. The fair value of these assets was based on quoted market prices.

11. Income Taxes

Income from continuing operations before income taxes and noncontrolling interest consisted of the following:

 

                                

In thousands

   2011      2010      2009  

U.S.

   $ 36,832      $ 217,213      $ 111,530  

International

     74,748        82,934        61,117  
  

 

 

    

 

 

    

 

 

 

Income from continuing operations before taxes and noncontrolling interest

   $ 111,580      $ 300,147      $ 172,647  
  

 

 

    

 

 

    

 

 

 

 

F-93


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

The provision for income taxes for continuing operations consisted of the following:

 

                                

In thousands

   2011     2010      2009  

Currently payable

       

Federal

   $ 51,158     $ 44,766      $ 10,502  

State

     6,980       6,591        2,456  

International

     24,005       17,877        13,947  
  

 

 

   

 

 

    

 

 

 

Total current taxes

     82,143       69,234        26,905  

Deferred

       

Federal and state

     419       26,445        26,733  

International

     (9,503     1,521        2,790  
  

 

 

   

 

 

    

 

 

 

Total deferred taxes

     (9,084     27,966        29,523  
  

 

 

   

 

 

    

 

 

 

Total provision for income taxes

   $ 73,059     $ 97,200      $ 56,428  
  

 

 

   

 

 

    

 

 

 

Reconciliation of the U.S. statutory income tax rate to our effective tax rate for continuing operations follows:

 

                                                  

Percentages

   2011     2010     2009  

U.S. statutory income tax rate

     35.0       35.0       35.0  

State income taxes, net of federal tax benefit

     3.3       2.1       2.6  

Tax effect of stock-based compensation

     0.4       0.2       0.2  

Tax effect of international operations

     (9.8     (3.8     (3.5

Tax credits

     (0.9     (0.3     (1.4

Domestic manufacturing deduction

     (3.3     (1.4     (0.4

ESOP dividend benefit

     (0.6     (0.2     (0.4

Goodwill

     40.4       —          —     

All other, net

     1.0       0.8       0.6  
  

 

 

   

 

 

   

 

 

 

Effective tax rate on continuing operations

     65.5       32.4       32.7  
  

 

 

   

 

 

   

 

 

 

Reconciliation of the beginning and ending gross unrecognized tax benefits follows:

  

In thousands

   2011     2010     2009  

Gross unrecognized tax benefits — beginning balance

   $ 24,260     $ 29,962     $ 28,139  

Gross increases for tax positions in prior periods

     2,042       286       3,191  

Gross decreases for tax positions in prior periods

     (192     (2,490     (2,433

Gross increases based on tax positions related to the current year

     3,201       1,431       1,789  

Gross decreases related to settlements with taxing authorities

     (2,465     (4,182     (209

Reductions due to statute expiration

     (377     (747     (515
  

 

 

   

 

 

   

 

 

 

Gross unrecognized tax benefits at December 31

   $ 26,469     $ 24,260     $ 29,962  
  

 

 

   

 

 

   

 

 

 

Included in the $26.5 million of total gross unrecognized tax benefits as of December 31, 2011 was $24.5 million of tax benefits that, if recognized, would impact the effective tax rate. It is reasonably possible that the gross unrecognized tax benefits as of December 31, 2011 may decrease by a range of $0 to $18.7 million during the next twelve months primarily as a result of the resolution of federal, state and foreign examinations and the expiration of various statutes of limitations.

 

F-94


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

The determination of annual income tax expense takes into consideration amounts which may be needed to cover exposures for open tax years. The Internal Revenue Service (“IRS”) has examined our U.S. federal income tax returns through 2003 with no material adjustments. The IRS has also completed a survey of our 2004 U.S. federal income tax return with no material findings. The IRS is currently examining our federal tax returns for years 2005 through 2009. No material adjustments have been proposed, however, actual settlements may differ from amounts accrued.

We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Interest expense , respectively, which is consistent with our past practices. As of December 31, 2011, we had recorded approximately $0.9 million for the possible payment of penalties and $5.9 million related to the possible payment of interest expense.

U.S. income taxes have not been provided on undistributed earnings of international subsidiaries. It is our intention to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. As of December 31, 2011, approximately $261.1 million of unremitted earnings attributable to international subsidiaries were considered to be indefinitely invested. It is not practicable to estimate the amount of tax that might be payable if such earnings were to be remitted.

Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in future periods) and “deferred tax liabilities” (generally items for which we received a tax deduction but the tax impact has not yet been recorded in the Consolidated Statements of Income).

Deferred taxes were classified in the Consolidated Balance Sheets as follows:

 

                                 

In thousands

   2011      2010  

Deferred tax assets

   $ 60,899      $ 56,349  

Other noncurrent assets

     —           1,647  

 

Other current liabilities

                  (547

Deferred tax liabilities

           (188,957     (169,198
        

 

 

   

 

 

 

Net deferred tax liability

         $ (128,058   $ (111,749
        

 

 

   

 

 

 

The tax effects of the major items recorded as deferred tax assets and liabilities are as follows:

 

     2011
Deferred tax
    2010
Deferred tax
 

In thousands

   tax Assets      Liabilities     tax Assets      Liabilities  

Accounts receivable allowances

   $ 3,726      $ —        $ 4,490      $ —     

Inventory valuation

     18,891        —          17,381        —     

Accelerated depreciation/amortization

     —           13,270       —           11,436  

Accrued product claims and warranties

     22,430        —          25,753        —     

Employee benefit accruals

     129,642        —          110,547        —     

Goodwill and other intangibles

     —           191,067       —           187,103  

Other, net

     —           98,410       —           71,381  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total deferred taxes

   $ 174,689      $ 302,747     $ 158,171      $ 269,920  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net deferred tax liability

      $ (128,058      $ (111,749
     

 

 

      

 

 

 

Included in Other, net in the table above are deferred tax assets of $3.3 million and $2.3 million as of December 31, 2011 and 2010, respectively, related to a foreign tax credit carryover from the tax period ended December 31, 2006 and related to state net operating losses. The foreign tax credit is eligible for carryforward until the tax period ending December 31, 2016.

 

F-95


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Non-U.S. tax losses of $82.3 million and $49.6 million were available for carryforward at December 31, 2011 and 2010, respectively. A valuation allowance reflected above in Other, net of $11.7 million and $9.4 million exists for deferred income tax benefits related to the non-U.S. loss carryforwards available as of December 31, 2011 and 2010, respectively that may not be realized. We believe that sufficient taxable income will be generated in the respective countries to allow us to fully recover the remainder of the tax losses. The non-U.S. operating losses are subject to varying expiration periods and will begin to expire in 2012. State tax losses of $69.2 million and $69.3 million were available for carryforward at December 31, 2011 and 2010, respectively. A valuation allowance reflected above in Other, net of $1.5 million and $2.4 million exists for deferred income tax benefits related to the carryforwards available at December 31, 2011 and 2010, respectively. Certain state tax losses will expire in 2012, while others are subject to carryforward periods of up to twenty years.

12. Benefit Plans

Pension and post-retirement benefits

We sponsor domestic and foreign defined-benefit pension and other post-retirement plans. Pension benefits are based principally on an employee’s years of service and/or compensation levels near retirement. In addition, we also provide certain post-retirement health care and life insurance benefits. Generally, the post-retirement health care and life insurance plans require contributions from retirees. We use a December 31 measurement date each year. In December 2007, we announced that we will be freezing certain pension plans as of December 31, 2017.

Obligations and funded status

The following tables present reconciliations of the benefit obligation of the plans, the plan assets of the pension plans and the funded status of the plans:

     Pension benefits     Post-retirement  

In thousands

   2011     2010     2011     2010  

Change in benefit obligation

        

Benefit obligation beginning of year

   $ 586,808     $ 552,309     $ 33,715     $ 35,301  

Service cost

     12,466       11,588       180       200  

Interest cost

     32,768       31,671       1,889       2,013  

Amendments

     —          (281     —          —     

Settlements

     (257     (104     —          —     

Actuarial (gain) loss

     62,751       24,677       2,494       (647

Translation (gain) loss

     (2,477     (4,208     —          —     

Benefits paid

     (30,488     (28,844     (3,197     (3,152
  

 

 

   

 

 

   

 

 

   

 

 

 

Benefit obligation end of year

   $ 661,571     $ 586,808     $ 35,081     $ 33,715  
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in plan assets

        

Fair value of plan assets beginning of year

   $ 385,483     $ 329,188     $ —        $ —     

Actual gain (loss) return on plan assets

     27,971       35,495       —          —     

Company contributions

     37,097       49,840       3,197       3,152  

Settlements

     (257     (104     —          —     

Translation gain (loss)

     (35     (92     —          —     

Benefits paid

     (30,488     (28,844     (3,197     (3,152
  

 

 

   

 

 

   

 

 

   

 

 

 

Fair value of plan assets end of year

   $ 419,771     $ 385,483     $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Funded status

        

Plan assets less than benefit obligation

   $ (241,800   $ (201,325   $ (35,081   $ (33,715
  

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized

   $ (241,800   $ (201,325   $ (35,081   $ (33,715
  

 

 

   

 

 

   

 

 

   

 

 

 

 

F-96


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Of the $241.8 million underfunding at December 31, 2011, $137.9 million relates to foreign pension plans and our supplemental executive retirement plans which are not commonly funded.

Amounts recognized in the Consolidated Balance Sheets are as follows:

 

     Pension benefits     Post-retirement  

In thousands

   2011     2010     2011     2010  

Current liabilities

   $ (5,745   $ (5,343   $ (3,307   $ (3,390

Noncurrent liabilities

     (236,055     (195,982     (31,774     (30,325
  

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized

   $ (241,800   $ (201,325   $ (35,081   $ (33,715
  

 

 

   

 

 

   

 

 

   

 

 

 

The accumulated benefit obligation for all defined benefit plans was $625.9 million and $557.7 million at December 31, 2011 and 2010, respectively.

Information for pension plans with an accumulated benefit obligation or projected benefit obligation in excess of plan assets are as follows:

 

In thousands

   2011      2010  

Pension plans with an accumulated benefit obligation in excess of plan assets:

     

Fair value of plan assets

   $ 419,771      $ 385,483  

Accumulated benefit obligation

     625,884        557,712  

Pension plans with a projected benefit obligation in excess of plan assets:

     

Fair value of plan assets

   $ 419,771      $ 385,483  

Accumulated benefit obligation

     661,571        586,808  

Components of net periodic benefit cost are as follows:

 

     Pension benefits     Post-retirement  

In thousands

   2011     2010     2009     2011     2010     2009  

Service cost

   $ 12,466     $ 11,588     $ 12,334     $ 180     $ 200     $ 214  

Interest cost

     32,768       31,671       32,612       1,889       2,013       2,377  

Expected return on plan assets

     (31,849     (30,910     (30,286     —          —          —     

Amortization of transition obligation

     —          13       25       —          —          —     

Amortization of prior year service cost (benefit)

     —          7       23       (27     (27     (41

Recognized net actuarial (gain) loss

     3,887       1,674       82       (3,306     (3,295     (3,326

Settlement gain

     23       (8     (9     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 17,295     $ 14,035     $ 14,781     $ (1,264   $ (1,109   $ (776
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amounts not yet recognized in net periodic benefit cost and included in accumulated other comprehensive income (pre-tax):

 

     Pension benefits     Post-retirement  

In thousands

   2011     2010     2011     2010  

Prior service cost (benefit)

     (171     (162     (850     (878

Net actuarial (gain) loss

     201,093       138,558       (14,982     (20,781
  

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive (income) loss

   $ 200,922     $ 138,396     $ (15,832   $ (21,659
  

 

 

   

 

 

   

 

 

   

 

 

 

 

F-97


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

The estimated amount that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2012 is as follows:

 

In thousands

   Pension
benefits
     Post-
retirement
 

Prior service cost (benefit)

   $ —         $ (27

Net actuarial (gain) loss

     10,308        (3,306
  

 

 

    

 

 

 

Total estimated 2012 amortization

   $ 10,308      $ (3,333
  

 

 

    

 

 

 

Additional information

Change in accumulated other comprehensive income, net of tax:

 

In thousands

   2011     2010  

Beginning of the year

   $ (71,210   $ (58,448

Additional prior service cost incurred during the year

     —          171  

Actuarial gains (losses) incurred during the year

     (42,139     (11,861

 

Translation gains (losses) incurred during the year

     118       (75

Amortization during the year:

    

Transition obligation

     —          8  

Unrecognized prior service cost (benefit)

     (16     (12

Actuarial gains

     354       (993
  

 

 

   

 

 

 

End of the year

   $ (112,893   $ (71,210
  

 

 

   

 

 

 

Assumptions

Weighted-average assumptions used to determine domestic benefit obligations at December 31 are as follows:

 

     Pension benefits      Post-retirement  

Percentages

   2011      2010      2009      2011      2010      2009  

Discount rate

     5.05        5.90        6.00        5.05        5.90        6.00  

Rate of compensation increase

     4.00        4.00        4.00           

Weighted-average assumptions used to determine the domestic net periodic benefit cost for years ending December 31 are as follows:

 

       Pension benefits      Post-retirement  

Percentages

   2011      2010      2009      2011      2010      2009  

Discount rate

     5.90        6.00        6.50        5.90        6.00        6.50  

Expected long-term return on plan assets

     8.00        8.50        8.50           

Rate of compensation increase

     4.00        4.00        4.00           

Discount rate

The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year based on our December 31 measurement date. The discount rate was determined by matching our expected benefit payments to payments from a stream of AA or higher bonds available in the marketplace, adjusted to eliminate the effects of call provisions. This produced a discount rate for our U.S. plans of 5.05% in

 

F-98


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

2011, 5.90% in 2010 and 6.00% in 2009. The discount rates on our foreign plans ranged from 0.75% to 5.00% in 2011, 0.75% to 5.40% in 2010 and 2.00% to 6.00% in 2009. There are no other known or anticipated changes in our discount rate assumption that will impact our pension expense in 2012.

Expected rate of return

Our expected rate of return on plan assets was 8.0% for 2011 and 8.5%, 2010 and 2009. The expected rate of return is designed to be a long-term assumption that may be subject to considerable year-to-year variance from actual returns. In developing the expected long-term rate of return, we considered our historical returns, with consideration given to forecasted economic conditions, our asset allocations, input from external consultants and broader longer-term market indices. In 2011, the pension plan assets yielded returns of 7.8% and returns of 11.2% and 19.5% in 2010 and 2009. Our expected rate of return on plan assets assumption is 7.5% for 2012.

We base our determination of pension expense or income on a market-related valuation of assets which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five- year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year-period, the future value of assets will be impacted as previously deferred gains or losses are recorded.

Unrecognized pension and post-retirement losses

As of our December 31, 2011 measurement date, our plans have $186.1 million of cumulative unrecognized losses. To the extent the unrecognized losses, when adjusted for the difference between market and market related values of assets, exceeds 10% of the projected benefit obligation, it will be amortized into expense each year on a straight-line basis over the remaining expected future-working lifetime of active participants (currently approximating 12 years).

The assumed health care cost trend rates at December 31 are as follows:

 

     2011     2010  

Health care cost trend rate assumed for next year

     7.50      7.50 

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

     4.50      4.50 

Year that the rate reaches the ultimate trend rate

     2027       2027  

The assumed health care cost trend rates can have a significant effect on the amounts reported for health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:

     1-Percentage-point      1-Percentage-point  

In thousands

   increase      decrease  

Effect on total annual service and interest cost

   $ 45      $ (40

Effect on post-retirement benefit obligation

     905        (801

Plan assets

Objective

The primary objective of our investment strategy is to meet the pension obligation to our employees at a reasonable cost to us. This is primarily accomplished through growth of capital and safety of the funds invested.

 

F-99


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

The plans will therefore be actively invested to achieve real growth of capital over inflation through appreciation of securities held and through the accumulation and reinvestment of dividend and interest income.

Asset allocation

Our actual overall asset allocation for the plans as compared to our investment policy goals is as follows:

 

     Plan assets     Target allocation  

Asset class

   2011     2010     2011     2010  

Equity securities

     42      47      40      50 

Fixed income investments

     50      37      50      40 

Alternative investments

         12      10      10 

Cash

             —       —  

While the target allocations do not have a percentage allocated to cash, the plan assets will always include some cash due to cash flow requirements.

As part of our strategy to reduce U.S. pension plan funded status volatility, we plan to increase the allocation to long duration fixed income securities in future years as the funded status of our U.S. pension plans improve. In 2011 we increased our fixed income investments from 40% to 50% and from 30% to 40% in 2010.

Fair value measurement

The following table presents our plan assets using the fair value hierarchy as of December 31, 2011 and December 31, 2010.

 

in thousands

   Quoted prices in
active markets for

identical assets
(Level 1)
     Significant other
observable inputs
(Level 2)
     Significant
unobservable
inputs (Level
3)
     Total  

Cash equivalents

   $ —         $ 13,084         $ —         $ 13,084  

Fixed income:

              

Corporate and non U.S. government

     —           76,046           150        76,196  

U.S. treasuries

     —           82,989           —           82,989  

Mortgage-backed securities

     —           40,286           629        40,915  

Other

     —           7,958           219        8,177  

Global equity securities:

              

Small cap equity

     7,094        —              —           7,094  

Mid cap equity

     7,528        4           —           7,532  

Large cap equity

     —          47,398           —          47,398  

International equity

     19,942        19,652           —           39,594  

Long/short equity

     —           56,575           —           56,575  

Pentair company stock

     16,645        —              —           16,645  

Other investments

     —           4,563           19,009        23,572  
  

 

 

    

 

 

    

 

  

 

 

    

 

 

 

Total as of December 31, 2011

   $ 51,209      $ 348,555         $ 20,007      $ 419,771  
  

 

 

    

 

 

    

 

  

 

 

    

 

 

 

 

F-100


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

in thousands

   Quoted prices in
active  markets for
identical assets
(Level 1)
     Significant other
observable inputs

(Level 2)
     Significant
unobservable
inputs

(Level 3)
     Total  

Cash equivalents

   $ —         $ 13,803      $ —         $ 13,803  

Fixed income:

           

Corporate and non U.S. government

     —           42,544        284        42,828  

U.S. treasuries

     —           60,710        —           60,710  

Mortgage-backed securities

     —           30,052        1,368        31,420  

Other

     —           6,818        125        6,943  

Global equity securities:

           

Small cap equity

     7,982        —           —           7,982  

Mid cap equity

     8,811        —           —           8,811  

Large cap equity

     —           45,700        —           45,700  

International equity

     23,964        21,895        —           45,859  

Long/short equity

     —           56,639        —           56,639  

Pentair company stock

     18,255        —           —           18,255  

Other investments

     —           33,542        12,991        46,533  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total as of December 31, 2010

   $ 59,012      $ 311,703      $ 14,768      $ 385,483  
  

 

 

    

 

 

    

 

 

    

 

 

 

Valuation methodologies used for investments measured at fair value are as follows:

 

   

Cash equivalents:  Consist of investments in commingled funds valued based on observable market data. Such investments are classified as Level 2.

 

   

Fixed income:  Investments in corporate bonds, government securities, mortgages and asset-backed securities are value based upon quoted market prices for identical or similar securities and other observable market data. Investments in commingled funds are generally valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service. Such investments are classified as Level 2. Certain investments in commingled funds are valued based on unobservable inputs due to liquidation restrictions. These investments are classified as Level 3.

 

   

Global equity securities:  Equity securities and Pentair common stock are valued based on the closing market price in an active market and are classified as Level 1. Investments in commingled funds are valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service. Such investments are classified as Level 2.

 

   

Other investments:  Other investments include investments in commingled funds with diversified investment strategies. Investments in commingled funds that are valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service are classified as Level 2. Investments in commingled funds that are valued based on unobservable inputs due to liquidation restrictions are classified as Level 3.

The following tables present a reconciliation of Level 3 assets held during the years ended December 31, 2011 and December 31, 2010, respectively.

 

     Balance
January 1, 2011
     Net realized
and unrealized
gains (losses)
     Net purchases,
issuances and
settlements
    Net
transfers into
(out of)

level 3
     Balance
December 31,
2011
 

Other investments

   $ 12,991      $ 251      $ 5,767     $ —         $ 19,009  

Fixed income investments

     1,777        87        (866     —           998  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 14,768      $ 338      $ 4,901     $ —         $ 20,007  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

F-101


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

     Balance
January 1, 2010
     Net realized
and unrealized
gains (losses)
     Net
purchases,
issuances
and
settlements
    Net
transfers into
(out of) level 3
     Balance
December 31,
2010
 

Other investments

   $ 14,427      $ 678      $ (2,114   $ —         $ 12,991  

Fixed income investments

     2,739        334        (1,296     —           1,777  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 17,166      $ 1,012      $ (3,410   $ —         $ 14,768  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Cash flows

Contributions

Pension contributions totaled $37.1 million and $49.8 million in 2011 and 2010, respectively. Our 2012 required pension contributions are expected to be in the range of $40 million to $45 million. The 2012 expected contributions will equal or exceed our minimum funding requirements.

Estimated future benefit payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans as follows:

 

In millions

   Pension benefits      Post-retirement  

2012

   $ 31.8      $ 3.3  

2013

     32.6        3.2  

2014

     33.5        3.1  

2015

     35.9        3.0  

2016

     38.7        2.9  

2017-2021

     221.4        13.1  

Savings plan

We have a 401(k) plan (“the plan”) with an employee stock ownership (“ESOP”) bonus component, which covers certain union and nearly all non-union U.S. employees who meet certain age requirements. Under the plan, eligible U.S. employees may voluntarily contribute a percentage of their eligible compensation. We match contributions made by employees who meet certain eligibility and service requirements. Our matching contribution is 100% of eligible employee contributions for the first 1% of eligible compensation and 50% of the next 5% of eligible compensation. In June 2009, we temporarily suspended the company match of the plan and ESOP. We reinstated the company match in 2010.

In addition to the matching contribution, all employees who meet certain service requirements receive a discretionary ESOP contribution equal to 1.5% of annual eligible compensation.

Our combined expense for the plan and ESOP was approximately $15.8 million, $11.0 million and $6.7 million, in 2011, 2010 and 2009, respectively.

Other retirement compensation

Total other accrued retirement compensation was $12.6 million and $13.9 million in 2011 and 2010, respectively and is included in the Pension and other retirement compensation line of our Consolidated Balance Sheet.

 

F-102


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

13. Shareholders’ Equity

Authorized shares

We may issue up to 250 million shares of common stock. Our Board of Directors may designate up to 15 million of those shares as preferred stock. On December 10, 2004, the Board of Directors designated a new series of preferred stock with authorization to issue up to 2.5 million shares, Series A Junior Participating Preferred Stock, par value $0.10 per share. No shares of preferred stock were issued or outstanding as of December 31, 2011 or December 31, 2010.

Purchase rights

On December 10, 2004, our Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock. The dividend was payable upon the close of business on January 28, 2005 to the shareholders of record upon the close of business on January 28, 2005. Each Right entitles the registered holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, at a price of $240.00 per one one-hundredth of a share, subject to adjustment. However, the Rights are not exercisable unless certain change in control events occur, such as a person acquiring or obtaining the right to acquire beneficial ownership of 15% or more of our outstanding common stock. The description and terms of the Rights are set forth in a Rights Agreement, dated December 10, 2004. The Rights will expire on January 28, 2015, unless the Rights are earlier redeemed or exchanged in accordance with the terms of the Rights Agreement. On January 28, 2005, the common share purchase rights issued pursuant to the Rights Agreement dated July 31, 1995 were redeemed in their entirety for an amount equal to $0.0025 per right.

Share repurchases

In July 2010, the Board of Directors authorized the repurchase of shares of our common stock up to a maximum dollar limit of $25 million. As of December 31, 2010 we had repurchased 734,603 shares for $25 million pursuant to this plan. In December 2010, the Board of Directors authorized the repurchase of shares of our common stock up to a maximum dollar limit of $25 million. As of December 31, 2011, we had repurchased 389,300 shares for $12.5 million pursuant to this authorization, which expired in December 2011. In December 2011, the Board of Directors authorized the repurchase of shares of our common stock up to a maximum dollar limit of $25 million. This authorization expires in December 2012.

14. Stock Plans

Total stock-based compensation expense in 2011, 2010 and 2009 was $19.5 million, $21.5 million and $17.3 million, respectively.

Omnibus stock incentive plans

In May 2008, the 2008 Omnibus Stock Incentive Plan as Amended and Restated (the “2008 Plan” or the “Plan”) was approved by shareholders. The 2008 Plan authorizes the issuance of additional shares of our common stock and extends through February 2018. The 2008 Plan allows for the granting of nonqualified stock options; incentive stock options; restricted shares; restricted stock units; dividend equivalent units; stock appreciation rights; performance shares; performance units; and other stock based awards.

The Plan is administered by our Compensation Committee (the “Committee”), which is made up of independent members of our Board of Directors. Employees eligible to receive awards under the Plan are managerial, administrative or other key employees who are in a position to make a material contribution to the continued profitable growth and long-term success of Pentair. The Committee has the authority to select the recipients of

 

F-103


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

awards, determine the type and size of awards, establish certain terms and conditions of award grants and take certain other actions as permitted under the Plan. The Plan restricts the Committee’s authority to reprice awards or to cancel and reissue awards at lower prices.

The Omnibus Stock Incentive Plan approved by the shareholders in 2004 (the “2004 Plan”) expired upon approval of the 2008 Plan by shareholders. Prior grants made under the 2004 Plan and earlier stock incentive plans remained outstanding on the terms in effect at the time of grant.

Non-qualified and incentive stock options

Under the Plan, we may grant stock options to any eligible employee with an exercise price equal to the market value of the shares on the dates the options were granted. Options generally vest over a three-year period commencing on the grant date and expire ten years after the grant date. Annual expense for the fair value of stock options was $8.9 million in 2011, $10.7 million in 2010 and $7.1 million in 2009.

Restricted shares and restricted stock units

Under the Plan, eligible employees are awarded restricted shares or restricted stock units (awards) of our common stock. Share awards generally vest from two to five years after issuance, subject to continuous employment and certain other conditions. Restricted share awards are valued at market value on the date of grant and are expensed over the vesting period. Annual expense for the fair value of restricted shares and restricted stock units was $10.6 million in 2011, $10.8 million in 2010 and $10.2 million in 2009.

Stock appreciation rights, performance shares and performance units

Under the Plan, the Committee is permitted to issue these awards which are generally earned over a three-year vesting period and are tied to specific financial metrics.

Outside directors nonqualified stock option plan

Nonqualified stock options were granted to outside directors under the Outside Directors Nonqualified Stock Option Plan (the “Directors Plan”) with an exercise price equal to the market value of the shares on the option grant dates. Options generally vest over a three-year period commencing on the grant date and expire ten years after the grant date. The Directors Plan expired in January 2008. Prior grants remain outstanding on the terms in effect at the time of grant.

Non-employee Directors are also eligible to receive awards under the 2008 Plan. Director awards are made by our Governance Committee, which is made up of independent members of our Board of Directors.

 

F-104


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Stock options

The following table summarizes stock option activity under all plans:

 

Options outstanding

   Shares     Weighted average
exercise price
     Weighted average
remaining
contractual life
     Aggregate
intrinsic value
 

Balance January 1, 2011

     7,967,416     $ 31.34        

Granted

     817,707       36.73        

Exercised

     (839,886     25.03        

Forfeited

     (45,203     32.86        

Expired

     (62,338     40.06        
  

 

 

   

 

 

    

 

 

    

 

 

 

Balance December 31, 2011

     7,837,696     $ 32.50        5.6      $ 20,161,647  
  

 

 

   

 

 

    

 

 

    

 

 

 

Options exercisable as of December 31, 2011

     5,694,049     $ 32.38        4.6      $ 16,052,331  

Options expected to vest as of December 31, 2011

     2,107,848     $ 32.82        8.2      $ 4,109,316  

The weighted-average grant date fair value of options granted in 2011, 2010 and 2009 was estimated to be $9.98, $9.47 and $5.09 per share, respectively. The total intrinsic value of options that were exercised during 2011, 2010 and 2009 was $10.9 million, $7.4 million and $5.2 million, respectively. At December 31, 2011, the total unrecognized compensation cost related to stock options was $5.3 million. This cost is expected to be recognized over a weighted average period of 1.4 years.

We estimated the fair values using the Black-Scholes option-pricing model, modified for dividends and using the following assumptions:

 

     2011     2010     2009  

Risk-free interest rate

     1.51     2.45     1.77

Expected dividend yield

     2.32     2.30     3.20

Expected stock price volatility

     35.50     35.00     32.50

Expected lives

     5.5 yrs        5.5 yrs        5.2 yrs   

Cash received from option exercises for the years ended December 31, 2011, 2010 and 2009 was $14.7 million, $14.9 million and $8.2 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $4.1 million, $2.8 million and $1.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Restricted share awards

The following table summarizes restricted share award activity under all plans:

 

Restricted shares outstanding

   Shares     Weighted average
grant date

fair value
 

Balance January 1, 2011

     1,309,403     $ 29.33  

Granted

     278,418       36.60  

Vested

     (276,956     31.63  

Forfeited

     (60,783     28.32  
  

 

 

   

 

 

 

Balance December 31, 2011

     1,250,082     $ 30.49  
  

 

 

   

 

 

 

 

F-105


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

As of December 31, 2011, there was $16.4 million of unrecognized compensation cost related to restricted share compensation arrangements granted under the 2004 Plan and the 2008 Plan. That cost is expected to be recognized over a weighted-average period of 2.0 years. The total fair value of shares vested during the years ended December 31, 2011, 2010 and 2009, was $10.2 million, $12.7 million and $5.5 million, respectively. The actual tax benefit realized for the tax deductions from restricted share compensation arrangements totaled $3.6 million, $3.4 million and $2.2 million for the years ended December 31, 2011, 2010 and 2009, respectively.

15. Business Segments

We classify our continuing operations into the following business segments based primarily on types of products offered and markets served:

 

   

Water & Fluid Solutions — manufactures and markets essential products and systems used in the movement, storage, treatment and enjoyment of water. Products include water and wastewater pumps; filtration and purification components and systems; storage tanks and pressure vessels; and pool and spa equipment and accessories.

 

   

Technical Products — designs, manufactures and markets standard, modified and custom enclosures that house and protect sensitive electronics and electrical components and protect the people that use them. Applications served include industrial machinery, data communications, networking, telecommunications, test and measurement, automotive, medical, security, defense and general electronics. Products include mild steel, stainless steel, aluminum and non-metallic enclosures, cabinets, cases, subracks, backplanes and associated thermal management systems.

 

   

Other — is primarily composed of unallocated corporate expenses, our captive insurance subsidiary, intermediate finance companies and divested operations.

The accounting policies of our operating segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on the sales and operating income of the segments and use a variety of ratios to measure performance. These results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.

Financial information by reportable business segment is included in the following summary:

 

In thousands

   2011      2010     2009      2011     2010     2009  
   Net sales to external customers     Operating income (loss)  

Water & Fluid Solutions

   $ 2,369,804      $ 2,041,281     $ 1,847,764       $ 58,311     $ 231,588     $ 163,745  

Technical Products

     1,086,882        989,492       844,704         185,240       151,533       100,355  

Other

     —           —          —          (75,034     (48,966     (44,152
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 3,456,686      $ 3,030,773     $ 2,692,468       $ 168,517     $ 334,155     $ 219,948  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Identifiable assets (1)     Depreciation  

Water & Fluid Solutions

   $ 3,792,188      $ 3,409,556     $ 3,205,774       $ 42,419     $ 37,449     $ 44,063  

Technical Products

     651,693        728,969       716,092         17,826       17,544       19,035  

Other (1)

     142,432        (164,992     (10,532 )       5,990       3,002       1,725  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 4,586,313      $ 3,973,533     $ 3,911,334       $ 66,235     $ 57,995     $ 64,823  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Amortization     Capital expenditures  

Water & Fluid Solutions

   $ 39,451      $ 22,981     $ 34,919       $ 49,241     $ 39,631     $ 36,513  

Technical Products

     2,446        2,610       2,687         15,806       8,336       15,388  

Other

     —           593       3,051         8,301       11,556       2,236  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 41,897      $ 26,184     $ 40,657       $ 73,348     $ 59,523     $ 54,137  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-106


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

The following table presents certain geographic information:

 

In thousands

   2011      2010      2009       2011      2010      2009  
   Net sales to external customers      Long-lived assets  

U.S.

   $ 2,336,845      $ 2,222,856      $ 1,964,138        $ 195,631      $ 196,440      $ 203,206  

Europe

     701,865        470,879        439,312          140,290        77,000        87,880  

Asia and other

     417,976        337,038        289,018          51,604        55,995        42,602  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated

   $ 3,456,686      $ 3,030,773      $ 2,692,468        $ 387,525      $ 329,435      $ 333,688  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  

All cash and cash equivalents are included in Other

Net sales are based on the location in which the sale originated. Long-lived assets represent property, plant and equipment, net of related depreciation.

We offer a broad array of products and systems to multiple markets and customers for which we do not have the information systems to track revenues by primary product category. However, our net sales by segment are representative of our sales by major product category.

We sell our products through various distribution channels including wholesale and retail distributors, original equipment manufacturers and home centers. In Water & Fluid Solutions, one customer accounted for approximately 10% of segment sales in 201l and 2010 and no single customer accounted for more than 10% of segment sales in 2009. In Technical Products, no single customer accounted for more than 10% of segment sales in 2011, 2010 or 2009.

16. Commitments and Contingencies

Operating lease commitments

Net rental expense under operating leases follows:

 

In thousands

   2011     2010     2009  

Gross rental expense

   $ 39,808     $ 32,662     $ 32,799  

Sublease rental income

     (455     (225     (74
  

 

 

   

 

 

   

 

 

 

Net rental expense

   $ 39,353     $ 32,437     $ 32,725  
  

 

 

   

 

 

   

 

 

 

Future minimum lease commitments under non-cancelable operating leases, principally related to facilities, vehicles, and machinery and equipment are as follows:

 

In thousands

   2012     2013     2014     2015     2016     Thereafter     Total  

Minimum lease payments

   $ 25,961      $ 19,343      $ 15,944      $ 12,689     $ 10,331     $ 16,794     $ 101,062  

Minimum sublease rentals

     (280     (283     (285     (118     (103     (103     (1,172
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net future minimum lease commitments

   $ 25,681      $ 19,060      $ 15,659      $ 12,571      $ 10,228     $ 16,691     $ 99,890  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-107


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Environmental

We have been named as defendants, targets, or PRPs in a small number of environmental clean-ups, in which our current or former business units have generally been given de minimis status. To date, none of these claims have resulted in clean-up costs, fines, penalties, or damages in an amount material to our financial position or results of operations. We have disposed of a number of businesses in the past and in certain cases, such as the disposition of the Cross Pointe Paper Corporation uncoated paper business in 1995, the disposition of the Federal Cartridge Company ammunition business in 1997, the disposition of Lincoln Industrial in 2001 and the disposition of the Tools Group in 2004, we have retained responsibility and potential liability for certain environmental obligations. We have received claims for indemnification from purchasers of these businesses and have established what we believe to be adequate accruals for potential liabilities arising out of retained responsibilities. We settled some of the claims in prior years; to date our recorded accruals have been adequate.

In addition, there are ongoing environmental issues at a limited number of sites, including one site acquired in the acquisition of Essef Corporation in 1999, which relates to operations no longer carried out at the sites. We have established what we believe to be adequate accruals for remediation costs at these sites. We do not believe that projected response costs will result in a material liability.

We may be named as a PRP at other sites in the future, for both divested and acquired businesses. When the outcome of the matter is probable and it is possible to provide reasonable estimates of our liability with respect to environmental sites, provisions have been made in accordance with GAAP. As of December 31, 2011 and 2010, our undiscounted reserves for such environmental liabilities were approximately $1.5 million and $1.3 million, respectively. We cannot ensure that environmental requirements will not change or become more stringent over time or that our eventual environmental clean-up costs and liabilities will not exceed the amount of our current reserves.

Litigation

We have been made parties to a number of actions filed or have been given notice of potential claims relating to the conduct of our business, including those pertaining to commercial disputes, product liability, environmental, safety and health, patent infringement and employment matters.

We record liabilities for an estimated loss from a loss contingency where the outcome of the matter is probable and can be reasonably estimated. Factors that are considered when determining whether the conditions for accrual have been met include the (a) nature of the litigation, claim, or assessment, (b) progress of the case, including progress after the date of the financial statements but before the issuance date of the financial statements, (c) opinions of legal counsel and (d) management’s intended response to the litigation, claim, or assessment. Where the reasonable estimate of the probable loss is a range, we record the most likely estimate of the loss. When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range is accrued. Gain contingencies are not recorded until realized.

While we believe that a material impact on our consolidated financial position, results of operations, or cash flows from any such future charges is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future adverse ruling or unfavorable development could result in future charges that could have a material impact. We do and will continue to periodically reexamine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims could change in the future.

 

F-108


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Product liability claims

We are subject to various product liability lawsuits and personal injury claims. A substantial number of these lawsuits and claims are insured and accrued for by Penwald, our captive insurance subsidiary. Penwald records a liability for these claims based on actuarial projections of ultimate losses. For all other claims, accruals covering the claims are recorded, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The accruals are adjusted periodically as additional information becomes available. In 2004, we disposed of the Tools Group and we retained responsibility for certain product claims. We have not experienced significant unfavorable trends in either the severity or frequency of product liability lawsuits or personal injury claims.

Warranties and guarantees

In connection with the disposition of our businesses or product lines, we may agree to indemnify purchasers for various potential liabilities relating to the sold business, such as pre-closing tax, product liability, warranty, environmental, or other obligations. The subject matter, amounts and duration of any such indemnification obligations vary for each type of liability indemnified and may vary widely from transaction to transaction. Generally, the maximum obligation under such indemnifications is not explicitly stated and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our financial condition or results of operations.

We recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.

We provide service and warranty policies on our products. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant.

The changes in the carrying amount of service and product warranties for the years ended December 31, 2011 and 2010 were as follows:

 

In thousands

   2011     2010  

Balance at beginning of the year

   $ 30,050     $ 24,288  

Service and product warranty provision

     50,096       56,553  

Payments

     (53,937     (50,729

Acquired

     3,575       —     

Translation

     (429     (62
  

 

 

   

 

 

 

Balance at end of the period

   $ 29,355     $ 30,050  
  

 

 

   

 

 

 

Stand-by letters of credit and bonds

In the ordinary course of business, we are required to commit to bonds that require payments to our customers for any non-performance. The outstanding face value of the bonds fluctuates with the value of our projects in process and in our backlog. In addition, we issue financial stand-by letters of credit primarily to secure our performance to third parties under self-insurance programs. As of December 31, 2011 and December 31, 2010, the outstanding value of these instruments totaled $136.2 million and $116.5 million, respectively.

 

F-109


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

17. Selected Quarterly Financial Data (Unaudited)

The following table represents the 2011 quarterly financial information:

 

       2011  

In thousands, except per-share data

   First      Second      Third      Fourth     Year  

Net sales

   $ 790,273      $ 910,175      $ 890,546      $ 865,692     $ 3,456,686  

Gross profit

     249,059        287,736        272,062        264,865       1,073,722  

Operating income

     86,177        109,422        92,903        (119,985     168,517  

Income from continuing operations

     52,034        68,137        52,054        (133,704     38,521  

Net income from continuing operations attributable to Pentair, Inc.

     50,541        66,712        51,092        (134,123     34,222  

Earnings per common share attributable to Pentair, Inc. (1)

             

Basic

             

Continuing operations

   $ 0.52      $ 0.68      $ 0.52      $ (1.36   $ 0.35  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Basic earnings per common share

   $ 0.52      $ 0.68      $ 0.52      $ (1.36   $ 0.35  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Diluted

             

Continuing operations

   $ 0.51      $ 0.67      $ 0.51      $ (1.36   $ 0.34  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.51      $ 0.67      $ 0.51      $ (1.36   $ 0.34  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)  

Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted weighted-average common shares outstanding during that period.

The following table represents the 2010 quarterly financial information:

 

       2010  

In thousands, except per-share data

   First      Second      Third      Fourth     Year  

Net sales

   $ 707,013      $ 796,167      $ 773,735      $ 753,858     $ 3,030,773  

Gross profit

     213,702        248,168        236,542        232,228       930,640  

Operating income

     63,601        100,126        90,823        79,605       334,155  

Income from continuing operations

     36,029        61,612        55,729        49,577       202,947  

Gain (loss) on disposal of discontinued operations, net of tax

     524        593        549        (2,292     (626

Net income from continuing operations attributable to to Pentair, Inc.

     34,797        60,488        54,501        48,668       198,454  

Earnings per common share attributable to Pentair, Inc. (1)

             

Basic

             

Continuing operations

   $ 0.35      $ 0.61      $ 0.55      $ 0.50     $ 2.02  

Discontinued operations

     0.01        0.01        0.01        (0.02     (0.01
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Basic earnings per common share

   $ 0.36      $ 0.62      $ 0.56      $ 0.48     $ 2.01  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Diluted

             

Continuing operations

   $ 0.35      $ 0.61      $ 0.55      $ 0.49     $ 2.00  

Discontinued operations

     0.01        —           —           (0.02     (0.01
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.36      $ 0.61      $ 0.55      $ 0.47     $ 1.99  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)  

Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted weighted-average common shares outstanding during that period.

 

F-110


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

18. Financial Statements of Subsidiary Guarantors

Certain of the domestic subsidiaries (the “Guarantor Subsidiaries”) of Pentair, Inc. (the “Parent Company”), each of which is directly or indirectly wholly-owned by the Parent Company, jointly and severally, and fully and unconditionally, guarantee the Parent Company’s indebtedness under the Notes and the Credit Facility. The following supplemental financial information sets forth the Condensed Consolidated Statements of Income, the Condensed Consolidated Balance Sheets, and the Condensed Consolidated Statements of Cash Flows for the Parent Company, the Guarantor Subsidiaries, the non-Guarantor Subsidiaries, and total consolidated Pentair and subsidiaries .

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

For the year ended December 31, 2011

 

In thousands

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 2,243,362     $ 1,437,242     $ (223,918   $ 3,456,686  

Cost of goods sold

     4,000       1,562,298       1,039,362       (222,696     2,382,964  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     (4,000     681,064       397,880       (1,222     1,073,722  

Selling, general and administrative

     18,967       338,830       269,952       (1,222     626,527  

Research and development

     1,032       41,860       35,266       —          78,158  

Goodwill impairment

     —          —          200,520       —          200,520  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (23,999     300,374       (107,858     —          168,517  

Loss (earnings) from investment in subsidiaries

     18,792       (27,419     (1,321     9,948       —     

Other (income) expense:

          

Equity income of unconsolidated subsidiaries

     —          (1,654     (244     —          (1,898

Net interest (income) expense

     (107,743     152,264       14,314       —          58,835  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and noncontrolling interest

     64,952       177,183       (120,607     (9,948     111,580  

Provision for income taxes

     30,730       45,156       (2,827     —          73,059  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     34,222       132,027       (117,780     (9,948     38,521  

Noncontrolling interest

     —          —          4,299       —          4,299  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Pentair, Inc.

   $ 34,222     $ 132,027     $ (122,079   $ (9,948   $ 34,222  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-111


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

For the year ended December 31, 2010

 

In thousands

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 2,092,487     $ 1,189,597     $ (251,311   $ 3,030,773  

Cost of goods sold

     3,167       1,453,786       893,570       (250,390     2,100,133  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     (3,167     638,701       296,027       (921     930,640  

Selling, general and administrative

     (3,713     337,408       196,555       (921     529,329  

Research and development

     393       42,386       24,377       —          67,156  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     153       258,907       75,095       —          334,155  

Earnings from investment in subsidiaries

     (129,872     —          —          129,872       —     

Other (income) expense:

          

Equity income of unconsolidated subsidiaries

     —          (1,551     (557     —          (2,108

Net interest (income) expense

     (111,034     153,904       (6,754     —          36,116  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and noncontrolling interest

     241,059       106,554       82,406       (129,872     300,147  

Provision for income taxes

     42,605       36,447       18,148       —          97,200  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     198,454       70,107       64,258       (129,872     202,947  

Loss on disposal of discontinued operations, net of tax

     (626     —          —          —          (626
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     197,828       70,107       64,258       (129,872     202,321  

Noncontrolling interest

     —          —          4,493       —          4,493  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Pentair, Inc.

   $ 197,828     $ 70,107     $ 59,765     $ (129,872   $ 197,828  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations attributable to Pentair, Inc.

   $ 198,454     $ 70,107     $ 59,765     $ (129,872   $ 198,454  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-112


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

For the year ended December 31, 2009

 

In thousands

   Parent
Company
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 1,827,463      $ 1,050,381     $ (185,376   $ 2,692,468  

Cost of goods sold

     7,024       1,310,011        775,116       (184,818     1,907,333  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     (7,024     517,452        275,265       (558     785,135  

Selling, general and administrative

     10,074       312,079        185,708       (558     507,303  

Research and development

     306       34,844        22,734       —          57,884  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (17,404     170,529        66,823       —          219,948  

Earnings from investment in subsidiaries

     (60,528     —           —          60,528       —     

Other (income) expense:

           

Equity losses of unconsolidated subsidiaries

     —          1,379        —          —          1,379  

Loss on early extinguishment of debt

     4,804       —           —          —          4,804  

Net interest (income) expense

     (106,586     153,672        (5,968     —          41,118  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and noncontrolling interest

     144,906       15,478        72,791       (60,528     172,647  

Provision for income taxes

     29,270       6,063        21,095       —          56,428  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations

     115,636       9,415        51,696       (60,528     116,219  

(Loss) gain on disposal of discontinued operations, net of tax

     (143     551        (427     —          (19
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     115,493       9,966        51,269       (60,528     116,200  

Noncontrolling interest

     —          —           707       —          707  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to Pentair, Inc.

   $ 115,493     $ 9,966      $ 50,562     $ (60,528   $ 115,493  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income from continuing operations attributable to Pentair, Inc.

   $ 115,636     $ 9,415      $ 50,989     $ (60,528   $ 115,512  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

F-113


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

December 31, 2011

 

In thousands

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

  

Current assets

           

Cash and cash equivalents

   $ 3,097     $ 3,332     $ 43,648      $ —        $ 50,077  

Accounts and notes receivable, net

     828       360,027       263,201        (54,852     569,204  

Inventories

     —          227,472       222,391        —          449,863  

Deferred tax assets

     134,240       40,698       13,382        (127,421     60,899  

Prepaid expenses and other current assets

     28,937       (6,886     107,121        (21,380     107,792  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     167,102       624,643       649,743        (203,653     1,237,835  

Property, plant and equipment, net

     19,693       136,102       231,730        —          387,525  

Other assets

           

Investments in/advances to subsidiaries

     2,910,927       1,447,522       92,396        (4,450,845     —     

Goodwill

     —          1,330,265       943,653        —          2,273,918  

Intangibles, net

     —          250,792       341,493        —          592,285  

Other

     63,508       27,337       23,045        (19,140     94,750  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total other assets

     2,974,435       3,055,916       1,400,587        (4,469,985     2,960,953  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,161,230     $ 3,816,661     $ 2,282,060      $ (4,673,638   $ 4,586,313  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

  

Current liabilities

           

Short-term borrowings

   $ —        $ —        $ 3,694      $ —        $ 3,694  

Current maturities of long-term debt

     2,585       —          1,168        (2,585     1,168  

Accounts payable

     5,036       189,355       152,065        (51,598     294,858  

Employee compensation and benefits

     24,466       30,015       54,880        —          109,361  

Current pension and post-retirement benefits

     9,052       —          —           —          9,052  

Accrued product claims and warranties

     165       22,037       20,428        —          42,630  

Income taxes

     40,999       (28,717     2,265        —          14,547  

Accrued rebates and sales incentives

     —          25,612       11,397        —          37,009  

Other current liabilities

     25,050       53,960       71,890        (21,378     129,522  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     107,353       292,262       317,787        (75,561     641,841  

Other liabilities

           

Long-term debt

     1,312,053       2,417,922       542,411        (2,968,161     1,304,225  

Pension and other retirement compensation

     182,556       (7,701     73,760        —          248,615  

Post-retirement medical and other benefits

     17,024       33,890       —           (19,140     31,774  

Long-term income taxes payable

     26,470       —          —           —          26,470  

Deferred tax liabilities

     —          229,962       86,416        (127,421     188,957  

Due to/ (from) affiliates

     (479,943     751,145       711,705        (982,907     —     

Other non-current liabilities

     62,388       1,508       33,143        —          97,039  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     1,227,901       3,718,988       1,765,222        (4,173,190     2,538,921  

Noncontrolling interest

     —          —          114,063        —          114,063  

Shareholders’ equity attributable to Pentair, Inc.

     1,933,329       97,673       402,775        (500,448     1,933,329  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 3,161,230     $ 3,816,661     $ 2,282,060      $ (4,673,638   $ 4,586,313  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

F-114


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

December 31, 2010

 

In thousands    Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

  

Current assets

           

Cash and cash equivalents

   $ 3,201     $ 3,404     $ 39,451      $ —        $ 46,056  

Accounts and notes receivable, net

     678       357,730       222,319        (63,822     516,905  

Inventories

     —          232,369       172,987        —          405,356  

Deferred tax assets

     115,722       40,064       7,928        (107,365     56,349  

Prepaid expenses and other current assets

     8,278       10,098       51,497        (25,242     44,631  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     127,879       643,665       494,182        (196,429     1,069,297  

Property, plant and equipment, net

     17,392       144,332       167,711        —          329,435  

Other assets

           

Investments in/advances to subsidiaries

     2,355,343       89,659       748,181        (3,193,183     —     

Goodwill

     —          1,549,537       516,507        —          2,066,044  

Intangibles, net

     —          265,987       187,583        —          453,570  

Other

     56,052       4,045       20,139        (25,049     55,187  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total other assets

     2,411,395       1,909,228       1,472,410        (3,218,232     2,574,801  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,556,666     $ 2,697,225     $ 2,134,303      $ (3,414,661   $ 3,973,533  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

  

Current liabilities

           

Short-term borrowings

   $ —        $ —        $ 4,933      $ —        $ 4,933  

Current maturities of long-term debt

     135,678       —          18,154        (153,814     18  

Accounts payable

     4,908       170,747       150,517        (63,815     262,357  

Employee compensation and benefits

     38,513       32,167       37,315        —          107,995  

Current pension and post-retirement benefits

     8,733       —          —           —          8,733  

Accrued product claims and warranties

     12,245       23,410       6,640        —          42,295  

Income taxes

     4,788       633       543        —          5,964  

Accrued rebates and sales incentives

     —          23,500       10,059        —          33,559  

Other current liabilities

     9,772       33,227       63,185        (25,242     80,942  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     214,637       283,684       291,346        (242,871     546,796  

Other liabilities

           

Long-term debt

     702,500       1,947,400       377,539        (2,324,918     702,521  

Pension and other retirement compensation

     136,750       112       72,997        —          209,859  

Post-retirement medical and other benefits

     18,388       36,986       —           (25,049     30,325  

Long-term income taxes payable

     23,507       —          —           —          23,507  

Deferred tax liabilities

     5       213,385       63,173        (107,365     169,198  

Due to/ (from) affiliates

     (678,966     (80,779     810,652        (50,907     —     

Other non-current liabilities

     46,692       1,892       37,711        —          86,295  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     463,513       2,402,680       1,653,418        (2,751,110     1,768,501  

Noncontrolling interest

     —          —          111,879        —          111,879  

Shareholders’ equity attributable to Pentair, Inc.

     2,093,153       294,545       369,006        (663,551     2,093,153  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 2,556,666     $ 2,697,225     $ 2,134,303      $ (3,414,661   $ 3,973,533  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

F-115


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the year ended December 31, 2011

 

In thousands

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating activities

          

Net income before noncontrolling interest

   $ 34,222     $ 132,027     $ (117,780   $ (9,948   $ 38,521  

Adjustments to reconcile net income to net cash provided by (used for) operating activities

          

Equity income of unconsolidated subsidiaries

     —          (1,654     (244     —          (1,898

Depreciation

     5,991       27,742       32,502       —          66,235  

Amortization

     —          15,195       26,702       —          41,897  

Loss (earnings) from investments in subsidiaries

     18,792       (27,419     (1,321     9,948       —     

Deferred income taxes

     6,889       18,084       (30,556     —          (5,583

Stock compensation

     19,489       —          —          —          19,489  

Goodwill impairment

     —          —          200,520       —          200,520  

Excess tax benefits from stock-based compensation

     (3,310     —          —          —          (3,310

Loss on sale of assets

     933       —          —          —          933  

Changes in assets and liabilities, net of effects of business acquisitions and dispositions

          

Accounts and notes receivable

     (53,661     20,574       32,870       1,565       1,348  

Inventories

     —          7,589       10,674       —          18,263  

Prepaid expenses and other current assets

     (19,728     17,041       (5,601     18,320       10,032  

Accounts payable

     60,209       5,320       (78,308     (11,551     (24,330

Employee compensation and benefits

     (23,553     (2,193     5,260       —          (20,486

Accrued product claims and warranties

     —          (1,533     (451     —          (1,984

Income taxes

     48,947       (33,965     (4,898     —          10,084  

Other current liabilities

     10,539       22,568       (3,867     (18,319     10,921  

Pension and post-retirement benefits

     (17,662     (10,910     3,976       —          (24,596

Other assets and liabilities

     502       (18,485     (7,832     9,985       (15,830
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     88,599       169,981       61,646       —          320,226  

Investing activities

          

Capital expenditures

     (8,301     (27,625     (37,422     —          (73,348

Proceeds from sale of property and equipment

     —          143       1,167       —          1,310  

Acquisitions, net of cash acquired

     —          —          (733,105     —          (733,105

Other

     3,702       (4,604     (2,041     —          (2,943
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     (4,599     (32,086     (771,401     —          (808,086

Financing activities

          

Net short-term borrowings

     (1,239     —          —          —          (1,239

Proceeds from long-term debt

     1,421,602       —          —          —          1,421,602  

Repayment of long-term debt

     (832,147     —          —          —          (832,147

Debt issuance costs

     (8,973     —          —          —          (8,973

Net change in advances to subsidiaries

     (579,126     (137,767     716,893       —          —     

Excess tax benefits from stock-based compensation

     3,310       —          —          —          3,310  

Stock issued to employees, net of shares withheld

     13,324       —          (2     —          13,322  

Repurchases of common stock

     (12,785     —          —          —          (12,785

Dividends paid

     (78,351     (200     (986     —          (79,537
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     (74,385     (137,967     715,905       —          503,553  

Effect of exchange rate changes on cash and cash equivalents

     (9,719     —          (1,953     —          (11,672
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

     (104     (72     4,197       —          4,021  

Cash and cash equivalents, beginning of period

     3,201       3,404       39,451       —          46,056  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 3,097     $ 3,332     $ 43,648     $ —        $ 50,077  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-116


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the year ended December 31, 2010

 

In thousands

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating activities

          

Net income before noncontrolling interest

   $ 197,828     $ 70,107     $ 64,258     $ (129,872   $ 202,321  

Adjustments to reconcile net income to net cash provided by (used for) operating activities

          

Loss on disposal of discontinued operations

     626       —          —          —          626  

Equity income of unconsolidated subsidiaries

     —          (1,551     (557     —          (2,108

Depreciation

     3,002       29,902       25,091       —          57,995  

Amortization

     593       15,597       9,994       —          26,184  

Earnings from investments in subsidiaries

     (129,872     —          —          129,872       —     

Deferred income taxes

     18,075       9,679       1,699       —          29,453  

Stock compensation

     21,468       —          —          —          21,468  

Excess tax benefits from stock-based compensation

     (2,686     —          —          —          (2,686

Loss on sale of assets

     466       —          —          —          466  

Changes in assets and liabilities, net of effects of business acquisitions and dispositions

          

Accounts and notes receivable

     1,759       (61,042     (14,222     11,161       (62,344

Inventories

     —          (10,683     (33,812     —          (44,495

Prepaid expenses and other current assets

     (8,519     (3,035     6,993       7,338       2,777  

Accounts payable

     (1,431     43,578       24,248       (11,074     55,321  

Employee compensation and benefits

     14,630       4,840       7,782       —          27,252  

Accrued product claims and warranties

     12,245       5,695       (9,872     —          8,068  

Income taxes

     (13,267     15,813       (755     —          1,791  

Other current liabilities

     3,314       (5,258     9,921       (7,416     561  

Pension and post-retirement benefits

     (33,762     (11,798     2,536       —          (43,024

Other assets and liabilities

     (2,191     (12,731     5,672       —          (9,250
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     82,278       89,113       98,976       9       270,376  

Investing activities

          

Capital expenditures

     (11,557     (22,954     (25,012     —          (59,523

Proceeds from sale of property and equipment

     —          284       74       —          358  

Other

     525       —          (1,673     —          (1,148
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     (11,032     (22,670     (26,611     —          (60,313

Financing activities

          

Net short-term borrowings

     2,728       31       (31     —          2,728  

Proceeds from long-term debt

     703,641       —          —          —          703,641  

Repayment of long-term debt

     (804,713     —          —          —          (804,713

Debt issuance costs

     (50     —          —          —          (50

Net change in advances to subsidiaries

     106,372       (59,269     (47,090     (13     —     

Excess tax benefits from stock-based compensation

     2,686       —          —          —          2,686  

Stock issued to employees, net of shares withheld

     9,941       —          —          —          9,941  

Repurchases of common stock

     (24,712     —          —          —          (24,712

Dividends paid

     (73,014     142       (2,593     —          (75,465

Distribution to noncontrolling interest

     —          —          (4,647     —          (4,647
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     (77,121     (59,096     (54,361     (13     (190,591

Effect of exchange rate changes on cash and cash equivalents

     7,044       (5,756     (8,104     4       (6,812
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

     1,169       1,591       9,900       —          12,660  

Cash and cash equivalents, beginning of period

     2,032       1,813       29,551       —          33,396  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 3,201     $ 3,404     $ 39,451     $ —        $ 46,056  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-117


Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the year end December 31, 2009

 

In thousands

   Parent
Company
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Operating activities

          

Net income before noncontrolling interest

   $ 115,493     $ 9,966     $ 51,269     $ (60,528   $ 116,200  

Adjustments to reconcile net income to net cash provided by (used for) operating activities

          

Loss (gain) on disposal of discontinued operations

     143       (551     427       —          19  

Equity losses of unconsolidated subsidiaries

     —          1,379       —          —          1,379  

Depreciation

     8,166       30,506       26,151       —          64,823  

Amortization

     14,332       15,752       10,573       —          40,657  

Earnings from investments in subsidiaries

     (60,528     —          —          60,528       —     

Deferred income taxes

     8,223       18,582       3,811       —          30,616  

Stock compensation

     17,324       —          —          —          17,324  

Excess tax benefits from stock-based compensation

     (1,746     —          —          —          (1,746

(Gain) loss on sale of assets

     (1,389     —          2,374       —          985  

Changes in assets and liabilities, net of effects of business acquisitions and dispositions

          

Accounts and notes receivable

     (1,456     10,492       7,484       (5,213     11,307  

Inventories

     —          46,791       19,893       —          66,684  

Prepaid expenses and other current assets

     48,529       2,985       (37,221     1,909       16,202  

Accounts payable

     5,615       (18,623     (5,209     4,395       (13,822

Employee compensation and benefits

     (1,385     (13,968     (7,078     —          (22,431

Accrued product claims and warranties

     —          (7,645     205       —          (7,440

Income taxes

     (10,921     6,917       5,976       —          1,972  

Other current liabilities

     (29,030     (15,312     25,118       (1,857     (21,081

Pension and post-retirement benefits

     (30,630     (11,716     2,739       —          (39,607

Other assets and liabilities

     (19,117     39,226       (22,250     —          (2,141
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) continuing operations

     61,623       114,781       84,262       (766     259,900  

Net cash provided by (used for) operating activities of discontinued operations

     (30     (1,590     89       —          (1,531
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     61,593       113,191       84,351       (766     258,369  

Investing activities

          

Capital expenditures

     (2,237     (19,676     (32,224     —          (54,137

Proceeds from sale of property and equipment

     —          446       762       —          1,208  

Divestitures

     404       1,002       161       —          1,567  

Other

     7       —          (3,231     —          (3,224
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     (1,826     (18,228     (34,532     —          (54,586

Financing activities

          

Net short-term borrowings

     2,205       115       (115     —          2,205  

Proceeds from long-term debt

     580,000       —          —          —          580,000  

Repayment of long-term debt

     (730,304     —          —          —          (730,304

Debt issuance costs

     (50     —          —          —          (50

Net change in advances to subsidiaries

     152,482       (110,046     (43,201     765       —     

Excess tax benefits from stock-based compensation

     1,746       —          —          —          1,746  

Stock issued to employees, net of shares withheld

     8,247       —          —          —          8,247  

Dividends paid

     (63,686     5,313       (12,554     —          (70,927
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     (49,360     (104,618     (55,870     765       (209,083

Effect of exchange rate changes on cash and cash equivalents

     (11,095     8,123       2,323       1       (648
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

     (688     (1,532     (3,728     —          (5,948

Cash and cash equivalents, beginning of period

     2,720       3,345       33,279       —          39,344  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 2,032     $ 1,813     $ 29,551     $ —        $ 33,396  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-118


PENTAIR, INC. AND SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

($ in millions)

 

       Balance
Beginning of
Period
     Additions
Charged to
Costs and
Expenses
     Deductions     Other
Charges
add (deduct)
    Balance
End of
Period
 

Allowance for doubtful accounts

            

Year ended December 31, 2011

     17         4         4 (1)       (1 ) (2)       16   

Year ended December 31, 2010

     14         4         1 (1)        (2)       17   

Year ended December 31, 2009

     8         7         2 (1)       1  (2)       14   

 

(1)

Uncollected accounts written off, net of expense

(2)

Result of acquisitions and foreign currency effects

 

F-119


Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited)

 

     Three months ended     Six months ended  

In thousands, except per-share data

   June 30,
2012
    July 2,
2011
    June 30,
2012
    July 2,
2011
 

Net sales

   $ 941,525     $ 910,175     $ 1,799,702     $ 1,700,448  

Cost of goods sold

     629,397       622,439       1,206,855       1,163,653  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     312,128       287,736       592,847       536,795  

Selling, general and administrative

     173,445       158,432       348,455       303,192  

Research and development

     20,891       19,882       41,648       38,004  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     117,792       109,422       202,744       195,599  

Other (income) expense:

        

Equity income of unconsolidated subsidiaries

     (636     (672     (1,685     (907

Net interest expense

     16,079       14,613       30,847       23,938  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and noncontrolling interest

     102,349       95,481       173,582       172,568  

Provision for income taxes

     28,864       27,344       37,943       52,397  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     73,485       68,137       135,639       120,171  

Noncontrolling interest

     1,655       1,425       2,995       2,918  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Pentair, Inc.

   $ 71,830     $ 66,712     $ 132,644     $ 117,253  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (10,430   $ 92,306     $ 93,808     $ 187,119  

Less: Comprehensive income (loss) attributable to noncontrolling interest

     (223     2,216       2,020       5,621  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Pentair, Inc.

   $ (10,207   $ 90,090     $ 91,788     $ 181,498  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share attributable to Pentair, Inc.

        

Basic

   $ 0.73     $ 0.68     $ 1.34     $ 1.19  

Diluted

   $ 0.71     $ 0.67     $ 1.32     $ 1.17  

Weighted average common shares outstanding

        

Basic

     99,047       98,333       98,856       98,190  

Diluted

     101,165       100,065       100,785       99,825  

Cash dividends declared per common share

   $ 0.22     $ 0.20     $ 0.44     $ 0.40  

See accompanying notes to condensed consolidated financial statements.

 

F-120


Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

 

In thousands, except share and per-share data

   June 30,
2012
    December 31,
2011
    July 2,
2011
 
Assets       

Current assets

      

Cash and cash equivalents

   $ 60,598     $ 50,077     $ 68,972  

Accounts and notes receivable, net of allowances of $32,958, $39,111 and $41,120, respectively

     572,144       569,204       595,407  

Inventories

     460,039       449,863       484,795  

Deferred tax assets

     58,899       60,899       60,833  

Prepaid expenses and other current assets

     124,345       107,792       124,632  
  

 

 

   

 

 

   

 

 

 

Total current assets

     1,276,025       1,237,835       1,334,639  

Property, plant and equipment, net

     381,063       387,525       410,547  

Other assets

      

Goodwill

     2,255,134       2,273,918       2,573,430  

Intangibles, net

     570,503       592,285       654,908  

Other

     103,544       94,750       78,788  
  

 

 

   

 

 

   

 

 

 

Total other assets

     2,929,181       2,960,953       3,307,126  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 4,586,269     $ 4,586,313     $ 5,052,312  
  

 

 

   

 

 

   

 

 

 
Liabilities and Shareholders’ Equity       

Current liabilities

      

Short-term borrowings

   $ 222     $ 3,694     $ 21,451  

Current maturities of long-term debt

     1,193       1,168       1,289  

Accounts payable

     288,265       294,858       315,403  

Employee compensation and benefits

     89,514       109,361       108,836  

Current pension and post-retirement benefits

     9,052       9,052       8,733  

Accrued product claims and warranties

     44,935       42,630       47,259  

Income taxes

     32,228       14,547       21,498  

Accrued rebates and sales incentives

     45,870       37,009       42,567  

Other current liabilities

     150,437       129,522       144,366  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     661,716       641,841       711,402  

Other liabilities

      

Long-term debt

     1,233,794       1,304,225       1,384,167  

Pension and other retirement compensation

     247,324       248,615       217,021  

Post-retirement medical and other benefits

     29,921       31,774       27,954  

Long-term income taxes payable

     13,294       26,470       23,832  

Deferred tax liabilities

     190,173       188,957       235,422  

Other non-current liabilities

     92,175       97,039       85,660  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     2,468,397       2,538,921       2,685,458  

Commitments and contingencies

      

Shareholders’ equity

      

Common shares par value $0.16 2/3; 99,204,048, 98,622,564 and 98,766,335 shares issued and outstanding, respectively

     16,534       16,437       16,460  

Additional paid-in capital

     509,558       488,843       488,873  

Retained earnings

     1,667,794       1,579,290       1,702,119  

Accumulated other comprehensive income (loss)

     (192,097     (151,241     41,902  

Noncontrolling interest

     116,083       114,063       117,500  
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     2,117,872       2,047,392       2,366,854  
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,586,269     $ 4,586,313     $ 5,052,312  
  

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

F-121


Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

     Six months ended  

In thousands

   June 30,
2012
    July 2,
2011
 

Operating activities

    

Net income before noncontrolling interest

   $ 135,639     $ 120,171  

Adjustments to reconcile net income to net cash provided by (used for) operating activities

    

Equity income of unconsolidated subsidiaries

     (1,685     (907

Depreciation

     32,666       32,685  

Amortization

     19,677       17,180  

Deferred income taxes

     3,654       3,012  

Stock compensation

     10,075       10,527  

Excess tax benefits from stock-based compensation

     (1,740     (1,465

Loss (gain) on sale of assets

     (3,106     229  

Changes in assets and liabilities, net of effects of business acquisitions and dispositions

    

Accounts and notes receivable

     (5,531     (1,111

Inventories

     (12,276     2,425  

Prepaid expenses and other current assets

     (983     (2,696

Accounts payable

     (4,271     (22,878

Employee compensation and benefits

     (18,686     (22,675

Accrued product claims and warranties

     2,466       2,901  

Income taxes

     17,709       12,780  

Other current liabilities

     10,209       25,481  

Pension and post-retirement benefits

     (553     (853

Other assets and liabilities

     (16,503     (22,195
  

 

 

   

 

 

 

Net cash provided by (used for) operating activities

     166,761       152,611  

Investing activities

    

Capital expenditures

     (31,312     (35,221

Proceeds from sale of property and equipment

     4,868       89  

Acquisitions, net of cash acquired

     (19,905     (733,105

Other

     (3,073     119  
  

 

 

   

 

 

 

Net cash provided by (used for) investing activities

     (49,422     (768,118

Financing activities

    

Net short-term borrowings

     (3,472     16,518  

Proceeds from long-term debt

     352,463       1,320,957  

Repayment of long-term debt

     (420,810     (661,422

Debt issuance costs

     —          (8,721

Excess tax benefits from stock-based compensation

     1,740       1,465  

Stock issued to employees, net of shares withheld

     16,163       9,551  

Repurchases of common stock

     —          (287

Dividends paid

     (44,140     (39,739
  

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     (98,056     638,322  

Effect of exchange rate changes on cash and cash equivalents

     (8,762     101  
  

 

 

   

 

 

 

Change in cash and cash equivalents

     10,521       22,916  

Cash and cash equivalents, beginning of period

     50,077       46,056  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 60,598     $ 68,972  
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

F-122


Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

 

In thousands, except share and
per-share data

  Common shares     Additional
paid-in
capital
    Retained
earnings
    Accumulated
other
comprehensive
income (loss)
    Total
Pentair,
Inc.
    Noncontrolling
interest
    Total  
  Number     Amount              

Balance—December 31, 2011

    98,622,564     $ 16,437     $ 488,843     $ 1,579,290     $ (151,241   $ 1,933,329     $ 114,063     $ 2,047,392  

Net income

          132,644         132,644       2,995       135,639  

Change in cumulative translation adjustment

            (44,006     (44,006     (975     (44,981

Changes in market value of derivative financial instruments, net of $1,436 tax

            3,150       3,150         3,150  

Cash dividends—$0.44 per common share

          (44,140       (44,140       (44,140

Exercise of stock options, net of 35,570 shares tendered for payment

    492,777       82       14,973           15,055         15,055  

Issuance of restricted shares, net of cancellations

    154,536       26       3,532           3,558         3,558  

Amortization of restricted shares

        352           352         352  

Shares surrendered by employees to pay taxes

    (65,829     (11     (2,439         (2,450       (2,450

Stock compensation

        4,297           4,297         4,297  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance—June 30, 2012

    99,204,048     $ 16,534     $ 509,558     $ 1,667,794     $ (192,097   $ 2,001,789     $ 116,083     $ 2,117,872  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In thousands, except share and
per-share data

  Common shares     Additional
paid-in
capital
    Retained
earnings
    Accumulated
other

comprehensive
income (loss)
    Total
Pentair,
Inc.
    Noncontrolling
interest
    Total  
  Number     Amount              

Balance—December 31, 2010

    98,409,192     $ 16,401     $ 474,489     $ 1,624,605     $ (22,342   $ 2,093,153     $ 111,879     $ 2,205,032  

Net income

          117,253         117,253       2,918       120,171  

Change in cumulative translation adjustment

            62,456       62,456       2,703       65,159  

Changes in market value of derivative financial instruments, net of $1,249 tax

            1,788       1,788         1,788  

Cash dividends—$0.40 per common share

          (39,739       (39,739       (39,739

Share repurchase

    (7,826     (1     (286         (287       (287

Exercise of stock options, net of 3,266 shares tendered for payment

    408,637       68       10,741           10,809         10,809  

Issuance of restricted shares, net of cancellations

    29,131       5       1,432           1,437         1,437  

Amortization of restricted shares

        480           480         480  

Shares surrendered by employees to pay taxes

    (72,799     (13     (2,683         (2,696       (2,696

Stock compensation

        4,700           4,700         4,700  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance—July 2, 2011

    98,766,335     $ 16,460     $ 488,873     $ 1,702,119     $ 41,902     $ 2,249,354     $ 117,500     $ 2,366,854  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

F-123


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

1. Basis of Presentation and Responsibility for Interim Financial Statements

We prepared the unaudited condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States can be condensed or omitted.

We are responsible for the unaudited financial statements included in this document. The financial statements include all normal recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read our consolidated financial statements and notes thereto for the year ended December 31, 2011, which are included in our 2011 Annual Report on Form 10-K for the year ended December 31, 2011.

Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for a full year.

Our fiscal year ends on December 31. We report our interim quarterly periods on a 13-week basis ending on a Saturday.

In connection with preparing the unaudited condensed consolidated financial statements for the six months ended June 30, 2012, we have evaluated subsequent events for potential recognition and disclosure through the date of this filing.

2. New Accounting Standards

In May 2011, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance to improve the consistency of fair value measurement and disclosure requirements between U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards. The provisions of this guidance change certain of the fair value principles related to the highest and best use premise, the consideration of blockage factors and other premiums and discounts, and the measurement of financial instruments held in a portfolio and instruments classified within shareholders’ equity. Further, the guidance provides additional disclosure requirements surrounding Level 3 fair value measurements, the uses of nonfinancial assets in certain circumstances, and identification of the level in the fair value hierarchy used for assets and liabilities which are not recorded at fair value, but where fair value is disclosed. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of this guidance did not have a material impact on our financial condition or results of operations.

In June 2011, the FASB issued authoritative guidance surrounding the presentation of comprehensive income, with an objective of increasing the prominence of items reported in other comprehensive income (“OCI”). This guidance provides entities with the option to present the total of comprehensive income, the components of net income and the components of OCI in either a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, entities must present on the face of the financial statement, items reclassified from OCI to net income in the section of the financial statement where the components of net income and OCI are presented, regardless of the option selected to present comprehensive income. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The FASB subsequently deferred the effective date of certain provisions of this standard pertaining to the reclassification of items out of accumulated other comprehensive income, pending the issuance of further guidance on that matter. We have adopted this guidance as of January 1, 2012, and have presented total comprehensive income (loss) in our Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

 

F-124


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

3. Stock-based Compensation

Total stock-based compensation expense was $4.8 million for each of the three months ended June 30, 2012 and July 2, 2011, respectively, and was $10.1 million and $10.5 million for the six months ended June 30, 2012 and July 2, 2011, respectively.

During the first half of 2012, restricted shares and restricted stock units of our common stock were granted under the 2008 Omnibus Stock Incentive Plan to eligible employees with a vesting period of three to four years after issuance. Restricted share awards and restricted stock units are valued at market value on the date of grant and are typically expensed over the vesting period. Total compensation expense for restricted share awards and restricted stock units was $2.8 million and $2.5 million for the three months ended June 30, 2012 and July 2, 2011, respectively, and was $5.8 million for each of the six months ended June 30, 2012 and July 2, 2011, respectively.

During the first half of 2012, option awards were granted under the 2008 Omnibus Stock Incentive Plan with an exercise price equal to the market price of our common stock on the date of grant. Option awards are typically expensed over the vesting period. Total compensation expense for stock option awards was $2.0 million and $2.3 million for the three months ended June 30, 2012 and July 2, 2011, respectively, and $4.3 million and $4.7 million for the six months ended June 30, 2012 and July 2, 2011, respectively.

We estimated the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:

 

     June 30,
2012
     July 2,
2011
 

Expected stock price volatility

     36.5%         35.5%   

Expected life

     5.7 yrs         5.5 yrs   

Risk-free interest rate

     0.90%         2.12%   

Dividend yield

     2.29%         2.16%   

The weighted-average fair value of options granted during the second quarter of 2012 and 2011 were $11.74 and $10.89 per share, respectively.

These estimates require us to make assumptions based on historical results, observance of trends in our stock price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, stock-based compensation expense, as calculated and recorded under the accounting guidance, could have been affected.

We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.

 

F-125


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

4. Earnings Per Common Share

Basic and diluted earnings per share were calculated using the following:

 

     Three months ended      Six months ended  

In thousands

   June 30,
2012
     July 2,
2011
     June 30,
2012
     July 2,
2011
 

Weighted average common shares outstanding—basic

     99,047        98,333        98,856        98,190  

Dilutive impact of stock options and restricted stock

     2,118        1,732        1,929        1,635  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding—diluted

     101,165        100,065        100,785        99,825  
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock options excluded from the calculation of diluted earnings per share because the exercise price was greater than the average market price of the common shares

     443        1,776        2,010        2,001  

5. Restructuring

During 2012 and 2011, we initiated certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. The 2012 initiatives included the reduction in hourly and salaried headcount of approximately 140 employees, which included 85 in Water & Fluid Solutions and 55 in Technical Products. The 2011 initiatives included the reduction in hourly and salaried headcount of approximately 210 employees, which included 160 in Water & Fluid Solutions and 50 in Technical Products.

Restructuring related costs included in Selling, general and administrative expenses on the Condensed Consolidated Statements of Income and Comprehensive Income (Loss) include costs for severance and other restructuring costs as follows for the six months ended June 30, 2012, and July 2, 2011, and the year ended December 31, 2011:

 

In thousands

   June 30,
2012
     December 31,
2011
     July 2,
2011
 

Severance and related costs

   $ 9,660      $ 11,500      $ —     

Asset impairment and other restructuring costs

     710        1,500        —     
  

 

 

    

 

 

    

 

 

 

Total restructuring costs

   $ 10,370      $ 13,000      $ —     
  

 

 

    

 

 

    

 

 

 

Restructuring accrual activity recorded in Other current liabilities and Employee compensation and benefits on the Condensed Consolidated Balance Sheets is summarized as follows for the six months ended June 30, 2012, and July 2, 2011, and the year ended December 31, 2011:

 

In thousands

   June 30,
2012
    December 31,
2011
    July 2,
2011
 

Beginning balance

   $ 12,805     $ 3,994     $ 3,994  

Costs incurred

     9,660       11,500       —     

Cash payments and other

     (8,570     (2,689     (909
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 13,895     $ 12,805     $ 3,085  
  

 

 

   

 

 

   

 

 

 

 

F-126


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

6. Acquisitions

On April 4, 2012, we acquired, as part of Water & Fluid Solutions, all of the outstanding shares of capital stock of Sibrape Indústria E Comércio de Artigos Para Lazer Ltda. and its subsidiary Hidrovachek Ltda. (collectively “Sibrape”) for $19.9 million, net of cash acquired. The Sibrape results have been included in our consolidated financial statements since the date of acquisition. Sibrape offers a complete line of pool products and is a market leader in pool liner sales throughout Brazil. Goodwill recorded as part of the purchase price allocation was $8.8 million, none of which is tax deductible. Identified intangible assets acquired as part of the acquisition were $4.8 million and were comprised entirely of customer lists, which have an estimated life of 11 years. The pro forma impact of this acquisition was not deemed material.

In May 2011, we acquired, as part of Water & Fluid Solutions, the Clean Process Technologies (“CPT”) division of privately held Norit Holding B.V. for $715.3 million (€502.7 million translated at the May 12, 2011 exchange rate). CPT’s results of operations have been included in our consolidated financial statements since the date of acquisition. CPT is a global leader in membrane solutions and clean process technologies in the high growth water and beverage filtration and separation segments. CPT provides sustainable purification systems and solutions for desalination, water reuse, industrial applications and beverage segments that effectively address the increasing challenges of clean water scarcity, rising energy costs and pollution. CPT’s product offerings include innovative ultrafiltration and nanofiltration membrane technologies, aseptic valves, CO 2 recovery and control systems and specialty pumping equipment. Based in the Netherlands, CPT has broad sales diversity with the majority of 2011 and 2010 revenues generated in European Union and Asia-Pacific countries.

The fair value of CPT was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value acquired over the identifiable assets acquired and liabilities assumed is reflected as goodwill. Goodwill recorded as part of the purchase price allocation was $451.8 million, none of which is tax deductible. Identifiable intangible assets acquired as part of the acquisition were $197.2 million, including definite-lived intangibles, such as customer relationships and proprietary technology with a weighted average amortization period of approximately 10 years.

The following pro forma consolidated condensed financial results of operations are presented as if the CPT acquisition described above had been completed at the beginning of the comparable period:

 

     Three months ended      Six months ended  

In thousands, except share and per-share data

   July 2,
2011
     July 2,
2011
 

Pro forma net sales

   $ 953,375      $ 1,822,224  

Pro forma income before noncontrolling interest

     66,075        115,517  

Pro forma net income attributable to Pentair, Inc.

     64,650        112,599  

Pro forma earnings per common share

     

Basic

   $ 0.66      $ 1.15  

Diluted

   $ 0.65      $ 1.13  

Weighted average common shares outstanding

     

Basic

     98,333        98,190  

Diluted

     100,065        99,825  

The 2011 unaudited pro forma net income was adjusted to exclude the impact of approximately $5.5 million in non-recurring items related to acquisition date fair value adjustments to inventory and customer backlog. Acquisition-related transaction costs of approximately $6.1 million and $7.8 million associated with the CPT acquisition were excluded from the pro forma net income for the three and six month periods ended July 2, 2011, respectively.

 

F-127


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on acquisition debt. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

In January 2011 we acquired as part of Water & Fluid Solutions all of the outstanding shares of capital stock of Hidro Filtros do Brasil (“Hidro Filtros”) for cash of $14.9 million and a note payable of $2.1 million. The Hidro Filtros results of operations have been included in our consolidated financial statements since the date of acquisition. Hidro Filtros is a leading manufacturer of water filters and filtering elements for residential and industrial applications operating in Brazil and neighboring countries. Goodwill recorded as part of the purchase price allocation was $10.1 million, none of which is tax deductible. Identified intangible assets acquired as part of the acquisition were $6.3 million including definite-lived intangibles, primarily customer relationships of $5.5 million, with an estimated life of 13 years. The pro forma impact of this acquisition was not material.

Additionally, during 2011, we completed other small acquisitions with purchase prices totaling $4.6 million, consisting of $2.9 million in cash and $1.7 million as a note payable, adding to Water & Fluid Solutions. Total goodwill recorded as part of the purchase price allocation was $4.3 million, none of which is tax deductible. The pro forma impact of these acquisitions was not material.

7. Supplemental Balance Sheet Disclosures

 

In thousands

   June 30,
2012
     December 31,
2011
     July 2,
2011
 

Inventories

        

Raw materials and supplies

   $ 227,780      $ 219,487      $ 246,414  

Work-in-process

     50,860        47,707        49,515  

Finished goods

     181,399        182,669        188,866  
  

 

 

    

 

 

    

 

 

 

Total inventories

   $ 460,039      $ 449,863      $ 484,795  
  

 

 

    

 

 

    

 

 

 

Property, plant and equipment

        

Land and land improvements

   $ 40,519      $ 41,111      $ 43,322  

Buildings and leasehold improvements

     251,977        244,246        255,317  

Machinery and equipment

     713,819        692,930        697,802  

Construction in progress

     34,699        40,251        41,066  
  

 

 

    

 

 

    

 

 

 

Total property, plant and equipment

     1,041,014        1,018,538        1,037,507  

Less accumulated depreciation and amortization

     659,951        631,013        626,960  
  

 

 

    

 

 

    

 

 

 

Property, plant and equipment, net

   $ 381,063      $ 387,525      $ 410,547  
  

 

 

    

 

 

    

 

 

 

8. Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill by segment were as follows:

 

In thousands

   December 31, 2011      Acquisitions/
divestitures
     Foreign currency
translation/Other
    June 30, 2012  

Water & Fluid Solutions

   $ 1,994,781      $ 8,768      $ (25,034   $ 1,978,515  

Technical Products

     279,137        —           (2,518     276,619  
  

 

 

    

 

 

    

 

 

   

 

 

 

Consolidated Total

   $ 2,273,918      $ 8,768      $ (27,552   $ 2,255,134  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

F-128


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

In thousands

   December 31, 2010      Acquisitions/
divestitures
     Foreign currency
translation/Other
     July 2, 2011  

Water & Fluid Solutions

   $ 1,784,100      $ 466,182      $ 35,686      $ 2,285,968  

Technical Products

     281,944        —           5,518        287,462  
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Total

   $ 2,066,044      $ 466,182      $ 41,204      $ 2,573,430  
  

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated goodwill impairment losses were $200.5 million, $200.5 million and $0 as of June 30, 2012, December 31, 2011, and July 2, 2011, respectively.

The detail of acquired intangible assets consisted of the following:

 

      June 30, 2012     December 31, 2011     July 2, 2011  

In thousands

  Gross
carrying
amount
    Accumulated
amortization
    Net     Gross
carrying
amount
    Accumulated
amortization
    Net     Gross
carrying
amount
    Accumulated
amortization
    Net  

Finite-life intangibles

                 

Patents

  $ 5,895     $ (4,298   $ 1,597     $ 5,896     $ (4,038   $ 1,858     $ 15,485     $ (13,306   $ 2,179  

Proprietary technology

    129,748       (45,994     83,754       128,841       (39,956     88,885       136,737       (34,423     102,314  

Customer relationships

    356,814       (120,738     236,076       358,410       (109,887     248,523       380,263       (97,232     283,031  

Trade names

    1,501       (600     901       1,515       (530     985       1,569       (467     1,102  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total finite-life intangibles

  $ 493,958     $ (171,630   $ 322,328     $ 494,662     $ (154,411   $ 340,251     $ 534,054     $ (145,428   $ 388,626  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Indefinite-life intangibles

                 

Trade names

    248,175       —          248,175       252,034       —          252,034       266,282       —          266,282  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total intangibles, net

  $ 742,133     $ (171,630   $ 570,503     $ 746,696     $ (154,411   $ 592,285     $ 800,336     $ (145,428   $ 654,908  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intangible asset amortization expense was approximately $9.9 million and $10.8 million for the three months ended June 30, 2012 and July 2, 2011, respectively, and was approximately $19.7 million and $17.2 million for the six months ended June 30, 2012 and July 2, 2011, respectively.

The estimated future amortization expense for identifiable intangible assets during the remainder of 2012 and the next five years is as follows:

 

In thousands

   Q3-Q4
2012
     2013      2014      2015      2016      2017  

Estimated amortization expense

   $ 19,253      $ 38,685      $ 38,331      $ 38,047      $ 37,137      $ 35,542  

 

F-129


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

9. Debt

Debt and the average interest rates on debt outstanding are summarized as follows:

 

In thousands

   Average
interest rate
June 30, 2012
    Maturity
(Year)
     June 30,
2012
    December 31,
2011
    July 2,
2011
 

Commercial paper

     1.22     2016      $ 6,993     $ 3,497     $ —     

Revolving credit facilities

     1.99     2016        205,600       168,500       262,064  

Private placement—fixed rate

     5.65     2013-2017         400,000       400,000       400,000  

Private placement—floating rate

     1.07     2013        100,000       205,000       205,000  

Public—fixed rate

     5.00     2021        500,000       500,000       500,000  

Capital lease obligations

     3.72     2025        14,671       15,788       18,362  

Other

     3.10     2012-2016         7,945       16,302       21,481  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total debt

          1,235,209       1,309,087       1,406,907  

Less: Current maturities

          (1,193     (1,168     (1,289

Short-term borrowings

          (222     (3,694     (21,451
       

 

 

   

 

 

   

 

 

 

Long-term debt

        $ 1,233,794     $ 1,304,225     $ 1,384,167  
       

 

 

   

 

 

   

 

 

 

The fair value of total debt excluding the effect of the interest rate swaps was $1,299.2 million, $1,361.0 million and $1,440.1 million as of June 30, 2012, December 31, 2011 and July 2, 2011, respectively. This fair value measurement of debt is classified as Level 2 in the valuation hierarchy as defined in Note 10, “Derivatives and Financial Instruments”.

In May 2011, we completed a public offering of $500 million aggregate principal amount of our 5.00% Senior Notes due 2021 (the “Notes”). The Notes are guaranteed by certain of our wholly-owned domestic subsidiaries that are also guarantors under our primary bank credit facility. We used the net proceeds from the offering of the Notes to finance in part the CPT acquisition.

In April 2011, we entered into a Fourth Amended and Restated Credit Agreement (the “Credit Facility”). The Credit Facility replaced our previous $800 million revolving credit facility. The Credit Facility creates an unsecured, committed credit facility of up to $700 million, with multi-currency sub facilities to support investments outside the U.S. The Credit Facility expires on April 28, 2016. Borrowings under the Credit Facility currently bear interest at the rate of London Interbank Offered Rate (“LIBOR”) plus 1.75%. Interest rates and fees on the Credit Facility will vary based on our credit ratings. We used borrowings under the Credit Facility to fund a portion of the CPT acquisition and to fund ongoing operations.

We are authorized to sell short-term commercial paper notes to the extent availability exists under the Credit Facility. We use the Credit Facility as back-up liquidity to support 100% of commercial paper outstanding. Our use of commercial paper as a funding vehicle depends upon the relative interest rates for our commercial paper compared to the cost of borrowing under our Credit Facility. As of June 30, 2012, we had $7.0 million of commercial paper outstanding.

In May 2012, we repaid $105 million of matured private placement debt with borrowings under the Credit Facility.

All of the commercial paper and private placement—floating rate debt was classified as long-term as we have the intent and the ability to refinance such obligations on a long-term basis under the Credit Facility.

 

F-130


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Total availability under our Credit Facility was $487.4 million as of June 30, 2012, which was not limited by the leverage ratio financial covenant in the credit agreement.

Our debt agreements contain certain financial covenants, the most restrictive of which is a leverage ratio in the Credit Facility (total consolidated indebtedness, as defined, over consolidated net income before interest, taxes, depreciation, amortization and non-cash compensation expense, as defined) that may not exceed 3.5 to 1.0 as of the last date of each of our fiscal quarters. As of June 30, 2012, we were in compliance with all financial covenants in our debt agreements.

In addition to the Credit Facility, we have various other credit facilities with an aggregate availability of $73.1 million, of which $7.6 million was outstanding at June 30, 2012. Borrowings under these credit facilities bear interest at variable rates.

Debt outstanding at June 30, 2012 matures on a calendar year basis as follows:

 

In thousands

   Q3 - Q4
2012
     2013      2014      2015      2016      2017      Thereafter      Total  

Contractual debt obligation maturities

   $ 246      $ 200,057      $ 17      $ —         $ 220,218      $ 300,000      $ 500,000      $ 1,220,538  

Capital lease obligations

     585        1,169        1,169        1,169        1,169        1,170        8,240        14,671  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total maturities

   $ 831      $ 201,226      $ 1,186      $ 1,169       $ 221,387      $ 301,170      $ 508,240      $ 1,235,209  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As part of the CPT acquisition, we assumed two capital lease obligations related to land and buildings. As of June 30, 2012, December 31, 2011 and July 2, 2011, we recorded cost of $22.0 million, $22.7 million and $25.6 million, respectively, and accumulated amortization of $5.2 million, $5.1 million and $5.3 million, respectively, all of which are included in Property, plant and equipment on the Condensed Consolidated Balance Sheets.

Capital lease obligations consist of total future minimum lease payments of $17.4 million less the imputed interest of $2.7 million as of June 30, 2012.

10. Derivatives and Financial Instruments

Fair value measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

Level 1:  Valuation is based on observable inputs such as quoted market prices (unadjusted) for identical assets or liabilities in active markets.

Level 2:  Valuation is based on inputs such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3:  Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

 

F-131


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Cash-flow Hedges

In August 2007, we entered into a $105 million interest rate swap agreement with a major financial institution to exchange variable rate interest payment obligations for a fixed rate obligation without the exchange of the underlying principal amounts in order to manage interest rate exposures. The effective date of the swap was August 30, 2007. The swap agreement had a fixed interest rate of 4.89% and expired in May 2012. The fixed interest rate of 4.89% plus the .50% interest rate spread over LIBOR resulted in an effective fixed interest rate of 5.39%. The fair value of the swap was a liability of $1.7 million and $4.2 million at December 31, 2011 and July 2, 2011, respectively, and was recorded in Accumulated other comprehensive income (loss) (“AOCI”) on the Condensed Consolidated Balance Sheets.

In September 2005, we entered into a $100 million interest rate swap agreement with several major financial institutions to exchange variable rate interest payment obligations for fixed rate obligations without the exchange of the underlying principal amounts in order to manage interest rate exposures. The effective date of the fixed rate swap was April 25, 2006. The swap agreement has a fixed interest rate of 4.68% and expires in July 2013. The fixed interest rate of 4.68% plus the .60% interest rate spread over LIBOR results in an effective fixed interest rate of 5.28%. The fair value of the swap was a liability of $4.5 million, $6.3 million and $8.3 million at June 30, 2012, December 31, 2011 and July 2, 2011, respectively, and was recorded in AOCI on the Condensed Consolidated Balance Sheets.

The variable to fixed interest rate swaps are designated as and are effective as cash-flow hedges. The fair values of these swaps are recorded as assets or liabilities on the Condensed Consolidated Balance Sheets, with changes in their fair value included in AOCI. Derivative gains and losses included in AOCI are reclassified into earnings at the time the related interest expense is recognized or the settlement of the related commitment occurs. Realized income/expense and amounts to/from swap counterparties are recorded in Net interest expense in our Condensed Consolidated Statements of Income and Comprehensive Income (Loss). We realized incremental expense resulting from the swaps of $1.7 million and $2.3 million for the three months ended and $3.9 million and $4.7 million for the six months ended June 30, 2012 and July 2, 2011, respectively.

Failure of one or more of our swap counterparties would result in the loss of any benefit to us of the swap agreement. In this case, we would continue to be obligated to pay the variable interest payments per the underlying debt agreements which are at a variable interest rate of 3 month LIBOR plus 0.60% for $100 million of debt. Additionally, failure of one or all of our swap counterparties would not eliminate our obligation to continue to make payments under our existing swap agreements if we continue to be in a net pay position.

Our interest rate swaps are carried at fair value measured on a recurring basis. Fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance.

In April 2011, as part of our planned debt issuance to fund the CPT acquisition, we entered into interest rate swap contracts to hedge movement in interest rates through the expected date of closing for a portion of the expected fixed rate debt offering. The swaps had a notional amount of $400 million with an average interest rate of 3.65%. In May 2011, upon the sale of the Notes, the swaps were terminated at a cost of $11.0 million. Because we used the contracts to hedge future interest payments, the short term and long term portions are recorded in Prepaid

 

F-132


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

expenses and other current assets and Other , respectively, within the Condensed Consolidated Balance Sheets and will be amortized as interest exposure over the 10 year life of the Notes.

Foreign currency contract

We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative instruments. Our objective in holding derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates.

In March 2011, we entered into a foreign currency option contract to reduce our exposure to fluctuations in the euro related to our €503 million acquisition of CPT. The contract had a notional amount of €286.0 million, a strike price of 1.4375 and matured May 13, 2011. The fair value of the contract was an asset of $2.8 million at April 2, 2011, and was recorded in Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. In May 2011, we sold the foreign currency option contract for $1.0 million. The net cost of $2.1 million was recorded in Selling, general and administrative on the Condensed Consolidated Statements of Income and Comprehensive Income (Loss).

Fair value of financial information

Financial assets and liabilities measured at fair value on a recurring basis were as follows:

 

Recurring fair value measurements    As of June 30, 2012  

In thousands

   Fair value     (Level 1)      (Level 2)     (Level 3)  

Cash-flow hedges

   $ (4,519   $ —         $ (4,519   $ —     

Foreign currency contract

     (1,425     —           (1,425     —     

Deferred compensation plan (1)

     26,327       26,327        —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total recurring fair value measurements

   $ 20,383     $ 26,327      $ (5,944   $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 
Recurring fair value measurements    As of December 31, 2011  

In thousands

   Fair value     (Level 1)      (Level 2)     (Level 3)  

Cash-flow hedges

   $ (8,034   $ —         $ (8,034   $ —     

Foreign currency contract

     (99     —           (99     —     

Deferred compensation plan (1)

     22,987       22,987        —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total recurring fair value measurements

   $ 14,854     $ 22,987      $ (8,133   $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Nonrecurring fair value measurements

         

Goodwill (2)

   $ 242,800     $ —         $ —        $ 242,800  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total nonrecurring fair value measurement

   $ 242,800     $ —         $ —        $ 242,800  
  

 

 

   

 

 

    

 

 

   

 

 

 
Recurring fair value measurements    As of July 2, 2011  

In thousands

   Fair value     (Level 1)      (Level 2)     (Level 3)  

Cash-flow hedges

   $ (12,486   $ —         $ (12,486   $ —     

Foreign currency contract

     —          —           —          —     

Deferred compensation plan (1)

     24,967       24,967        —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total recurring fair value measurements

   $ 12,481     $ 24,967      $ (12,486   $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) Deferred compensation plan assets include mutual funds and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees. The fair value of these assets was based on quoted market prices in active markets.

 

F-133


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

(2) In the fourth quarter of 2011, we completed our annual goodwill impairment review. As a result, we recorded a pre-tax non-cash goodwill impairment charge of $200.5 million in our Residential Filtration reporting unit. The fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.

11. Income Taxes

The provision for income taxes consists of provisions for federal, state and foreign income taxes. We operate in an international environment with operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.

The effective income tax rate for the six months ended June 30, 2012 was 21.9% compared to 30.4% for the six months ended July 2, 2011. Our effective tax rate was lower due to the resolution of U.S. federal and state tax audits, the mix of global earnings and favorable benefits related to the May 2011 acquisition of CPT.

We continue to actively pursue initiatives to reduce our effective tax rate. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution.

The total gross liability for uncertain tax positions was $13.3 million, $26.5 million and $24.8 million at June 30, 2012, December 31, 2011 and July 2, 2011, respectively. We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense , respectively, on the Condensed Consolidated Statements of Income and Comprehensive Income (Loss), which is consistent with our past practices.

12. Benefit Plans

Components of net periodic benefit cost were as follows:

 

     Three months ended  
     Pension benefits     Post-retirement  

In thousands

   June 30,
2012
    July 2,
2011
    June 30,
2012
    July 2,
2011
 

Service cost

   $ 3,761     $ 3,131     $ 55     $ 45  

Interest cost

     8,087       8,225       422       472  

Expected return on plan assets

     (7,844     (7,964     —          —     

Amortization of prior year service cost (benefit)

     —          —          (6     (7

Recognized net actuarial loss (gains)

     2,577       972       (602     (827
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (income)

   $ 6,581     $ 4,364     $ (131   $ (317
  

 

 

   

 

 

   

 

 

   

 

 

 

 

F-134


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

     Six months ended  
     Pension benefits     Post-retirement  

In thousands

   June 30,
2012
    July 2,
2011
    June 30,
2012
    July 2,
2011
 

Service cost

   $ 7,522     $ 6,261     $ 110     $ 90  

Interest cost

     16,174       16,450       844       944  

Expected return on plan assets

     (15,688     (15,927     —          —     

Amortization of prior year service cost (benefit)

     —          —          (12     (14

Recognized net actuarial loss (gains)

     5,154       1,943       (1,204     (1,653
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (income)

   $ 13,162     $ 8,727     $ (262   $ (633
  

 

 

   

 

 

   

 

 

   

 

 

 

13. Business Segments

Financial information by reportable segment is shown below:

 

     Three months ended     Six months ended  

In thousands

   June 30,
2012
    July 2,
2011
    June 30,
2012
    July 2,
2011
 

Net sales to external customers

        

Water & Fluid Solutions

   $ 675,522     $ 631,994     $ 1,262,500     $ 1,147,362  

Technical Products

     266,003       278,181       537,202       553,086  
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 941,525     $ 910,175     $ 1,799,702     $ 1,700,448  
  

 

 

   

 

 

   

 

 

   

 

 

 

Intersegment sales

        

Water & Fluid Solutions

   $ (116   $ 316     $ (43   $ 771  

Technical Products

     1,535       1,559       2,894       2,558  

Other

     (1,419     (1,875     (2,851     (3,329
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

        

Water & Fluid Solutions

   $ 91,989     $ 84,521     $ 155,666     $ 141,049  

Technical Products

     50,624       48,261       101,083       96,348  

Other

     (24,821     (23,360     (54,005     (41,798
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

   $ 117,792     $ 109,422     $ 202,744     $ 195,599  
  

 

 

   

 

 

   

 

 

   

 

 

 

14. Warranty

The changes in the carrying amount of service and product warranties for the six months ended June 30, 2012, and July 2, 2011, and the year ended December 31, 2011, were as follows:

 

In thousands

   June 30,
2012
    December 31,
2011
    July 2,
2011
 

Balance at beginning of the year

   $ 29,355     $ 30,050     $ 30,050  

Service and product warranty provision

     26,579       50,096       26,035  

Payments

     (24,025     (53,937     (25,040

Acquired

     156       3,575       3,623  

Translation

     (222     (429     343  
  

 

 

   

 

 

   

 

 

 

Balance at end of the period

   $ 31,843     $ 29,355     $ 35,011  
  

 

 

   

 

 

   

 

 

 

 

F-135


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

15. Commitments and Contingencies

There have been no further material developments from the disclosures contained in our 2011 Annual Report on Form 10-K.

16. Financial Statements of Subsidiary Guarantors

Certain of the domestic subsidiaries (the “Guarantor Subsidiaries”) of Pentair, Inc. (the “Parent Company”), each of which is directly or indirectly wholly-owned by the Parent Company, jointly and severally, and fully and unconditionally, guarantee the Parent Company’s indebtedness under the Notes and the Credit Facility. The following supplemental financial information sets forth the Condensed Consolidated Statements of Income and Comprehensive Income (Loss), the Condensed Consolidated Balance Sheets, and the Condensed Consolidated Statements of Cash Flows for the Parent Company, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and total consolidated Pentair and subsidiaries .

 

F-136


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

For the three months ended June 30, 2012

 

In thousands

   Parent
company
    Guarantor
subsidiaries
    Non-guarantor
subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 628,860     $ 392,347     $ (79,682   $ 941,525  

Cost of goods sold

     —          421,655       287,437       (79,695     629,397  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          207,205       104,910       13       312,128  

Selling, general and administrative

     11,905       85,781       75,746       13       173,445  

Research and development

     245       10,958       9,688       —          20,891  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (12,150     110,466       19,476       —          117,792  

Earnings from investment in subsidiaries

     (62,199     (527     600       62,126       —     

Other (income) expense:

          

Equity income of unconsolidated subsidiaries

     —          (636     —          —          (636

Net interest (income) expense

     (27,676     38,301       5,454       —          16,079  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and noncontrolling interest

     77,725       73,328       13,422       (62,126     102,349  

Provision for income taxes

     5,895       23,935       (966     —          28,864  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     71,830       49,393       14,388       (62,126     73,485  

Noncontrolling interest

     —          —          1,655       —          1,655  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Pentair, Inc.

   $ 71,830     $ 49,393     $ 12,733     $ (62,126   $ 71,830  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (10,207   $ 22,945     $ (42,332   $ 19,164     $ (10,430

Less: Comprehensive loss attributable to noncontrolling interest

     —          —          (223     —          (223
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Pentair, Inc.

   $ (10,207   $ 22,945     $ (42,109   $ 19,164     $ (10,207
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-137


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

For the six months ended June 30, 2012

 

In thousands

   Parent
company
    Guarantor
subsidiaries
    Non-guarantor
subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 1,186,928     $ 778,524     $ (165,750   $ 1,799,702  

Cost of goods sold

     —          807,713       564,599       (165,457     1,206,855  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          379,215       213,925       (293     592,847  

Selling, general and administrative

     28,789       174,144       145,815       (293     348,455  

Research and development

     468       21,568       19,612       —          41,648  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (29,257     183,503       48,498       —          202,744  

Earnings from investment in subsidiaries

     (115,592     (1,325     (364     117,281       —     

Other (income) expense:

          

Equity income of unconsolidated subsidiaries

     —          (1,544     (141     —          (1,685

Net interest (income) expense

     (56,710     76,484       11,073       —          30,847  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and noncontrolling interest

     143,045       109,888       37,930       (117,281     173,582  

Provision for income taxes

     10,401       24,242       3,300       —          37,943  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     132,644       85,646       34,630       (117,281     135,639  

Noncontrolling interest

     —          —          2,995       —          2,995  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Pentair, Inc.

   $ 132,644     $ 85,646     $ 31,635     $ (117,281   $ 132,644  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 91,788     $ 59,198     $ 16,435     $ (73,613   $ 93,808  

Less: Comprehensive income attributable to noncontrolling interest

     —          —          2,020       —          2,020  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Pentair, Inc.

   $ 91,788     $ 59,198     $ 14,415     $ (73,613   $ 91,788  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-138


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

June 30, 2012

 

In thousands

   Parent
company
    Guarantor
subsidiaries
    Non-guarantor
subsidiaries
    Eliminations     Consolidated  
Assets   

Current assets

          

Cash and cash equivalents

   $ 6,135     $ 14,339     $ 40,124     $ —        $ 60,598  

Accounts and notes receivable, net

     736       348,556       281,087       (58,235     572,144  

Inventories

     —          241,629       218,410       —          460,039  

Deferred tax assets

     130,151       40,698       12,674       (124,624     58,899  

Prepaid expenses and other current assets

     44,061       12,282       107,023       (39,021     124,345  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     181,083       657,504       659,318       (221,880     1,276,025  

Property, plant and equipment, net

     17,953       132,314       230,796       —          381,063  

Other assets

          

Investments in/advances to subsidiaries

     2,911,498       1,414,260       85,952       (4,411,710     —     

Goodwill

     —          1,330,265       924,869       —          2,255,134  

Intangibles, net

     —          243,431       327,072       —          570,503  

Other

     65,638       8,931       48,115       (19,140     103,544  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other assets

     2,977,136       2,996,887       1,386,008       (4,430,850     2,929,181  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 3,176,172     $ 3,786,705     $ 2,276,122     $ (4,652,730   $ 4,586,269  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Liabilities and Shareholders’ Equity   

Current liabilities

          

Short-term borrowings

   $ —        $ —        $ 222     $ —        $ 222  

Current maturities of long-term debt

     —          —          1,193       —          1,193  

Accounts payable

     5,334       188,673       152,549       (58,291     288,265  

Employee compensation and benefits

     15,771       19,855       53,888       —          89,514  

Current pension and post-retirement benefits

     9,052       —          —          —          9,052  

Accrued product claims and warranties

     165       24,385       20,385       —          44,935  

Income taxes

     35,498       (1,801     (1,469     —          32,228  

Accrued rebates and sales incentives

     —          36,212       9,658       —          45,870  

Other current liabilities

     30,824       64,436       94,191       (39,014     150,437  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     96,644       331,760       330,617       (97,305     661,716  

Other liabilities

          

Long-term debt

     1,245,055       2,417,922       520,265       (2,949,448     1,233,794  

Pension and other retirement compensation

     185,513       (10,541     72,352       —          247,324  

Post-retirement medical and other benefits

     17,512       31,549       —          (19,140     29,921  

Long-term income taxes payable

     13,294       —          —          —          13,294  

Deferred tax liabilities

     —          229,962       84,835       (124,624     190,173  

Due to (from) affiliates

     (442,406     675,455       601,727       (834,776     —     

Other non-current liabilities

     58,771       1,323       32,081       —          92,175  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     1,174,383       3,677,430       1,641,877       (4,025,293     2,468,397  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shareholders’ equity attributable to Pentair, Inc.

     2,001,789       109,275       518,162       (627,437     2,001,789  

Noncontrolling interest

     —          —          116,083       —          116,083  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     2,001,789       109,275       634,245       (627,437     2,117,872  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 3,176,172     $ 3,786,705     $ 2,276,122     $ (4,652,730   $ 4,586,269  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-139


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2012

 

In thousands

   Parent
company
    Guarantor
subsidiaries
    Non-guarantor
subsidiaries
    Eliminations      Consolidated  

Net cash provided by (used for) operating activities

   $ 10,612     $ 108,550     $ 47,599     $ —         $ 166,761  

Investing activities

           

Capital expenditures

     (1,980     (14,562     (14,770     —           (31,312

Proceeds from sale of property and equipment

     —          1,538       3,330       —           4,868  

Acquisitions, net of cash acquired

     —          —          (19,905     —           (19,905

Other

     —          —          (3,073     —           (3,073
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used for) investing activities

     (1,980     (13,024     (34,418     —           (49,422

Financing activities

           

Net short-term borrowings

     (3,472     —          —          —           (3,472

Proceeds from long-term debt

     352,463       —          —          —           352,463  

Repayment of long-term debt

     (420,810     —          —          —           (420,810

Net change in advances to subsidiaries

     98,720       (84,519     (14,201     —           —     

Excess tax benefits from stock-based compensation

     1,740       —          —          —           1,740  

Stock issued to employees, net of shares withheld

     16,163       —          —          —           16,163  

Dividends paid

     (43,628     —          (512     —           (44,140
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used for) financing activities

     1,176       (84,519     (14,713     —           (98,056

Effect of exchange rate changes on cash and cash equivalents

     (6,770     —          (1,992     —           (8,762
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Change in cash and cash equivalents

     3,038       11,007       (3,524     —           10,521  

Cash and cash equivalents, beginning of period

     3,097       3,332       43,648       —           50,077  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 6,135     $ 14,339     $ 40,124     $ —         $ 60,598  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

F-140


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

For the three months ended July 2, 2011

 

In thousands

   Parent
company
    Guarantor
subsidiaries
     Non-guarantor
subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 586,395      $ 398,634     $ (74,854   $ 910,175  

Cost of goods sold

     —          399,270        297,830       (74,661     622,439  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     —          187,125        100,804       (193     287,736  

Selling, general and administrative

     6,664       83,632        68,329       (193     158,432  

Research and development

     435       10,509        8,938       —          19,882  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (7,099     92,984        23,537       —          109,422  

Earnings from investment in subsidiaries

     (53,988     —           —          53,988       —     

Other (income) expense:

           

Equity income of unconsolidated subsidiaries

     (607     —           (65     —          (672

Net interest (income) expense

     (26,636     38,107        3,142       —          14,613  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes and noncontrolling interest

     74,132       54,877        20,460       (53,988     95,481  

Provision for income taxes

     7,420       18,301        1,623       —          27,344  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     66,712       36,576        18,837       (53,988     68,137  

Noncontrolling interest

     —          —           1,425       —          1,425  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to Pentair, Inc.

   $ 66,712     $ 36,576      $ 17,412     $ (53,988   $ 66,712  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 90,090     $ 41,354      $ 29,491     $ (68,809   $ 92,306  

Less: Comprehensive income attributable to noncontrolling interest

     —          —           2,216       —          2,216  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Pentair, Inc.

   $ 90,090     $ 41,354      $ 27,275     $ (68,809   $ 90,090  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

F-141


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Loss)

For the six months ended July 2, 2011

 

In thousands

   Parent
company
    Guarantor
subsidiaries
     Non-guarantor
subsidiaries
    Eliminations     Consolidated  

Net sales

   $ —        $ 1,101,449      $ 740,212     $ (141,213   $ 1,700,448  

Cost of goods sold

     —          754,831        549,560       (140,738     1,163,653  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     —          346,618        190,652       (475     536,795  

Selling, general and administrative

     13,272       168,751        121,644       (475     303,192  

Research and development

     605       21,355        16,044       —          38,004  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (13,877     156,512        52,964       —          195,599  

Earnings from investment in subsidiaries

     (91,295     —           —          91,295       —     

Other (income) expense:

           

Equity income of unconsolidated subsidiaries

     (783     —           (124     —          (907

Net interest (income) expense

     (54,016     76,593        1,361       —          23,938  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes and noncontrolling interest

     132,217       79,919        51,727       (91,295     172,568  

Provision for income taxes

     14,964       26,782        10,651       —          52,397  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     117,253       53,137        41,076       (91,295     120,171  

Noncontrolling interest

     —          —           2,918       —          2,918  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to Pentair, Inc.

   $ 117,253     $ 53,137      $ 38,158     $ (91,295   $ 117,253  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 181,498     $ 63,306      $ 67,508     $ (125,193   $ 187,119  

Less: Comprehensive income attributable to noncontrolling interest

     —          —           5,621       —          5,621  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Pentair, Inc.

   $ 181,498     $ 63,306      $ 61,887     $ (125,193   $ 181,498  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

F-142


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

July 2, 2011

 

In thousands

   Parent
company
    Guarantor
subsidiaries
    Non-guarantor
subsidiaries
     Eliminations     Consolidated  
Assets   

Current assets

           

Cash and cash equivalents

   $ 4,836     $ 4,651     $ 59,485      $ —        $ 68,972  

Accounts and notes receivable, net

     796       317,365       375,242        (97,996     595,407  

Inventories

     —          203,998       280,797        —          484,795  

Deferred tax assets

     113,205       40,363       13,247        (105,982     60,833  

Prepaid expenses and other current assets

     8,958       14,973       118,638        (17,937     124,632  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     127,795       581,350       847,409        (221,915     1,334,639  

Property, plant and equipment, net

     20,172       110,551       279,824        —          410,547  

Other assets

           

Investments in/advances to subsidiaries

     2,856,562       599,056       686,070        (4,141,688     —     

Goodwill

     —          1,471,582       1,101,848        —          2,573,430  

Intangibles, net

     —          217,311       437,597        —          654,908  

Other

     75,538       4,821       23,477        (25,048     78,788  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total other assets

     2,932,100       2,292,770       2,248,992        (4,166,736     3,307,126  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,080,067     $ 2,984,671     $ 3,376,225      $ (4,388,651   $ 5,052,312  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
Liabilities and Shareholders’ Equity   

Current liabilities

           

Short-term borrowings

   $ —        $ —        $ 21,451      $ —        $ 21,451  

Current maturities of long-term debt

     2,905       —          29,220        (30,836     1,289  

Accounts payable

     5,781       160,537       247,182        (98,097     315,403  

Employee compensation and benefits

     32,294       22,791       53,751        —          108,836  

Current pension and post-retirement benefits

     8,733       —          —           —          8,733  

Accrued product claims and warranties

     12,248       22,574       12,437        —          47,259  

Income taxes

     9,106       5,720       6,672        —          21,498  

Accrued rebates and sales incentives

     —          32,219       10,348        —          42,567  

Other current liabilities

     14,874       37,558       110,149        (18,215     144,366  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     85,941       281,399       491,210        (147,148     711,402  

Other liabilities

           

Long-term debt

     1,265,400       2,417,890       1,033,600        (3,332,723     1,384,167  

Pension and other retirement compensation

     136,901       38       80,082        —          217,021  

Post-retirement medical and other benefits

     17,679       35,323       —           (25,048     27,954  

Long-term income taxes payable

     23,832       —          —           —          23,832  

Deferred tax liabilities

     10       213,201       128,192        (105,981     235,422  

Due to (from) affiliates

     (743,661     (261,361     1,024,935        (19,913     —     

Other non-current liabilities

     44,611       1,701       39,348        —          85,660  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     830,713       2,688,191       2,797,367        (3,630,813     2,685,458  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Shareholders’ equity attributable to Pentair, Inc.

     2,249,354       296,480       461,358        (757,838     2,249,354  

Noncontrolling interest

     —          —          117,500        —          117,500  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total shareholders’ equity

     2,249,354       296,480       578,858        (757,838     2,366,854  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 3,080,067     $ 2,984,671     $ 3,376,225      $ (4,388,651   $ 5,052,312  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

F-143


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the six months ended July 2, 2011

 

In thousands

   Parent
company
    Guarantor
subsidiaries
    Non-guarantor
subsidiaries
    Eliminations      Consolidated  

Net cash provided by (used for) operating activities

   $ (12,254   $ 190,161     $ (25,296   $ —         $ 152,611  

Investing activities

           

Capital expenditures

     (5,368     (13,584     (16,269     —           (35,221

Proceeds from sale of property and equipment

     —          42       47       —           89  

Acquisitions, net of cash acquired

     —          —          (733,105     —           (733,105

Other

     902       (783     —          —           119  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used for) investing activities

     (4,466     (14,325     (749,327     —           (768,118

Financing activities

           

Net short-term borrowings

     16,518       (29     29       —           16,518  

Proceeds from long-term debt

     1,320,957       —          —          —           1,320,957  

Repayment of long-term debt

     (661,422     —          —          —           (661,422

Debt issuance costs

     (8,721     —          —          —           (8,721

Net change in advances to subsidiaries

     (670,522     (174,560     845,082       —           —     

Excess tax benefits from stock-based compensation

     1,465       —          —          —           1,465  

Stock issued to employees, net of shares withheld

     9,551       —          —          —           9,551  

Repurchases of common stock

     (287     —          —          —           (287

Dividends paid

     (39,730     —          (9     —           (39,739
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used for) financing activities

     (32,191     (174,589     845,102       —           638,322  

Effect of exchange rate changes on cash and cash equivalents

     50,546       —          (50,445     —           101  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Change in cash and cash equivalents

     1,635       1,247       20,034       —           22,916  

Cash and cash equivalents, beginning of period

     3,201       3,404       39,451       —           46,056  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 4,836     $ 4,651     $ 59,485     $ —         $ 68,972  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

F-144


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

December 31, 2011

 

In thousands

   Parent
company
    Guarantor
subsidiaries
    Non-guarantor
subsidiaries
     Eliminations     Consolidated  
Assets   

Current assets

           

Cash and cash equivalents

   $ 3,097     $ 3,332     $ 43,648      $ —        $ 50,077  

Accounts and notes receivable, net

     828       360,027       263,201        (54,852     569,204  

Inventories

     —          227,472       222,391        —          449,863  

Deferred tax assets

     134,240       40,698       13,382        (127,421     60,899  

Prepaid expenses and other current assets

     28,937       (6,886     107,121        (21,380     107,792  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     167,102       624,643       649,743        (203,653     1,237,835  

Property, plant and equipment, net

     19,693       136,102       231,730        —          387,525  

Other assets

           

Investments in/advances to subsidiaries

     2,910,927       1,447,522       92,396        (4,450,845     —     

Goodwill

     —          1,330,265       943,653        —          2,273,918  

Intangibles, net

     —          250,792       341,493        —          592,285  

Other

     63,508       27,337       23,045        (19,140     94,750  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total other assets

     2,974,435       3,055,916       1,400,587        (4,469,985     2,960,953  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 3,161,230     $ 3,816,661     $ 2,282,060      $ (4,673,638   $ 4,586,313  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
Liabilities and Shareholders’ Equity   

Current liabilities

           

Short-term borrowings

   $ —        $ —        $ 3,694      $ —        $ 3,694  

Current maturities of long-term debt

     2,585       —          1,168        (2,585     1,168  

Accounts payable

     5,036       189,355       152,065        (51,598     294,858  

Employee compensation and benefits

     24,466       30,015       54,880        —          109,361  

Current pension and post-retirement benefits

     9,052       —          —           —          9,052  

Accrued product claims and warranties

     165       22,037       20,428        —          42,630  

Income taxes

     40,999       (28,717     2,265        —          14,547  

Accrued rebates and sales incentives

     —          25,612       11,397        —          37,009  

Other current liabilities

     25,050       53,960       71,890        (21,378     129,522  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     107,353       292,262       317,787        (75,561     641,841  

Other liabilities

           

Long-term debt

     1,312,053       2,417,922       542,411        (2,968,161     1,304,225  

Pension and other retirement compensation

     182,556       (7,701     73,760        —          248,615  

Post-retirement medical and other benefits

     17,024       33,890       —           (19,140     31,774  

Long-term income taxes payable

     26,470       —          —           —          26,470  

Deferred tax liabilities

     —          229,962       86,416        (127,421     188,957  

Due to (from) affiliates

     (479,943     751,145       711,705        (982,907     —     

Other non-current liabilities

     62,388       1,508       33,143        —          97,039  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     1,227,901       3,718,988       1,765,222        (4,173,190     2,538,921  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Shareholders’ equity attributable to Pentair, Inc.

     1,933,329       97,673       402,775        (500,448     1,933,329  

Noncontrolling interest

     —          —          114,063        —          114,063  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total shareholders’ equity

     1,933,329       97,673       516,838        (500,448     2,047,392  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 3,161,230     $ 3,816,661     $ 2,282,060      $ (4,673,638   $ 4,586,313  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

F-145


Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

 

17. Proposed Merger

On March 27, 2012, we entered into a definitive agreement to merge with the flow control business of Tyco International Ltd. (“Tyco”) in a tax-free, all-stock merger (the “Merger”). We expect the Merger will bring together complementary leaders in water and fluid solutions, valves and controls, and equipment protection products to create a premier industrial growth company. The Tyco flow control business had net revenue and operating income for its fiscal year ended September 30, 2011 of $3.6 billion and $296 million, respectively. The transaction values the Tyco flow control business at approximately $4.4 billion based on the June 13, 2012, Pentair stock price, including assumed net debt of $275 million and noncontrolling interest. If the Merger is not completed, depending on the reasons for the termination of the merger agreement, Pentair would be required to pay Tyco a termination fee of $145 million.

 

F-146

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The Unaudited Pro Forma Condensed Combined Statements of Income for the six months ended June 30, 2012 for Pentair and the six months ended June 29, 2012 for Flow Control, and the fiscal year ended December 31, 2011 for Pentair and September 30, 2011 for Flow Control combine the historical Consolidated Statements of Income of Pentair and the historical Combined Statements of Operations for Flow Control, giving effect to the Transactions and the Pentair Reorganization as if they had been consummated on January 1, 2011, the beginning of the earliest period presented. The Unaudited Pro Forma Condensed Combined Balance Sheet combines the historical Consolidated Balance Sheets of Pentair as of June 30, 2012 and the historical Combined Balance Sheets of Flow Control as of June 29, 2012, giving effect to the Transactions and the Pentair Reorganization as if they had been consummated on June 30, 2012. The historical combined financial statements of Flow Control have been adjusted to reflect certain reclassifications in order to conform with Pentair’s financial statement presentation.

The Unaudited Pro Forma Condensed Combined Financial Statements were prepared using the acquisition method of accounting with Pentair considered the acquirer of Flow Control. Accordingly, consideration given by Pentair to complete the Merger will be allocated to assets and liabilities of Flow Control based upon their estimated fair values as of the date of completion of the Transactions. As of September 28, 2012, Pentair has not completed the detailed valuation studies necessary to arrive at the required estimates of the fair value of the Flow Control assets acquired and the liabilities assumed and the related allocations of purchase price, nor has it identified all adjustments necessary to conform Flow Control’s accounting policies to Pentair’s accounting policies. A final determination of the fair value of Flow Control’s assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of Flow Control that exist as of the date of completion of the Merger and, therefore, could not be made prior to the completion of the Transactions. In addition, the value of the consideration given by Pentair to complete the Merger was determined based on the trading price of Pentair’s common shares at the time of the completion of the Merger. Accordingly, the pro forma purchase price adjustments are preliminary and are subject to further adjustments as additional information becomes available and as additional analyses are performed. The preliminary pro forma purchase price adjustments have been made solely for the purpose of providing the Unaudited Pro Forma Condensed Combined Financial Statements presented below. Pentair estimated the fair value of assets and liabilities of Flow Control based on discussions with Flow Control’s management, preliminary valuation studies, due diligence and information presented in public filings. Until the Merger was completed, both companies were limited in their ability to share information. After completion of the Merger, final valuations will be performed. Increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments to the balance sheet and/or statement of income. There can be no assurance that such finalization will not result in material changes.

These Unaudited Pro Forma Condensed Combined Financial Statements have been developed from and should be read in conjunction with the respective audited and unaudited consolidated financial statements of Pentair and the historical combined financial statements of Flow Control for the fiscal year ended December 31, 2011 and September 30, 2011, respectively, and for the six months ended June 30, 2012 and nine months ended June 29, 2012, respectively, which are included in this Current Report on Form 8-K. The Unaudited Pro Forma Condensed Combined Financial Statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of Flow Control would have been had the Transactions and the Pentair Reorganization occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.

Flow Control and Pentair expect to incur significant costs associated with integrating Flow Control and the Pentair business. The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the Merger.

All capitalized terms used but not defined herein have the meanings set forth under “Glossary of Terms.”

 

1


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

 

     Historical
As of
     Pro Forma
Adjustments
           Pro Forma
Condensed
Combined
 

In millions

   Pentair
June 30, 2012
     Flow Control
June 29, 2012
             

Assets

             

Current assets

             

Cash and cash equivalents

   $ 61       $ 224       $ (64     a       $ 160   
           (61     a      

Accounts and notes receivable, net

     572         692         2        b         1,266   

Inventories

     460         864         101        c         1,425   

Deferred tax assets

     59         79         —             138   

Prepaid expenses and other current assets

     124         182         —             306   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total current assets

     1,276         2,041         (22        3,295   

Property, plant and equipment, net

     381         622         125        d         1,128   

Other assets

             

Goodwill

     2,255         2,089         (2,089     e         4,908   
           2,653        e      

Intangibles, net

     571         114         (114     f         1,956   
           1,385        f      

Other

     103         385         15        g         503   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total other assets

     2,929         2,588         1,850           7,367   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total assets

   $ 4,586       $ 5,251       $ 1,953         $ 11,790   
  

 

 

    

 

 

    

 

 

      

 

 

 

Liabilities and Shareholders’ Equity and Parent Company Investment

             

Current liabilities

             

Current maturities of long-term debt

   $ 1       $ —         $ —           $ 1   

Accounts payable

     288         361         —             649   

Accrued and other current liabilities

     373         519         (50     h         842   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total current liabilities

     662         880         (50        1,492   

Other liabilities

             

Long-term debt

     1,234         901         (417     i         1,718   

Other non-current liabilities

     572         441         526        j         1,539   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total liabilities

     2,468         2,222         59           4,749   

Redeemable noncontrolling interest

     —           95         —             95   

Shareholders’ equity and parent company investment

     2,118         2,934         (2,934     k         6,946   
           4,915        k      
           (87     k      
  

 

 

    

 

 

    

 

 

      

 

 

 

Total liabilities and shareholders’ equity and parent company investment

   $ 4,586       $ 5,251       $ 1,953         $ 11,790   
  

 

 

    

 

 

    

 

 

      

 

 

 

The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Financial Statements.

 

2


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

 

     Historical
For the Six Months Ended
     Pro Forma
Adjustments
           Pro Forma
Condensed
Combined
 

In millions, except per-share data

   Pentair
June 30, 2012
    Flow Control
June 29, 2012
         

Net sales

   $ 1,800      $ 1,981       $ —           $ 3,781   

Cost of goods sold

     1,207        1,348         (10     l         2,580   
          5        l      
          30        l      
  

 

 

   

 

 

    

 

 

      

 

 

 

Gross profit

     593        633         (25        1,201   

Selling, general and administrative

     348        452         12        m         812   

Research and development

     42        —           10        l         52   
  

 

 

   

 

 

    

 

 

      

 

 

 

Operating income

     203        181         (47        337   

Other (income) expense:

            

Equity (income) losses of unconsolidated subsidiaries

     (2     —           —             (2

Net interest expense

     31        20         (20     n         30   
          (1     n      
  

 

 

   

 

 

    

 

 

      

 

 

 

Income before income taxes and noncontrolling interest

     174        161         (26        309   

Provision for income taxes

     38        70         (9     o         99   
  

 

 

   

 

 

    

 

 

      

 

 

 

Net income before noncontrolling interest

     136        91         (17        210   

Noncontrolling interest

     3        1         —             4   
  

 

 

   

 

 

    

 

 

      

 

 

 

Net income attributable to shareholders

   $ 133      $ 90       $ (17      $ 206   
  

 

 

   

 

 

    

 

 

      

 

 

 

Earnings per common share attributable to shareholders

            

Basic

   $ 1.34              $ 0.97   

Diluted

   $ 1.32              $ 0.96   

Weighted average common shares outstanding

            

Basic

     99           113        p         212   

Diluted

     101           113        p         214   

The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Financial Statements.

 

3


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

 

     Historical
For the Fiscal Year Ended
        

In millions, except per-share data

   Pentair
December 31, 2011
    Flow Control
September 30, 2011
     Pro Forma
Adjustments
           Pro Forma
Condensed
Combined
 

Net sales

   $ 3,457      $ 3,648       $ —           $ 7,105   

Cost of goods sold

     2,383        2,478         (18     l         4,914   
          11        l      
          60        l      
  

 

 

   

 

 

    

 

 

      

 

 

 

Gross profit

     1,074        1,170         (53        2,191   

Selling, general and administrative

     626        829         81        m         1,536   

Research and development

     78        —           18        l         96   

Goodwill impairment

     201        35         —             236   
  

 

 

   

 

 

    

 

 

      

 

 

 

Operating income

     169        306         (152        323   

Other (income) expense:

            

Equity (income) losses of unconsolidated subsidiaries

     (2     —           —             (2

Net interest expense

     60        41         (51     n         47   
          (3     n      
  

 

 

   

 

 

    

 

 

      

 

 

 

Income from continuing operations before income taxes and noncontrolling interest

     111        265         (98        278   

Provision for income taxes

     73        112         (34     o         151   
  

 

 

   

 

 

    

 

 

      

 

 

 

Income from continuing operations

     38        153         (64        127   

Noncontrolling interest

     4        1         —             5   
  

 

 

   

 

 

    

 

 

      

 

 

 

Net income from continuing operations attributable to shareholders

   $ 34      $ 152       $ (64      $ 122   
  

 

 

   

 

 

    

 

 

      

 

 

 

Earnings from continuing operations per common share attributable to shareholders

            

Basic

   $ 0.35              $ 0.58   

Diluted

   $ 0.34              $ 0.57   

Weighted average common shares outstanding

            

Basic

     98           113        p         211   

Diluted

     100           113        p         213   

The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Financial Statements.

 

4


Note 1. Basis of Presentation

On March 27, 2012, Tyco, New Pentair, Panthro Acquisition, Panthro Merger Sub and Pentair entered into the Merger Agreement under which New Pentair agreed to combine with Pentair in a tax-free, all-stock merger. The Merger was completed on September 28, 2012. Prior to the closing of the Merger, Tyco caused specified assets and liabilities used in its flow control business to be conveyed to New Pentair. After such conveyance, Tyco spun-off New Pentair to Tyco shareholders by distributing all of the outstanding New Pentair common shares to Tyco shareholders. Immediately after the spin-off, Panthro Merger Sub, merged with and into Pentair, with Pentair surviving the Merger as a wholly-owned indirect subsidiary of New Pentair. As a result of the Merger, Pentair shareholders received New Pentair common shares. In connection with the Merger, it is currently expected, based on the exchange ratio formula set forth in the Merger Agreement and the number of outstanding Pentair common shares and Tyco common shares as of September 27, 2012, that Pentair shareholders will receive approximately 99,391,000 New Pentair common shares as a result of the transactions, or one New Pentair common share for every one Pentair common share owned on the date of the Merger. However, no fractional shares of New Pentair common shares will be issued in the Merger. At the close of the Merger, Pentair shareholders owned approximately 47.5% of the common shares of New Pentair and Tyco shareholders owned approximately 52.5% of New Pentair common shares on a fully diluted basis. New Pentair common shares will be traded on the NYSE under the ticker symbol “PNR.”

The accompanying Unaudited Pro Forma Condensed Combined Financial Statements present the pro forma consolidated financial position and results of operations of New Pentair based upon the historical financial statements of Pentair and Flow Control, after giving effect to the Transactions, the Pentair Reorganization and adjustments described in these notes, and are intended to reflect the impact of the Transactions and the Pentair Reorganization on New Pentair’s consolidated financial statements. The accompanying Unaudited Pro Forma Condensed Combined Financial Statements are presented for illustrative purposes only and do not reflect the costs of any integration activities or benefits that may result from realization of future costs savings due to operating efficiencies or revenue synergies expected to result from the Transactions and the Pentair Reorganization. In addition, throughout the periods covered by the Unaudited Pro Forma Condensed Combined Financial Statements, the operations of Flow Control were conducted and accounted for as part of Tyco. These financial statements have been derived from Tyco’s historical accounting records and reflect significant allocations of direct costs and expenses. All of the allocation and estimates in these financial statements are based on assumptions that the management of Flow Control believes are reasonable. The financial statements do not necessarily represent the financial position of Flow Control had it been operated as a separate independent entity.

The Unaudited Pro Forma Condensed Combined Statements of Income for the six months ended June 30, 2012 combine Flow Control’s unaudited historical Combined Statement of Income for the six months ended June 29, 2012 with Pentair’s unaudited historical Consolidated Statement of Income for the six months ended June 30, 2012, to reflect the Transactions and the Pentair Reorganization as if they had occurred as of January 1, 2011. The Unaudited Pro Forma Condensed Combined Statements of Income for the fiscal year ended December 31, 2011 combine Flow Control’s audited historical Combined Statement of Operations for the fiscal year ended September 30, 2011 with Pentair’s audited historical Consolidated Statement of Income for the fiscal year ended December 31, 2011, to reflect the Transactions and the Pentair Reorganization as if they had occurred as of January 1, 2011. The Unaudited Pro Forma Condensed Combined Balance Sheet combines Flow Control’s unaudited historical Combined Balance Sheet as of June 29, 2012 with Pentair’s unaudited historical Consolidated Balance Sheet as of June 30, 2012 to reflect the Transactions and the Pentair Reorganization as if they had occurred as of June 30, 2012.

The Unaudited Pro Forma Condensed Combined Financial Statements were prepared using the acquisition method of accounting with Pentair considered the accounting acquiror of Flow Control. Accordingly, consideration given by Pentair to complete the Transactions will be allocated to assets and liabilities of Flow Control based upon their estimated fair values as of the date of completion of the Transactions. As of September 28, 2012, Pentair has not completed the detailed valuation studies necessary to arrive at the required estimates of fair value of Flow Control’s assets acquired and the liabilities assumed and the

 

5


related allocations of purchase price, nor has it identified all adjustments necessary to conform Flow Control’s accounting policies to Pentair’s accounting policies. A final determination of the fair value of Flow Control’s assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of Flow Control that exist as of the date of completion of the Merger and, therefore, could not be made prior to the completion of the Transactions. In addition, the value of the consideration given by Pentair to complete the Transactions was determined based on the trading price of Pentair’s common shares at the time of the completion of the Merger. Accordingly, the pro forma purchase price adjustments are preliminary and are subject to further adjustments as additional information becomes available and as additional analyses are performed. The preliminary pro forma purchase price adjustments have been made solely for the purpose of providing the Unaudited Pro Forma Condensed Combined Financial Statements presented above. Pentair estimated the fair value of Flow Control’s assets and liabilities based on discussions with Flow Control’s management, preliminary valuation studies, due diligence and information presented in public filings. Until the Transactions were completed, both companies were limited in their ability to share information. Now that the Transactions have been completed, final valuations will be performed. Increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments to the combined balance sheet and/or statement of income. There can be no assurance that such finalization will not result in material changes.

The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted to reflect the allocation of the preliminary estimated purchase price to identifiable net assets acquired with the excess recorded as goodwill. The purchase price allocation in these Unaudited Pro Forma Condensed Combined Financial Statements is based upon a purchase price of approximately $4.9 billion. This amount was derived in accordance with the Merger Agreement, as described further below in note 2(k), based on the outstanding Pentair common shares and common stock equivalents and the closing price of Pentair common shares on September 27, 2012.

The preliminary estimated purchase price is allocated as follows:

 

(in millions)       

Cash

   $ 160   

Accounts receivable

     694   

Inventories

     965   

Other current assets

     261   

Property, plant and equipment

     747   

Identifiable intangible assets

     1,385   

Other non-current assets

     392   

Goodwill

     2,653   

Current liabilities

     (830

Long-term debt

     (450

Other liabilities and deferred income taxes, including current

     (1,062
  

 

 

 

Total preliminary estimated purchase price

   $ 4,915   
  

 

 

 

Note 2. Pro Forma Adjustments

The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the following adjustments:

(a) Cash and Cash Equivalents . Cash and cash equivalents have been adjusted for the following:

 

   

A $40.0 million increase for settlement of net receivables due from Tyco and its affiliates.

 

6


   

A $400.0 million increase from the proceeds from the FIFSA Notes offering, a $35.0 million increase from an advance on Pentair’s revolving credit facility and an assumed repayment of the long-term portion of debt of $539.0 million to result in assumed net debt of $275.0 million (assumed debt of $435.0 million less assumed cash of $160.0 million) in accordance with the Merger Agreement and the Separation and Distribution Agreement.

A summary of these adjustments is as follows:

 

(in millions)

      

Settlement of accounts and notes receivable due from Tyco and affiliates

   $ 2.0   

Settlement of long-term receivables due from Tyco and affiliates

     134.0   

Settlement of accrued and other current liabilities due to Tyco and affiliates

     (50.0

Settlement other non-current liabilities due to Tyco and affiliates

     (46.0

Proceeds raised from the FIFSA Notes offering

     400.0   

Advance on revolving credit facility — Flow Control net debt

     35.0   

Repayment of long-term portion of debt

     (539.0
  

 

 

 

Total

   $ (64.0
  

 

 

 

 

   

A $34.0 million increase in Pentair’s revolving credit facility for fees related to refinancing its revolving credit facility, issuance of the FIFSA Notes and a prepayment premium on senior unsecured notes being redeemed.

 

   

An $11.0 million net decrease for the payment of fees associated with Pentair refinancing its revolving credit facility and issuance of the FIFSA Notes.

 

   

Payment of the remaining transaction costs and prepayment premium described in (k) below.

A summary of these adjustments is as follows:

 

(in millions)

      

Advance on revolving credit facility

   $ 34.0   

Fees—refinancing of revolving credit facility and issuance of the FIFSA Notes

     (11.0

Remaining transaction cost described in (k) below

     (40.0

Prepayment premium described in (k) below

     (44.0
  

 

 

 

Total

   $ (61.0
  

 

 

 

(b) Accounts and Notes Receivable, net . Accounts and notes receivable, net have been adjusted as follows:

 

   

A $2.0 million decrease for settlement of Flow Control’s receivables due from Tyco and its affiliates.

 

   

A $4.0 million increase relating to an income tax sharing receivable, as defined by the 2012 Tax Sharing Agreement that New Pentair entered into with Tyco. The actual amounts that Flow Control may be entitled to receive under this agreement could vary depending upon the outcome of the unresolved tax matters, which may not be resolved for several years.

A summary of the adjustments is as follows:

 

(in millions)

      

Settlement of receivables due from Tyco and its affiliates

   $ (2.0

Receivable related to the 2012 Tax Sharing Agreement

     4.0  
  

 

 

 

Total

   $ 2.0  
  

 

 

 

(c) Inventories . A $101.0 million increase in finished goods inventory to reflect the estimated fair value of Flow Control’s inventories.

 

7


(d) Property, Plant and Equipment . A $125.0 million increase in property, plant and equipment ($105.0 million in plant and equipment and $20.0 million in property) to reflect the estimated fair value of Flow Control’s property, plant and equipment . Plant and equipment are expected to be depreciated over a weighted average life of approximately 10 years.

For each $10.0 million adjustment to property, plant and equipment, assuming a weighted average useful life of 10 years, depreciation expense would increase or decrease by $1.0 million and $0.5 million for the year ended December 31, 2011 and the six months ended June 30, 2012, respectively.

(e) Goodwill . Represents the elimination of $2.1 billion of existing goodwill of Flow Control and the assignment of $2.7 billion of goodwill attributable to the Merger.

(f) Intangible Assets . Represents the elimination of $114.0 million of existing intangible assets of Flow Control and the recording of $1.4 billion of identifiable intangible assets attributable to the Merger .

The estimated intangible assets attributable to the Merger are comprised of the following:

 

     Amount      Annual
Amortization
Expense
     Quarterly
Amortization
Expense
     Estimated
Weighted
Average
Life
 
(in millions)       

Indefinite lived intangible assets

   $ 390.0       $ —         $ —           N/A   

Definite lived intangible assets

     875.0         87.5         21.9         10   

Customer backlog

     120.0         60.0         15.0         2   
  

 

 

    

 

 

    

 

 

    

Total

   $ 1,385.0       $ 147.5       $ 36.9      
  

 

 

    

 

 

    

 

 

    

Indefinite lived intangible assets are expected to consist of trademarks and trade names and definite lived intangible assets are expected to consist of customer lists and developed technology.

The estimated fair values for this pro forma presentation for trade names and developed technology were measured using the relief-from-royalty method. This method assumes the trade names and developed technology have value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. Significant assumptions required for this method are revenue growth rates for the related brands, the appropriate royalty rate and an appropriate discount rate.

The estimated fair values for this pro forma presentation for customer lists and backlog were measured using the multi-period excess earnings method. The principle behind the multi-period excess earnings method is that the value of an intangible is equal to the present value for the incremental after-tax cash flows attributable only to the subject intangible asset. Significant assumptions required for this method are revenue growth rates and profitability related to customers, customer attrition rates and an appropriate discount rate.

For each $50.0 million adjustment to definite lived intangible assets, assuming a weighted average useful life of approximately 10 years, amortization expense would increase or decrease by $5.0 million and $2.5 million for the year ended December 31, 2011 and the six months ended June 30, 2012, respectively.

(g) Other . Other assets have been adjusted for the following:

 

   

A $134.0 million decrease for the settlement of various receivables due from Tyco and its affiliates.

 

   

An adjustment to reflect a $141.0 million increase to deferred tax assets for U.S. federal and certain foreign net operating loss carry-forwards and certain other foreign tax attributes that were transferred to Flow Control upon separation.

 

8


   

A net adjustment of $8.0 million to reflect the fees associated with Pentair refinancing its revolving credit facility and issuance of the FIFSA Notes less the expense of capitalized fees associated with the revolving credit facility being refinanced and senior unsecured notes being redeemed. The expense for the fees associated with the revolving credit facility and private placement notes being refinanced are not included in the Unaudited Pro Forma Condensed Combined Statements of Income as they are non-recurring expenses.

A summary of the adjustments is as follows:

 

(in millions)

      

Settlement of long-term receivables due from Tyco and affiliates

   $ (134.0

Adjustment to deferred taxes

     141.0   

Fees—Pentair’s new revolving credit facility

     3.5   

Fees—FIFSA Notes

     7.5   

Fees—Pentair’s revolving credit facility and private placement notes

     (3.0
  

 

 

 

Total

   $ 15.0  
  

 

 

 

(h) Accrued and Other Current Liabilities . A $50.0 million decrease for the settlement of various liabilities due to Tyco and its affiliates.

(i) Long-Term Debt . Long-term debt has been adjusted for the following:

 

   

Assumed settlement of $886.0 million of Flow Control’s long-term debt, which represents amounts allocated by Tyco for carve-out purposes.

 

   

Adjustments required to result in Flow Control net debt of $275.0 million (assumed debt of $435.0 million less assumed cash of $160.0 million) in accordance with the Separation and Distribution Agreement. The assumed debt of $435.0 million is based on the assumption that Flow Control will have $160.0 million in cash and $435.0 million in new debt is needed to result in net indebtedness of $275.0 million as required by the Separation and Distribution Agreement. To the extent that Flow Control has more or less than $160.0 million in cash and cash equivalents (up to a maximum of $225.0 million), the new debt amount would also increase or decrease dollar for dollar up to a maximum of $500.0 million. The required $435.0 million of new debt was raised through $400.0 million of the FIFSA Notes offering and $35.0 million of advances on Pentair’s revolving credit facility. The additional $500.0 million of the FIFSA Notes will be used to loan sufficient funds to Pentair to enable it to redeem $500.0 million aggregate principal amount of its senior unsecured notes.

 

   

A $34.0 million increase in Pentair’s revolving credit facility for fees related to the refinancing of its revolving credit facility, issuance of $900.0 million in FIFSA Notes and a prepayment premium on private placement notes being redeemed.

A summary of the adjustments is as follows:

 

(in millions)

      

Settlement of long-term debt due to Tyco and its affiliates

   $ (886.0

New debt per Separation and Distribution Agreement

     400.0   

Pentair advance on revolving credit facility—Flow Control net debt

     35.0   

Redemption of Pentair notes—existing senior unsecured notes

     (500.0

New debt for redemption of Pentair notes

     500.0   

Pentair advance on revolving credit facility

     34.0   
  

 

 

 

Total

   $ (417.0
  

 

 

 

(j) Other Non-Current Liabilities . Other non-current liabilities have been adjusted for the following:

 

   

A $13.0 million increase relating to an income tax sharing payable, as defined by the 2012 Tax Sharing Agreement that New Pentair entered into with Tyco. The actual amounts that New Pentair may be obligated to pay under this agreement could vary depending upon the outcome of the unresolved tax matters, which may not be resolved for several years.

 

9


   

A $46.0 million decrease for the settlement of various liabilities due to Tyco and its affiliates.

 

   

An adjustment to reflect a $7.8 million increase to non-current income taxes payable for certain foreign income tax liabilities transferred to Flow Control upon separation.

 

   

An adjustment to reflect a $12.1 million decrease to deferred tax liabilities for U.S. federal and certain foreign net operating loss carry-forwards transferred to Flow Control upon separation.

 

   

An adjustment to deferred tax liabilities representing the deferred income tax liability based on the U.S. federal statutory rate of 35% multiplied by the fair value adjustments made to assets acquired and liabilities assumed, excluding goodwill . For purposes of these Unaudited Pro Forma Condensed Combined Financial Statements, the U.S. federal statutory tax rate of 35% has been used . This does not reflect Flow Control’s effective tax rate, which will include other tax items such as state and foreign taxes as well as other tax charges and benefits, and does not take into account any historical or possible future tax events that may impact New Pentair . The adjustment was calculated as follows:

 

(in millions)

      

Identifiable intangible assets

   $ 1,385.0   

Property, plant and equipment fair market value step-up

     125.0   

Inventory fair market value step-up

     101.0   
  

 

 

 

Total

     1,611.0   

Statutory tax rate

     35.0
  

 

 

 

Deferred tax liability adjustment

   $ 563.9   
  

 

 

 

A summary of the adjustments is as follows:

 

(in millions)

      

Adjustment to income taxes payable—tax sharing

   $ 13.0   

Settlement of liabilities due to Tyco and its affiliates

     (46.0

Adjustment to income taxes payable

     7.8   

Adjustment to deferred taxes—separation

     (12.1

Adjustment to deferred taxes—purchase accounting

     563.9   
  

 

 

 

Total

   $ 526.6   
  

 

 

 

(k) Shareholders’ Equity and Parent Company Investment . Shareholders’ equity and parent company investment has been adjusted for the following:

 

   

Elimination of Flow Control’s parent company investment of $2.9 billion.

 

   

Adjustment to reflect Merger consideration calculated as follows:

 

(in millions,except $per share)

      

Pentair shares outstanding—diluted

     102.48   

Price per share of Pentair common share at September 27, 2012

   $ 43.39   
  

 

 

 

Pentair market value before Merger

   $ 4,446.6  

Pentair shareholders ownership after Merger

     47.5
  

 

 

 

New Pentair market value after Merger

     9,361.3   

Less Pentair market value before Merger

     (4,446.6
  

 

 

 

Value of New Pentair shares issued

   $ 4,914.7   
  

 

 

 

 

10


   

A $40.0 million decrease to reflect estimated remaining transaction costs related to the Transactions. These represent estimated one-time investment banking, legal and professional fees and are not presented net of tax as they are believed to be nondeductible. Additionally, these costs are not included in the Unaudited Pro Forma Condensed Combined Statements of Income as they are non-recurring expenses.

 

   

In connection with Pentair redeeming $500.0 million of existing senior unsecured notes, it will incur an estimated prepayment premium of $44.0 million, net of tax. The prepayment premium is not included in the Unaudited Pro Forma Condensed Combined Statements of Income as it is a non-recurring expense.

 

   

A $3.0 million decrease to reflect the expense associated with the remaining debt issuance costs for the revolving credit facility being refinanced and private placement notes being redeemed. The expense is not included in the Unaudited Pro Forma Condensed Combined Statements of Income as it is a non-recurring expense.

A summary of these adjustments is as follows:

 

(in millions)       

Remaining transaction costs

   $ (40.0

Prepayment premium

     (44.0

Remaining debt issuance costs

     (3.0
  

 

 

 

Total

   $ (87.0
  

 

 

 

The Unaudited Pro Forma Condensed Combined Income Statement reflects the following adjustments:

(l) Cost of Goods Sold .

 

   

A reclassification of $18.0 million for the year ended September 30, 2011 and $10.0 million for the six months ended June 29, 2012 of Flow Control’s research and development costs from Cost of goods sold to Research and development to conform with Pentair’s financial statement presentation.

 

   

An increase in depreciation expense of $10.5 million for the year ended December 31, 2011 and $5.3 million for the six months ended June 30, 2012 resulting from the increase in the value of Flow Control’s property, plant and equipment noted in (d) above.

 

   

An increase in amortization expense of $60.0 million for the year ended December 31, 2011 and $30.0 million for the six months ended June 30, 2012 resulting from the adjustment to customer backlog noted in (f) above.

(m) Selling, General and Administrative .

 

   

An increase in amortization expense of $81.0 million for the year ended December 31, 2011 and $35.8 million for the six months ended June 30, 2012 resulting from the adjustments to intangible assets noted in (f) above.

The following table summarizes the change in amortization expense:

 

     Year Ended
December 31,
2011
     Six Months
Ended
June 30,
2012
 
(in millions)              

New amortization expense

   $ 87.5       $ 43.8   

Existing amortization expense

     6.5         8.0   
  

 

 

    

 

 

 

Incremental amortization expense

   $ 81.0       $ 35.8   
  

 

 

    

 

 

 

 

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Elimination of $17.9 million in Pentair one-time costs related to the Transactions incurred during the six months ended June 30, 2012.

 

   

Elimination of $6.0 million in Flow Control one-time costs related to the Transactions incurred during the six months ended June 30, 2012.

A summary of the adjustments for the six months ended June 30, 2012 are as follows:

 

(in millions)

      

Incremental amortization expense

   $ 35.8   

Elimination of Pentair one-time costs

     (17.9

Elimination of Flow Control one-time costs

     (6.0
  

 

 

 

Total

   $ 11.9   
  

 

 

 

(n) Interest Expense. Interest expense has been adjusted for the following:

 

   

To eliminate the interest expense allocated to Flow Control for carve-out purposes of $51.0 million for the year ended September 30, 2011 and $20.0 million for the six months ended June 29, 2012.

 

   

To include an estimate for interest expense on the additional debt necessary to result in net debt of $275.0 million (assumed debt of $435.0 million less assumed cash of $160.0 million) per the Separation and Distribution Agreement and the interest rate differential on the redemption of $500.0 million of Pentair senior unsecured notes. The estimated interest expense was calculated as follows:

 

(in millions)

      

Additional debt—per agreements

   $ 400.0   

Refinanced debt

     500.0   
  

 

 

 

Total new debt

   $ 900.0   
  

 

 

 

 

(in millions)

          Year Ended
December 31, 2011
    Six Months
Ended

June  30,
2012
 

Composition of new debt and related interest expense:

       

FIFSA Notes—5 year @ 1.875% interest rate

   $ 350.0       $ 6.6      $ 3.3   

FIFSA Notes—10 year @ 3.15% interest rate

     550.0         17.3        8.7   
  

 

 

    

 

 

   

 

 

 

Total new debt

   $ 900.0         23.9        12.0   
  

 

 

      

Amortization-new debt issuance costs

        1.6        0.8   

Amortization-old debt issuance costs

        (0.9     (0.4

Interest expense-refinanced private placement notes @ 5.6%

        (27.9     (13.9
     

 

 

   

 

 

 

Pro forma interest expense adjustment

      $ (3.3   $ (1.5
     

 

 

   

 

 

 

 

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(o) Provision for Income Taxes . For purposes of these Unaudited Pro Forma Condensed Combined Financial Statements, the U.S. federal statutory tax rate of 35% has been used. This does not reflect Flow Control’s effective tax rate, which will include other tax items such as state and foreign taxes as well as other tax charges and benefits, and does not take into account any historical or possible future tax events that may impact New Pentair. The adjustment to the provision for income taxes is calculated as follows:

 

     Year Ended
December 31,
2011
    Six Months
Ended
June 30,
2012
 
(in millions)             

Income before taxes and noncontrolling interest

   $ (97.2   $ (25.7

Statutory income tax rate

     35.0     35.0
  

 

 

   

 

 

 

Provision for income taxes

   $ (34.0   $ (9.0
  

 

 

   

 

 

 

(p) Earnings per Share . The adjustment to the pro forma combined basic and diluted earnings per share for the six months ended June 30, 2012 and the year ended December 31, 2011 to reflect the impact of the Transactions is calculated as follows:

 

(in millions)

      

Pentair shares outstanding before Merger

     102.5   

Pentair shareholders ownership after Merger

     47.5
  

 

 

 

Pro forma total shares after Merger

     215.8   

Less Pentair shares outstanding before Merger

     (102.5
  

 

 

 

Pro forma shares issued to New Pentair shareholders

     113.3   
  

 

 

 

(q) Items Not Included . The following are material non-recurring charges related to the Transactions which are not included in the Unaudited Pro Forma Condensed Combined Statements of Income:

 

   

An estimated $101.0 million of amortization expense related to the estimated fair market value step-up of Flow Control’s finished goods inventory. The estimated fair market value step-up is considered nonrecurring as it would be amortized over the first inventory turn, which is estimated to be less than 12 months.

 

   

An estimated $57.5 million of one-time transaction costs related to the Transactions.

 

   

An estimated $19.6 million one-time charge for stock and other incentive compensation related to change-in-control provisions of the incentive awards.

 

   

An estimated $44.0 million one-time charge for a prepayment premium associated with redeeming $500.0 million of Pentair senior unsecured notes.

 

   

A $3.0 million one-time charge for debt issuance cost related to the senior unsecured notes being redeemed.

 

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GLOSSARY OF TERMS

In this document:

 

   

The “2012 Tax Sharing Agreement” refers to the Tax Sharing Agreement, dated September 28, 2012 among New Pentair, Tyco and the ADT Corporation.

 

   

The “Distribution” refers to the pro-rata distribution of 100% of the outstanding common shares of New Pentair to Tyco’s shareholders in the form of a special dividend out of Tyco’s qualifying contributed surplus.

 

   

“FIFSA” refers to Tyco Flow Control International Finance S.A., a wholly owned subsidiary of New Pentair.

 

   

“FIFSA Notes” refers to the $900 million aggregate principal amount of senior notes issued in private placement by FIFSA and guaranteed by New Pentair.

 

   

“Flow Control” refers to Tyco’s flow control business that will be transferred to New Pentair as part of the spin-off.

 

   

The “Merger” refers to the merger of Panthro Merger Sub with and into Pentair with Pentair surviving the merger and all transactions contemplated by the Merger Agreement, except the Distribution, and all other actions or matters necessary or appropriate to give effect to the Merger Agreement and the transactions contemplated thereby, except the Distribution.

 

   

The “Merger Agreement” refers to the Merger Agreement, dated as of March 27, 2012, among Tyco, New Pentair, Panthro Acquisition, Panthro Merger Sub and Pentair, as amended from time to time.

 

   

“New Pentair” refers to Pentair Ltd., a corporation limited by shares organized under the laws of Switzerland, after the completion of the spin-off and Merger, and, unless otherwise indicated or the context otherwise requires, its combined and consolidated subsidiaries at such time.

 

   

“Panthro Acquisition” refers to Panthro Acquisition Co., a Delaware corporation and a wholly-owned subsidiary of New Pentair.

 

   

“Panthro Merger Sub” refers to Panthro Merger Sub, Inc., a Minnesota corporation and a wholly-owned subsidiary of Panthro Acquisition.

 

   

“Pentair” refers to Pentair, Inc., a Minnesota corporation, and, unless otherwise indicated or the context otherwise requires, its consolidated subsidiaries.

 

   

“Pentair Reorganization” refers to the post-Merger transactions pursuant to which Pentair will become an indirect, wholly-owned subsidiary of FIFSA, and New Pentair will unconditionally guarantee the payment of principal and interest on $500 million aggregate principal amount of outstanding Pentair unsecured senior notes.


   

“Separation and Distribution Agreement” refers to the Amended and Restated Separation and Distribution Agreement, dated as of September 27, 2012, among Tyco, New Pentair and The ADT Corporation.

 

   

The “spin-off” refers to the transfer to New Pentair of Flow Control, the Distribution and all other transactions required under the Separation and Distribution Agreement for the consummation of the separation of Flow Control from Tyco.

 

   

“Transactions” refers to the spin-off and the Merger.

 

   

“Tyco” refers to Tyco International Ltd., a corporation limited by shares organized under the laws of Switzerland, and, unless otherwise indicated or the context otherwise requires, its combined subsidiaries.

 

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